Tax Burden and Foreign Direct Investment: Theory and Practice in Vietnam

Tax burden is one of the important determinants in attracting foreign direct investment (FDI). In the case of Vietnam, the tax burden is considered a powerful tool that Vietnam has used to create a competitive advantage compared to other countries in the area to attract FDI flows. In addition to above factor, there are still a number of other factors also affecting the attraction of FDI flows in Vietnam such as cheap labor costs, inflation index, economic growth rate, labor productivity, investment in science and technology, the rise of labor forces, natural resources and other factors. Through descriptive statistical method and empirical method, the authors found that the tax burden for foreign-invested sector was one of three most important factors of the attraction of FDI flows into Vietnam during the period 1999-2011, two other factors were unit labor costs and inflation index.