Exploring Vietnam’s CIT Incentives: Tax rates, exemptions, and more

After more than 20 years of construction and implementation, Vietnam has established a comprehensive system of corporate income tax (CIT) incentives, supported by detailed regulations on preferential conditions, forms of incentives, and levels of incentives.

According to the Law on Corporate Income Tax 2008, amended and supplemented in 2020 (hereinafter referred to as the Law on Corporate Income Tax), Vietnam’s legal framework on taxation encompasses various aspects, including preferential tax rates, tax exemption, and reduction periods, as well as provisions for loss transfer and other incentives.

This detailed article explores Vietnam’s legal framework on taxation, delving into the nuances of corporate income tax incentives and their implications for businesses operating in the country.

1. Preferential tax rates

The tax rate of 10% for 15 years is applied to newly established enterprises from:

• investment projects in areas with extremely difficult socio-economic conditions, economic zones, and high-tech zones; 
• newly established enterprises from investment projects in the fields of high technology, scientific research, and technology development, software product production, investment in developing especially important infrastructure of the State.

The tax rate of 17% for 10 years is applied to:

• Newly established enterprises from investment projects in areas with difficult socio-economic conditions;
• Enterprise income from implementing new investment projects, including:
  • high-grade steel production;
  • production of energy-saving products; 
  • manufacturing machinery and equipment for agricultural, forestry, fishery, and salt production; 
  • production of irrigation equipment; 
  • producing and refining animal, poultry and aquatic feed; 
  • develop traditional industries. 

However, for projects that need to especially attract large-scale investment and high technology, businesses can apply to extend the preferential tax rate application period. Note that, the extension period should not exceed 15 years.

A 15% corporate income tax rate:

• Field of operation: farming, livestock, and processing enterprises in the agricultural and fishery sectors.
• Geographical conditions: Not located in areas:
  • With difficult socio-economic conditions
  • Areas with particularly difficult economic-society conditions.

A 10% corporate income tax rate applies to businesses operating in the social sector:

• Field of education: – training, vocational training, health care, culture, sports, and environment.
• Because education – training, vocational training, health care, culture, sports, and environment activities are considered socialization activities. They are intended to serve the community more than for profit.
• Note that the enterprise’s income comes from publishing activities according to the provisions of the Publishing Law, the enterprise’s income is from implementing investment projects – trading in social housing for sale, rent, or leasing. Rent-purchase and income of press agencies from print newspaper activities, including advertising in print newspapers according to the provisions of the Press Law, are also eligible for this preferential rate.

A 17% tax rate applies throughout the entire operating period:

• Agricultural service cooperatives, people’s credit funds, and microfinance institutions.

Tax incentives for newly established enterprises with difficult socio-economic conditions:

• Applicable entities: agricultural service cooperatives, people’s credit funds, and newly established microfinance institutions in areas with difficult socio-economic conditions.
• Tax rate:  A tax rate of 10 % will apply for the first 15 years since the enterprise has revenue. After the end of the 15 years, the tax rate will apply to 20%.

2. Incentives on tax exemption and tax reduction periods

Tax exemption and tax reduction are considered special features of corporate income tax compared to other taxes. While other taxes always set out separate tax exemptions and tax reductions, applied with different conditions, corporate incentive tax exemptions, and tax reductions always come together. At the end of the tax exemption period, it will switch to tax reduction within a legal period as follows:

• ­Newly established enterprises from:

  • Investment projects in areas with particularly difficult socio-economic conditions, economic zones, and high-tech zones;
  • Newly established enterprises from investment projects in the field of high technology, scientific research, and technology development, investment in developing particularly important state infrastructure, and software product production;
  • Newly established enterprises operating in the fields of education – training, vocational training, health care, culture, sports, and environment are exempt from tax for a maximum of 4 years and a 50% reduction in tax payable for a maximum of no more than the next 9 years.

• For investment projects specified in Clause 2, Article 20 of the Investment Law 2020, the Prime Minister decides to apply:

  • Tax exemption for a maximum of 6 years
  • A 50% reduction of the tax payable for a maximum of no more than the next 13 years.

• Newly established enterprises from investment projects in areas with difficult socio-economic conditions are entitled to:

  • Tax exemption for a maximum of 2 years
  • A 50% reduction of tax payable for a maximum of no more than the next 4 years.

Tax Exemption and Reduction Period:

• The calculation starts: The tax exemption or reduction period begins in the first year the enterprise generates taxable income.
• No taxable income in first 3 years: If an enterprise has no taxable income in the first 3 years after starting to generate revenue, the tax exemption or reduction period is calculated in the 4th year.

Find out other articles relating to Investment incentives:

• 4 types of tax and land incentives in Vietnam’s economic zones
• Vietnam’s tax incentives for foreign investment in difficult areas
• Specific investment incentives in agriculture and rural areas in Vietnam
• Specific incentives in the manufacturing of software products in Vietnam

3. Transfer losses

Business enterprises with losses can carry forward those losses to the next year. This loss is deducted from the taxable income of the enterprise. The time for loss transfer must not exceed 5 years, from the year following the year in which the loss occurred.

Note:

For businesses that have losses from real estate transfer activities, investment project transfers, or transfer of rights to participate in investment projects after compensating according to regulations. If there are still losses and the business has Losses from the transfer of mineral exploration and exploitation rights are carried forward to the following year in the taxable income of that activity.

4. Other incentives

• Manufacturing, construction, and transportation enterprises that employ many female workers are entitled to:

  • A reduction in corporate income tax equal to the amount of additional spending on female workers.

• Enterprises that employ numerous ethnic minority workers are entitled to:

  • A reduction in corporate income tax equal to the amount spent on ethnic minority workers.

• Enterprises that transfer technology in areas prioritized for transfer to organizations and individuals in areas with difficult socio-economic conditions are entitled to:

  • A 50% reduction in corporate income tax is calculated on income from technology transfer.

Note: not all businesses are eligible for incentives.

Qualifications for corporate tax benefits:

• businesses that implement accounting, invoices, and documents according to regulations,
• businesses that register and pay corporate income tax according to the declaration.

5. Conclusion

Thus, corporate income tax incentives are an important policy of the State. The policy aims to support business development and promote socio-economic development. To ensure the effectiveness of this policy, it is necessary to continue to improve regulations. Regulations that need to be improved include subjects, conditions, forms, and levels of incentives. In addition, it is also important to strengthen the management and supervision of the implementation of tax incentives. By implementing these measures, the government can effectively support businesses. As a result, this will boost socio-economic development.

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