Many foreign businesses choose to carry out investment projects and establish businesses in Economic Zones to enjoy corporate income tax incentives to cut costs and shorten payback time.
1. What are economic zones?
Decree 35/2022/ND-CP stipulates that economic zones include:
- coastal economic zones,
- border gate economic zones, and
- specialized economic zones.
In terms of geographical location, economic zones are often established in areas that are:
- important in terms of national security and defense,
- have difficult socio-economic conditions, and
- need resources to invest in building technical infrastructure connection systems, social infrastructure, production, and business development.
Therefore, economic zones are considered investment incentive areas and are eligible for investment incentives applied to areas with particularly difficult socio-economic conditions according to the provisions of the Investment Law. Accordingly, investment incentives for economic zones specified in the Investment Law are applied from the time the economic zone is established.
With the role of contributing to socio-economic development, maintaining stability and balance between regions, promoting the development of areas with particularly difficult socio-economic conditions, combining to ensure national defense and security, when implementing investment projects under the Investment Law or establishing businesses in economic zones, businesses will enjoy corporate income tax (“CIT”) incentives.
2. Incentive on corporate income tax rate
Corporate income from implementing new investment projects in economic zones established under the Prime Minister’s decision will enjoy a preferential CIT rate of 10% for a period of 15 years.
This CIT rate is considered a valuable incentive with a 15-year preferential period compared to the normal CIT rate of 20% currently applied to businesses not located in preferential areas. This is one of the methods used by the Vietnamese State to attract investment into economic zones.
3. CIT exemption and reduction incentives
Enterprises in economic zones that generate income subject to CIT are exempt from CIT for 04 years and receive a 50% reduction of the tax payable within the next 09 years.
In addition, if enterprises operating in the fields of production, construction, and transportation employ from 10 to 100 female workers, in which the number of female workers accounts for over 50% of the total number of regularly present workers, or if more than 100 female employees are regularly employed and the number of female employees accounts for more than 30% of the total number of employees regularly present in the enterprise, the CIT payable will be reduced in proportion to the actual amount spent on additional female workers if accounted for separately.
Furthermore, to encourage businesses to employ ethnic minority workers, the State of Vietnam implements a policy of reducing corporate income payable corresponding to the actual amount of additional money spent on ethnic minority workers if it can be accounted for separately.
4. Procedures for implementing CIT incentives
CIT incentives are not automatically applied but require businesses to carry out relevant procedures. Accordingly, businesses are required to self-determine the conditions for CIT incentives, preferential CIT rates, or CIT exemption period, corporate income reduction, and the amount of loss to be deducted (-) from taxable income for self-declaration and self-finalize taxes with tax authorities.
Tax authorities will check and inspect businesses on the conditions for enjoying CIT incentives, the amount of CIT exempted, tax reduction, and the amount of loss deducted from taxable income according to the actual conditions that the business has met. In case an enterprise does not meet the conditions to apply preferential CIT rates and CIT exemption or reduction periods, tax authorities will collect CIT taxes and sanction tax administrative violations according to regulations.
Thus, CIT incentives such as tax exemption, reduction of tax payable, and reduction of tax rates with preferential terms of up to 15 years are expected to be a lever to promote the development of economic zones were still many difficulties in developing the infrastructure system, contributing to the development of social life. With these incentives, businesses will benefit from cost reduction. Furthermore, low labor costs are also an advantage when businesses operate in economic zones.
