Important tax incentive policies for FDI enterprises in Vietnam

In recent years, FDI inflows into Southeast Asia, including Vietnam, have tended to increase sharply. The driving force of domestic investment by incentive policies including tax incentives helps Vietnam attract more foreign investors. However, it is not easy for foreign investors to access tax incentives.

In this article, we will briefly summarize the highlights of the tax incentives of the State of Vietnam.

1. Incentives for Corporate Income Tax (“CIT”)

Following Vietnamese law, the normal CIT rate is 20% in the fiscal year. The tax rate may vary depending on the industry, profession, and business location.

Article 18 of Circular 78/2014/TT-BTC stipulates several industries, trades, or business investment projects in areas are entitled to preferential CIT rates. It should be noted that enterprises are only entitled to preferential tax rates when enterprises implement accounting regimes, invoices, vouchers and payment of CIT according to the declaration.

During the period of enjoying incentives for the CIT rate, if an enterprise carries out many productions and business activities, it must separately calculate income from production and business activities entitled to incentives for the CIT rate (including tax rates incentives, tax exemption rates, tax reductions) and income from other business activities not entitled to tax incentives to declare and pay tax private.

1.1. Apply the CIT rate of 10% during the operation period to the income of enterprises in the following areas

• Carrying out socialization activities in the fields of education – training, vocational training, culture, sports and environment, health;
• Actively selling, leasing, leasing and buying social housing;
• Planting, taking care of, and protecting the forest; aquaculture and processing of agricultural and aquatic products in areas meeting with difficult socio-economic conditions;
• Cultivating forest products in areas with difficult socio-economic conditions; production, multiplication, and breeding of plant and animal breeds; production, extraction, and refining of salt, except salt production following the Law on Cooperatives;
• Cooperatives operating in agriculture, forestry, fishery, and salt industry, not in areas meeting with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions;
• Investing in preserving agricultural products after harvest, preserving agricultural products, fisheries, and foodstuffs.

1.2. Apply the CIT rate of 10% for 15 years to the income of enterprises implementing new investment projects under the following condition

• In areas with extremely difficult economic conditions, economic zones and hi-tech parks, including concentrated information technology parks, shall be established under the decision of the Prime Minister;
• In the fields of scientific research and technological development; the application of high technologies on the list of high technologies prioritized for development investment by the Law on High Technologies; hi-tech incubation, hi-tech business incubation, ;
• In the field of environmental protection;
• Hi-tech enterprises, hi-tech application agricultural enterprises under the Law on High Technology;
• In the field of production (except for projects producing goods subject to special consumption tax, mineral exploitation projects) meeting the scale of investment capital and the number of employees;
• In some other fields specified in Article 11 of Circular 96/2015/TT-BTC.

Please note: a new investment project is a project implemented for the first time or a project operating independently of the project that is carrying out business investment activities.

1.3. Apply the CIT rate of 17% for 10 years to the income of enterprises

• Implementing new investment projects in areas meeting with difficult socioeconomic conditions
• Implementing of new investment projects on:
  • High-grade steel;
  • Manufacture of energy-saving products;
  • Producing machinery and equipment for agricultural, forestry, fishery, and salt production;
  • Manufacture of irrigation equipment;
  • Production and refining of animal feed, poultry, and aquatic products;
  • Development of traditional trades (including construction and development of traditional trades in handicraft production, processing of agricultural and food products, and cultural products).

Particularly, investment activities to establish People’s Credit Funds, Cooperative Banks, and Microfinance Institutions are entitled to the CIT rate of 17% during the operation period (clause 5 Article 19 of Circular 78/2014/TT-BTC).

2. Other tax reduction cases

According to the provisions of Article 21 of Circular 78/2014/TT-BTC, the following enterprises will be considered for tax reduction:

Companies employ female workers:

• Enterprises operating in the fields of production, construction, and transport.
  • Employing from 10 to 100 female workers, accounting for over 50% of the total workforce.
  • Employing more than 100 female workers, accounting for over 30% of the total workforce.
  • These enterprises are entitled to a reduction in CIT payable in proportion to the actual amount of additional expenditure on female employees if separately accounted for according to regulations.

Enterprises employing ethnic minority employees:

• Enterprises are entitled to a reduction in CIT payable in proportion to the actual amount spent on ethnic minority employees;

Enterprises implementing technology transfer:

• Enterprises transferring technology in priority domains for transfer to organizations and individuals in areas meeting with difficult socio-economic conditions.
• These enterprises are entitled to a 50% reduction in payable CIT on income from technology transfer.

3. Non-agricultural land use tax incentives

Enterprises implementing the following investment projects will be exemption from non-agricultural land use tax:

• Investment projects in industries with special investment incentives, or in areas meeting extremely difficult socio-economic conditions;
• Investment projects in the fields of investment encouragement (investment incentives) in areas meeting difficult socio-economic conditions;
• Socialization investment projects for activities in the fields of education, vocational training, health, culture, sports, and environment.

4. Conclusion

Given the aforementioned tax incentives, foreign investors can more easily select priority investment activities eligible for tax benefits. By combining these activities with other business investments, they can maximize the returns on investment. Capitalizing on investment incentives, including tax incentives, is a strategic approach for foreign investors. Taking full advantage of investment incentives, particularly tax incentives, will facilitate the robust growth of foreign businesses.

PLF Law Firm:

PLF Law Firm offers business legal advice to international investors seeking to establish and operate businesses in Vietnam. Our Lawyers can help businesses save costs with optimal tax solutions, taking full advantage of tax incentives and achieve long-term success.

Our Doing Business and Corporate and Tax Advisory services, offer flexible solutions to address challenges and seize opportunities in the Vietnamese market.

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