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 and may vary depending on the industry, profession, and business area.
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
- Carry out socialization activities in the fields of education – training, vocational training, culture, sports and environment, health;
- Actively selling, leasing, leasing and buying social housing;
- Plant, take care of, and protect the forest; aquaculture and processing of agricultural and aquatic products in areas meeting with difficult socio-economic conditions;
- Cultivate 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;
- Incomes of 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;
- Invest 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 that 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
- Implementation 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:
Enterprises operating in the fields of production, construction, and transport employ from 10 to 100 female employees, of which the number of female employees accounts for more than 50% of the total number of employees who are regularly present or employ more than 100 female employees in which the number of female employees accounts for more than 30% of the total number of employees regularly present of the enterprise is 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 are entitled to a reduction in CIT payable in proportion to the actual amount spent on ethnic minority employees;
Enterprises implementing technology transfer in priority domains for transfer to organizations and individuals in areas meeting with difficult socio-economic conditions 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.
Thus, based on the above-mentioned tax incentives and their needs and goals, it is easier for foreign investors to choose key investment activities that enjoy tax incentives, combine other business investment activities to ensure maximum benefits of the investment and have a clear roadmap for business investment in Vietnam. Making the most of investment incentives, including tax incentives, will help foreign investors develop their businesses well.
The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.