In recent years, the flow of foreign-invested companies into the Southeast Asia region, including Vietnam, has been on the rise. Promoting domestic investment through general policies and tax incentives, in particular, is one of the strategies helping Vietnam attract more foreign investors. However, foreign investors often find it challenging to navigate the tax incentive policies. In this article, we will provide a brief overview of the key points of Vietnam’s tax incentive policies for investors conducting projects in difficult areas.
1. Definition of difficult areas
Currently, there is no specific legal definition of difficult areas, but difficult areas can be understood as communes with a high population of ethnic minorities living in communities, lacking certain conditions related to infrastructure, and access to basic social services.
Although the current legal system does not provide a specific definition for disadvantaged areas, there are regulations concerning the list of areas eligible for corporate income tax incentives. This list is issued by the Government in conjunction with Decree No. 218/2013/ND-CP dated December 26, 2013, having a clear classification and detailed listing of areas with particularly difficult socio-economic conditions and areas with difficult socio-economic conditions.
Clause 3, Article 20 of Decree No. 31/2021/NĐ-CP, specifies the principles of applying investment incentives to investment projects in sectors, and industries with investment incentives implemented in areas with difficult economic and social conditions, which are entitled to the same investment incentives as projects in areas with particularly difficult economic and social conditions.
2. Corporate Income Tax (CIT) Incentives
According to Vietnamese law, the standard corporate income tax rate is 20% in the fiscal year and may vary depending on the industry, sector, and business location.
Under Article 18 of Circular 78/2014/TT-BTC, specific sectors, professions, or investment projects in areas eligible for preferential corporate income tax are subject to tax incentives. It should be noted that enterprises can only benefit from the preferential tax rate if they adhere to accounting, invoicing, documentation, and corporate income tax declaration procedures.
During the period of enjoying the preferential corporate income tax rate, if an enterprise engages in multiple business activities, it must separately calculate:
- the income from the preferred taxed business activities (including the preferred tax rate, tax exemption, or reduction); and
- the income from non-preferred taxed business activities when declaring taxes.
For enterprises implementing investment projects in difficult areas, the tax incentives are as follows:
- A preferential tax rate of 10% for fifteen years (15 years) applies to the income of enterprises from implementing investment projects.
- The enterprise will be exempt from tax for four years and receive a 50% reduction in the tax payable for the next nine years for income generated from implementing investment projects in difficult areas.
It is important to remember that the period of tax exemption and reduction according to the above regulations is continuously calculated from the first year the enterprise has taxable income from the new investment project. In cases where the enterprise does not have taxable income for the first three years, the period of tax exemption and reduction will be calculated from the fourth year when the new investment project generates revenue.
The period of tax exemption and reduction for high-tech enterprises and enterprises applying high technology in agriculture is calculated from the year they are granted the certificate of high-tech enterprise, certificate of agricultural technology application.
Based on the outlined tax incentive policies and their specific needs and goals, foreign investors will find it easier to choose investment activities in difficult areas, combining various investment and business activities to maximize the benefits of investment and establish a clear investment and business plan in Vietnam. Maximizing the use of investment incentives, including tax incentives will help foreign investors develop their businesses successfully.
