Nguyen Hung Du and Luong Thuy Trang, of Grant Thornton Vietnam, provide an overview of tax incentives in Vietnam and discuss how foreign investors can make the most of the opportunities available.
Vietnam offers one of the most competitive tax regimes in Southeast Asia, whereby companies and organizations can benefit from the following tax incentives:
• Corporate income tax (CIT) incentive
• Import duty exemption for fixed assets
• Exemption of land rental fees
• CIT Incentives
Preferential tax rates and tax holidays will be granted to new investment projects based on location, industry and scale of the project.
Encouraged locations are qualifying economic zones, hi-tech zones, certain industrial zones and difficult socioeconomic areas. Investors can benefit from a preferential CIT rate as well as tax holidays with the level of incentive directly tied to the clarification of such regions.
Income from new investment projects in areas with particularly difficult socioeconomic conditions, economic zones, and hi-tech zones will be subject to 15 years of CIT at 10%, four years of CIT exemption and 50% tax reduction for the next nine years.
Income from newly-invested projects based in areas with difficult socioeconomic conditions will be subject to 10 years of CIT at 17%, two years of CIT exemption, and 50% tax reduction for the next four years.
Income from newly-invested projects based in industrial zones, apart from areas with advantaged socioeconomic conditions, will be subject to 10 years of CIT at 17%, two years of CIT exemption, and 50% tax reduction for the next four years.
In recent years, Vietnam has widely promoted projects in hi-tech industries. Accordingly, enterprises can benefit from the incentive of 15 years of CIT at 10%, four years of CIT exemption and 50% tax reduction for the next nine years applying to the following:
• Income of hi-tech entities, agricultural enterprises applying hi-tech; and
• Income from new investment projects in: (i) scientific research and technology development; investment in the development of especially crucial infrastructure works as prescribed, software production; (ii) manufacturing composite materials, light construction materials, precious and rare materials; manufacturing reproduction energy, clean energy, energy from destroying waste; developing bio-technology; (iii) environmental protection.
• Hi-Tech Transfer
Income from transferring prioritized technology to organizations/individuals in geographical areas with particularly difficult socioeconomic conditions will be tax-exempt.
Enterprises that transfer prioritized technology to organizations/individuals in areas with difficult socioeconomic conditions are entitled to 50% reduction of payable CIT calculated on incomes from technology transfer.
A 15% tax rate for the project’s lifetime will be applied for income deriving from farming, husbandry, processing of agriculture and aquaculture products.
Income from newly-invested projects in manufacture of high-quality steel; production of energy-saving products; manufacture of machinery and equipment for agriculture, forestry, fish breeding, salt production; manufacture of irrigation equipment; production and refining of feed for cattle, poultry and aquatic resources; development of traditional trades and occupations, will be subject to 10 years of CIT at 17%, two years of CIT exemption, and 50% tax reduction for the next four years.
Business of Socialization Activities
Enterprises whose business activity engages in education, vocational training, healthcare, culture, sport, environment, and judicial assessment could enjoy the most favorable CIT incentive of 10% tax rate for the project’s lifetime and four years of tax holiday and 50% tax reduction for the next nine years applied for new investment projects located in difficult socioeconomic areas. Tax holidays of four years and 50% tax reduction for the next five years will be available for a new investment project not located in an encouraged area.
Projects Scale-Based Incentive
Fifteen years of CIT at 10%, four years of CIT exemption and 50% tax reduction for the next nine years will be provided for the project if the following are met:
• Income from a newly-established investment project in the sector of production (except for a project producing goods subject to special sales tax, or mineral exploitation project) has investment capital scale at a minimum of 6 trillion dongs ($257 million) being disbursed no later than three years from the date of the investment certificate
• Total minimum revenue of 10 trillion dongs per year no later than three years from the year generating revenue
• Minimum headcount of 3,000 full-time employees no later than three years from the year generating revenue
• Exemption of Import Duty for Fixed Assets
Import duty exemption is applied for projects, which are classified as encouraged sectors/located in encouraged areas and goods imported with specific circumstances, including:
• Machinery and equipment, specialized means of transportation and construction materials (that cannot be produced in Vietnam) comprising the fixed assets of encouraged investment projects
• Machinery, equipment, specialized means of transportation materials (that cannot be produced in Vietnam), office equipment imported for use in oil and gas activities
• Materials, supplies and components imported for the production of exported goods
• Raw materials, supplies, components imported for processing of exports
• Goods manufactured, processed, recycled, assembled in a free trade zone without using imported raw materials or components when imported into the domestic market
• Materials, supplies and components that cannot be domestically produced and which are imported for the production of certain encouraged projects
• Foods temporarily imported or exported for the purpose of warranty, repair, and replacement
• Exemption of Land Rental Fee
A land rental fee exemption is provided to a number of investment projects that satisfy specific conditions such as investment in encouraged sectors or certain business fields and/or encouraged geographical locations:
• Exemption for the whole operational period: projects on the list of special investment encouragement sectors investing in areas of particularly difficult socioeconomic conditions;
• Fifteen years of exemption from the date of operation: projects on the list of special investment encouragement sectors investing in areas of difficult socioeconomic conditions or projects on the list of investment encouragement sectors investing in areas of especially difficult socioeconomic conditions;
• Eleven years of exemption from the date of operation: projects investing in areas of especially difficult socioeconomic conditions; projects in the list of special investment encouragement sectors; projects in the list of investment encouragement sectors investing in difficult socioeconomic areas;
• Seven years of exemption from the date of operation: projects investing in areas of difficult socioeconomic conditions;
• Three years of exemption from the date of operation: projects on the list of investment encouragement sectors; business and production relocation under urban planning or due to environmental pollution.
Business expansion projects, including expanded projects, which were not entitled to a CIT incentive period from 2009 to 2013, which meet certain conditions are also entitled to a CIT incentive from 2015. Exemption of import duty for fixed assets is also applicable for business expansion projects. New investment projects and business expansion projects do not include projects established as a result of acquisition/reorganization.
Preferential tax takes effect from the year of revenue generated, while tax holidays are continuously applied after the enterprise first makes profits from the incentivized activities. Where an enterprise has not derived taxable profit within three years of the commencement of generating revenue from the incentivized activities, tax holidays will start from the fourth year of operation.
Other earned income will not be eligible to a tax incentive which is available for investment in encouraged sectors, except for income directly related to the incentivized activities such as disposal of scrap.
A company is required to separately account the income from production and business activities eligible for CIT incentives from that ineligible (if any). In a failure to keep separate records, the ratio (%) of the turnover or deductible expenses for business activities eligible for tax incentive will be used to determine the taxable income.
Lack of accounting records is a basis for assessing Vietnamese Accounting Standards (VAS) non-compliance. The tax authorities can treat VAS non-compliance as a basis for tax re-assessment and/or withdrawal of CIT incentives.
Tax incentives in Vietnam are granted with conditions: fulfilling the regulated requirements of license, operation and documentation is the basis for enjoying the incentive benefits offered by the government.
In addition, to maximize the benefits of Vietnam’s tax incentives, investors could consider enhancing applicable “hidden” incentives via a specific ruling. Professional advice should be considered in this regard.
Vietnam’s government has developed a more favorable investment environment. Moving forward, there might be a possibility of addressing inquiries to the government to seek a more preferential investment policy. This approach could be carried out either by an independent entity, by an enterprise association or by an industry association.
This article is of a general nature only and readers should obtain advice specific to their circumstances from professional advisers. To contact Grant Thornton Vietnam, visit them on the web at: https://www.grantthornton.com