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VIETNAM FDI TAX INCENTIVES

Corporate Income Tax (CIT) Incentives in Vietnam

Corporate Income Tax (CIT) incentives are among the most appealing aspects of Vietnam's investment environment, significantly attracting foreign investors. These incentives aim to stimulate investment in sectors and regions that align with the country's development goals. CIT incentives are available to foreign and domestic investors, encouraging the growth of industries contributing to the nation's economic development.

Overview of Corporate Income Tax Incentives

Vietnam offers various CIT incentives that are designed to promote investments in priority sectors, geographic areas, and special economic zones. The types of projects that qualify for incentives, as well as the nature of the incentives granted, are outlined in the Law on Investment, along with additional guidelines provided in related decrees and circulars.

The main types of CIT incentives in Vietnam include:

1. Preferential Tax Rates: These involve reduced CIT rates applied for a specific period or sometimes for the entire duration of the project.

2. Tax Holidays: These consist of tax exemptions for a certain number of years, followed by a period of reduced tax rates.

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Details of CIT Incentives

The CIT incentives granted depend on various factors, including the location of the investment, the industry, the specific investment zone, and the nature of the project. Below is an overview of the common incentives:

Preferential Tax Rates

Preferential CIT rates in Vietnam vary depending on the project's characteristics and location. The most common preferential rates include:

- 10% for the Lifetime of the Project: Certain projects, especially in high-priority sectors or special economic zones, can benefit from a 10% CIT rate for the entire duration of the project.

- 10% for 15 Years from the First Year of Income Generation: This rate applies to projects in high-tech industries or those located in economically disadvantaged areas, offering significant tax savings during the initial years of operation.

- 15% for the Lifetime of the Project: For some projects, particularly those that are strategically important for economic development, a 15% rate may be granted for the entire duration.

- 17% for the Lifetime of the Project: This rate applies to certain industries and regions that are given priority by the government.

- 17% for 10 Years from the First Year of Income Generation: Applicable to some projects in special zones or specific sectors, providing a reduced CIT rate for the first decade of operations.

Tax Holidays

Tax holidays offer complete or partial exemptions from CIT for a specified number of years, allowing businesses to benefit from significant tax savings during the initial stages of operation. The tax holiday structure generally includes:

- 4 Years of Tax Exemption, Followed by a 50% Reduction for 9 Additional Years: Commonly applied to projects in high-priority sectors or special economic zones, offering substantial tax relief in the early years.

- 4 Years of Tax Exemption, Followed by a 50% Reduction for 5 Additional Years: Suitable for projects in regions with moderate economic development needs.

- 2 Years of Tax Exemption, Followed by a 50% Reduction for 4 Additional Years: Typically applied to smaller projects or those in less critical sectors, still providing meaningful incentives.

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CIT Incentives in Economic Zones

Vietnam has actively promoted the establishment of economic zones (EZs) across the country to attract foreign investment. These zones provide investors with enhanced infrastructure, access to a skilled workforce, and robust supply chain networks. Investments within these zones benefit from additional CIT incentives, which often include tax holidays and, in some cases, preferential tax rates.

Investors who establish operations in economic zones can typically qualify for tax exemptions and other favorable tax treatments. In disadvantaged areas, special CIT rates may apply, further reducing the tax burden for investors. However, to benefit from these incentives, businesses must set up their operations within the designated economic zones that offer such benefits.

Several factors determine whether a project qualifies for CIT incentives in Vietnam, including:

- Location: Investments in remote or economically disadvantaged areas are more likely to receive higher levels of tax incentives.

- Industry Sector: Priority sectors, such as high-tech industries, renewable energy, infrastructure development, and education, often receive more favorable tax treatment.

- Investment Scale: Large-scale projects or those with significant potential to generate employment and economic growth may qualify for longer tax holidays or lower CIT rates.

- Economic Zones and Special Regions: Projects located in specific economic zones or regions designated for economic development may receive more attractive tax benefits.

Strategic Benefits of CIT Incentives for Foreign Investors

Corporate income tax incentives are an integral part of Vietnam's strategy to attract foreign direct investment (FDI). The key benefits of CIT incentives for foreign investors include:

- Enhanced Profitability: Reduced tax rates and tax holidays help increase net profit margins, making it more financially viable for businesses to operate in Vietnam.

- Lower Startup Costs**: Tax exemptions during the initial years reduce the financial burden associated with starting new projects, allowing companies to allocate more resources to growth and expansion.

- Investment Flexibility: By offering a range of tax incentives based on different factors, Vietnam allows businesses to choose the most beneficial options that align with their long-term investment goals.

- Encouragement of Long-Term Commitment: Incentives structured over extended periods encourage foreign investors to commit to long-term projects, contributing to sustainable economic development.

Incentives for Disadvantaged Locations in Vietnam

The Vietnamese government provides significant incentives for investment projects located in regions with varying levels of development to attract capital and promote economic growth. These location-based incentives are a crucial part of the country’s strategy to reduce regional disparities, enhance infrastructure, and create jobs in areas that are less economically developed. Typically, these areas are situated near Vietnam’s borders with China and Laos, as well as in the southern Mekong region.

Types of Location-Based Investment Incentives

Vietnam categorizes its location-based incentives into two main tiers: "disadvantaged" areas and "extremely disadvantaged" areas. The incentives offered to investors differ based on the level of economic development and specific needs of each region, with more favorable tax benefits provided to projects located in the most underdeveloped areas. By investing in these regions, foreign investors can access various preferential corporate income tax (CIT) rates and tax holidays, which are directly linked to the level of regional disadvantage.

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Investment Incentives in Disadvantaged and Extremely Disadvantaged Areas

Below is a detailed explanation of the tax incentives available for investments in disadvantaged and extremely disadvantaged locations:

1. Disadvantaged Areas:

   - Projects located in disadvantaged areas benefit from a reduced CIT rate of 17% for 10 years from the first year of revenue generation.

   - These projects also receive a tax holiday that includes 2 years of full tax exemption, followed by a 50% reduction in CIT for the next 4 years.

   - Additionally, businesses operating in industrial parks within these regions may qualify for similar tax holidays and reductions.

2. Extremely Disadvantaged Areas:

   - Projects in extremely disadvantaged locations or within Special Economic Zones (SEZs) or High-Tech Zones (HTZs) are subject to a 10% CIT rate for the first 15 years of income generation.

   - They enjoy a 4-year tax exemption, followed by a 50% CIT reduction for the next 9 years.

   - In some cases, projects in these areas may qualify for the 10% CIT rate for the entire lifetime of the project.

Note: These incentives are available from the first year the project generates taxable income. Projects situated within economic zones may be subject to different regulations, depending on specific government policies for each zone.

Eligibility Criteria for Location-Based Incentives

To qualify for these location-based CIT incentives, investment projects must generate income from operations in areas classified as either disadvantaged or extremely disadvantaged according to current regulations. The eligibility criteria and locations for these incentives are outlined in Government Decree 118/2015/ND-CP, which should be consulted for the latest guidance on incentive policies throughout the country. Businesses involved in low value-added production are particularly well-positioned to benefit from these incentives, as they can capitalize on the unique opportunities and lower operating costs available in these regions.

Industry-Based Tax Incentives in Vietnam

Vietnam offers targeted tax incentives to prioritize investment in key industries that align with national development strategies. The government encourages investment in sectors that contribute to technological advancements, large-scale industrial development, and projects with significant social impact.

Priority Sectors for Investment Incentives

1. High-Tech Industries:

   - Vietnam incentivizes investments in sectors such as information technology, biotechnology, new material technology, automation, and high-tech supporting industries.

   - Projects focused on scientific research and development (R&D) or software production also qualify for CIT incentives.

2. Large-Scale Manufacturing Projects:

   - Projects with an investment capital of at least VND 6,000 billion (approximately $258 million), meeting specific revenue or employment targets, are eligible for incentives.

   - Eligible projects include those with annual revenues of VND 10,000 billion within the first four years or those employing at least 3,000 workers within three years of the project's start date.

3. Socially Important Sectors:

   - Investment projects in education, vocational training, healthcare, culture, sports, and environmental protection are also prioritized for CIT incentives.

Tax Incentive Benefits for Prioritized Sectors

- High-Tech and Large-Scale Project:

  • Receive a 10% CIT rate for 15 years from the first year of income generation.
  • Enjoy 4 years of CIT exemption, followed by a 50% reduction for the subsequent 9 years.

- Social Sector Projects:

  • Benefit from a 10% CIT rate for the lifetime of the project, 4 years of tax exemption, and 50% CIT reduction for the next 5 years.

Government-Encouraged Sector Incentives

Tax incentives are also provided to projects that contribute to the development of Vietnam’s economy, technology, and education. These incentives aim to attract investment in high-tech zones, economic zones, and sectors with challenging socio-economic conditions.

Key Incentives for Government-Encouraged Sectors

1. Preferential CIT Rates and Exemptions:

   - New investment projects in difficult socio-economic regions or sectors such as high-grade steel production, energy-saving products, agricultural machinery, and feed production can benefit from a 17% CIT rate for 10 years.

   - Eligible businesses also receive 2 years of CIT exemption, followed by a 50% CIT reduction for the next 4 years.

2. High-Tech and Educational Projects:

   - Newly established companies in high-tech industries, software production, infrastructure development, and education qualify for a 10% CIT rate for 15 years, 4 years of tax exemption, and a 50% CIT reduction for 9 subsequent years.

3. Projects in Socially Significant Sectors:

   - Investments in social housing, media, forestry, agriculture, and aquaculture enjoy similar tax incentives, promoting development in these vital sectors.

Special Tax Incentives for Supporting Industries

Supporting industries play a critical role in Vietnam's economic development, providing essential inputs to high-tech sectors and global supply chains. To further develop this sector, the government issued Decree 57/2021/ND-CP, which took effect on June 4, 2021, offering additional CIT incentives to projects producing prioritized supporting industry products.

CIT Incentives Under Decree 57

- Eligible projects can benefit from a 10% CIT rate for 15 years, along with a 4-year tax exemption and a 50% CIT reduction for the following 9 years.

- The incentives are retroactive, allowing businesses to claim back taxes paid on qualifying investments made before 2015.

Customs and Land Rental Incentives (Non-Tax Based)

Vietnam also provides non-tax incentives, including customs duty exemptions and land rental fee waivers, to reduce the cost burden for businesses.

1. Customs Duty Exemptions:

   - Apply to imported goods used for fixed assets, export processing contracts, and **R&D activities.   

2. Land Rental Incentives:

   - Investment projects in regions with challenging socio-economic conditions may qualify for land rental fee exemptions for up to 15 years, or even for the entire project duration in special cases.

Special Incentives for Large and High-Tech Projects

In 2021, the Prime Minister issued Decision 29/2021/QD-TTg, outlining special incentives for projects with large capital investments and high technology that meet specific criteria related to technological transfer, added value, and local supply chain integration. These incentives aim to attract long-term foreign investment, promote technology transfer, and maximize the positive spillover effects of foreign direct investment (FDI).

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Foreign Investment Consulting Services by NVCS Law Firm

NVCS Law Firm specializes in consulting and providing services for company establishment, business formation, and foreign investment advisory in Vietnam. Our expertise includes:

- Consulting on Legal Regulations and Procedures Related to Foreign Investment in Vietnam: Providing comprehensive guidance on the legal framework for foreign investors, including the latest regulations and compliance requirements.

- Advising on Conditional Business Sectors and Specific Requirements: Offering advice on investment industries that have specific conditions and the particular requirements for each industry, based on the investor's nationality.

- Guidance on Legal Procedures for Business Formation: Assisting clients with company incorporation, obtaining the Enterprise Registration Certificate, Investment Registration Certificate, business licenses, and other necessary permits.

- Drafting and Submitting Foreign Investment Applications: Preparing the required documents, working with relevant government authorities, and collecting results on behalf of clients.

- Post-Establishment Consulting: Providing ongoing advice and support on issues that may arise after the company is established.

Foreign investment in Vietnam can take various forms, each requiring different documentation and procedures. To receive detailed and clear advice on foreign investment in Vietnam, please contact NVCS Law Firm. We are committed to providing full-package company formation services that guarantee customer satisfaction. For more information or to seek foreign investment consulting, reach out to NVCS Law Firm today.

Lawyer: Mr. Tony

Phone: +84 919 195 939

Email: tuulawyer@nvcs.vn

Website: nvcs.vn

 

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