What are the conditions for applying CIT incentives in Vietnam?

What are the conditions for applying CIT incentives in Vietnam?

Under Article 18 of the Law on CIT 2008 amended and supplemented by Clause 12, Article 1 of the Law on Amending the Law on CIT 2013, the conditions for applying CIT incentives are as follows:

- The CIT incentives provided for in Articles 13, 14, 15, 16, and 17 of the Law on CIT 2008 are applicable to the enterprises that follow the regime for accounting and invoicing, and pay tax according to declarations.

CIT incentives for new investment project defined in Article 13 and Article 14 of the Law on CIT 2008 are not applicable to division, merger, amalgamation, and conversion of enterprises, change of ownership, and other cases according to law.

- Enterprises must separate the incomes from the operations eligible for tax incentives defined in Article 13 and Article 14 of the Law on CIT 2008 from the incomes from the operations that are not eligible for tax incentives; if such incomes are not able to be separated, the income from the operations eligible for tax incentives shall be determined based on the ratio of the revenue from the operations eligible for tax incentives to the total revenue of the enterprise.

- The tax rate of 20% in Clause 2 Article 10 and the tax incentives in Clause 1 and Clause 4 Article 4, Article 13, and Article 14  of the Law on CIT 2008 are not applicable to:

+ Incomes from transfer of capital, transfers of the right to contribute capital; incomes from the transfers of real estate, except for social housing specified in Article 13 of the Law on CIT 2008; incomes from transfers of investment projects, transfers of the right to participate in investment projects, transfers of the right to explore and extract minerals; incomes from operations outside Vietnam;

+ Incomes from the exploration and extraction of petroleum and other rare resources, and incomes from mineral extraction;

+ Incomes from services subject to excise duty according to the Law on Excise Duty 2008;

+ Other cases decided by the Government.

- If an enterprise is eligible to multiple tax incentives for the same income at the same time, it may choose the most advantageous incentive.

What are the conditions for applying CIT incentives in Vietnam? (Image from the Internet)

What are the regulations on the preferential duration of CIT exemption and reduction in Vietnam?

Under Article 14 of the Law on CIT 2008 amended by Clause 8, Article 1 of the Law on Amending the Law on CIT 2013 and supplemented by point b, Clause 4, Article 75 of the Investment Law 2020, the regulations on the preferential duration of CIT exemption and reduction are as follows:

- Incomes of enterprises from the execution of new investment projects provided for in Clause 1 and Point a Clause 2 Article 13 of the Law on CIT 2008, incomes of hi-tech enterprises, hi-tech agricultural enterprises are eligible for tax exemption for up to 4 years, and eligible for 50% tax reduction for up to 9 more years.

- With respect to the investment projects specified in Clause 2 Article 20 of the Investment Law 2020, the Prime Minister shall decide to apply tax exemption for no more than 6 years and reduce 50% of the maximum tax payable for no more than 13 subsequent years.

- Incomes of enterprises from the execution of new investment projects provided for in Clause 3 Article 13 of the Law on CIT 2008 incomes of enterprises from the execution of new investment projects in industrial parks, except for industrial parks in advantaged areas, are eligible for tax exemption for no more than 2 years, and eligible for 50% reduction in tax for no more than the next 4 years.

- The period of tax exemption and tax reduction applicable to incomes of enterprises from the execution of new investment projects in Clause 1 and Clause 2 of this Article begins from the first year in which taxable income from the investment projects is earned. If no taxable income is earned in the first three years from the first year in which revenue from the project is earned, the period of tax exemption and tax reduction shall begin from the fourth year. The period of preferential tax rates applicable to hi-tech enterprises and agricultural enterprises that apply high technologies mentioned in Point c Clause 1 Article 13 of the Law on CIT 2008 begins from the date of issuance of the certificate of hi-tech enterprise or certificate of hi-tech agricultural enterprise.

- When an enterprise, which has investment projects in the fields or areas eligible for corporate income tax incentives according to this Law, expands the production scale, increases the productivity, upgrades production technologies (expansion), it may choose between tax incentives for operating projects for the remaining time (if any) or tax exemption or reduction for the additional incomes from expansion if one of the three criteria in Clause 4, Article 14 of the Law on CIT 2008 is satisfied. The period of tax exemption and tax reduction for the additional incomes from expansion in Clause 4, Article 14 of the Law on CIT 2008 is equal to the period of tax exemption and tax reduction for new investment projects in the same field or area that is eligible for corporate income tax incentives.

The expansion must satisfy one of the criteria below to be given incentives:

+ The cost of additional fixed assets reaches at least 20 billion VND when the investment project is completed and commenced, applicable to expanding investments in the fields eligible for corporate income tax incentives according to this Law, or at least 10 billion VND, applicable to expanding investments in disadvantaged or extremely disadvantaged areas;

+ The proportion of cost of additional fixed assets reaches at least 20% of the total cost of fixed assets before investment;

+ The designed capacity increases by at least 20% after investment.

In case an enterprise invests in expansion in a field or area eligible for tax incentives according to the Law on CIT 2008 but fails to satisfy any of the three criteria above, the tax incentives shall apply to the remaining operating period of the project (if any).

If an enterprise is eligible for tax incentives for expansion, the additional income from expansion shall be recorded separately; if it is not able to be recorded separately, the income from expansion shall be determined according to the ratio of the cost of new fixed assets to the total cost of fixed assets of the enterprise.

The period of tax exemption and tax reduction in Clause 4, Article 14 of the Law on CIT 2008 begins from the year in which the investment project is finished and its operation is commenced.

The tax incentives in Clause 4, Article 14 of the Law on CIT 2008 do not apply to extensions on account of merger or acquisition of enterprises or investment projects in operation. The Government shall elaborate and provide guidance on the implementation of Article 14 of the Law on CIT 2008

What does income subject to a preferential CIT rate of 10% during 15 years in Vietnam include?

Under Article 13 of the Law on CIT 2008 as amended and supplemented by Clause 7, Article 1 of the Law on Amending the Law on CIT 2013 (supplemented by Clause 5, Article 1 of the Law on Amendments to Tax Laws 2014), the tax rate of 10% shall apply for 15 years to:

(1) Incomes of enterprises from the execution of new investment projects in extremely disadvantaged areas, economic zones, and hi-tech zones;

(2) Incomes of enterprises from the execution of new investment projects, including: scientific research and technology development; application of high technologies in the list of prioritized high technologies according to the Law on High Technologies; cultivation of high technologies, cultivation of hi-tech enterprises; high-risk investment in the development of high technologies in the list of prioritized high technologies according to the High Technology Law 2008; investment in crucial infrastructure of the State; software production; production of composite materials, light building materials, rare materials, renewable energy, clean energy, energy from waste destruction; development of biological technology, and environment protection;

(3) Incomes of hi-tech enterprises and agricultural enterprises that apply high technologies according to the High Technology Law 2008;

(4) Incomes of enterprises from the execution of new investment projects in production (except for the production of articles subject to excise duties and mineral extraction projects), which meet one of the two criteria below:

- Any project of which the capital is at least 6,000 billion VND that is released within 3 years from the day on which the Investment certificate is issued, and the total revenue reaches at least 10,000 billion VND within 3 years from the first year in which revenue is earned;

- Any project of which the capital is at least 6,000 billion VND that is released within 3 years from the day on which the Investment certificate is issued, and employ more than 3,000 workers.

(5) Income of enterprises from execution of new investment projects in manufacturing of products on the List of ancillary products given priority and satisfying one of the following conditions:

- Ancillary products supporting high-technology defined in the High Technology Law 2008;

- Ancillary products serving the manufacturing of the following industries: textile – garment; leather - footwear; electronic - IT; automobile manufacturing & assembling; mechanical engineering, provided they cannot be manufactured in Vietnam up to January 01, 2015, or can be manufactured in Vietnam and satisfy technical standards established by EU or the equivalent.

The government shall compile the List of ancillary products given priority mentioned in this Point.

(6) Income of enterprises from execution of manufacturing projects, except for manufacturing of products subject to excise tax and mineral extraction, the capital investment in which is at least 12 thousand billion VND, the technologies applied are appraised in accordance with the High Technology Law 2008, the Law on Science and Technology, and the registered capital is disbursed within 05 years from the day on which the investment is permitted as prescribed by investment laws."