What is the deduction rate for setting up of enterprises scientific and technological development funds in Vietnam?

What is the deduction rate for setting up of enterprises scientific and technological development funds in Vietnam?

Pursuant to Article 17 of the 2008 Law on Corporate Income Tax as amended and supplemented by Clause 3, Article 1 of the 2013 Law on Amendments and Supplements to Certain Articles of the Law on Corporate Income Tax as follows:

Deduction for setting up of enterprises scientific and technological development funds

1. Enterprises established and operating under the laws of Vietnam may allocate a maximum of 10% of the annual taxable income to establish the scientific and technological development funds of the enterprise. State-owned enterprises, in addition to making allocations to the scientific and technological development funds as prescribed by this Law, must also ensure a minimum allocation rate to the scientific and technological development funds as prescribed by the laws on science and technology.

2. Within five years from accumulation, if the scientific and technological development funds is not used or 70% not used, or not used for the right purposes, the enterprise must pay to the state budget the corporate income tax calculated on the income allocated to the fund but not used or misused, and the interest arising from such corporate income tax.

The corporate income tax rate used to determine the recoverable tax is the rate applicable to the enterprise during the fund’s accumulation period.

The interest rate applied to the recoverable tax on the unused fund portion is the one-year bond interest rate applicable at the time of recovery, and the interest calculation period is two years.

The interest rate applied to the recoverable tax on the misused fund portion is the late payment penalty rate according to the Tax Administration Law, and the interest calculation period is from the time of the fund’s allocation to the time of recovery.

3. Enterprises are not permitted to account for expenses from the scientific and technological development funds of the enterprise in the deductible expenses when determining taxable income for the tax calculation period.

4. The scientific and technological development funds of the enterprise can only be used for investment in science and technology in Vietnam.

From the above regulation, it can be seen that the rate for allocating the scientific and technological development funds for enterprises established and operating under the laws of Vietnam is a maximum of 10% of the annual taxable income.

What is the deduction rate for setting up of enterprises scientific and technological development funds in Vietnam? (Image from the Internet)

What are the principles for determining the place of corporate income tax payment in Vietnam?

According to the provisions in Article 12 of Circular 78/2014/TT-BTC which stipulates the principles for determining the place of corporate income tax payment as follows:

- The enterprise pays tax at the location of its head office. In cases where the enterprise has production facilities (including processing, assembly facilities) that are dependent units operating in provinces or centrally-run cities different from the location where the enterprise’s head office is situated, the tax amount is divided between the head office location and the location with production facilities.

- The distribution of the payable tax amount as stipulated in this section does not apply to cases where the enterprise has constructions, construction items, or construction establishments that are accounted as dependent units.

What incomes are exempt from corporate income tax in Vietnam?

According to the provisions of Article 3 of the 2008 Law on Corporate Income Tax, as amended and supplemented by Clause 2, Article 1 of the 2013 Law on Amendments and Supplements to Certain Articles of the Law on Corporate Income Tax and Clause 1, Article 1 of the 2014 Law on Amendments and Supplements to Certain Laws on Tax, the incomes exempt from corporate income tax include:

- Income from cultivation, husbandry, aquaculture, processing of agricultural and aquatic products, and salt production of cooperatives; income of cooperatives operating in agriculture, forestry, fishery, and salt production in areas with difficult or extremely difficult socio-economic conditions; income of enterprises from cultivation, husbandry, aquaculture, processing of agricultural and aquatic products in areas with extremely difficult socio-economic conditions; income from fishing activities.

- Income from providing direct technical services serving agriculture.

- Income from the implementation of scientific research and technology development contracts, products during the trial production phase, and products made from new technology applied for the first time in Vietnam.

- Income from production and business activities of enterprises with 30% or more average annual employees being disabled, rehabilitated individuals, or individuals infected with HIV/AIDS, with an average annual workforce of twenty or more, excluding enterprises operating in finance and real estate.

- Income from vocational training activities exclusively for ethnic minorities, the disabled, children with special difficult conditions, and social problem subjects.

- Income distributed from capital contributions, joint ventures, or partnerships with domestic enterprises, after corporate income tax has been paid as regulated by this Law.

- Sponsorship funds received for use in education, scientific research, culture, arts, charity, humanitarian, and other social activities in Vietnam.

- Income from the transfer of emission reduction certificates (CERs) of enterprises that have been certified for emission reduction.

- Income from tasks assigned by the State to the Vietnam Development Bank in investment credit activities, export credit, income from credit activities for the poor and other policy subjects by the Vietnam Social Policy Bank; income of state financial funds and other state funds that are non-profit according to legal regulations; income of organizations with 100% charter capital owned by the State, established by the Government of Vietnam to handle bad debts of Vietnamese credit institutions.

- Undivided income of educational, health, and other socialization entities to reinvest in the development of the institution, as regulated by specialized laws; undivided income forming indivisible assets of cooperatives established and operating according to the Cooperative Law.

- Income from transferring technology within the priority transfer fields to organizations or individuals in areas with extremely difficult socio-economic conditions.