What is the preferential tax rate for investment projects in geographical areas with particularly difficult socio-economic conditions in Vietnam?

What is the preferential tax rate for investment projects in geographical areas with particularly difficult socio-economic conditions in Vietnam?

Based on Clause 4, Article 19 of Circular 78/2014/TT-BTC, the regulation is as follows:

Incentive Tax Rates

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4. A preferential tax rate of 20% for ten years (10 years) applies to:

a) Income of enterprises from implementing new investment projects in areas with difficult economic and social conditions as stipulated in the Appendix issued with Decree No. 218/2013/ND-CP of the Government of Vietnam.

b) Income of enterprises from implementing new investment projects: high-end steel production; production of energy-saving products; manufacturing of machinery and equipment for agriculture, forestry, aquaculture, salt production; manufacturing irrigation equipment; production, refinement of animal feed for livestock, poultry, and aquatic products; development of traditional crafts (including building and developing traditional jobs in the production of handicrafts, processing of agricultural and food products, cultural products).

Enterprises conducting new investment projects in the tax preferential fields and areas stipulated in this clause from January 1, 2016, will apply a tax rate of 17%.

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Additionally, according to Clause 3, Article 20 of Circular 78/2014/TT-BTC, as amended by Article 6 of Circular 151/2014/TT-BTC, the regulation is as follows:

Tax Exemption and Reduction Incentives

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“3. Exempt from tax for 2 years and reduce 50% of the payable tax for the next 4 years for income from implementing new investment projects stipulated in Clause 4, Article 19 of Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance and the income of enterprises from implementing new investment projects in industrial parks (excluding industrial parks located in areas with favorable economic and social conditions).

Regions with favorable economic and social conditions referred to in this clause are inner city districts of special-grade cities, first-grade cities under central management, and first-grade cities under provincial management, excluding newly formed districts from counties since January 1, 2009; in cases where industrial parks span both favorable and unfavorable areas, tax incentives for the industrial park are determined based on the actual location of the investment project in practice.

The determination of special-grade and first-grade cities as stipulated in this clause is performed following Decree 42/2009/ND-CP dated May 7, 2009, of the Government of Vietnam, which regulates the classification of cities and any amendments to this Decree (if any).

preferential tax rate for investment projects in geographical areas with particularly difficult socio-economic conditions include:

[1] Investment projects in disadvantaged areas will enjoy a preferential tax rate of 20% for ten years (10 years).

[2] Investment projects in disadvantaged areas will be exempt from tax for 2 years and receive a 50% reduction on the tax payable for the next 4 years.

What is the preferential tax rate for investment projects in geographical areas with particularly difficult socio-economic conditions in Vietnam? (Image from the Internet)

Vietnam: What if a company applies a fiscal year different from the calendar year, how is the corporate income tax period defined?

Based on Clause 2, Article 3 of Circular 78/2014/TT-BTC, the regulation on tax calculation method is as follows:

Tax Calculation Method

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2. The tax period is determined according to the calendar year. If a company applies a fiscal year different from the calendar year, the tax period is determined according to the applied fiscal year. The first tax period for newly established enterprises and the last tax period for enterprises transforming their type or form of ownership, merging, splitting, dividing, dissolving, or going bankrupt is determined to align with the accounting period according to the provisions of the law on accounting.

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Moreover, based on Article 5 of Enterprise Income Tax Law 2008, the tax period regulation is as follows:

Tax Period

1. The corporate income tax period is determined according to the calendar year or fiscal year, except in cases specified in Clause 2 of this Article.

2. The corporate income tax period based on each income occurrence applies to foreign companies as specified in Points c and d, Clause 2, Article 2 of this Law.

Additionally, Clause 2, Article 2 of Enterprise Income Tax Law 2008 stipulates:

Taxpayers

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2. Enterprises with taxable income as defined in Article 3 of this Law must pay corporate income tax as follows:

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b) Foreign enterprises with a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam and taxable income outside Vietnam related to the activities of that permanent establishment;

c) Foreign enterprises with a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam, which is not related to the activities of that permanent establishment;

d) Foreign enterprises without a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam.

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Thus, it can be seen that if a company applies a fiscal year different from the calendar year, its tax period is determined according to the applied fiscal year.

How to determine the income for calculating corporate income tax in Vietnam?

The taxable income for corporate income tax is regulated in Article 7 of Enterprise Income Tax Law 2008. The income for calculating corporate income tax is determined as follows:

- The taxable income during the tax period is determined by the taxable income minus non-taxable income and losses carried forward from previous years.

- Taxable income equals revenue minus deductible expenses of business and production activities, plus other income, including income received outside Vietnam.