What is an expansion project? What are tax incentives for expansion projects in Vietnam?

Regarding this matter, LawNet would like to answer as follows:

1. What is an expansion project?

According to Clause 5, Article 3 of the Investment Law 2020, the terms of expansion investment projects are explained as follows:

- Expansion project means an investment project on development of a running project by expanding the scale, improving the capacity, applying new technologies, reducing pollution or improving the environment.

- Thus, an expansion investment project is an investment project on development of a running project by expanding the scale, improving the capacity, applying new technologies, reducing pollution or improving the environment

2. Tax incentives for expansion projects in Vietnam

According to Article 18 of Circular 78/2014/TT-BTC guiding the implementation of Decree 218/2013/ND-CP on conditions for application of CIT incentives in Vietnam:

- CIT incentives are applicable only to enterprises which observe accounting, invoice and document regulations and register and pay CIT as declared.

- While enjoying CIT incentives, enterprises that carry out different production and business activities shall separately account income from production and business activities eligible for CIT incentives (including preferential tax rates or tax exemption or reduction) from income from those ineligible for CIT incentives for separate tax declaration and payment.

According to Clause 6, Article 1 of Decree 91/2014/ND-CP as follows:

The incomes from performing new investment projects prescribed in Clause 3, Article 15 of Decree 91/2014/ND-CP and income of the business from performing new investment projects in industrial parks (except for industrial parks located in socially and economically advantaged areas) shall be eligible for tax exemption for 2 years and 50% tax reduction for the next 4 years.

According to Clause 6, Article 18 of Circular 78/2014/TT-BTC amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC, conditions for applying corporate income tax incentives are as follows:

If any of the three following conditions is satisfied, the enterprise having a expansion project in a favored field or favored area that is given CIT incentives under Decree 218/2013/ND-CP (including economic zones, hi-tech zones, industrial parks other than those located in urban districts of special-grade cities, centrally run grade-I cities and grade-I provincial cities)

- The increase in cost of fixed assets when the project is finished and put into operation is at least

+ VND 20 billion if the expansion project is of a field eligible for CIT incentives according to Decree 218/2013/ND-CP

+ VND 10 billion if the expansion project is located in a disadvantaged area or extremely disadvantaged area according to Decree 218/2013/ND-CP.

- The ratio of increase in cost of fixed assets is at least 20% of total cost of fixed assets before investment.

- The designed capacity after expansion increases by at least 20% compared to the designed capacity mentioned in the technical and economic feasibility study done before initial investment.

If the enterprise chooses incentives applied to expansion investment, the increase in income from expansion investment must be accounted for separately. If the enterprise is not able to separate the increase in income from expansion investment, the income from expansion investment shall be determined according to the ratio of cost of new fixed assets to total cost of fixed assets of the enterprise.

The duration of tax exemption or reduction mentioned in this Clause begins from the year in which the expansion project is finished, is put into operation, and generates incomes. If taxable income is not earned within the first 03 years from the first year in which the expansion project generate revenues, the duration of tax exemption or reduction will begin from the fourth year in which revenue is generated by the project of investment.

In an operating enterprise invests in upgrade, replacement, innovation of technology of an operating project in a field or area given tax incentives according to Decree 218/2013/ND-CP without satisfying any of the criteria mentioned above, tax incentives shall apply to the project for the remaining period (if any).

May decide whether to:

- Apply CIT incentives to their operating project for the remaining period (including preferential rates, exemption, and reduction, if any)

- Apply tax exemption or reduction to the increase in incomes from expansion investment (no preferential tax rates) for a period of time equal to the tax exemption or reduction period applied to new investment projects in the same favored area or favored field that is given CIT incentives.

If the enterprise chooses to apply CIT incentives to their operating project for the remaining period, the expansion project must be in the field or area given CIT incentives under Decree No. 218/2013/ND-CP and in the same field or area with the operating project.

Best regards!

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