Proposal to amend conditions for application of corporate income tax incentives in Vietnam

Proposal to amend conditions for application of corporate income tax incentives in Vietnam (Internet image)

Draft Law on Corporate Income Tax (amended)

Draft Law on Corporate Income Tax (amended)

1. Proposal to amend conditions for application of corporate income tax incentives in Vietnam

The draft Law on Corporate Income Tax (amended) aims to amend and supplement conditions for applying corporate income tax incentives as follows:

- Reviewing, amending regulations on the application of tax incentives to the fields of agriculture, forestry, fishery, and salt production; hi-tech enterprises, hi-tech agricultural enterprises, science and technology enterprises, hi-tech application projects, and supporting industry product production projects if they have been given incentives according to preferential conditions according to other preferential conditions... in order to solve problems in practice.

- Reviewing and adding regulations on income not entitled to tax incentives for income from production and trading of goods subject to excise tax to be consistent with the provisions of the current Investment Law.

Conditions for applying current corporate income tax incentives:

- Corporate income tax incentives specified in Articles 13, 14, 15, 16, and 17 of the Law on Corporate Income Tax are applicable to enterprises that comply with the accounting, invoice, and death certificate regimes and pay tax according to the declaration.

Corporate income tax incentives for new investment projects specified in Articles 13 and 14 of the Law on Corporate Income Tax shall not apply to cases of division, separation, merger, consolidation, transformation of enterprise form, transformation of ownership, and other cases as prescribed by law.

- Enterprises must separately account income from production and business activities eligible for tax incentives specified in Articles 13 and 14 of the Law on Corporate Income Tax, with income from production and business activities not eligible for tax incentives; In the absence of separate accounting, income from production and business activities eligible for tax incentives is determined according to the ratio between the turnover of production and business activities eligible for tax incentives and the total turnover of the enterprise.

- The tax rate of 20% specified in Clause 2, Article 10, and the provisions on tax incentives in Clauses 1 and 4, Article 4, Articles 13 and 14 of the Law on Corporate Income Tax shall not apply to:

+ Income from the transfer of capital, transfer of the right to contribute capital; income from real estate transfers, excluding social housing as prescribed in Article 13 of the Law on Corporate Income Tax; income from the transfer of investment projects, transfer of the right to participate in investment projects; income from production and business activities outside Vietnam,

+ Income from prospecting, exploration, and exploitation of oil, gas, and other rare and precious natural resources, as well as income from mineral extraction;

+ Income from service businesses is subject to excise tax in accordance with the Law on Special Consumption Tax

+ Other cases as prescribed by the Government.

- In the same period, if an enterprise enjoys many different tax incentives for the same income, the enterprise may choose to apply the most favorable tax incentives.

2. Proposal to amend regulations on setting up the enterprise's science and technology development fund in Vietnam

The draft Law on Corporate Income Tax (amended) aims to amend and supplement regulations on setting up the enterprise's science and technology development fund as follows:

Reviewing and amending regulations on interest rates for the recovered tax amount calculated on the unused portion of the enterprise's science and technology development fund to be in line with current practice.

Current regulations on setting up science and technology development funds for enterprises:

- Enterprises established and operating in accordance with Vietnamese law may deduct up to 10% of their annual taxable income to set up the enterprise's science and technology development fund. Particularly for state-owned enterprises, in addition to making deductions from the Science and Technology Development Fund according to the provisions of the Law on Corporate Income Tax, they must also ensure the minimum rate of deduction for the Science and Technology Development Fund in accordance with the Law on Science and Technology.

- Within five years from the time of setting up, if the Science and Technology Development Fund is not used, not used up to 70%, or used for improper purposes, enterprises must pay to the state budget the part of corporate income tax calculated on the income already set up for the fund that is not used, not used for improper purposes, and the profit arising from such an enterprise income tax amount.

The corporate income tax rate used to calculate the recovered tax is the tax rate applicable to the enterprise at the time of setting up the fund.

The interest rate for calculating interest on the recovered tax amount calculated on the unused portion of the fund is the one-year term treasury bond interest rate applied at the time of withdrawal, and the interest calculation period is two years.

The interest calculated on the recovered tax amount on the misused portion of the fund is the late payment penalty interest according to the provisions of the Law on Tax Administration, and the time for calculating interest is the period from the time of setting up the fund to the time of withdrawal.

- Enterprises are not allowed to account for expenses from their Science and Technology Development Fund as deductible expenses when determining taxable income in the tax period.

- The enterprise's science and technology development fund may only be used for science and technology investment in Vietnam.

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