The addition of a new form of investment incentives in Vietnam is one of the important contents regulated in the Investement Law 2020 which is officially effective from January 1, 2021.
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Vietnam: Addition of a new form of investment incentives in Law on Investment 2020 (Illustrative Image)
Clause 1 Article 15 of the Investment Law 2020 stipulates 04 forms of investment incentives in Vietnam, including:
- Corporate income tax incentives, including the application of a lower rate of corporate income tax for a certain period of time or throughout the investment project execution; exemption from and reduction of tax and other incentives prescribed by the Law on Corporate Income Tax.
- Exemption from import tax on goods imported to form fixed assets; raw materials, supplies and components for manufacturing purposes in accordance with regulations of law on import and export tax;
- Exemption from and reduction of land levy and land rents;
- Accelerated depreciation, increasing the deductible expenses upon calculation of taxable income.
Currently:
The Investment Law 2014 only stipulates 03 forms of investment incentives in Vietnam, including:
- Application of a lower rate of corporate income tax for a certain period of time or throughout the project execution; exemption, reduction of corporate income tax;
- Exemption or reduction of import tax on goods imported as fixed assets; raw materials, supplies, and parts used for the project;
- Exemption, reduction of land rents, land levy.
Thus, the Investment Law 2020 has added a new form of investment incentive which is accelerated depreciation, increasing the deductible expenses upon calculation of taxable income.
Accelerated depreciation is the practice of amortizing the value of fixed assets in a way that speeds up the capital recovery process during the early years of the asset's use.
According to Circular 96/2015/TT-BTC, deductible expenses when calculating corporate income tax in cases of accelerated depreciation for fixed assets are stipulated as follows:
Every year, enterprises shall depreciate their fixed assets according to applicable regulations of the Ministry of Finance on management, use and depreciation of fixed assets, including quick depreciation (if qualified).
Any enterprise who has a lucrative business may implement quick depreciation, provided it is not larger than 2 times the linear depreciation, in order to apply new technologies to certain fixed assets in accordance with applicable regulations of the Ministry of Finance on management, use and depreciation of fixed assets. When implementing quick depreciation, profitability must be ensured.
According to this regulation, accelerated depreciation is considered a deductible expense when calculating corporate income tax if the enterprise operates with high economic efficiency and ensures profitable business operations, but the accelerated depreciation must not exceed twice the depreciation rate determined by the straight-line method.
The Government of Vietnam will provide specific regulations and guidance on applying the investment incentive form of accelerated depreciation and increasing deductible expenses when calculating taxable income for investors as stipulated in Article 15 of the Investment Law 2020.
Thuy Tram
