The Prime Minister has just issued the Decision No.13/2020/QD-TTg on the mechanism to encourage the development of solar power in Vietnam, which simultaneously removes the bottlenecks on electricity price over the past few months and creates new opportunities for Vietnam’s green power market.
Decision No.13/2020/QD-TTg (Decision 13) was signed on 6 April 2020 in order to replace Decision No.11/2017/QD-TTg that expired in June 2019. This new Decision will take into effect from 22 May 2020, specifying the new electricity purchase price applicable to grid-connected solar power projects which have been approved by the competent authorities before 23 November 2019 and the commercial operation date between 1 July 2019 and 31 December 2020 (except for the projects already planned in Ninh Thuan province with commercial operation date before 1 January 2021 with no more than 2,000 MW accumulative capacity which subject to the old purchase price).
In the current context where the investor community, business owners as well as individuals having just suffered from a difficult period preventing and controlling COVID-19, the deadline 31 December 2020 for solar power projects entering commercial operation is relatively challenging. Being in a hurry to speed up project progress or project transactions, apart from technical and operational risks, businesses should also consider a number of other tax issues applicable to renewable energy projects to ensure having accurately and adequately utilize the currently available incentives, minimize tax risks and optimize compliance costs in the projects’ financial models.
In terms of Corporate Income Tax (“CIT”) incentives, currently a solar or rooftop solar project can be subject to different types of CIT incentives, depending on each particular case. It might include incentives for renewable energy projects at CIT rate of 10% for 15 years with exemption for 4 years and 50% reduction for following 9 years, or incentives for enterprises meeting all the conditions of conducting “socialization activities” in the field of environment protection at the incentive CIT rate of 10% and exemption for 4 years and 50% reduction from 5 to 9 following years depending on the area wherein the projects are implemented.
Regarding incentives on import duty, as renewable energy projects are inclusive in the approved list of sectors or professions qualifying for special investment incentives, these projects will be exempted from import tax for goods forming fixed assets and import tax for domestically unavailable materials and components for the purpose of the project within 5 years.
In addition, depending on the location, the project may also be eligible for exemption/ reduction of land rental fees.
However, the application of incentives should comply with the cautious study of relevant legal documents as well as the proper implementation of administrative procedures in accordance with the provisions of tax, investment incentives, land and capital, import and export procedures and tax exemption documents, etc. In other words, tax and investment incentives do not automatically apply. Therefore, businesses should prudently review all of their legal factors and documents of their projects to properly and fully utilize the existing incentives regime for the sake of ensuring a healthy project financial model.
In the case of M&A, the contents of incentives and fulfillment of incentive conditions are also important factors requiring in-depth consideration and are to be taken into account when setting the final transaction price or inputting appropriate constraints under the terms of the share purchase agreement.
Currently, the green power market in Vietnam still faces many existing challenges such as the overloaded national grid system, the relatively urgent application deadline specified under Decision 13, or the lack of specific guidance for solar power projects with capacity over 50 kWp, etc. However, in only the last few years, Vietnam has risen to become an emerging destination to attract investment on renewable energy both regionally and globally, especially on solar power. The potential is huge due to the geographical advantages (large heat radiation in the southern regions, large usable area, etc) and other socio-political and economic factors of the domestic market. Therefore, if Vietnam can harmonise the interests of all the relevant parties in the balance of outstanding issues, Vietnam will continue to prove to be a safe and ideal destination for investment flows in the region and the world in this specific field.
Author: Hoang Viet Dung, Tax Senior Manager, Grant Thornton Vietnam.