There are significant challenges for investors in the implementation of corporate income tax incentives for expansion investment projects in Vietnam because the law is often changing, as discussed by Tran Nguyen Mong Van and Nguyen Hung Du, of Grant Thornton.
Foreign investors need to understand the incentives that Vietnam currently offers because there are tax benefits in optimizing tax expenses and minimizing tax collection. There are also penalties for incorrectly applying the incentives.
Expansion investment projects (including expansion projects licensed or implemented during the period from 2009 to 2013 which were not entitled to any CIT incentives) that meet the above criteria are also entitled to CIT incentives.
CIT incentives do not apply to expansion investment projects that are formed as a result of a merger and acquisition of a current enterprise or investment project.
If the above conditions are met, the enterprise could decide whether:
(i) its expansion investment project enjoys CIT incentives according to the current implementing projects for the residual period (including preferable tax rates and tax reduction or exemption periods, if any); or
(ii) it applies the same duration for tax holidays for the increased portion of income derived from investment expansion (not entitled to preferential tax rates) equivalent to the duration of tax exemption or reduction period applicable to new investment projects operating in the same locality or sector which is eligible for CIT incentives.
If the enterprise chooses to apply (i), the expansion investment project must fall into the regulated encouraged sectors or encouraged locations eligible for CIT incentives stipulated under Decree No. 218/2013/ND-CP simultaneously with the sectors or locality with the operating investment project.
If the expansion investment project belongs to an incentive investment sector/area but fails to satisfy any one of the conditions above, the CIT incentives will be applied to the expansion project for the remaining period according to the implementing project (if any).
Enterprises account separately for the portion of income derived from expansion investment projects eligible for tax incentives. Otherwise, income from the expansion investment projects eligible for tax incentives is determined based on the ratio between historical costs of fixed assets which are formed by the expansion investment over the total historical costs of fixed assets of the enterprise.
If an investment project of a company is eligible for CIT incentives with regular purchases of machinery/equipment between 2009 and 2013 but does not meet the above conditions for it to be regarded as an investment project for expansion, the portion of income derived from the additional investment is entitled to the same incentives as the current implementing project from tax year 2014 for the residual term.
Investment projects for expansion in the previous taxable year (i.e. 2009 to 2013) are allowed to access more favorable tax incentives available under the currently amended or new law on CIT for the residual project period which is applicable from taxable year 2015. This entitlement is specifically applicable in the following cases:
The regulations on the conditions to enjoy CIT incentives are complicated. The guidance to classify new investment, regular investment and expansion investment (these are subject to different incentive regimes) is not entirely clear. In addition, the ability to apply tax incentives is conditional on compliance with the strict accounting system, license and operation requirements. Taxpayers are required to self-assess their eligibility for the tax incentives. The tax authorities focus on reviewing taxpayers’ fulfillment of the conditions in a tax audit.
Companies should prepare the supporting documents to prove the company’s fulfillment of the conditions in advance as well as an official letter from the tax managing authority confirming that CIT incentives are applied for the expansion investment project of the company.
Foreign investors should carefully select the most suitable regulations and clarify the tax incentives available. Seek professional advice if necessary.
Press Release
Investing in Vietnam—Corporate Income Tax Incentives
07 Sep 2020
There are significant challenges for investors in the implementation of corporate income tax incentives for expansion investment projects in Vietnam because the law is often changing, as discussed by Tran Nguyen Mong Van and Nguyen Hung Du, of Grant Thornton.
Foreign investors need to understand the incentives that Vietnam currently offers because there are tax benefits in optimizing tax expenses and minimizing tax collection. There are also penalties for incorrectly applying the incentives.
Definition of “Expansion Investment Project”
Expansion investment projects (including expansion projects licensed or implemented during the period from 2009 to 2013 which were not entitled to any CIT incentives) that meet the above criteria are also entitled to CIT incentives.
CIT incentives do not apply to expansion investment projects that are formed as a result of a merger and acquisition of a current enterprise or investment project.
Applicable CIT Incentives
If the above conditions are met, the enterprise could decide whether:
(i) its expansion investment project enjoys CIT incentives according to the current implementing projects for the residual period (including preferable tax rates and tax reduction or exemption periods, if any); or
(ii) it applies the same duration for tax holidays for the increased portion of income derived from investment expansion (not entitled to preferential tax rates) equivalent to the duration of tax exemption or reduction period applicable to new investment projects operating in the same locality or sector which is eligible for CIT incentives.
If the enterprise chooses to apply (i), the expansion investment project must fall into the regulated encouraged sectors or encouraged locations eligible for CIT incentives stipulated under Decree No. 218/2013/ND-CP simultaneously with the sectors or locality with the operating investment project.
If the expansion investment project belongs to an incentive investment sector/area but fails to satisfy any one of the conditions above, the CIT incentives will be applied to the expansion project for the remaining period according to the implementing project (if any).
Increased Portion of Income Derived from Investment Project for Expansion
Enterprises account separately for the portion of income derived from expansion investment projects eligible for tax incentives. Otherwise, income from the expansion investment projects eligible for tax incentives is determined based on the ratio between historical costs of fixed assets which are formed by the expansion investment over the total historical costs of fixed assets of the enterprise.
Notable Points
If an investment project of a company is eligible for CIT incentives with regular purchases of machinery/equipment between 2009 and 2013 but does not meet the above conditions for it to be regarded as an investment project for expansion, the portion of income derived from the additional investment is entitled to the same incentives as the current implementing project from tax year 2014 for the residual term.
Investment projects for expansion in the previous taxable year (i.e. 2009 to 2013) are allowed to access more favorable tax incentives available under the currently amended or new law on CIT for the residual project period which is applicable from taxable year 2015. This entitlement is specifically applicable in the following cases:
Planning Points
The regulations on the conditions to enjoy CIT incentives are complicated. The guidance to classify new investment, regular investment and expansion investment (these are subject to different incentive regimes) is not entirely clear. In addition, the ability to apply tax incentives is conditional on compliance with the strict accounting system, license and operation requirements. Taxpayers are required to self-assess their eligibility for the tax incentives. The tax authorities focus on reviewing taxpayers’ fulfillment of the conditions in a tax audit.
Companies should prepare the supporting documents to prove the company’s fulfillment of the conditions in advance as well as an official letter from the tax managing authority confirming that CIT incentives are applied for the expansion investment project of the company.
Foreign investors should carefully select the most suitable regulations and clarify the tax incentives available. Seek professional advice if necessary.
Grant Thornton uses cookies to monitor the performance of this website and improve user experience.
To find out more about cookies, what they are and how we use them, please see our privacy notice, which also provides information on how to delete cookies from your hard drive.