Nguyen Hung Du and Nguyen Tan Tai, of Grant Thornton Vietnam, discuss the tax incentives for business owners and investors who are looking to invest in the agricultural business in Vietnam.
The Vietnam government has introduced many tax policies for the agriculture sector in the last few decades. Compared to other industries in Vietnam, the number of tax incentives are at the highest level. They are designed to attract investment to the agriculture sector, sustain long-term development and improve the income of individual farmers who make up a large proportion of Vietnam’s labor force.
Under current corporate income tax (CIT) regulations, companies who operate in the agriculture sector can enjoy preferential tax rates and tax holidays, subject to meeting the eligible conditions for the investment sector or investment location, as follows:
Income from cultivation, husbandry, aquaculture and salt production of cooperatives.
Income of cooperatives engaged in agriculture, forestry, fisheries and salt production in difficult socioeconomic areas or extremely difficult socioeconomic areas.
Income from cultivation, husbandry and aquaculture in extremely difficult socioeconomic areas.
Income from fishing activities.
10% Tax Rate
Income from planting, cultivating, protecting forests; farming, husbandry, aquaculture in difficult socioeconomic areas.
Forestry in difficult socioeconomic areas.
Production, propagation and cross-breeding of plant varieties, animal breeds; production, extraction, and refining of salt.
Investment in post-harvest preservation of agriculture products.
15% Tax Rate
Income from farming, husbandry, processing of agriculture and aquaculture products in normal areas (other than difficult socioeconomic areas and extremely difficult socioeconomic areas).
Investment Encouraged Locations
17% tax rate for 10 years; two years tax-exempt and for the subsequent four years a 50% reduction is applied to new investment projects located in difficult socioeconomic areas.
10% tax rate for 15 years; four years tax-exempt and for the subsequent nine years a 50% reduction is applied to new investment projects located in extremely difficult socioeconomic areas.
In the same tax year, if a company is eligible for multiple CIT incentives, it may choose to apply the most beneficial scheme.
The current standard tax rate is 20%. Preferential tax rate takes effect from the year of generating revenue, while tax holidays are continuously applied after the company first makes a profit. Where a company has not derived any taxable profit within three years of the commencement of generating revenue, tax holidays will start from the fourth year of operation.
Products of cultivation, husbandry and aquaculture products not yet processed into other products or just processed by ordinary organizations and individuals that produce and catch by themselves and sell at the import stage.
Fertilizer, machinery and equipment used exclusively for agricultural production, offshore fishing ships, animal feed, poultry and other domestic animals.
Exemption from Declaring and Paying VAT
Unprocessed or pre-processed farming, breeding, aquaculture products at the stage of commercial trading (under the VAT credit method).
Personal income tax (PIT) exemption is applicable for:
income of households and individuals directly engaged in agriculture, forestry, salt production, aquaculture and unprocessed fishing into other products or merely ordinary preparations;
income from conversion of agricultural land of households or individuals assigned by the State for production;
income of individuals being ship owners or individuals having the right to use the ships from provision of goods/services directly serving offshore fishing.
Import Duty Exemption
Exemption of import duty for input material for agricultural production (such as plant varieties; animal breeds, etc.), imported goods to create fixed assets of projects investing in priority industries or investment encouraged locations according to Article 16 of the Law on Export and Import Duties.
Land Use Tax Exemption
There is an exemption of agricultural land use tax until December 31, 2020 for the entire agricultural land area of households and individuals directly using agricultural land for agricultural manufacture; all agricultural land allocated by the state to organizations that are directly using land for agricultural production.
In April 2020 the government proposed to extend the exemption of agricultural land use tax for a further five-year period from 2021 to 2025.
Other Fee Exemptions
In addition, the government has also offered some incentives in terms of fees and charges in the field of agriculture such as: exemption of registration fees for:
land allocated, leased or recognized by the state for use in agricultural production forestry, aquaculture and salt production;
ships and boats without engines, of a gross tonnage of up to 15 tons;
ships and boats with engines of a main engine capacity of up to 15 horsepower;
ships and boats of 12 people.
Vietnam’s government has been successfully developing policies for a healthy environment that stimulate investment in the agriculture sector. It might still be possible that further preferential investment policies may be issued in the near future, especially after the pandemic situation.
Notwithstanding the effective tax policies currently being implemented for the agriculture sector, there are still many tax-related issues that an investor may need to carefully consider:
tax incentives are applied under a self-determination mechanism and with conditions where fulfilling the regulated requirements of license, operation and documentation is the basis for enjoying the benefits of the available incentives. Incorrect determination of incentives due to lack of tax knowledge or failure in applying the new tax law changes for incentives in a timely manner may lead to overpayment/underpayment of tax, penalty and late interest. Thus, companies should carefully review their position periodically to ensure they have a valid incentive scheme;
having more than one investment project, one production line or different business lines, can lead to having more than one CIT incentive benefit. To maximize the tax benefits, companies should carefully review the legal basis together with their business operation. Thus, professional advice or a specific ruling on a case-by-case basis by the managing tax office should be considered and obtained;
other “hidden” technical factors may affect a project’s tax cost, or profitability, such as depreciation expense, cost of material, inventory, and interest expenses, which can be the subject of a tax audit. To optimize tax benefits and mitigate tax risks, companies should be proactive in updating their knowledge of tax regulations frequently.