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Vietnam’s Law on Investment specifies three forms of incentives that are available to companies operating within the country. The following incentives are listed under Section 1, Article 15.1:

  • Application of a lower rate of corporate income tax for a certain period of time or throughout the project execution;
  • Exemption or reduction of import tax on goods imported as fixed assets on raw materials, supplies, and parts used for the project;
  • An exemption, reduction of land rents and land levy.

Preferential rates

 The different preferential rates include:

  • 10 percent for the lifetime of the entire project;
  • 10 percent for 15 years from the first year of income generation;
  • 17 percent for the lifetime of the entire project;
  • 17 percent for 10 years from the first year of income generation.

Tax holidays

Tax exemptions include:

  • Tax exemption for 4 years, 50 percent reduction of payable tax amounts for 9 subsequent years;
  • Tax exemption for 4 years, 50 percent reduction of payable tax amounts for 5 subsequent years;
  • Tax exemption for 2 years, 50 percent reduction of payable tax amount for 4 subsequent years.

Vietnam’s Law on Investment, as well as its subsequent decrees and circulars, specify in the types of projects that qualify for incentives and the nature of incentives that these projects qualify for. The most common incentives are those available for investments made in specialized locations, industries, or investment zones in the country.

Incentives in disadvantaged locations

The Vietnamese government provides location-based incentives for regions based on the levels of development and investment. The government provides these incentives as a means of attracting capital and improving development in these areas. The areas that the government selects for incentives are consistently located near Vietnam’s borders with China and Laos as well as the southern Mekong region.

Vietnam provides two tiers of incentives to investment projects depending on the level of development and needs in the area. Foreign investors can currently choose between locations that are “disadvantaged” and those that are “extremely disadvantaged.” Investments in both locations benefit from preferential corporate income tax as well as tax holidays with the level of incentive directly tied to the level of disadvantage within these regions.

Disadvantaged Location Investment Incentives in Vietnam
Disadvantaged areas Extremely disadvantaged areas
  • 17% CIT for 10 years*
  • 2 years of CIT exemption**
  • 4 years of 50 percent reduction on payable CIT
  • 10 percent CIT for the lifetime of the project 
  • 4 years of tax exemption**
  • 9 years of 50 percent reduction on payable CIT

* From the first year of income generation 

** From the first year of profit generation

Investors must have sourced income from an investment in an area currently classified as disadvantaged or extremely disadvantaged for incentives to apply. Government Decree 118/2015/ ND-CP provides the latest guidance on where incentives are applied throughout the country and should be consulted closely by interested parties. Companies involved in low value-add production are often the best positioned to take advantage of the challenges in these regions. Those who do so will retain a strong first mover advantage as Vietnam continues to rapidly develop.

Incentives for for businesses involved in Government-Encouraged Sectors 

Tax incentives apply to investment projects in specific sectors and areas with different socio- economic conditions as well as those in high-tech zones and economic zones in order to encourage the development of the economy, technology, and education of these regions. The tax incentives are as follows:

Tax Incentives for Government-Encouraged Sectors – Category A 

Preferential CIT rates

Additional incentives Applicable to:

17% applicable

for 10 years

CIT exemption for up to 2 years and 50% CIT reduction for up to 4 subsequent years

  • Enterprises’ incomes from the implementation of new investment projects in areas with difficult socio-economic conditions;
  • Enterprises’ incomes from the implementation of new investment projects, including manufacture of high-grade steel; energy- saving products; machines and equipment for agricultural, forest and fishery production and salt making and irrigation equipment; production and refining of livestock, poultry and aquatic feeds; and development of traditional trades and occupations

10% applicable

for 15 years

CIT exemption for up to 4 years and 50% CIT reduction for up to 9 subsequent years

  • Newly established companies in regions included on the government- issued list of geographical areas with extremely difficult socio- economic conditions, economic zones, high-tech zones;
  • Newly established companies investing in the high tech sector, producing software, engaging in scientific research and technology development, or investing in the development of infrastructure;
  • Incomes of hi-tech enterprises and hi-tech agricultural enterprises;
  • Enterprises’ incomes from the implementation of new investment projects in production sectors (excluding projects to include commodities subject to exercise tax, and mining projects). Projects must satisfy one of the following criteria:
    • Having investment capital of at least VND 6 trillion (US$258,000) to be disbursed within three years after being granted the permission for first-time investment and having a total annual turnover of at least VND 10 trillion (US$430,275) within 3 years after the year it begins earning turnover;
    • Having investment capital of at least VND 6 trillion to be disbursed within 3 years after being granted the permission for first-time investment and employing more than 3,000 workers within 3 years after the year it begins earning turnover

10% tax rate

CIT exemption for up to 4 years and 50% CIT reduction for up to 9 subsequent years

  • Incomes of enterprises operating in educational training, vocational training, health care, culture, sports, and environmental industries
 
  • Enterprises’ incomes from the implementation of projects on investment in social housing for sale, lease or, purchase for the entities;
  • Press agencies’ incomes from printed newspapers, including advertising on printed newspapers in accordance with the Press Law; publishing agencies’ incomes from publishing activities
  • Enterprises’ incomes from forest planting, tending and protection, agriculture, forestry, and aquaculture in areas with difficult socio- economic conditions; production, multiplication, and crossbreeding of plant varieties and animal breeds, making, exploiting, and refining of salt, except for salt making by cooperatives; investment in the preservation of post-harvest agricultural products, aquatic products, and food;
  • Incomes of cooperatives from agricultural, forestry, fishery, and salt making activities outside areas with difficult socio economic conditions or areas with extremely difficult socio-economic conditions, except for incomes of cooperatives that are exempt from CIT prescribed in Decree 218/2013/ND-CP

 

The preferential CIT rates above are applied from the first year the enterprise has turnover. The additional incentives of CIT exemption or reduction are applied from the first year in which the enterprise has taxable income.

[tips title="Important Tip"]If an enterprise does not have taxable income in the first three years from the first year it has turnover, the tax exemption and reduction will apply starting from the fourth year.[/tips]

In addition to tax incentives, tax reductions may be available for enterprises engaging in manufacturing, construction, and transportation activities, which employ numerous female or ethnic minority staff members.

Tax incentives for businesses involved in supporting industries: Decree 57

Vietnam’s supporting industries are increasingly developing and play an essential role in Vietnam’s participation in global supply and value chains. The sector’s development also helps the economy grow in a more sustainable manner, avoid the middle-income trap, and attract quality foreign investment with positive technological spillover.

Supporting and building up the supporting industry sector is one of the priority areas for Vietnam’s government as it will help Vietnam develop into a hi-tech manufacturing base shifting from a low-cost manufacturing center. Decree 57 is the latest regulation in line with this vision.

Vietnam issued Decree No. 57/2021/ND-CP (Decree 57) allowing enterprises access corporate income tax (CIT) incentives for those businesses invested in projects manufacturing prioritized supporting industry products before 2015. Decree 57 went into effect on June 4, 2021. Decree 57 comes on the heels of Resolution 115 in 2021, promoting the development of supporting industries for the 2020-2030 period.

Decree 57 highlights

Eligible businesses are therefore entitled to CIT exemption for four years, 50 percent CIT reduction for nine years, and a 10 percent preferential tax rate for the first 15 years on income coming from the project. In addition, as per the Decree, the incentive is retroactive, meaning the business can claim back the additional tax paid with a request to the tax authorities.

In addition, manufacturing projects that are claiming or have claimed CIT incentives under other incentive programs can claim CIT under Decree 57 for the remaining period.

CIT incentives for projects supporting the supporting industry have been detailed in Circular 21/2016/TT-BTC which include industries such as textile and garments, footwear, electronics, and so on.

Further, while projects involved in supporting industries were always eligible for CIT incentives, projects that began operations before January 2015 were unable to avail CIT incentives. Decree 57 allows those manufacturing projects that meet the required criteria and that began operations before January 2015 to be eligible for CIT incentives.

The new decree has been welcomed by businesses and is worth incorporating due to the significant tax savings that are possible given the business environment particularly due to the effects of the pandemic.

Incentives in economic zones

Vietnam has encouraged the establishment of economic zones throughout the country. These zones provide increased access to infrastructure, pools of talent, and networks of suppliers. Foreign investors in these zones also benefit from tax incentives extended by the Vietnamese government.

Most economic zones will qualify an investor for tax holiday incentives. In limited cases, where the zone is located in a disadvantaged area, a preferential rate of corporate income tax will also apply. Foreign investors must set up their operations inside of a zone that offers incentives in order to qualify for preferential treatment or tax holidays.

Economic Zone Investment Incentives in Vietnam
Economic zones Economic zones in extremely disadvantaged areas
  • 2 to 4 years* of tax exemption**
  • 4 to 9 years of 50 percent reduction on payable CIT
  • 10 percent CIT for the lifetime of the project 
  • 4 years of tax exemption**
  • 9 years of 50 percent reduction on payable CIT

* Rate determined on a case by case basis

** From the first year of profit generation

Vietnam’s economic zones are a common entry point for a variety of firms. Firms in need of specialized labor, easy access to ports, and good business conditions should strongly consider setting their operations up within one of Vietnam’s industrial zones.

[faq title="FAQ:Capitalizing on New Support Measures for Your Business and Easing of Foreign Work Permits" ui="accordion"]

Notwithstanding the last COVID-19 outbreak and the implementation of restrictive measures to contain the spread of the virus, Vietnam is still a hotspot for foreign trade and businesses.

Companies operating in Vietnam can access and benefit from several incentives and recovery measures to ease the transition from the pandemic emergency status to business as usual. Also, companies relying on the expertise of foreign workers now find a more favorable legal framework aimed at easing the procedures required to issue and renew work permits.

What is the COVID-19 situation in Vietnam?

The outlook is positive. While there are new cases every day, the strict lockdown restrictions implemented earlier have been lifted. Besides, Vietnam’s vaccination rates are improving. As of December 1, 52.8 percent of the population has been fully vaccinated and the government wants to fully vaccinate all adults by the end of the year. The government is also slowly but cautiously opening up the country for tourism. Since November 20, the government has opened up five locations for fully vaccinated international tourists as part of approved packaged tours. These locations include Phu Quoc, Nha Trang, Quang Nam, Da Nang, and Quang Ninh in the first phase. Gradually more locations will be added until Vietnam is fully open for international tourists.

What are the main government measures put in place recently to help businesses affected by the pandemic?

The government has put forward several measures to help businesses affected by the pandemic. The first one is Decree 57/2021/ND-CP (Decree 57) for businesses involved in the supporting industry and issued in June 2021. The main highlight of Decree 57 is to increase incentives for eligible manufacturers and overall increase processing and manufacturing industries in the local economy. Decree 57 is retroactive and covers investment prior to 2015. These incentives incorporate a CIT rate of 10 percent for 15 years, plus a tax holiday for 4 years, followed by a reduced CIT rate by 50 percent for the next 9 years. The decree also gives financial support for businesses that have been hit hard by the pandemic. The incentives apply to textile and garment, footwear, electronics, automobiles, machinery engineering, and hi-tech industries under certain conditions.

These conditions are as follows:

  • Businesses have to manufacture products on the list of prioritized industrial supporting products as per Decree 111/2015/ND-CP and
  • The products are not on the same list published in Circular 55/2015/BTC (Circular 55)

OR

  • Manufactured products are on the list of prioritized industrial supporting products in Circular 55, manufactured domestically before 2015 but are also granted a certificate of conformity equal to EU technical regulations or something equivalent.

What is the procedure to obtain these incentives?

Businesses must prepare a dossier which includes a written request using Form 01 found in Circular 55, along with the enterprise registration certificate, the description of the project, an audited financial statement (for existing projects), the decision on approval for environmental impact (for new projects) or commitment to environmental projection (existing projects). The process should take 35 days at a minimum but may last longer. The dossier can be submitted directly at the department of heavy industry under the Ministry of Industry and Trade (MoIT) or online on the MoIT portal.

Can you tell us about any other government measures?

The government issued Resolution 68/2021/NQ-CP (Resolution 68) in July 2021, which is valid until December 31, 2021. Resolution 68 unveils financial incentives for employers and employees affected by the pandemic. We focus on the policy for loan support for payment of employment suspension and production recovery. For example, employers can access short-term loans at a 0 percent rate. These loans are either for supporting payments for furloughed employees or pay wages for production. The main requirement to access this incentive is that the business does not have bad debt, or the maximum loan amount does not exceed the regional minimum wage for each employee but does not exceed by more than three months. There is no minimum revenue requirement for accessing the loan.

Another incentive is a 10 percent reduction in electricity as per Official Letter 5411/BCT/DDL. This applies to factories or production facilities located in areas that were implementing social distancing measures as per Directive 16/2020/CT-TTg. Directive 16 required people to stay at home and only go out for emergencies while suspending production.

Apart from these, the government issued Decision No 27/2021/QD-TTg (Decision 27) on reducing land rent by 30 percent for those affected by the pandemic. Eligible parties include businesses, households, and individuals that directly lease land from the State or are under contract with the relevant government agency with annual land rental payments. If an entity is already enjoying a land rent reduction, the 30 percent reduction will come into effect after the existing reduction is over. Eligible entities can submit a request using the application form in Decision 27 before December 31, 2021, and include appropriate documents like the land lease contract. However, you are responsible for doing a self-assessment to check eligibility.

Next up is Resolution 116/2021/NQ-CP (Resolution 116) on reducing contribution rates to the unemployment insurance (UI) fund. The reduction is 0 percent from the standard 1 percent of the monthly wage fund for employees participating in unemployment insurance. This applies to all employees participating in UI before October 1, 2021 and is valid from October 1, 2021 to September 30, 2022.

And finally, one of the most important government measures is Resolution 406/NQ/UBTVQH14 (Resolution 406) on several incentives including a 30 percent corporate income tax cut for businesses for the fiscal year 2021. The Resolution applies to all businesses that have not earned more than VND 200 billion (US$8.8 million) in 2021 and that have decreased revenue in 2021, compared to 2019. The reduced amount is calculated based on the entire income of enterprises; therefore, the reduced amount will then be the payable CIT for the tax period 2021 minus the CIT amount subject to incentives according to the Law on Corporate Income Tax. The government has issued Decree 92 guiding the implementation of the Resolution. Again, these tax reductions are based on the principle of self-assessment.

What are the developments on the easing of foreign work permits?

Requirements for obtaining work permits for foreign workers have been eased as per Resolution 105/2021/NQ-CP. As of April 2021, there were more than 101,000 foreign workers in Vietnam. As per the new regulation regarding proof of experience, the work permit can be used as proof of experience rather than certificates, diplomas issued by other foreign organizations.

In addition, the university degree does not have to be related to the job position in Vietnam. Therefore, businesses have more flexibility to hire experts and technicians whose educational background and initial experience may not necessarily match the exact specifications of the position.

Also, now a valid copy of the passport is sufficient rather than a certified true copy. While these regulations are welcome, there are still some bottlenecks including the lengthy procedure to obtain all approvals as well as the quarantine requirements for foreigners.

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