Global Tax Alert | 3 July 2013
Vietnam's National Assembly approves corporate income tax law amendments
On 19 June 2013, Vietnam’s National Assembly approved the law amending and supplementing the corporation income tax (CIT) law.1 The law became enacted on the same day the final approval was obtained. The final amendments excluded the nondeductible interest provision that was included in the draft amendments.
This Alert covers the significant amendments and supplements.
Reduction in tax rates
Effective 1 January 2014, the standard CIT rate is reduced to 22%, which will be further reduced to 20%, effective 1 January 2016.
However, the 20% rate will apply from 1 January 2014 to entities having less than 200 full-time employees and annual revenue not exceeding VND 20 billion (US$950,000). This does not apply to certain business sectors such as real estate, capital transfer,2 project transfer,3 and income from doing business outside Vietnam, regardless of whether the two conditions are met.
New tax incentives
Category one incentives
Category one incentives are subject to a tax rate of 10%. The applicable period is 15 years4 and the tax exemption period is four years and the tax reduction period is nine years. This category includes:
- • Income from new investment projects5 in areas with especially difficult socio-economic conditions: economic zones, high tech zones;
- • Income from newly-invested projects in:
- Manufacturing composite materials, light construction materials, precious and rare materials; manufacturing, energy reproduction, clean energy, energy from eliminating waste; developing bio-technology; environmental protection.
- Scientific research and technological development, application of high-tech as specified; high-tech incubation and high-tech incubator enterprises; venture investment in the development of high-tech as specified; investment in construction and commercial operation of high-tech incubation and high-tech incubator enterprises; investment in development of specially important state infrastructure.
- • Income of agricultural enterprises that use high-technology;
- • Generally income from newly-established investment projects in the production sector, i.e., manufacturing sector, that has minimum investment capital of US$300 million that is spent over a period of three years or less from the date of the investment certificate, and:
- Generating total annual revenue of VND10,000 billion (US$425 million) no later than three years from the first year that generates revenue; or
- Having more than 3,000 full-time employees.
Category two incentives
Category two incentives are subject to a tax rate of 10%. The applicable period is indefinite. There is no tax exemption or reduction period. This category includes:
- • Income of press agencies providing newspapers (including press advertising), publishers conducting publishing activities as specified in the Law.
- • Income from activities in forestation, tending of forests; breeding, rearing and growing agricultural, forest and aquaculture products in areas with; production of artificial strains, new plant varieties, livestock breeding; production, mining and refining of salt; investment in post-harvest preservation of agricultural products, preservation of agricultural and aquaculture products and foodstuffs.
- • Income of enterprises from socialization activities in the sectors of education and training, vocational training, culture, medical health, sports and the environment.
Category three incentives
Category three incentives are subject to a tax rate of 20%. The applicable period is 10 years (17% CIT from 1 January 2016). The tax exemption period is two years and the tax reduction period is four years. This category includes:
- • Income from newly-invested projects based in areas with difficult socio-economic conditions.
- • Income from newly-invested projects in the manufacture of high-quality steel; production of energy saving products; manufacture of machinery and equipment serving for agriculture, forestry, pisciculture (fish farming); manufacture of irrigation equipment; production and refining of feed for cattle, poultry and aquatic resources; development of traditional trades and occupations.
Category four incentives
Category four incentives are subject to a tax rate of 20%. The applicable period is indefinite (17% CIT rate from 1 January 2016).6 The tax exemption period is two years and the tax reduction period is four years. This category includes:
- • Income of micro-financial organizations.
Category five incentives
Category five incentives are subject to a tax rate of 20%. There is no applicable period. There is no tax exemption or reduction period. This category includes:
- • Income from newly-invested projects in Industrial Zones (except for industrial zones located in large urban areas with favorable socio-economic conditions).
Amending tax incentives applicable to investment expansion
Entities currently operating in areas and business sectors that grant tax incentives may choose one of the following tax preferential methods when expanding an investment project:
- • Keep tax incentives according to currently operating projects for the remaining period (if any); or
- • Apply a tax exemption or reduction on any incremental income.
One of the following conditions must be met to qualify for one of the above methods:
- • A minimum VND 20 billion (US$950,000) in additional acquisition of fixed assets for the expanded project or VND 10 billion (US$425,000) for an investment expansion project in areas with difficult and especially difficult socio-economic conditions.
- • A minimum 20% increase in fixed assets invested in the project.
- • An increase of 20% in design capacity.7
Tax reduction for certain technology transfers
Entities transferring technology in priority sectors to organizations in difficult and especially difficult socio-economic areas will be entitled to a 50% reduction in CIT on income arising from the technology transfer.
The amendments are expected to become effective 1 January 2014.
1. For more details, see EY Global Tax Alert, Vietnam releases draft amendments to corporate income tax law, dated 23 May 2013.
2. Assignment of capital enabling an assignee to perform registration requirements of members and shareholders.
3. Assignment of project.
4. The incentive period runs for 15 years generally from the first year of generating revenue, but the tax exemption and reduction period may not begin until taxable income is generated or from the fourth year of generating revenue in the event of no taxable income within the first three years. For this reason, the tax exemption and tax reduction periods are less than 15 years.
5. A first time investment or new investment independent of existing investments.
6. Similar to Endnote 4, the incentive period is indefinite, but the tax exemption period is limited to two years from the year in which taxable income is generated or from the fourth year in the event of no taxable income within the first three years.
7. A manufacturing capacity that was designed before investment.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Vietnam Limited
- • Nhung Tran
+84 4 3824 5252
Ernst & Young LLP, Asia Pacific Business Group, New York
- • Chris Finnerty
+1 212 773 7479
- • Jeff Hongo
+1 212 773 6143
- • Kaz Parsch
+1 212 773 7201
- • Bee-Khun Yap
+1 212 773 1816
EYG no. CM3589