INVESTMENT INCENTIVES UNDER THE LATEST LEGAL REGULATIONS

With significant recent adjustments to the legal framework, investors—both domestic and foreign—are required to keep themselves promptly informed in order not to miss substantial advantages relating to taxation, land, and administrative procedures. The following article summarizes and analyzes investment incentives under the latest regulations, while also highlighting key points that investors should take into consideration in order to formulate business strategies in an effective and lawful manner.

Legal grounds:

• Law on Investment 2020;

• Decree No. 31/2021/NĐ-CP detailing and guiding the implementation of a number of articles of the Law on Investment.

1. Forms of Investment Incentives

Corporate income tax incentives, including the application of a corporate income tax rate lower than the ordinary tax rate for a definite period or for the entire duration of the investment project; tax exemption, tax reduction, and other incentives in accordance with the law on corporate income tax.

Specifically as follows:

Application of a 10% tax rate for a period of fifteen (15) years, with tax exemption for four (04) years and a 50% reduction of the payable tax amount for the subsequent nine (09) years, applicable to:

• Income of enterprises derived from the implementation of new investment projects in areas with extremely difficult socio-economic conditions, economic zones, and high-tech zones;

• Income of enterprises derived from the implementation of new investment projects, including: scientific research and technological development; application of high technology included in the list of high technologies prioritized for investment and development in accordance with the Law on High Technology; high-tech incubation, incubation of high-tech enterprises; venture capital investment for the development of high technology included in the list of high technologies prioritized for investment and development in accordance with the Law on High Technology; investment in the construction and operation of high-tech incubators and high-tech enterprise incubators; investment in the development of particularly important State infrastructure in accordance with law; software production; production of composite materials, various types of lightweight construction materials, and rare materials; production of renewable energy, clean energy, and energy generated from waste treatment; development of biotechnology; environmental protection;

• Income of enterprises derived from the implementation of new investment projects in the manufacturing sector (excluding projects producing goods subject to special consumption tax and mineral exploitation projects) that satisfy one of the following two criteria:

  • Projects with a minimum investment capital of VND 6,000 billion, with disbursement completed within no more than three (03) years from the date of issuance of the Investment Registration Certificate, and achieving a minimum total revenue of VND 10,000 billion per year, no later than three (03) years from the year in which revenue is generated;

  • Projects with a minimum investment capital of VND 6,000 billion, with disbursement completed within no more than three (03) years from the date of issuance of the Investment Registration Certificate, and employing more than three thousand (3,000) employees.

► Income of enterprises derived from the implementation of new investment projects producing products included in the List of prioritized supporting industry products, satisfying one of the following criteria:

► Supporting industry products for high technology in accordance with the Law on High Technology;

► Supporting industry products for the production of products in the following sectors: textiles and garments; leather and footwear; electronics and information technology; automobile manufacturing and assembly; mechanical engineering, provided that as of 01 January 2015 such products could not yet be manufactured domestically, or could be manufactured domestically but must meet technical standards of the European Union (EU) or equivalent. (The List of prioritized supporting industry products is prescribed by the Government.)

► Income of enterprises derived from the implementation of investment projects in the manufacturing sector, excluding projects producing goods subject to special consumption tax and mineral exploitation projects, with a minimum investment capital of VND 12,000 billion, using technologies subject to appraisal in accordance with the Law on High Technology and the Law on Science and Technology, and completing disbursement of the total registered investment capital within no more than five (05) years from the date of approval of the investment in accordance with the law on investment.

Application of a 10% tax rate for the entire duration of operation applicable to:Income of enterprises derived from the implementation of investment projects on social housing business for sale, lease, or lease-purchase for eligible subjects as prescribed in Article 53 of the Law on Housing.

Application of a 20% tax rate for a period of ten (10) years applicable to:

• Income of enterprises derived from the implementation of new investment projects in areas with difficult socio-economic conditions;

• Income of enterprises derived from the implementation of new investment projects, including: production of high-grade steel; production of energy-saving products; production of machinery and equipment serving agriculture, forestry, fishery, and salt production; production of irrigation equipment; production and processing of animal feed, poultry feed, and aquaculture feed; development of traditional trades and crafts.

From 01 January 2016, the applicable tax rate shall be 17%.

2. Import Duty Exemption

Applicable to imported goods used for the creation of fixed assets, including:

• Machinery and equipment; components, parts, separate details, spare parts for synchronized assembly or synchronized use with machinery and equipment; raw materials and supplies used for manufacturing machinery and equipment or for manufacturing components, parts, separate details, and spare parts of machinery and equipment;

• Specialized means of transport within technological production lines directly used for the production activities of the project;

Applicable to raw materials, supplies, and components that cannot be domestically produced and are imported for production of investment projects belonging to sectors and trades entitled to special investment incentives or located in areas with extremely difficult socio-economic conditions in accordance with the law on investment. High-tech enterprises, science and technology enterprises, and science and technology organizations shall be exempt from import duties for a period of five (05) years from the commencement of production.

Note: This incentive shall not apply to mineral exploitation investment projects; projects producing products for which the total value of natural resources and minerals together with energy costs accounts for fifty-one percent (51%) or more of the product cost; or projects producing or trading in goods and services subject to special consumption tax.

3. Exemption and Reduction of Land-Use Levy, Land Rent, and Land-Use Tax

Exemption from non-agricultural land-use tax shall apply to land used for investment projects in sectors especially encouraged for investment; investment projects located in areas with extremely difficult socio-economic conditions; and investment projects in sectors encouraged for investment located in areas with difficult socio-economic conditions.

A reduction of fifty percent (50%) of the payable land-use tax shall apply to land used for investment projects in sectors encouraged for investment and investment projects located in areas with difficult socio-economic conditions.

Exemption from land rent and water surface rent for the entire lease term shall apply to investment projects in sectors entitled to special investment incentives that are implemented in areas with extremely difficult socio-economic conditions.

Exemption from land rent after the expiration of the land rent and water surface rent exemption period during the basic construction phase shall apply as follows:

• Three (03) years for projects included in the List of sectors entitled to investment incentives; and for newly established production and business facilities of economic organizations relocating in accordance with planning or relocating due to environmental pollution.

• Seven (07) years for investment projects located in areas with difficult socio-economic conditions.

• Eleven (11) years for investment projects located in areas with extremely difficult socio-economic conditions; investment projects included in the List of sectors entitled to special investment incentives; and investment projects included in the List of sectors entitled to investment incentives implemented in areas with difficult socio-economic conditions.

• Fifteen (15) years for investment projects included in the List of sectors entitled to investment incentives implemented in areas with extremely difficult socio-economic conditions; and investment projects included in the List of sectors entitled to special investment incentives implemented in areas with difficult socio-economic conditions.

4. Accelerated Depreciation and Increase in Deductible Expenses When Determining Taxable Income

This is a new form of investment incentive recognized by the Law on Investment 2020.

Accelerated depreciation refers to the application of depreciation in a manner that accelerates capital recovery during the initial years of use of fixed assets. On an annual basis, enterprises shall depreciate fixed assets in accordance with the prevailing regulations of the Ministry of Finance on the management, use, and depreciation of fixed assets, including cases of accelerated depreciation (if the prescribed conditions are satisfied).

Enterprises operating with high economic efficiency may apply accelerated depreciation, but at a rate not exceeding two (02) times the depreciation rate determined under the straight-line method, in order to rapidly renew technology for certain fixed assets in accordance with the prevailing regulations of the Ministry of Finance on the management, use, and depreciation of fixed assets. When applying accelerated depreciation, enterprises must ensure profitable business operations.

Special Investment Incentives

Special investment incentives are incentives applied by the State to encourage the development of certain investment projects that have a significant impact on socio-economic development.

Entities eligible for special investment incentives include:

Investment projects for the establishment of new innovation centers and research and development centers (including the expansion of such newly established projects) with a total investment capital of VND 3,000 billion or more, disbursing at least VND 1,000 billion within a period of three (03) years from the date of issuance of the Investment Registration Certificate or approval of the investment policy; and the National Innovation Center established under the decision of the Prime Minister shall be entitled to the following special investment incentives:

► Incentives regarding tax rates and the period of corporate income tax exemption and reduction: A preferential tax rate of seven percent (7%) for thirty-three (33) years; corporate income tax exemption for six (06) years and a fifty percent (50%) reduction of the payable tax for the subsequent twelve (12) years with respect to income from the investment project.

► Incentives regarding land rent and water surface rent: Exemption from land rent and water surface rent for twenty (20) years and a reduction of sixty-five percent (65%) of land rent and water surface rent for the remaining period applicable to the economic organization implementing the investment project.

Investment projects in sectors and trades entitled to special investment incentives with a total investment capital of VND 30,000 billion or more, disbursing at least VND 10,000 billion within a period of three (03) years from the date of issuance of the Investment Registration Certificate or approval of the investment policy, shall be entitled to the following special investment incentives:

Incentives regarding tax rates and the period of corporate income tax exemption and reduction:

♦ A preferential tax rate of nine percent (9%) for thirty (30) years applicable to the income of the economic organization derived from the implementation of the investment project; corporate income tax exemption for six (06) years and a fifty percent (50%) reduction of the payable tax for the subsequent twelve (12) years.

♦ A preferential tax rate of seven percent (7%) for thirty-three (33) years; corporate income tax exemption for six (06) years and a fifty percent (50%) reduction of the payable tax for the subsequent twelve (12) years applicable to income from the investment project satisfying one of the following four criteria: being a level-1 high-tech project; having Vietnamese enterprises participating in a level-1 value chain; having added value accounting for more than thirty percent (30%) to forty percent (40%) of the total cost of the final output product; or satisfying level-1 technology transfer criteria.

♦ A preferential tax rate of five percent (5%) for thirty-seven (37) years; corporate income tax exemption for six (06) years and a fifty percent (50%) reduction of the payable tax for the subsequent thirteen (13) years applicable to income from activities of the investment project satisfying one of the following four criteria: being a level-2 high-tech project; having Vietnamese enterprises participating in a level-2 value chain; having added value accounting for more than forty percent (40%) of the total cost of the final output product; or satisfying level-2 technology transfer criteria; or applicable to income of the National Innovation Center established under the decision of the Prime Minister.