Foreign tax credit
In respect of Vietnamese enterprises earning income from overseas investment, CIT (or a kind of tax with a nature similar to CIT) paid in a foreign country or paid on behalf by its partner in the country receiving the investment (including tax levied on the dividend) is allowed to be creditable. The credit shall not exceed the CIT amount payable in Vietnam.
The foreign income tax that is entitled to exemption or reduction in accordance with the foreign law shall also be credited.
Inbound investment incentives
Tax incentives are granted based on regulated encouraged sectors, encouraged locations, and size of the projects. Business expansion projects (including expansion projects licensed or implemented during the period from 2009 to 2013, which were not entitled to any CIT incentives previously), which meet certain conditions, are also entitled to CIT incentives from 2015. New investment projects and business expansion projects do not include projects established as a result of certain acquisitions or reorganisations.
The sectors that are encouraged by the Vietnamese government include education, health care, sport/culture, high technology, environmental protection, scientific research and technology development, infrastructural development, processing of agricultural and aquatic products, software production, and renewable energy.
The encouraged locations include qualifying economic and high-tech zones, certain industrial zones, and difficult socio-economic areas. Large manufacturing projects with investment capital of more than VND 6 trillion disbursed within three years of being licensed can also qualify for CIT incentives if:
- the minimum revenue is VND 10 trillion per annum by the fourth year of operations at the latest, and
- the minimum headcount is 3,000 by the fourth year of operations at the latest.
The preferential incentive rate applied for large manufacturing projects can be extended for a maximum additional 15 years if the project manufactures goods having ‘international competitiveness’ whose revenue exceeds VND 20 trillion per annum within five years from the first year of revenue generation, or whose average head count is over 6,000.
Large manufacturing projects include projects with investment capital of VND 12 trillion or more, disbursed within five years of being licensed (excluding those related to the manufacture of products subject to SST or those exploiting mineral resources) and using technologies appraised in accordance with relevant laws.
Further, new investment projects engaging in manufacturing industrial products prioritised for development will be entitled to CIT incentives if the products support:
- the high technology sector, or
- the garment, textile, and footwear; information technology (IT); automobiles assembly; or mechanics sector and were not produced domestically as of 1 January 2015, or, if produced domestically, they meet the quality standards of the European Union or equivalent.
Effective from 4 June 2021, projects manufacturing prioritised supporting industry products (including new investment projects and investment expansion projects), which started operating before 2015, meet the relevant conditions under Law 71/2014, and have been granted with a certificate of incentives for supporting industrial manufacturing, are now entitled to CIT incentives.
From 1 January 2016 onwards, the two preferential rates of 10% and 17% for 15 years and 10 years, respectively, are available starting from the commencement of generating revenue from the incentivised activities. When the preferential rate expires, the CIT rate reverts to the standard rate. The preferential rate of 15% will apply for the entire project life in certain cases. Certain socialised sectors (e.g. education, health) enjoy the 10% rate for the entire life of the project.
Investment projects are allowed to access more favourable tax incentives available under an amended or new law on CIT for the remaining project period, from tax year 2015. This entitlement is specifically applicable to the following cases:
- Expansion projects licensed or implemented during the period from 2009 to 2013 that were not previously entitled to any CIT incentives.
- Investment projects commencing operations in industrial zones during the period from 2009 to 2013 that were not previously entitled to any CIT incentives.
- Investment projects located in areas that were not previously designated as encouraged.
Decision 29/2021, which took effect from 6 October 2021, provides guidance on special investment incentives applicable for the qualified R&D and large investment projects specified in the Law on Investment. The CIT incentives vary depending on a number of criteria. The most favourable package comprises a preferential tax rate of 5% for a period of 37 years, 6 years of tax exemption, plus a 50% CIT reduction for a subsequent 13 years. In addition, there is also exemption/reduction from land rental fee and water rental fee for a period of time.
Investors may be considered for tax holidays and reductions. The holidays take the form of a complete exemption from CIT for a certain period beginning immediately after the enterprise first makes profits, followed by a further period where tax is charged at 50% of the applicable rate. However, where the enterprise has not derived profits within three years of the commencement of operations, the tax holidays/tax reduction will start from the fourth year of operation.
Criteria for eligibility to these holidays and reductions are set out in the CIT regulations for projects in encouraged sectors or locations as follows:
- Four years of tax exemption and nine subsequent years of 50% reduction shall be applied to:
- Income earned by enterprises carrying out new investment projects entitled to 10% CIT.
- Income earned by enterprises carrying out new investment projects in the socialised sectors and difficult socio-economic areas.
- Four years of tax exemption and 50% tax reduction for five subsequent years shall be given to income earned by enterprises carrying out new investment projects in the socialised sectors and in regions not included in the list of difficult socio-economic areas.
- Two years of tax exemption and four subsequent years of 50% reduction shall be applied to:
- Income earned by enterprises from carrying out new investment projects in regions with difficult socio-economic conditions.
- Income earned by enterprises from carrying out new investment projects, including production of high-grade steel, production of energy saving products, production of machinery or equipment used to serve agricultural, forestry, fishery, or salt production, production of irrigational equipment, production and refinement of foodstuff for cattle, poultry, or aquatic products, and development of traditional trades.
- Income earned by enterprises that carry out new investment projects in industrial zones (except for industrial zones located in regions with favourable socio-economic conditions).
As noted above, under Decision 21, R&D and investment projects that are entitled to special investment incentives would enjoy longer tax exemption and reduction periods.
From 1 January 2018, certain incentives, including a lower CIT rate, will be granted to small and medium enterprises (SMEs) (various criteria applied to be considered as SMEs). As an attempt to support taxpayers during the COVID-19 pandemic, a resolution was ratified in June 2020 to reduce CIT payable by 30% in 2020 for enterprises having annual revenue in 2020 not exceeding VND 200 billion. The 30% CIT reduction shall continue to apply for 2021 for companies having total revenue in 2021 not exceeding VND 200 billion and lower than what they earned in 2019. The latter requirement will not be applied in certain cases, such as newly established companies and companies having undergone a merger or demerger in 2020 or 2021.
Additional tax reductions may be available for engaging in manufacturing, construction, and transportation activities that employ several female staff and/or ethnic minorities. CIT reduction must correspond with the actual payment for those employees.
Research and Development (R&D) Fund
Business entities in Vietnam are allowed to set up a tax-deductible R&D Fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. Various conditions apply.