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 which meet certain conditions, are also entitled to CIT incentives. 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.
New investment or expansion projects engaged in manufacturing industrial products prioritized for development are entitled to CIT incentives if they meet one of the following conditions:
- the products support the high technology sector; or
- the products support the garment, textile, footwear, electronic spare parts, automobile assembly, or mechanical sectors.
Locations which are encouraged include qualifying economic and high-tech zones, certain industrial zones and designated difficult socio-economic areas.
Large manufacturing projects (excluding those related to the manufacture of products subject to special sales tax or those exploiting mineral resources) are entitled to CIT incentives as follows:
- Projects with total capital of VND6,000 billion or more, disbursed within 3 years of being licensed, meeting either of the following criteria:
- minimum revenue of VND10,000 billion/annum by the 4 th year of operation; or
- head count of more than 3,000 by the 4th year of operation.
- Projects with total capital of VND12,000 billion or more, disbursed within 5 years of being licensed and using technologies appraised in accordance with relevant laws.
The two common preferential rates of 10% and 17% are available for 15 years and 10 years respectively, starting from the commencement of generating revenue from the incentivised activities. The duration of application of the preferential tax rates can be extended in certain cases. When the preferential rates expire, the CIT rate reverts to the standard rate. The preferential rate of 15% applies for the entire project life in certain cases. Certain social sectors (e.g. education, health) enjoy the 10% rate for the entire life of the project.
Special investment incentives are available 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 from the incentivised activities, 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 generating revenue from the incentivised activities, 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.
As noted above, R&D and investment projects that are entitled to special investment incentives would enjoy longer tax exemption and reduction periods.
Certain incentives, including a lower CIT rate, are granted to small and medium enterprises (SMEs) (various criteria applied to be considered as SMEs).
Tax incentives which are available for investment in encouraged sectors do not apply to other income earned by a company (except for certain income).
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.