Vietnam’s Investment Incentives: Opportunities in 2023
No.Law No. 32/2013/QH13 significantly changes and simplifies Vietnam’s investment incentive system, providing incentives for new investment or expansion projects in regions and specific industries facing socio-economic challenges. The reform amends the Corporate Income Tax Law ( 14/2008/QH12 ) and provides tax incentives for large-scale manufacturing projects that meet certain criteria. All local and foreign-invested companies can participate in these incentive schemes.
Various preferential policies are provided, such as preferential 10-year 17% tax rate, 15-year 10% tax rate for areas with extremely difficult socio-economic conditions, and 15-year 10% tax rate for large-scale manufacturing projects that meet certain conditions. After the initial tax-free period, enterprises have the right to Enjoy a 50% corporate income tax (CIT) reduction for a limited number of years. These incentives do not apply to mining projects and the production of goods and services subject to special sales tax.
Decision No. 29/2021/QD-TTg issued by Prime Minister Pham Minh Thanh in October 2021 introduced special incentives for large-scale projects. The three schemes offer various benefits such as extended tax rates, tax holidays and land and water rent exemptions. These incentives are available to companies involved in high technology, supply chain, technology transfer and production of goods with significant added value.
To qualify for an award, expansion projects must increase production, productivity or upgrade existing production technology. No awards will be awarded for projects resulting from mergers or acquisitions or for those portions of ongoing projects. Loss-making enterprises can carry forward losses to the next year, but not more than five years.
Since the beginning of 2020, the government has introduced a series of measures to protect workers and businesses from the negative economic impact of the outbreak. Donations made by corporate taxpayers to support and fund coronavirus prevention and control can be claimed as deductions for the 2020, 2021 and 2022 tax years. The government has also reduced corporate tax for SMEs for the 2020 and 2021 tax years, and waived late fees for outstanding tax, land use tax and land rent for 2020 and 2021.
According to the provisions of Decree No. 04/2009/ND-CP and its executive circular 230/2009/TT-BTC , the Vietnamese government provides preferential tax incentives for companies engaged in environmental protection activities located in areas with difficult or extremely difficult socio-economic conditions department. These incentives include a preferential tax rate of 10% throughout the period of operation and a corporate income tax (CIT) exemption for four years (starting from the first profitable year), followed by a 50% corporate income tax reduction for nine consecutive years. Machinery, equipment and materials not produced domestically and imported for direct use in these projects are also exempt from VAT. Environmental protection projects outside of these locations may only be eligible for the second award.
In addition to the above, the Corporate Income Tax Law (14/2008/QH12) outlines tax incentives for various other industries. The Investment Law ( 61/2020/QH14 ) and Law No. 71/2014/QH13 also expanded the list of sectors and industries entitled to incentives. New investment projects including high-tech, scientific research, technology development, national infrastructure construction, computer software manufacturing, education, vocational training, health care, culture, sports, environmental protection, high-grade steel production or energy – savings products, first Machinery and equipment manufacturing and microfinance institutions in the industrial sector.
Other industries eligible for incentives include industries whose products support high-tech enterprises, production of new materials, new energy and renewable energy, production of electronic products, production of key machinery products, agricultural machinery, automobiles and auto parts, shipbuilding, etc. Investments in geriatric centers, psychiatric centers, facilities that treat patients with Agent Orange poisoning and care for the elderly, disabled and homeless children are also eligible.
According to the requirements of Law No. 48/2010/QH12, Announcement No. 83/2016/TT-BTC exempts the projects of “specially encouraged industries” from paying non-agricultural land use tax. In addition, Decree No. 57/2021 (published and effective June 2021) provides incentives for manufacturing projects that support the above industries, even if they start operating before 2015.
Law No. 04 /2017/QH14 aims to support Small and Medium Enterprises (SMEs) and start-ups by providing various incentives, such as corporate tax exemption for SMEs investing in distribution chains, access to credit guarantees, and office/experimentation for incubators office space, simplify the accounting system, provide free consulting services and staff training, and waive business registration fees.
Decree No. 13 /2019/ND-CP also provides incentives for scientific and technological enterprises that derive at least 30% of their revenue from inventions, practical solutions, industrial designs, integrated circuits, new technologies, and new livestock, plant, and aquatic species. These businesses are eligible for a four-year corporate income tax exemption and a nine-year 50% reduction in payable corporate income tax. They are also eligible for waived or reduced land use rights fees and can apply for government grants.
Finally, Decree No. 94/2020/ND-CP provides incentives for technology start-ups operating in several parks of the National Innovation Center (NIC). Incentives include exemption from land rent for the entire lease term, which can be up to 50 years. Startups located in the NIC park in Hoa Lac may also qualify for a 10% income tax break for 30 years from the first year of income, followed by four years of income tax exemption and 50% income tax reduction for up to nine years.
The Vietnamese government provides preferential corporate income tax rates for investment projects in areas with difficult conditions, including Lao Cai, Ham Yen, Son Duong and Yen Son districts, Luc Ngan, Luc Nam, Yen The and Hiep Hoa districts, and Van Don districts. These areas A corporate income tax rate of 17% is available for ten years from the year in which income is first generated. Companies in these areas are also exempt from corporate income tax for two years (starting from the first profitable year) and a 50% corporate income tax reduction for four consecutive years. Decision No. 353/QD-TTg identified 74 other regions in 26 provinces that are also eligible for these incentives. The new list is valid until 2025.
Investment projects in extremely poor areas, economic zones or high-tech parks can enjoy a preferential tax rate of 15% for a period of 15 years from the year when they first generate income. Companies in these areas can also enjoy a four-year corporate income tax exemption (starting from the first profitable year) and a 50% corporate income tax reduction for nine consecutive years. Decision No. 353 identified all district towns of Bac Kan, Cao Bang, Dien Bien, Ha Giang, Lai Chau, Lao Cai, and Son La, as well as Hoang Sa Island district in Da Nang, as areas of extreme hardship. It also identified 54 additional areas in 12 coastal provinces facing extremely difficult conditions.
The Vietnamese government is offering more favorable incentives for new investment projects in Hanoi and Le Hi-Tech Park worth more than AED 4 trillion, including a 10% income tax rate for 30 years, reduced land rent, simplified work permit application procedures for foreign employees, and Multiple entry visas for foreign experts, investors and their families. According to Decree No. 74/2017/ND-CP, companies investing in infrastructure are exempted from paying land rent for the entire lease term.
According to Decree No. 142/2005/ND-CP, companies are exempted from paying land rent for 11 years if they invest in difficult areas, and 15 years if they are located in extremely difficult areas. Ministry of Finance Circular No. 83/2016/TT-BTC provides additional incentives for businesses in difficult areas, including a 50% reduction in non-agricultural land use tax, while businesses in extremely difficult areas are exempt from this tax.
Circular 83/2016/TT-BTC provides additional incentives for investment projects in areas of extreme hardship: Imported fixed assets are exempt from tax for five years from the date of production. These offers apply to first-time investments in hotels, offices, residences, audit and consulting services, technical services, supermarkets, golf courses, resorts, amusement parks, clinics and financial institutions. These incentives are in addition to the corporate income tax incentives offered to businesses in areas of difficult and extremely difficult socio-economic conditions.
Industrial Zones and Special Economic Zones
An industrial zone (IZ) or park is an area where enterprises that produce industrial products and provide services for industrial production concentrate. Export Processing Zones (EPZs) are industrial zones dedicated to the production of goods for export and the provision of services for such production and export activities. An Economic Zone (EZ) designed to drive regional economic growth is no different from an EPZ.
- Decree No. 91/2014/ND-CP and new investment law (61/2020/QH14) reinstated incentives for IZ and corporate developers in these parks, including major cities, from January 1, 2009 industrial park. However, these incentives are lost under the Corporate Income Tax Law (14/2008/QH12) if they are located in areas with difficult socio-economic conditions.
- The corporate income tax law retains incentives for export processing zones, high-tech parks and export processing zones. New infrastructure projects in these areas can enjoy a preferential tax rate of 10% for 15 years, tax exemption for the first four years of profitable operations, and a 50% tax reduction for nine years after tax exemption.
- Services produced in export processing zones enjoy a preferential tax rate of 15% for 12 years, tax exemption for two years, and a 50% tax reduction for the next seven years. Businesses in EPZs also benefit from expedited customs clearance for imports and exports.
- Decree No. 164/2013/ND-CP provides additional incentives for IZs, EPZs and EZs: the cost of constructing, maintaining and renting apartments and other buildings for the use of employees is deducted from corporate income tax. However, according to Decree No. 82/2018/ND-CP, the 50% personal income tax deduction for employees in these areas was abolished.
- The prime minister can offer tax incentives to businesses that employ at least 500 people and invest in export processing zones. These incentives include a tax exemption for up to four years and a 50% tax cut for up to nine years. Circular No. 40/2009/TT-LDTBXH provides guidance on calculating the number of permanent employees.
- Vietnam opened its first SEZ in 2003 and has since established at least 17 other SEZs intended to drive regional economic growth. However, EZs in Vietnam have become ordinary EPZs with incentives similar to high-tech parks and EPZs. There are more than 300 IZs and EPZs in Vietnam, most of which are located in EZs. Companies in these zones do not have to pay tariffs on imported raw materials if the final product is exported.
- Decree 154/2013/ND-CP defines centralized IT parks and offers incentives to their developers and tenants, including a 10% corporate tax rate for 15 years (or up to 30 years in special cases), a four-year tax holiday and 50% tax cut for 9 years. In addition, they are exempt from import duties on goods used for production and are given preferential land allocation by the state. To qualify, a park must employ a certain number of IT specialists or have a certain percentage of IT professionals on staff.
- Decision No. 52/2008/QD-TTg approved the plan to develop a border port economic zone near Vietnam’s borders with Cambodia, China and Laos to attract people engaged in trade, export, re-export, import, cargo transportation and tourism services company. The largest of these areas are Moc Bai on the Vietnam-Cambodia border and Cao Bang near the Chinese border.
- Resolution No. 33/2009/QD-TTg provides similar incentives to other EZs for Border Port Economic Zones, such as a preferential corporate income tax rate of 10% for 15 years, a possible four-year corporate income tax exemption starting from the first profitable year , and a nine-year corporate income tax reduction of 50 percent. Vietnamese and foreign employees working in these regions were entitled to a 50% personal income tax reduction originally under Decree No. 164/2013/ND-CP, but it has been revoked under Decree No. 82/2018/ND-CP. The government is also providing state funding to support key infrastructure projects within these border crossing areas.