Vietnam’s tax incentives stand out from other countries in Southeast Asia, as they create the most favorable conditions for foreign investors looking to expand their business operations or invest in new projects.
In this article, we will take a look at these tax incentives and their policies, and help you integrate them into your own business.
1- What are the basic taxes you should know before opening a business in Vietnam?
Corporate Income Tax (CIT)
In the last two decades, the Vietnamese Corporate Income Tax rate has decreased from 32% to 20%. This figure is one of the lowest in the region.
- Vietnam, Cambodia, Thailand – 20%
- Malaysia – 24%
- Indonesia – 25%
- Philippines – 30%
CIT is paid at the end of the financial year in Vietnam.
Personal Income Tax (PIT)
Personal Income Tax rate varies, depending on your resident situation and how much an individual earns per year. The tax rate is fixed at 20% for non-residents and ranges from 5% to 35% for residents.
Value Added Tax (VAT)
Value-Added Tax is the most prevalent and indirect tax in Vietnam. Consumers purchasing goods and services in Vietnam will be imposed a VAT of 0%, 5%, or 10%, depending on the type of good or service. Most goods in Vietnam will be taxed at 10%.
- Philippine standard 12% VAT standard rate
- Thailand Reduced 7% VAT standard rate until 09/2023 then Standard 10% VAT
- Cambodia 19% VAT standard rate with 7% VAT reduced rate for some industries
- Malaysia 10% Sales tax rate and 6% Service tax rate with a 5% Sales tax reduced rate for some industries
- Indonesia 11% VAT Standard rate
2- What are the tax incentives companies can benefit from?
Preferential CIT rates
- 10% for the lifetime of the entire project
- 10% for 15 years from the first year of income generation;
- 17% for the lifetime of the entire project;
- 17% for 10 years from the first year of income generation.
Tax holidays
- Tax exemption for 4 years, 50% reduction of payable tax amounts for 9 subsequent years;
- Tax exemption for 4 years, 50% reduction of payable tax amounts for 5 subsequent years;
- Tax exemption for 2 years, 50% reduction of payable tax amount for 4 subsequent years.
In certain situations, locations and industries, it is possible to combine both.
3- How are the tax reductions defined?
Incentives in disadvantaged locations
In order to attract more capital and development to certain areas, the Vietnamese government provides incentives in the form of tax exemptions. These are given based on what the economic landscape looks like and what the current regional or industry needs are.
For location-based incentives, there are distinctions between disadvantaged locations and extremely disadvantaged locations, according to infrastructure, convenience of access ways and how developed the economic zone is.
Investments in both disadvantaged and extremely disadvantaged locations benefit from Preferential Corporate Income Tax as well as tax holidays. The level of incentive they receive is directly tied to how disadvantaged these regions are.
Incentives for particular sectors
The government also promotes industries (through these incentives) that bring long-term benefits to the labor force, due to the fact that a more highly skilled and able workforce will help build a stronger overall economy. Therefore social impact projects like sustainable services, education, culture, sport, agriculture, and healthcare industries all enjoy similar tax incentives.
Furthermore, highly qualified industries which can improve the labor force standard are promoted, such as the Hi-Tech industry and allied sectors, or Research and Development activities.
4- How to apply to benefit from these tax incentives?
To apply for these tax incentives you must have every document of the dossier (as listed below) and fulfill all requirements. Also, you need to ensure that the investment license of your business complies with the requirements for foreign investment incentives in Vietnam.
The dossier includes:
- A written request using Form 01 found in Circular 55,
- The enterprise registration certificate,
- The description of the project,
- An audited financial statement of existing projects,
- The decision on approval for environmental impact (for new projects) or commitment to environmental projection (existing projects).
Processing of a request takes at least 35 days. The dossier can be submitted directly to the Department of Heavy Industry under the Ministry of Industry and Trade (MoIT) based in Hanoï, or online on the MoIT portal.
5- Besides these basic tax incentives, are there any other specific ones?
In addition to these basic tax incentives, the government set up others in order to reach competitiveness and attract numerous investors. Exemption from customs duties and exemption from land rental are the two main other incentives.
Exemption from Customs Duties
Import duty exemption applies for projects which are classified as encouraged sectors/locations in encouraging areas, and goods imported with specific circumstances. This includes:
- Machinery, equipment, specialized means of transportation, construction materials (that cannot be produced in Vietnam) comprising the fixed assets of encouraging investment projects;
- Machinery, equipment, or specialized means of transportation, materials (that cannot be produced in Vietnam), office equipment imported for use in oil and gas activities;
- Materials, supplies, and components imported for the production of exported goods;
- Raw materials, supplies, and components imported for processing of exports;
- Goods manufactured, processed, recycled, and assembled in a free trade zone without using imported raw materials or components when imported into the domestic market;
- Materials, supplies, and components that cannot be domestically produced and which are imported for the production of certain encouraging projects;
- Goods are temporarily imported or exported for the purpose of warranty, repair, and replacement.
Exemption from land rental
A land rental fee exemption is provided to a number of investment projects that satisfy specific conditions such as investment in certain industries or encouraged geographical locations:
- Exemption for the whole operational period: projects on the list of special investment encouragement sectors investing in areas of particularly difficult socio-economic conditions;
- 15 years of exemption from the date of operation: projects on the list of special investment in encouraged sectors investing in areas of difficult socioeconomic conditions, or projects on the list of investment encouraged sectors investing in areas of especially difficult socio-economic conditions;
- 11 years of exemption from the date of operation: projects investing in areas of especially difficult socioeconomic conditions; projects in the list of special investment encouraged sectors; projects on the list of encouraged sectors investing in difficult socioeconomic areas;
- 7 years of exemption from the date of operation: projects investing in areas of difficult socio-economic conditions;
- 3 years of exemption from the date of operation: projects on the list of encouraged sectors; business and production relocation under urban planning or due to environmental pollution.
Aside from these incentives, to promote R&D, the Vietnamese government allows business entities in Vietnam to set up a tax-deductible R&D Fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. However, it is important that various conditions apply to this kind of policy.
What’s more, the government promotes employment by adding tax reductions 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).
6- Are there any new measures since Covid-19?
The government has put forward several measures to help businesses affected by the pandemic. The first one is Decree 57, issued in June 2021, for businesses involved in the supporting industry. Its main highlight is that it increases incentives for eligible manufacturers and overall incentives for processing and manufacturing industries in the local economy.
Decree 57 is retroactive and covers investments prior to 2015. These incentives incorporate a CIT rate of 10% for 15 years and a tax holiday for 4 years, followed by a reduced CIT rate of 50% for the next 9 years.
The decree also gives financial support to businesses that struggled the most during the pandemic. These incentives apply to textile and garment, footwear, electronics, automobiles, machinery engineering, and hi-tech industries if they meet specific conditions.
What’s more, a 10% reduction in electricity fees applied to factories or production facilities located in areas that were implementing social distancing measures have been set up to help factories with the Covid-19 crisis.
To help various companies, the government also set up some measures which were valid until December 31, 2021.
Resolution 68 in July 2021 gives, for example, access to short-term loans at a 0% rate for employers. Apart from these, the government reduced land rent by 30% (in addition to any existing reduction) for those affected by the pandemic. Eligible parties include businesses, households, and individuals that directly leased land from the State.
Finally, one of the most important government measures on several incentives was to include a 30% corporate income tax cut for businesses for the fiscal year 2021. The Resolution applied to all businesses that had not earned more than VND 200 billion (US$8.8 million) in 2021 and that had decreased revenue in 2021, compared to 2019.
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