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Get to know Vietnam tax credit and incentives

Content Team4 minute read31 Aug 2021

Why invest in Vietnam? Besides obvious factors such as strategic location, efficient and young workforce, there’s another thing worth considering: Vietnam tax incentives. Vietnam really shows its openness to investors around the world by offering a wide range of tax incentives which put a spotlight on it.

Types of tax incentives

There are two types of tax incentives in Vietnam that can be beneficial to foreign firms and organizations: The preferential tax rate and Tax Holidays. The preferential tax rate can reduce your tax rates based on your scope and scale of business. Whereas the Tax Holidays grant you tax exempted for a specific period or the entire business cycle.

preferential-tax-rates

The preferential tax rate duration is calculated successively from the income in which a firm earns in the first year. This duration is extendable for large-scaled manufactures and hi-tech firms. But be noted that this extension is at a maximum of 15 years.

When it comes to tax holidays, it’s all about the exemption. This tax incentive comes as a CIT exemption for a specific period starting from the first year making a profit of a firm, accompanied by another period where 50% tax reduction is charged at the applicable rate. If the firm is reported to have zero profits within the first three years of establishment, the tax holidays reduction will start to apply from the fourth year.

Tax incentives are granted to foreign firms based on their geographical areas, sectors, or scale.
To get to know more about types of tax in Vietnam, please read our blog Underdstanding Vietnam Tax System

1. Location-based Incentives

locations-based-incentives

Encouraged locations that are listed as hi-tech zones, industrial zones, economic zones are a big perk for foreign investors. Besides, Vietnam also offers tax incentives (both preferential tax rate and tax holidays) for bad socio-economic regions such as areas that have poor infrastructure, shortage of labor force, or in a remote location.
Generally, income in newly invested projects are based on the listed locations above, will be subject to 15 years of CIT at 10%, four years of exemption, and for the next 9 years, 50% tax reduced. However, the rate and exemption can be varied depending on the specific locations shown below.
Locations with CIT Incentives

Location Preferential Tax Rate Tax Holidays
Especially difficult socio-economic conditions

Economics zones

Hi-tech zones

10% for the first 15 years
  • 4 years of tax exemption
  • 50% reduction for the next 9 years
Difficult socio-economic conditions 17% for the first 10 years
  • 2 years of tax exemption
  • 50% reduction for the next 4 years
Industrial Parks (not located in favorable socioeconomic areas) Not applicable
  • 2 years of tax exemption
  • 50% reduction for the next 4 years

Source: Vietnam Foreign Investment Agency – Ministry of Planning and Investment 2019

2. Industry-based Incentives

industry-based-incentives

Newly invested projects that involve the hi-tech industry, hi-tech transfer, agribusiness, heavy industry, as well as socialization activities, are granted special tax incentives from the Vietnam government.

Industries with CIT Incentives

Sector Preferential Tax Rate

Tax Holidays

A 10% for 15 years
  • 4 years of tax exemption
  • 50% reduction for the next 9 years
B 10% for the whole  project’s lifetime
  • 4 years of tax exemption
  • 50% reduction for the next 9 years
C 10% for the whole  project’s lifetime
  • 4 years of tax exemption
  • 50% reduction for the next 5 years
D 10% for the whole  project’s lifetime
  • Tax exemption and reduction under incentives for location (if applicable
E 15% for the whole  project’s lifetime Not applicable
F 17% for 10 years
  • 2 years of tax exemption
  • 50% reduction for the next 4 years

Source: Vietnam Foreign Investment Agency – Ministry of Planning and Investment 2019

Notes:

  • Sector A: Hi-tech firms (including science and technology enterprises), research, application, and incubation of hi-tech projects, Environmental protection, Investment for infrastructure, Software production, Supporting Industries, Agriculture enterprises applying high tech.
  • Sector B: Socialized projects in education, training, vocation, health, culture, sports, and environment, located in difficult or especially difficult socio-economic conditions.
  • Sector C: Socialized projects not in difficult or especially difficult socio-economic locations.
  • Sector D: Farming sectors in difficult regions, such as husbandry, agriculture and aquaculture production, plant varieties and animal breeds production, salt production in difficult areas; preservation of agriculture and aquaculture products and foods.
  • Sector E: Farming sectors not in difficult or especially difficult regions.
  • Sector F: Heavy industry such as high-quality steel production, energy-saving products, agriculture machinery and equipment, as well as forestry, fisheries, salt production, and traditional crafts.

3. Size-based Incentives

size-based-incentives

A foreign firm can be beneficial from tax incentives if the following criteria are met:

  • Income from new investment projects in the production sector (however, a project involved with goods subject to special sales tax, or mineral exploitation are ineligible) has invested at the minimum of six trillion dongs (approximately 257 million US Dollars) being paid out no later than 3 years from the investment certificate date; and
  • Sum minimum revenue at 10 trillion dongs per year and no later than three years from the year starting to generate revenue; or
  • Minimum of 3,000 full-time staff per year no later than three years from the year starting to generate revenue.

Ultimately, a foreign firm needs to be qualified for the first criteria and either one of the remaining ones.

Firm Scale with CIT Incentives

Scale Preferential Tax Rate Tax Holidays
A minimum at 6 trillion dongs (257 million US dollars) and

  • Minimum revenue at 10 trillion dongs per year

Or

  • Minimum of 3,000 full-time staff per year

10% for 15 years

  • 4 years of tax exemption
  • 50% reduction for the next 9 years

Vietnam tax incentives really offer a remarkable opportunity for investors around the world. With many compelling tax incentives like this, have you got the answer to the big question being asked from the beginning of this article yet?

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