Incentives offered by the Vietnamese government make Vietnam a great place to expand your business. Understanding all of the tax credits and incentives available to your company when doing business in Vietnam is crucial. You can therefore reduce the tax liability of your business while increasing profits at the same time.
In this article, we will discuss the various types of tax incentives available to foreign investors in Vietnam.
What are the types of tax incentives in Vietnam?
Tax incentives in Vietnam are classified into two types: preferential tax rates for foreign businesses and tax holidays, which is a period after incorporation when your company is legally exempt from taxes.
Preferential tax rates
Following this incentive, your foreign company is taxed lower than the standard 20%, most commonly at 10%, 15%, or 17%.
The preferential rate can be applied for the duration of your company’s existence, or a set period depending on specific provisions. For example, hi-tech companies can benefit from lower tax rates beginning with their first year of revenue generation.
Tax holidays
Your company may be exempt from paying taxes for a set period, which is usually four years.
The tax-free period generally begins with the first year of profit-making or the fourth year of revenue generation, whichever comes first. In certain cases, companies can benefit from both a tax holiday and preferential tax rates.
Get a full understanding of the complex Vietnam Tax System through our dedicated article for better reference.
Eligibility for tax incentives in Vietnam
Tax incentives are granted to foreign firms based on specific locations, industries, or investment zones in Vietnam.
Incentives for special locations
Tax incentives are generally offered to companies operating in special zones (e.g., hi-tech zones, industrial zones, economic zones).
Besides, companies conducting business in bad socio-economic regions such as areas with poor infrastructure, labor shortages, or remote locations can also enjoy tax deductions and holidays.
The rate and exemption can vary depending on the locations below.
Locations with CIT Incentives
| Location | Preferential Tax Rate | Tax Holidays |
|---|---|---|
| Especially difficult socio-economic conditions, economics & 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 socio-economic areas) | Not applicable | 2 years of tax exemption 50% reduction for the next 4 years |
Source: FIA Vietnam
Incentives for Prioritized Industries
To invest in certain sectors, Vietnam offers tax incentives for companies operating in specific industries such as agriculture, education, training, and healthcare.
| 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 exemption 50% reduction for the next 9 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: FIA Vietnam
List of sectors
- 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, and 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; and 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.
Incentives for certain projects
There are also tax breaks for companies investing in key projects that contribute to the socio-economic development of Vietnam such as building highways, bridges, or seaports can get tax holidays and other deductions.
Key projects are defined below:
- Income from new investment projects in the production sector has invested at a minimum of six trillion dongs, being paid out no later than 3 years from the investment certificate date
- Sum minimum revenue at 10 trillion dongs per year and no later than three years from the year starting to generate revenue
- 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
However, please keep in mind that any project involving goods subject to special sales tax or mineral exploitation is ineligible.
Ultimately, a foreign firm needs to be qualified for the first criteria and either one of the remaining ones.
Projects scale-based CIT incentive
Companies are subject to a preferential tax rate of 10% for 15 years, 4 years of tax exemption, and a 50% tax reduction for the next 9 years if the following 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 is ineligible) has invested at the minimum of 6 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.
Vietnam tax breaks are a fantastic opportunity for investors worldwide to do business in the country with minimal tax liabilities.
To wrap up
With this article, we hope you have gained a better understanding of Vietnam’s tax system and what incentives are available to foreign investors.
In case you need more information about tax incentives in Vietnam, give our customer support team a call at service@bbcincorp.com.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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