Tax incentives for expansion investment projects in Vietnam

In accordance with Clause 3 Article 3 the Law on Investment 2014, expansion project means: “a project to make investment to expand the scale, improve the capacity, apply new technologies, reduce pollution or improve environment”. Clause 3 Article 15 of such law stipulates that expansion project is one of beneficiaries eligible for investment incentives. Investment incentives are normally tax such as corporate income tax, import tax, land use tax. These are also common things to which foreign investors pay much attention when investing in Vietnam. Therefore, in order to know whether your investment project is eligible for investment incentives or not, you have to base on regulations on investment, tax and land:

Corporate income tax (CIT) incentives: Operating investment project which is going to be expanded belongs to incentive investment fields and areas and the expansion project shall satisfy one of the three conditions:

  • Historical cost of fixed assets added when the project is completed and started operating is at least :

20 billion VND for expansion projects in CIT incentives investment fields;

10 billion VND for expansion projects operated in difficult or particularly difficult socio-economic conditions;

  • Historical cost of additional fixed assets accounts for at least 20% higher than the design capacity stated in the techno-economic study report prior to the initial investment;
  • The design capacity after expansion investments is at least 20% higher than the design capacity before.

Notices:

  • If expansion project belongs to incentive investment fields and areas but fails to satisfy the three conditions above, tax incentives shall be applied to the expansion project for the remaining period as the operating project. If the operating project is not eligible for any incentive, the expansion project shall not get any incentive.
  • If expansion project is eligible for investment incentives, the income increased from it shall be separately accounted. Otherwise, the income from expansion project is determined by the ratio between the prime cost of fixed assets newly invested and put into use for production and business on the total prime cost of enterprise’s fixed assets;
  • Duration of tax exemption or tax reduction begins from the year in which the expansion project is finished, is put into operation and generates incomes. In case taxable income is not earned within the first 03 years from the first year in which the expansion project generate revenues, the duration of tax exemption or reduction will begin from the fourth year in which the project generate revenue.

Import duties incentives:

Imports as fixed assets of an entity eligible for investment incentives as prescribed by the law on investment includes:

  • Machinery and equipment; components, parts, spare parts for assembly or operation of machinery and equipment; raw materials for manufacture of machinery or equipment, components, parts or spare parts of machinery equipment;
  • Special use vehicles in a technological line directly used for a manufacture project;
  • Building materials that cannot be domestically produced.

However, import duties incentives shall not be applied to investment projects on mineral production, production and trading of goods or services subjected to the special consumption duties except motor vehicle production.

Non-agricultural land use tax incentives:

  • Project in the list of special investment incentives or is operated in particularly difficult socio-economic conditions areas;
  • Project in the list of investment incentives or is operated in difficult socio-economic conditions areas.

Besides that, expansion investment project which has total investment capital from at least 6000 billion VND and disburses an amount of at least 6000 billion VND within 03 years from the date of issuance of Investment Registration Certificate or decision on investment policies or project in rural areas hiring at least 500 employees are eligible for incentives on non-agricultural tax and imports duties.

Legal consulting on enterprises and investment at ICTLAW:

  • Consult about regulations and procedures related to enterprises and investment in Vietnam;
  • Consult about necessary documents, application for Investment Registration Certificate, Business Registration Certificate, sublicenses…;
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