FORMS OF INVESTMENT INCENTIVES ON INVESTMENT PROJECTS LOCATED IN THE AREAS ELIGIBLE FOR FOREIGN INVESTOR

According to:

  • Law on Investment 2020
  • Law on Enterprise Income Tax 2008 (amended and supplemented 2013, 2014, 2020)
  • Law on Export and import duties 2016
  • Decree No.31/2021/NĐ-CP elaborates some articles of the Law on Investment
  • Decree No.46/2014/NĐ-CP imposing regulations on the collection of land rent and water surface rent

 

What do you need to know about the location of the investment project?

The location of the project is the place where the investor conducts investment activities and is recorded on the Investment Registration Certificate. This is the basis for investors to eligible investment incentives depending on the specific region to determine the incentive regime. Foreign investors can implement investment projects at the following locations:

– Export-processing zone means an industrial park specialized in manufacturing of exported products or provision of services for manufacturing of exported products and export.

– Industrial park means an area with a defined geographical boundary specialized in production of industrial goods and provision of services for industrial production.

– Economic zone means an area with a defined geographical boundary which consists of multiple dedicated areas and is meant to achieve the objectives of investment attraction, socio-economic development and protection of national defense and security.

– Other locations outside the above zones are allowed by the government in accordance with current law.

Based on the investment incentives of each location, the location of an investment project is classified into two groups according to Decree No.31/2021/ND-CP Appendix III – List of areas eligible for investment incentives:

First, 55 areas located in disadvantaged or extremely disadvantaged areas are entitled to investment incentives in the area.

Second, the location of the investment project that is not eligible for investment incentives includes all the locations not listed in Appendix III. 

 

Forms of investment incentives 

According to Law on Investment 2020 and Law on Enterprise Income Tax 2008 (amending and supplementing 2013, 2014, 2020), when enterprises invest on areas eligible for investment incentives, the following forms of investment incentives will be applied:

  1. Corporate income tax incentives

– Corporate income tax incentives: The CIT rate is 22% but the preferential tax rate applied is equivalent to three levels of 10% for special preferential fields; 15% or 17% for the incentive sector. Depending on the field and areas eligible for investment incentives, the time to eligible tax incentives can last for 15 years and can be extended once for no more than 15 years. Some projects require the approval of the Prime Minister to extend the incentive period.

– Tax exemption and reduction duration incentives: Depending on each investment sector, enterprises that meet the criteria will be exempt from tax for 02 to 04 years and receive a 50% reduction in payable tax for a maximum of 04 to 09 years. The purpose of this policy is to encourage enterprises to soon activate investment projects to put them into production. The sooner the project is put into operation, the more investment incentives the enterprise gets when applying corporate income tax incentives and tax exemption and reduction duration incentives. 

  1. Exemption from import tax on goods imported to form fixed assets

According to Article 16 Law on Export and import duties 2016, there are 23 cases for tax exemption, which tax exemption for investment incentive is specified in Clause 11 of this Article. 

  1. Exemption from and reduction of land levy and land rents

According to Clause 1 Article 19 of Decree No.46/2014/ND-CP, there are 10 forms of land rent exemption which can be divided into 3 subgroups including: land rent exemption during the project process; land rent exemption during fundamental construction period; land rent exemption after the fundamental construction period. At the same time, in the process of fundamental construction, enterprises will be exempted from land rent for no more than 3 years from the date of issuance of the decision to lease land or water surface.

  1. Accelerated depreciation, increasing the deductible expenses upon calculation of taxable income

According to current regulations, the depreciation period for fixed assets is from 5 to 20 years and is calculated on a straight line method. However, in specific cases, any enterprise who has a lucrative business may implement quick depreciation, provided it is not larger than 2 times the linear depreciation. This is a new form of investment incentives according to the provisions of the Law on Investment, currently there are no detailed regulations on this incentive case, so we are waiting for more detailed regulations on these investment incentives.

 

Thus, the Law on Investment 2020 has an additional form of investment incentives, which is accelerated depreciation. This investment incentive policy is open and maximizes the benefits of enterprises to create opportunities for investors who want to invest and do business in Vietnam.

However, choosing the location of a project is not easy for foreign investors. In addition to location-based incentives, investors must also consider factors such as human, material and financial resources to meet production and business goals. And as mentioned, the location of the investment project is one of the main contents of the investment registration certification, so the signing of the Office Lease Contract needs to be fully documented, transparent and especially not a land-use planning for the investor to be granted an investment license by the agency. It can be seen that the selection of an investment location is a long and complicated process with a high risk. This process depends on financial aspects, market economy, strategy, resources and the amount of information investors collect about the location.