Details on corporate income tax incentives

Question: My company is enjoying tax incentives under the conditions of preferential investment locations. After that, we were granted a high-tech enterprise certificate for a number of specific products. So, since being granted the above certificate, can the remaining products of the enterprise continue to enjoy corporate income tax incentives for investment projects in operation under the conditions of preferential investment locations for the remaining incentive period?

- Answer: Pursuant to Clause 7, Clause 8 and Clause 12, Article 1, Law No. 32/2013/QH13 dated June 19, 2013 amending a number of articles of the Law on Corporate Income Tax, Nghe An Tax Department replies as follows:

"Article 13. Tax rate incentives

1. Apply a tax rate of 10% for a period of fifteen years to:

a) Enterprise income from implementing new investment projects in areas with particularly difficult socio-economic conditions, economic zones, and high-tech zones;

b) Enterprise income from implementing new investment projects, including: scientific research and technology development; application of high technology in the list of high technologies prioritized for investment and development according to the provisions of the Law on High Technology; incubation of high technology, incubation of high technology enterprises; venture investment in developing high technology in the list of high technologies prioritized for investment and development according to the provisions of the Law on High Technology; investment in construction and business of high technology incubation facilities, incubation of high technology enterprises; investment in developing especially important infrastructure of the State according to the provisions of law; production of software products; production of composite materials, lightweight construction materials, rare materials; production of renewable energy, clean energy, energy from waste disposal; development of biotechnology; environmental protection;

c) Income of high-tech enterprises and high-tech agricultural enterprises according to the provisions of the Law on High Technology;

d) Enterprise income from implementing new investment projects in the manufacturing sector (except projects producing goods subject to special consumption tax, mineral exploitation projects) meeting one of the following two criteria:

- The project has a minimum investment capital scale of six trillion VND, disbursement within no more than three years from the date of issuance of the investment certificate and a total minimum revenue of ten trillion VND/year, no later than three years from the year of revenue;

- The project has a minimum investment capital scale of six trillion VND, disbursed within no more than three years from the date of issuance of the investment certificate and employs over three thousand workers.

2. Apply tax rate of 10% to:

a) Enterprise income from socialized activities in the fields of education - training, vocational training, healthcare, culture, sports and environment;

b) Enterprise income from implementing social housing investment and business projects for sale, lease, or hire-purchase to subjects specified in Article 53 of the Housing Law;

c) Income of press agencies from print press activities, including advertising on print press as prescribed by the Press Law; income of publishing agencies from publishing activities as prescribed by the Publishing Law;

d) Enterprise income from: planting, tending, and protecting forests; cultivating agriculture, forestry, and aquaculture in areas with difficult socio-economic conditions; producing, propagating, and crossbreeding plant and animal breeds; producing, exploiting, and refining salt, except for salt production specified in Clause 1, Article 4 of this Law; investing in post-harvest preservation of agricultural products, preservation of agricultural products, aquatic products, and food;

d) Income of cooperatives operating in the fields of agriculture, forestry, fishery, and salt production not located in areas with difficult socio-economic conditions or areas with especially difficult socio-economic conditions, except for income of cooperatives specified in Clause 1, Article 4 of this Law.

3. Apply a tax rate of 20% for a period of 10 years to:

a) Enterprise income from implementing new investment projects in areas with difficult socio-economic conditions;

b) Enterprise income from implementing new investment projects, including: production of high-grade steel; production of energy-saving products; production of machinery and equipment for agricultural, forestry, fishery and salt production; production of irrigation equipment; production and refinement of animal feed, poultry and aquatic products; development of traditional industries.

From January 1, 2016, the income of enterprises specified in this clause shall be subject to a tax rate of 17%.

4. Apply a tax rate of 20% to the income of People's Credit Funds and microfinance institutions.

From January 1, 2016, the income of People's Credit Funds and microfinance institutions is subject to a tax rate of 17%.

5. For projects that need to attract special investment of large scale and high technology, the period of application of preferential tax rates may be extended, but the extension period shall not exceed 15 years.

6. The period of application of preferential tax rates prescribed in this Article is calculated from the first year the enterprise's new investment project has revenue; for high-tech enterprises and high-tech agricultural enterprises, it is calculated from the date of being granted a certificate as a high-tech enterprise or high-tech agricultural enterprise; for high-tech application projects, it is calculated from the date of being granted a certificate of high-tech application project.

The Government shall detail and guide the implementation of this Article.”

8. Article 14 is amended and supplemented as follows:

“Article 14. Incentives on tax exemption and reduction period

1. Income of enterprises from implementing new investment projects specified in Clause 1, Point a, Clause 2, Article 13 of this Law and high-tech enterprises and high-tech agricultural enterprises shall be exempted from tax for a maximum of four years and shall be reduced by 50% of the tax payable for a maximum of nine subsequent years.

2. Enterprise income from implementing new investment projects specified in Clause 3, Article 13 of this Law and enterprise income from implementing new investment projects in industrial parks, except for industrial parks located in areas with favorable socio-economic conditions as prescribed by law, shall be exempted from tax for a maximum of 2 years and shall be reduced by 50% of the tax payable for a maximum of 4 subsequent years.

3. The tax exemption and reduction period for enterprise income from the implementation of new investment projects specified in Clauses 1 and 2 of this Article shall be calculated from the first year of taxable income from the investment project. In case there is no taxable income in the first 3 years, from the first year of revenue from the project, the tax exemption and reduction period shall be calculated from the fourth year. The tax exemption and reduction period for high-tech enterprises and high-tech agricultural enterprises specified in Point c, Clause 1, Article 13 of this Law shall be calculated from the date of being granted a certificate as a high-tech enterprise or high-tech agricultural enterprise.

4. Enterprises with investment projects to develop investment projects currently operating in the fields and areas with corporate income tax incentives as prescribed by this Law, expanding production scale, increasing capacity, innovating production technology (expansion investment) if meeting one of the three criteria specified in this clause, shall be entitled to enjoy tax incentives according to the operating project for the remaining period (if any) or be exempted from or have tax reduced for the additional income due to the expansion investment. The period of tax exemption and tax reduction for additional income due to the expansion investment prescribed in this clause is equal to the period of tax exemption and tax reduction applied to new investment projects in the same field and area with corporate income tax incentives.

An expansion investment project enjoying incentives specified in this clause must meet one of the following criteria:

a) The original value of fixed assets increased when the investment project is completed and put into operation reaches at least twenty billion VND for expansion investment projects in the fields enjoying corporate income tax incentives according to the provisions of this Law or from ten billion VND for expansion investment projects implemented in areas with difficult socio-economic conditions or areas with especially difficult socio-economic conditions according to the provisions of law;

b) The proportion of additional fixed asset cost must reach at least 20% of the total fixed asset cost before investment;

c) Design capacity increases by at least 20% compared to design capacity before investment.

In case an operating enterprise invests in expansion in a field or area eligible for tax incentives under the provisions of this Law but does not meet one of the three criteria specified in this clause, tax incentives according to the operating project shall be applied for the remaining period (if any).

In case an enterprise is entitled to tax incentives for expansion investment, the additional income due to expansion investment shall be accounted for separately; in case it cannot be accounted for separately, the income from expansion investment activities shall be determined based on the ratio between the original cost of newly invested fixed assets put into use for production and business and the total original cost of fixed assets of the enterprise.

The tax exemption and reduction period prescribed in this clause is calculated from the year the investment project is completed and put into production and business.

The tax incentives prescribed in this Clause shall not apply to cases of investment expansion due to mergers or acquisitions of enterprises or investment projects in operation. The Government shall detail and guide the implementation of this Article.”

12. Article 18 is amended and supplemented as follows:

“Article 18. Conditions for applying tax incentives

1. Corporate income tax incentives prescribed in Articles 13, 14, 15, 16 and 17 of this Law apply to enterprises that implement accounting, invoice and voucher regimes and pay taxes according to declarations.

Corporate income tax incentives for new investment projects specified in Articles 13 and 14 of this Law do not apply to cases of division, separation, merger, consolidation, conversion of enterprise form, ownership conversion and other cases as prescribed by law.

2. Enterprises must separately account for income from production and business activities eligible for tax incentives as prescribed in Articles 13 and 14 of this Law from income from production and business activities not eligible for tax incentives; in case separate accounting is not possible, income from production and business activities eligible for tax incentives shall be determined based on the ratio between revenue from production and business activities eligible for tax incentives and total revenue of the enterprise.

3. The 20% tax rate prescribed in Clause 2, Article 10 and the provisions on tax incentives in Clauses 1 and 4, Article 4, Article 13 and Article 14 of this Law do not apply to:

a) Income from capital transfer, transfer of capital contribution rights; income from real estate transfer, except for social housing specified in Article 13 of this Law; income from investment project transfer, transfer of investment project participation rights, transfer of mineral exploration and exploitation rights; income from production and business activities outside Vietnam;

b) Income from activities of searching, exploring and exploiting oil, gas, other rare resources and income from mineral exploitation activities;

c) Income from service business subject to special consumption tax according to the provisions of the Law on Special Consumption Tax;

d) Other cases as prescribed by the Government.

At the same time, if an enterprise enjoys many different tax incentives for the same income, the enterprise can choose to apply the most beneficial tax incentive.

- Pursuant to Clause 3, Article 10 and Clause 1, Article 11 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax.

Based on the above provisions, in case an enterprise has an investment project that enjoys corporate income tax incentives due to meeting the conditions for preferential location, the income enjoying incentives is all income arising from the production and business activities of the investment project in the preferential location, except for income that is not entitled to incentives according to the provisions of the Law on Corporate Income Tax (such as project transfer, real estate transfer, mineral exploitation, production and trading of goods and services subject to special consumption tax).

In case an enterprise is granted a high-tech enterprise certificate for a number of specific products and chooses incentives according to high-tech industries, the enterprise will only enjoy incentives for income arising from high-tech products if it meets the incentive conditions as prescribed.

At the same time, if an enterprise enjoys many different tax incentives for the same income, the enterprise may only choose to apply the most favorable tax incentive corresponding to the incentive condition the enterprise has chosen.