Following the promulgation of the last Law on Investment, we have seen a series of decrees to furtherly regulated every detail of the regulation on FDI. The recent guidelines related to the new Investment Law, enforced in January 2021, aims to raise the quality and efficiency of foreign enterprises cooperation to help attract more Foreign Direct Investments.
The Government issued Decision 29/2021/QD-TTg, providing the conditions and regulations for the implementation of special incentives for investment projects specified in Article 20.2 of the Investment Law. In light of this, Decision 29 provides detailed criteria for the special investment incentive policy. Investment projects eligible for special investment incentives are split in two different groups of enterprises.
Regarding the high technology condition, the Decision describes first level hi-tech projects as those fully satisfying the following conditions: (i) the revenue from hi-tech products should account for 70% of the annual net revenue; (ii) the expense for R&D activities to the total net revenue minus the annual input value reaches at least 0.5% ; and (iii) 1% of employees should be directly engaged in R&D.
The second level hi-tech projects must also meet the above three conditions but with higher requirements, namely 80%, 1%, and 2%, respectively.Regarding the condition on Vietnamese enterprises participation in value chains, the Decision also divides such enterprises into two groups. First level enterprises should satisfy both of the following conditions: (i) participating Vietnamese enterprises account for 30-40 % of the total participants and perform contracts on assembly and supply of components and materials and provision of services for turning out products; (ii) these enterprises contribute at least 30 % of product costs.
While for second level enterprises it’s required 40% of the total participants, and 40%t of product costs, respectively.
Investment projects eligible for special investment incentives will benefit of special treatments related to the Corporate Income Tax (“CIT”) on three levels, thus forming a system of three different groups of enterprises.
At the first level, the CIT rate of 9% for 30 years will be applied to investors with capital of VND 30 trillion (around 1.6 billion EUR) or more and investing VND 10 trillion (around 387 million EUR) within 3 years from the date their investment registration certificates or investment policy approval decisions are issued.
These projects will get a CIT rate of 5% for 37 years, if they satisfy one of the following four conditions: (i) being level-2 hi-tech projects, (ii) involving level-2 Vietnamese enterprises in value chains, (iii) having the added value making up over 40% of the total costs of final output products provided by economic organizations. This treatment will be applicable to income from activities of the Vietnam National Innovation Center established under the Prime Minister’s decision.
Alternatively, the CIT rate of 7% for 33 years will be applied to new established, or expanded projects, to establish innovation and R&D centers with a total investment of VND 3 trillion (around 116.1 million EUR) or more and VND 1 trillion (around 38.7 million EUR) in the next 3 years.
Enterprises included in the group of entities eligible for the 9% CIT rate mentioned above will also benefit of land and surface water rental exemption for 18 years and 55% reduction for the remaining period. Moreover, they will also be entitled to a further benefit of CIT exemption for 5 years, and 50% reduction for the next 10 years.
Meanwhile, enterprises in the 7% CIT rate group will be exempted for 20 years and 65% reduction for the remaining period. While they will be entitled to CIT exemption for 6 years, and 50% reduction for the next 12 years.
The third group of enterprises eligible for the 5% CIT tax rate will be exempted for 22 years and 75% reduction for the remaining period, in addition of CIT exemption for 6 years, and 50% for the next 13 years.
It is expected to encourage foreign investors with large capital amounts and high technologies to make long-term commitments with Vietnam. This special investment incentive mechanism not only focuses on large-scale FDI enterprises but also encourages domestic large-scale enterprises to strive for mastering technologies, forming supply chains, and straightforwardly competing with foreign rivals.
These incentives framework pairs with the Vietnamese Government efforts to control the pandemic and support economic recovery and development. The country has managed to maintain socio-economic stability during the imposed social distancing measures of pandemic control. Since August, a number of financial support packages have been launched to help businesses quickly restore production and overcome difficulties caused by the pandemic such as, tax and land rental supports, loan supports, reduction in payable CIT amounts, exemption from PIT, VAT and others in the second half of 2021.