With a strategic geographical location, a competitive labour force and a wide range of cost-saving factors, Vietnam has long been considered an investment paradise for foreign investors, especially for those who wish to diversify their investment portfolio.
The Vietnamese government has constantly shown a welcoming attitude towards foreign investors by continuously changing its regulations to lower the cost of doing business within the country, and therefore accelerating foreign investment in Vietnam.
Of all the offered benefits, tax incentives are considered the most prominent feature of the Vietnamese business landscape. Corporate Income Tax (CIT) incentives are granted to both foreign and local investors, to promote investment in sectors or areas that are in line with the government’s development desires. There are two main CIT incentives in Vietnam, the preferential tax rates (reduced tax rates) and tax holidays (tax exempted for a certain period or throughout a project). Further, Vietnam also offers a land rental exemption policy that further helps to reduce companies’ expenses.
The low tax rates and the diversity in tax incentives are contributing factors to the competitiveness of Vietnam. As Vietnam is embarking on a new round of tax reforms, in line with the directions set in the Tax System Reform Strategy (2011-2020), there is huge potential for even greater tax incentives that will benefit foreign investors even more in the near future.
Due to the constant decrease of the CIT rate in the country, foreign investors continue to enter the Vietnamese market. The Vietnamese CIT rate have decreased from 32% to 20% between 2000 and 2018. Therefore, the CIT rate in Vietnam is now lower than most countries in the region, including Malaysia, China, Indonesia and the Philippines.
The Vietnamese CIT Incentives
If the business engages in highly-encouraged sectors, or is located in certain geographical areas, it is subject to CIT incentives, lowering the tax costs even further. Companies that meet certain requirements are qualified to utilize CIT preferential rates and tax holidays, as shown in the table below.
The duration of the above preferential CIT tax rates shall be calculated consecutively from the first year in which the enterprise generates turnover from the entitled activity. The duration of preferential tax rates may be extended for large scale and high-tech projects; however, the duration of such extension cannot exceed 15 years.
With such diverse tax incentives, almost every investor can receive benefits from the Vietnamese tax system. Though, as the range of preferential tax rates and tax holidays is quite large among different categories, investors should consider these requirements carefully before making any investment decision to utilize their investment.
Land Rental Incentives
Depending on the business sector and geographical location, Vietnam offers highly lucrative land rental exemptions. Foreign investors should be aware of this, since it helps to reduce business expenses even further, either during the initial years or during the whole duration of the project. The exemption requirements are listed in the table below.
The land rental exemptions help to lower the barrier of entry for foreign investors, as it offers an opportunity to reduce expenses during the start-up phase (and even further depending on the project).
In conclusion, the tax system in Vietnam has constantly been amended and supplemented to adapt to the current context and to make Vietnam a more attractive destination for foreign investment. With such compelling current tax incentives as well as a strategic geographical location, competitive labour force, and a wide range of other cost-saving factors, Vietnam is expected to remain a top destination for foreign investment in Asia the upcoming years.
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