In pursuit of fostering innovation, entrepreneurship, and economic growth, and in alignment with the provisions of Resolution 98/2023/QH15 by the National Assembly, a framework that pilots specific mechanisms and policies for the development of Ho Chi Minh City, the Vietnamese Government enacted Decree 11/2024/ND-CP on 2 February 2024. This decree introduces favourable tax policies aimed at supporting innovative startup enterprises, science and technology organizations, innovation centres, and intermediary entities that facilitate the growth of innovative startups.
In this article, we delineate some of the specific policies and incentives promulgated by the authorities and explain what the practical implications for international investors are when operating in Vietnam.
Tax incentives for innovative startups
Following the Decree 11, key tax incentives for eligible entities include:
- Corporate Income Tax (CIT) Exemption for 5 years: innovative startup enterprises in Ho Chi Minh City are granted a 5-year CIT exemption from the time they incur CIT payable related to innovative start-up activities.
- Tax exemption for capital transfer: individuals and organizations deriving income from the transfer of capital or capital contribution rights in innovative startup enterprises are eligible for PIT and CIT exemptions. However, this exemption does not apply to income from the transfer of stocks, bonds, fund certificates, or other securities as per regulations.
Subjects entitled to tax exemptions and applicable conditions
According to the Decree 11, to qualify for these tax exemptions, innovative startup enterprises, science and technology organisations, innovation centres and intermediary organisations supporting innovative startups must meet the regulations of the People’s Council of Ho Chi Minh City on priority areas; criteria, conditions, and specific areas of innovative start-up activities.
However, the Decree does not cover specific details regarding the conditions and precise activities applicable to these mentioned enterprise, therefore comprehensive guidelines that will clarify the eligibility criteria for incentives outlined in this Decree are still required for more transparency.
For reference, following Article 20 Decree 80/2021/ND-CP, an innovative startup enterprise is determined based on one of the following criteria:
- Manufacturing, trading products formed from inventions, useful solutions, industrial designs, design of semiconductor integrated circuit layouts, computer software, applications on mobile phones, cloud computing, new livestock breeds, new plant varieties, new aquatic breeds, new forestry plant varieties.
- Manufacturing, trading products created from experimental production projects, prototype products and technology completion; manufacturing, trading products that have won prizes in startup competitions, national and international innovative startup competitions, science, and technology awards as prescribed by the law on science and technology awards.
- Having a new technology solution or business model that has the potential to increase the company’s revenue by at least 20% for two consecutive years based on the analysis of market share factors, product development potential, services, and the competitiveness of the enterprise.
Tax incentives for Ho Chi Minh City’s innovators and additional implementation guidance required
Decree 11 has significantly incentivised taxation for innovative start-ups operating in Ho Chi Minh City, where previously, lower tax rates and CIT exemptions were only applicable to entities in areas with particularly challenging socio-economic conditions, specific economic zones, or high technology zones. Now, with the new decree, Ho Chi Minh City business hub becomes an even more compelling destination for investment. However, additional transparency and official guidance on the exact conditions innovative startups need to meet in order to leverage these tax incentives is needed, in order for investors to access the complete benefits reflected in these support policies.
For investors seeking clarity on how these incentives apply to their ventures, we invite you to connect with Vieter Vietnam. Our expert team is poised to offer personalised guidance, leveraging every advantage to maximise the benefits Vietnam has to offer.
Rizwan Khan – Managing Partner – r.khan@Vieter.com
Tua Tran, Accounting Manager, tua.tran@Vieter.com
Hai Le, Senior Accountant, hai.le@Vieter.com