Deciphering tax and business incentives in Vietnam

Historically, Vietnam has attracted foreign investors based on its significant economic, social, geographical, and governance assets. These assets make the jurisdiction one of the most desired investment locations globally and a preferred choice for medium—to large enterprises seeking to diversify their operations in Asia.

In addition to these intrinsic endowments of the Vietnamese opportunity, the authorities offer diverse tax incentives designed to attract foreign investment and stimulate economic growth. These incentives are part of the government’s strategy to position the country as a competitive destination for international business.

The Law on Investment specifies the types of incentives available, including Corporate Income Tax reductions, Import Duties exemptions, and Land rent and land levy reductions. Each type of incentive is outlined with guidance in various decrees and circulars, providing a framework for applying them. They primarily encourage investments in sectors aligned with national development strategies, such as high technology, environmental protection, and infrastructure. Read our guide on taxation in Vietnam to get a holistic view of the country’s tax system.

Corporate income tax incentives overview

CIT incentives are granted to foreign and local investors to promote investment in sectors or areas aligning with national development strategies. The standard Corporate Income Tax (CIT) rate applicable to enterprises in Vietnam is 20% on assessable income. However, tax rates for oil and gas and other extractive industries can vary from 32% to 50%, depending on the location and specific project conditions; organisations engaging in prospecting, exploration and exploitation of mineral resources are subject to CIT rates of 40% or 50% depending on the location.

Tax incentives in Vietnam can take several forms, depending on encouraged sectors, locations and project scale, and are granted to new investment projects. Encouraged sectors include high-tech enterprises, software development, education, health, environmental protection, scientific research, agricultural and aquatic product processing, renewable energy and infrastructure development. Encouraged locations include areas with difficult socio-economic conditions, certain Economic Zones, certain High-tech parks, and approved Industrial Parks. Large manufacturing projects are considered to have a total capital of VND 6,000 billion or greater to meet the regulated criteria.

CIT Incentives generally take two forms, both of which can apply concurrently:

• Tax holidays and exemptions. These usually apply from the first profit-making year or the fourth revenue-generating year and result in a specified period where no tax will apply (often 2-4 years) and/or followed by a period where tax is charged at 50% of the applicable rate.
• Preferential tax rates. These preferential rates can reduce applicable CIT rates to between 10 and 17% and apply from 10 years to indefinitely for certain projects.

In addition, the Vietnamese authorities periodically develop incentives for SME businesses that aim to reduce the primary tax rate applicable during specified tax years.

In the following section, we delineate the specific incentives based on types of sectors, geographical location and project investment scale.

Understanding the tax incentive application process and practical implications

Investors should first understand that there is no automated application or procedure for authorities to pre-confirm a company’s eligibility for tax incentives. Enterprises are required to independently assess their qualification for tax incentives based on the prevailing regulations and accordingly self-determine their entitlement to tax incentives, preferential tax rates, and periods of tax exemption and reduction.

When executing the year-end tax finalisations, organisations applying for incentive tax are required to submit an Appendix of preferential corporate income tax. During tax audits, tax authorities will review the enterprise’s compliance with the conditions for tax incentives, the quantum of corporate income tax exempted or reduced, and the losses offset against taxable income, in line with the enterprise’s actual circumstances. Should an enterprise not meet the requisite conditions for tax incentives, the tax authority is mandated to levy additional taxes and apply administrative penalties for tax infractions as per the stipulations.

For instance, in the case of geographical location-based tax incentives, it is relatively straightforward to demonstrate that a company is situated in an area eligible for tax incentives (such as disadvantaged areas or specified economic zones), as evidenced by the relevant corporate license (Investment Registration Certificate/Enterprise Registration Certificate).

Regarding sector-specific tax incentives for encouraged and prioritised industries, distinct conditions apply. For example, software manufacturing companies seeking tax incentives must fulfil the criteria and adhere to the processes outlined in Articles 3 and 4 of Circular 13/2020/TT-BTTTT, which detail the stages of requirement determination, analysis and design, as well as programming and coding.

This necessitates a thorough understanding of the pertinent legislation. Consequently, seeking advice from experts who are well-versed in both the regulatory framework and practical application is essential to ensure that the prerequisites for tax incentives are satisfied and prevent the inadvertent accrual of taxes due to a lack of preparedness in meeting the conditions.

Encouraged and prioritised sectors – what incentives apply

Certain sectors in Vietnam are encouraged for investment, including industries that the government plans to incentivise, prioritise, or which are beneficial to society, as follows: