LEGAL PROVISIONS ON INVESTMENT INCENTIVE POLICIES FOR ECONOMIC ZONES IN VIETNAM
Currently, foreign investors are increasingly focusing on investing in the Vietnamese market. In the context of globalization, Vietnam's institutions and laws are gradually being improved and integrated in order to create the best conditions for investors to operate in the long-term and help businesses participate in global supply chains and value chains in a favorable way. In practice, large enterprises often choose to establish factories in Economic zones of Vietnam to enjoy the maximum preferential policies of the State. Below is an article by Dai Ha Thanh Law Firm on legal provisions related to investment incentive policies for Economic zones in Vietnam.
1. General overview of the Economic zone
1.1. The concept of Economic zone
According to Clause 13, Article 2 of Decree 35/2022/ND-CP, an Economic zone is an area which is enclosed with specified geographical boundaries, including functional zones and is established to meet the objectives of calling for investments, promoting socio-economic development and maintaining national defense and security.
1.2. Classification of Economic zone
Coastal Economic zone refers to an Economic zone established at and near the coast. For example: Van Don Economic zone (Quang Ninh), Dinh Vu - Cat Hai Economic zone (Hai Phong), Nghi Son Economic zone (Thanh Hoa)....
Border-gate Economic zone refers to an Economic zone established at and near the land border. For example: Mong Cai Economic zone (Quang Ninh), Lao Cai Economic zone, An Giang Economic zone….
Specialized Economic zone refers to an economic zone established at a key economic region, dynamic development corridor, or a region having similar functions that is specified in the regional planning scheme. For example: Hai Duong Economic zone project, Dong Thap Economic zone project.
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2. Legal provisions on incentive policies for enterprises investing in Economic zones in Vietnam
According to Article 22 of Decree 35/2022/ND-CP, an Economic zone is one of the areas eligible for investment incentives, in which they are entitled to incentives in accordance with the provisions of law on taxes, land and other relevant laws.
2.1. Tax incentives
Corporate Income Tax (CIT)
- Subject to preferential tax rates
Pursuant to the provisions of Clause 1, Article 19 of Circular 78/2014/TT-BTC (amended and supplemented by Clause 1, Article 11 of Circular 96/2015/TT-BTC), incomes of enterprises from the implementation of new investment projects in Economic zones are entitled to a preferential tax rate of 10% for a period of 15 years.
Therefore, instead of applying the normal tax rate of 20%, in case an enterprise invests in a new project in an Economic zone, a preferential tax rate of 10% for a period of 15 years is applicable to this subject.
- Tax exemption, tax reduction
At Point a, Clause 1, Article 20 of Circular 78/2014/TT-BTC (amended and supplemented by Clause 1, Article 12 of Circular 96/2015/TT-BTC) stipulates that the incomes of enterprises from the implementation of new investment projects in Economic zones are exempted from tax for 04 years and reduce 50% of the payable tax amounts for 09 subsequent years.
In particular, the tax exemption or reduction duration shall be counted consecutively from the first year an enterprise has taxable income from a new investment project eligible for tax incentives.
Note: With regard to an enterprise that executes its expansion project before January 01, 2014, put it into operation, and earn revenues from January 01, 2014, if such expansion project is in a favor area as Economic zones, the enterprise will be given corporate income tax incentives for the increase in income due to expansion investment as above (Clause 2, Article 13 of Circular 96/2015/TT-BTC).
Export tax, Import tax
Pursuant to Clause 1, Article 4 of the Law on Import and Export Tax 2016 and Clause 1, Article 2 of Decision 100/2009/QD-TTg, stipulates that non-tariff zone in an Economic zone. Therefore, tax incentives for Economic zones are applied similarly to those for non-tariff zones.
Accordingly, enterprises implementing investment projects in Economic zones may enjoy export and import tax incentives if they fall into one of the following cases:
- Not subject to tax: Applied to goods exported from a non-tariff zone to abroad; goods imported from abroad to a non-tariff zone and used within such non-tariff zone; goods transported from one non-tariff zone to another (Point c, Clause 4, Article 2 of the Law on Import and Export Tax 2016).
- Tax exemption for goods imported to create fixed assets of an entity eligible for investment incentives (Article 14 of Decree 134/2016/ND-CP).
Investment projects located in areas of investment incentives such as Economic zones and not in industries eligible for investment incentives are exempt from tax on goods imported to create fixed assets for production of the investment incentive projects.
The above-mentioned imported goods include: a) Machinery and equipment; components, parts, spare parts for assembly or operation of machinery and equipment; raw materials for manufacture of machinery and equipment, components, parts, or spare parts of machinery and equipment; b) Special-use vehicles in a technological line directly used for a manufacture project; c) Building materials that cannot be domestically produced.
- Exemption from import tax on raw materials, supplies and components for a period of 05 years.
Clause 1, Article 15 of Decree 134/2016/ND-CP (amended by Clause 8 Article 1 of Decree 18/2021/ND-CP) stipulates that raw materials, supplies and components that cannot be domestically manufactured and are imported to serve manufacturing activities of investment projects in areas with extremely difficult socio-economic conditions as prescribed by the law on investment are exempt from import tax for a period of 05 years from the date of commencement of manufacture.
Therefore, because the Economic zone is applied to the same investment incentives as an area with extremely difficult socio-economic conditions (according to the list in Decree 31/2021/ND-CP), investment projects in Economic zones receive tax incentives as above.
Value-added Tax (VAT)
- Not subject to tax: Apply to goods and services that are traded between foreign countries and non-tariff zones and between non-tariff zones (Clause 20, Article 5 of the Law on Value-added Tax 2008).
- Enjoy the tax rate of 0%: Applicable to exported goods and services, international transportation and goods and services not liable to value-added tax upon exportation (Clause 1, Article 8 of the Law on Value-added Tax 2008).
Special Consumption Tax
Clause 6, Article 3 of Decree 108/2015/ND-CP lists three cases that are not subject to special consumption tax, including:
- Goods imported from abroad into the non-tariff zones;
- Goods sold from inland into non-tariff zones and used only in non-tariff zones;
- Goods are traded between non-tariff zones.
In which, the following two types of goods are excluded: goods brought into free trade zones having residences and no hard fences, motor vehicles for the transport of fewer than 24 people.
Therefore, enterprises with the above-mentioned goods trading activities do not have to pay special consumption tax.
Non-agricultural land use tax
Pursuant to Article 9 of the Law on Non-agricultural Land Use Tax 2010 and Article 10 of Circular 153/2011/TT-BTC stipulating cases of exemption from non -agricultural land use tax, including: Land of investment projects in areas with extremely difficult socio-economic conditions.
Because the Economic zone is applied to the same investment incentives as an area with extremely difficult socio-economic conditions (according to the list in Decree 31/2021/ND-CP), the land of the investment project in the Economic zone is exempt from non-agricultural land use tax.
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2.2. Preferential policies on land
Pursuant to Point a, Clause 6, Article 8 of Decree 35/2017/ND-CP stipulates: Enterprises are exempt from land rental during the period of capital construction which must not exceed 03 years counting from the date of issuance of the land lease decision by a competent state agency (except cases of renovation and expansion of production and business establishments).
After that, enterprises will continue to be exempt from land rental after the land rental exemption period of the time of capital construction, specifically as follows:
- 11 years for investment projects outside the list of sectors eligible for investment incentives but in Economic zones located in district-level geographical areas not eligible for investment incentives.
- 13 years for projects outside the list of sectors eligible for investment incentives but in economic zones located in district-level geographical areas with difficult socio-economic conditions.
- 15 years for investment projects outside the list of sectors eligible for investment incentives and in economic zones located in district-level geographical areas with exceptionally difficult socio-economic conditions, and for investment projects on the list of sectors eligible for investment incentives and in economic zones located in district-level geographical areas not eligible for investment incentives.
- 17 years for investment projects on the list of sectors eligible for investment incentives and in economic zones located in district-level geographical areas with difficult socio-economic conditions.
- 19 years for investment projects on the list of sectors eligible for investment incentives and in economic zones located in district-level geographical areas with exceptionally difficult socio-economic conditions.
Note: In some special cases, the land rental exemption period is different, specifically as follows:
Firstly, the case is exempted from land rental or water surface rental for the entire lease period, including:
- Investment projects on the list of sectors eligible for special investment incentives;
- Investment projects to build houses for workers in economic zones or projects that lease land from the operators of infrastructure facilities in economic zones to build houses for workers according to a master plan approved by a competent state agency; project owners may not include land rental expenses in house rental rates;
- Land for construction of non-business works of public non-business units in Economic zones.
- Land for construction of maintenance and repair stations and parking lots (including also ticket sale offices, administration offices and public service facilities) to serve public transportation in economic zones in accordance with the law on road transportation.
- Land for construction of water supply facilities in economic zones, including water exploitation and treatment facilities, pipelines and facilities on the water supply network and works in support of the management and operation of the water supply system (administrative offices, management offices, workshops, supplies and equipment storehouses and storage yards).
Secondly, in case of land rental exemption after the land rental exemption period during the capital construction period for investors that are leased land by the State for construction and commercial operation of infrastructure in functional sub-zones in Economic zones, specifically as follows:
- 11 years if making investment in district-level geographical areas not eligible for investment incentives.
- 15 years if making investment in district-level geographical areas with difficult socio-economic conditions.
- The entire land lease period if making investment in district-level geographical areas with exceptionally difficult socio-economic conditions.
2.3. Preferential policies on infrastructure costs
Costs and expenses of construction, operation, purchase, hire-purchase or rental of residential houses, public service or utility facilities for workers and staff members of Economic zones; technical infrastructure connected to functional sites of Economic zones; investors executing investment projects within Economic zones, are categorized as deductibles for calculation of taxable income of corporate income tax (Clause 4, Article 22 of Decree No. 35/2022/ND-CP).
2.4. Policies to support administrative procedures
Pursuant to Clause 6, Article 22 of Decree 35/2022/ND-CP, investors having investment projects within industrial parks or economic zones shall be assisted by competent authorities in carrying out administrative procedures regarding investment, enterprises, land, construction, environment, labor and trade under the "one-stop shop and on-site" mechanism, and recruiting employees and dealing with other related issues during the project execution process.
Above are the main incentives for businesses investing in Economic zones in Vietnam. In addition to incentives on taxes or land rental, businesses also enjoy many other incentives such as support for administrative procedures. If you have any questions or issues that need advice, please contact us to receive professional legal services.
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