Vietnam Expands Lào Cai Border-Gate Economic Zone
The Office of Vietnam’s Prime Minister, Nguyen Xuan Phuc, recently expanded the Lào Cai boarder-gate economic zone through the issuance of Decision 40/2016/QD-TTg. Issued on September 22nd, it clarifies the boundaries of the economic zone, which includes additional districts previously excluded from the zone’s coverage. Companies operating or establishing within the Lào Cai province will be the most likely to benefit from the expansion and should note that adjustments to the zone will take effect from November 15th.
Prior to the expansion, the Lào Cai border-gate economic zone was geographically limited by Decision 44/2008 QD-TTg to the Lào Cai border-gate international area and the Muong Khuong border-gate area. Annulling previous decisions on the matter, the Prime Minister’s latest announcement maintains coverage of previous location while including a number of new localities. Under the updated guidelines, companies operating in any of the following areas will be eligible for the zone’s incentives:
- Muong Khuong border-gate area
- Lào Cai border-gate international area
- Lào Cai City
- Bao Thang District
- Bat Xat District
- Muong Khuong District
- Si Ma Cai District
In addition to specifying the above areas by name, the latest decision provides clear boundaries on all localities. For those considering investment near Lào Cai, it will be important to consult the specifics of the decision to ascertain a given project’s ability to tap into zonal benefits.
The Benefits of the Lào Cai Boarder Gate Economic Zone
Projects falling within the updated boundaries of the zone will be eligible for both personal income tax (PIT) incentives as well as exemption from duties on imports. With regard to PIT, those working in the Zone will qualify for a 50 percent reduction on income tax. This will be open for both Vietnamese and foreign nationals. To qualify, an employee’s place of employment must be located within the zone. In the event that income is sourced from multiple locations, only the income generated within the zone will qualify for PIT exemption. By reducing the tax burden of employees, employers may be able to retain staff with lower wages than they would be able to otherwise.
In addition to benefits for workers, all materials, supplies, and other components imported into the economic zone are eligible for import tax exemption for five years. The timeline for exemption will become effective from the date at which a project within the zone commences its production.
Broader Incentives in Lào Cai Province
Irrespective of the location in the Lào Cai province where an investor chooses to begin production, certain investment incentives will be extended due to the region’s location within Vietnam. Thus, benefits will be extended even for those outside of the Lào Cai Economic Zone, covering a variety of aspects of business, including personal and corporate taxation and duties on imports. With regard to corporate taxation, those investing within the region will be eligible for a corporate income tax (CIT) holiday for a period of four years on all profits sourced in the Lào Cai province, followed by a 50 percent reduction on tax liability during the subsequent nine years of operations. During this time, companies will also be eligible for a 10 percent CIT rate.
With regard to duties levied on imports, companies importing goods for the following purposes will be exempt from taxation:
- Temporary imports for re-export of goods for trade fairs and exhibition
- Imports that will be directly used in scientific research
- Equipment imported for the completion of a specific project
- Goods imported for processing on behalf of a foreign party
As Vietnam continues to attract record levels of foreign investment, simultaneous increases in urbanization within major cities, such as Ho Chi Minh City and Hanoi, is likely to resulting in upward pressure on wages, land pricing, and general costs of inputs. Although alternative locations for investment within the country will require resourcefulness and heightened attention to detail on the part of investors, understanding incentives, such as those provided in Lào Cai, may allow for significant cost reductions. For more information on investment within Lào Cai, special economic zones, or tax benefits within Vietnam, do not hesitate to contact our tax and investment specialists at email@example.com or visit us online at www.dezshira.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Annual Audit and Compliance in Vietnam 2016
In this issue of Vietnam Briefing, we address pressing changes to audit procedures in 2016, and provide guidance on how to ensure that compliance tasks are completed in an efficient and effective manner. We highlight the continued convergence of VAS with IFRS, discuss the emergence of e-filing, and provide step-by-step instructions on audit and compliance procedures for Foreign Owned Enterprises (FOEs) as well as Representative Offices (ROs).
Navigating the Vietnam Supply Chain
In this edition of Vietnam Briefing, we discuss the advantages of the Vietnamese market over its regional competition and highlight where and how to implement successful investment projects. We examine tariff reduction schedules within the ACFTA and TPP, highlight considerations with regard to rules of origin, and outline the benefits of investing in Vietnam’s growing economic zones. Finally, we provide expert insight into the issues surrounding the creation of 100 percent Foreign Owned Enterprise in Vietnam.
Tax, Accounting and Audit in Vietnam 2016 (2nd Edition)
This edition of Tax, Accounting, and Audit in Vietnam, updated for 2016, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate Vietnam’s complex tax and accounting landscape in order to effectively manage and strategically plan their Vietnam operations.