An Introduction to Import, Export, and Investment Incentives in Vietnam
With a strategic geographical location, a competitive labor force, and a range of cost-saving factors, Vietnam is considered an attractive investment location for foreign investors. In this context, the Vietnamese government has been continually improving business conditions through reform and upgrade of investment incentives, making the country more appealing to foreign investors. We examine what foreign investors can take advantage of including the available tax and import/export incentives.
Foreign direct investment enterprises (FDIs) are enterprises that have relatively specific characteristics in terms of legal and business activities regarding Vietnamese regulations.
Most of these organizations would have their main business activities related to trading goods within and outside of Vietnam. Thus, to avoid any unnecessary tax risks and legal breaches, it is vital that such FDI businesses are aware of the relevant regulations prior to undertaking any trading activities.
Rights of FDI enterprises to export, import, and distribute
In 2018, the government issued Decree No. 09/2018/NĐ-CP detailing the Commercial Law and the Law on Foreign Trade Management on the purchase and sale of goods and activities directly related to the purchase and sale of goods by investors, foreign investors, and foreign-invested economic organizations in Vietnam. As per the Decree, the rights for an FDI to export, import, and distribute are defined as follows:
- Right to export means the right to buy goods in Vietnam for export, including the right to be named on the export declaration to carry out and take responsibility for export-related procedures. Export regulations do not include the right to purchase goods from entities other than traders for export unless otherwise provided by Vietnamese law or an international treaty to which Vietnam is a contracting party.
- Right to import means the right to import goods from abroad into Vietnam for sale to traders who have the right to distribute such goods in Vietnam, including the right to be named on the declaration of imported goods for execution and responsible for the procedures related to importing. The right to import does not include the right to organize or participate in a goods distribution system in Vietnam unless otherwise provided by Vietnamese law or an international treaty to which Vietnam is a signatory.
- Distribution means wholesale, retail, and franchising activities and the sale of goods by agents. The right to distribute means the right to directly perform distribution activities.
Condition of FDI enterprises to export, import and distribute
FDI enterprises having (i) export rights are allowed to export goods purchased in Vietnam, goods processed in Vietnam, and goods legitimately imported in Vietnam to a foreign country or a separate non-tariff zone, or (ii) import rights, are allowed to import goods from a foreign country or separate customs zone into Vietnam, provided that:
- They are not included in the list of goods banned from export and import, the list of goods temporarily excluded from export and import, and the list of goods not eligible for export and import as specified in international treaties to which Vietnam is a signatory;
- If the goods are included in the list of goods for export and import under license, or under certain conditions, the FDI enterprise has the relevant license or meets the conditions according to the regulations, apart from registering as prescribed in the Law on Investment and the Law on Enterprises.
According to the regulations in the Schedule of Specific Commitments in Trade in Services for Vietnam of the World Trade Organization (WTO), the limitations to market access with regard to FDI enterprises on business lines described as “wholesale trade, retailing” have expired. Thus, FDI enterprises are allowed to conduct such business lines without restriction.
Among all the investment incentives, tax incentives are one of the most attractive features 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 on par with the national development strategies. There are two main CIT incentives in Vietnam—preferential tax rates (reduced tax rates), and tax holidays (tax exempted for a certain period or the lifetime of the project).
Besides, the government also offers customs duty incentive policies and land rental exemption policies that further help to encourage businesses. Tax incentives available in the country can be summarized as follows.
Eligibility for tax incentives
The Vietnamese government provides tax incentives for businesses on the basis of four factors: sector, location, and size of the investment.
Incentives for prioritized sectors
Certain sectors in Vietnam are encouraged for investment, including industries that the government plans to incentivize, prioritize, or which are beneficial to society:
- Firms making new investments in technology-related sectors, garments, footwear, automobiles, goods that are not produced domestically, and investments where the products meet the EU quality standard, are taxed at 10 percent for 15 years. This period also includes a tax holiday for the first four years and a 50 percent reduction in the CIT rate for nine subsequent years.
- Companies operating in the sectors of education and training, health care, sports, culture, and environment, have a tax rate of 10 percent for the entire lifetime of their project.
- Companies earning their income from prescribed agricultural and related activities are eligible for a 15 percent tax rate for the entire lifetime of their project. Firms producing equipment for the above prescribed agricultural sectors can also receive a tax incentive in the form of a 17 percent tax rate for the entire lifetime of their project.
Incentives in disadvantaged locations
The tax incentives based on location are as follows:
- Firms operating in extremely difficult areas, special economic zones (SEZs) or high-tech zones (HTZs) are taxed at 10 percent for the first 15 years of revenue generation. This period also includes a tax holiday for the first four years followed by a 50 percent reduction for the subsequent nine years;
- Firms operating in difficult areas are taxed at 17 percent for 10 years of revenue generation. This period also includes a tax holiday for the first two years, followed by a 50 percent reduction for the subsequent four years;
- Firms operating in industrial parks are eligible for two years of tax holidays, followed by a 50 percent corporate tax reduction for the subsequent four years.
Tax incentives are also granted for large manufacturing projects except for those in natural resources. There are two criteria for categorizing large projects:
- Manufacturing projects with an investment capital of more than VND6 trillion (US$261 million) invested within three years of being licensed:
- the minimum revenue is VND10 trillion per annum by the fourth year of operations at the latest; or
- the minimum headcount is 3,000 by the fourth year of operations at the latest.
- Manufacturing projects with an investment capital of more than VND12 trillion disbursed within five years of being licensed and using prescribed high technology.
The investments meeting either criterion are required to pay CIT at 10 percent for 15 years. These companies are also eligible for a tax holiday for the first four years, followed by a 50 percent reduction in the CIT rate for the next nine years.
Customs duty exemptions
Businesses can also enjoy exemptions from import duty if they meet one of the following criteria:
- Goods are imported to form fixed assets of select projects prescribed under the law;
- Goods are imported for implementing export processing contracts with foreign parties;
- Raw materials and supplies are imported to directly serve the production of software products, and cannot be produced domestically;
- Goods are imported for use in scientific research and technological development, and cannot be produced domestically.
Land rental incentives
Subject to specific conditions, some investment projects can also enjoy land rental fee exemption:
- Exemption for the whole operational period—projects on the list of special investment encouragement sectors investing in areas of particularly difficult socio-economic conditions;
- 15 years of exemption—projects on the list of special investment encouragement sectors investing in areas of difficult socio-economic conditions or projects on the list of investment encouragement sectors investing in areas of extremely difficult socio-economic conditions;
- 11 years of exemption—projects investing in areas of extremely difficult socio-economic conditions; projects in the list of special investment encouragement sectors; projects in the list of investment encouragement sectors investing in difficult socio-economic areas;
- Seven years of exemption—projects investing in areas of difficult socio-economic conditions;
- Three years of exemption—projects on the list of investment encouragement sectors; business and production relocation under urban planning or due to environmental pollution.
Special investment incentives
More recently, the Prime Minister issued Decision 29/2021/QD-TTg providing the levels, duration, and conditions for the application of special incentives for investment projects which are granted based on the satisfaction of the law-specified criteria on investment capital, high technology, technological transfer, added value, and value chain participation of Vietnamese enterprises.
The new regulation is expected to encourage foreign investors with large capital amounts and high technologies to make long-term commitments with Vietnam while promoting the process of technology transfer and increasing the spillover effects of FDI.
Investors can therefore assess the conditions as well as the incentives offered to best avail the regulation from the legal document here.
In light of the above, FDI enterprises should assess an application for a business registration license for business lines on the right to export, right to import, and the right to distribute, apart from registering as per the Law on Investment and the Law on Enterprises to fully comply and minimize any risks related to legislation, tax, and tariffs.
Vietnam’s tax incentives, while attractive, can present challenges to investors unfamiliar with the country’s complex legal system. Foreign investors interested in investing in Vietnam wanting to secure their investment incentives must ensure they are aware of the available incentives which will save their time and money later on.
The Ministry of Planning and Investment (MPI) is in charge of granting investment incentives. However, the implementation of these incentives is conducted in conjunction with local governments.
In addition, during the application process, various technical ministries may be involved to assess an investment project. Once investment incentives are granted, the Ministry of Finance (MoF) and tax departments are responsible for scrutinizing the applicable incentives at a later stage. Investors should take these into account in order to best avail the available investment incentive policies while fully adhering to the regulations.
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