Vietnam Lowers CIT Rates

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Jun. 27 – Vietnamese lawmakers amended Vietnam’s corporate income tax (CIT) rate last week by reducing it to 22 percent across all industries starting January 1, 2014.  It will then further be reduced to 20 percent on January 1, 2016. Previously it was proposed that the CIT rate would only be reduced to 23 percent.

“A wide rate of 22% for the period 2014-2015 and 20% from 2016 onwards ensures our competitiveness in attracting investors,” noted National Assembly Vice Chairwoman Nguyen Thi Kim Ngan.

The National Assembly also cut CIT rates for small and medium-sized enterprises (SMEs) and developers of low-cost housing by 5 percent (to 20 percent) and 15 percent (to 10 percent), respectively. 

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A company is considered a SME in Vietnam if it earns profits of up to VND20 billion (US$952,380) a year. Low-cost housing developers are defined as developers of houses and apartments that total less than 70 square meters in size and cost less than VND15 million (US$713) per square meter.

Low-cost housing will also benefit from Vietnam’s newly expanded value added tax (VAT) law, which expands the list of sectors eligible for tax exemptions and effectively cuts the VAT rate on housing developers to 5 percent (from 10 percent). As a result, the Vietnamese government has noted that the inventory of low-cost apartments has expanded to over 10,000, and rental rates have also lowered.

The revamped tax rates are expected to lower the country’s tax revenues by VND43 trillion (US$2 billion), but the government has argued that the cuts were necessary to keep companies competitive.

The tax rate cut in these two industries are far from the only planned tax cuts, however, with the Vietnamese government planning to cut CIT rates in the education, healthcare, culture, sports, environment and print media sectors to 10 percent starting January 1, 2014.

According to Vice Chairwoman Nguyen Thi Kim Ngan these tax reductions should be enough to make Vietnam’s business environment more competitive in Asia. For comparison, China now imposes a CIT rate of 25 percent.

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