CIT Law set to turn on investors

The Ministry of Finance (MoF) last week announced that it had added a regulation allowing foreign invested enterprises to enjoy corporate income tax (CIT) incentives for their investment expansion projects in the ministry’s draft amendments and additions to the Law on Corporate Income Tax, which would be revised by the National Assembly next year. Moreover, it also proposed to reduce CIT for businesses in Vietnam including foreign invested enterprises from 25 to 23 per cent.

The MoF said some regulations in the current Law on CIT “are no longer appropriate to reality. The tax is not attractive and competitive to other nations in the region, especially there has been a trend of tax reductions in the region recently.”

The existing Law on CIT does not allow foreign invested enterprises to enjoy CIT incentives for their investment expansion projects. The MoF said that the lack of tax incentives to expansion projects had not created a motivation to encourage foreign investors to expand investments in the country.

The MoF’s proposal comes in the context that many foreign investors are wavering to expand investments in Vietnam because of this regulation. Those include Korea’s Kumho Asiana which is considering expanding production capacity at its $100 million tire factory in southern Binh Duong province, and Robert Bosch Vietnam which also announced to increase investment capital in Vietnam from $100 million to $300 million.

Taiwan-based E-United Group is another investor wondering about CIT incentives for its expanded $4.5 billion integrated steel project in  central Quang Ngai province’s Dung Quat Economic Zone.

If the MoF’s proposals are approved by National Assembly, the expansion of Kumho Asiana, Robert Bosch Vietnam and E-United Group will certainly enjoy tax incentives.

“I am looking forward to seeing the new Law on CIT take effect. Many investors will benefit from this,” Vo Quang Hue, managing director of Robert Bosch Vietnam, said.

Preben Hjortlund, chairman of European Chamber of Commerce in Vietnam, said to revive CIT incentives for investment expansion projects was important to attract foreign direct investment to Vietnam.

In July, Samsung Electronics warned that it could not expand investments in Vietnam unless the Vietnamese government granted an CIT incentive of 10 per cent like its existing factory, to its $830 million expansion project.

The world’s leading mobile phone-maker finally got what it wanted two months ago, as the Vietnamese government okayed its proposal. However, in the case of Samsung, the investor must establish a new project and then merge it with the existing one immediately.