Nokia assessed for hi-tech tax break

Nokia must meet certain commitments to qualify for hi-tech status and enjoy the attendant tax incentives

This announcement was made after the Ministry of Finance and the Taxation Department of Bac Ninh province – where the Nokia Vietnam factory is located – requested that relevant government bodies guide the implementation of tax incentives which were initially granted to the company in 2011.

“It has been two years since Nokia Vietnam started production in June 2013. In order to implement the tax incentives, the Ministry of Planning and Investment (MPI) has ordered that Nokia Vietnam report on the implementation of its commitments,” stated an MPI document last year.

Nokia Vietnam’s case highlights the national policy to encourage foreign multinationals to expand their investments here through incentives. However, in turn, these companies must prove that they are indeed eligible for such incentives. When such companies are qualified to receive favourable conditions, it is a win-win scenario for both Vietnam and foreign investors.

The evaluation of Nokia’s hi-tech status is a normal request, as any firm authorised to receive investment incentives must be thoroughly assessed after a certain period.

In 2011, the Vietnamese government granted Nokia Vietnam the optimum corporate income tax (CIT)  incentives in recognition of the fact that its mobile-phone manufacturing facility was furthering the hi-tech industry in Vietnam. Specifically, Nokia Vietnam enjoys a 10 per cent corporate income tax rate for 15 years (instead of 22 per cent). During the first four years in operation, the company is exempt from tax, while for the following nine years, tax is calculated with a 50 per cent reduction. In addition, the company receives priority status for customs inspection procedures, and receives import and export tax incentives.

Last year, the MPI reminded Nokia Vietnam that it had committed to not implementing transfer pricing in Vietnam, and that the company would increase the localisation rate in its products to at least 30 per cent after three years of production. Moreover, Nokia Vietnam also has to cover all costs for establishing a customs point inside its facility to ensure customs clearance at any time.

Microsoft Mobile Vietnam recently paid VND191 billion ($9 million) to the Bac Ninh Department of Taxation, of which CIT arrears made up VND186 billion ($8.7 million), while late payment fines amounted to VND5 billion ($234,000). The fines were incurred in 2013 and 2014 as the local tax department did not receive certification qualifying the company for its CIT tax incentive.

The local tax department said it would repay the sum once the company is certified.