CIT bonus dangled to lure high-tech groups

June 23, 2021 | 09:00
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Foreign-invested enterprises could be set to enjoy a relaxation in corporate income tax payments in Vietnam, if they pay enough attention to research and development as well as high technology.
CIT bonus dangled to lure high-tech groups
CIT bonus dangled to lure high-tech groups. Source:

The Ministry of Planning and Investment (MPI) is drafting a decision in which research and development (R&D) is one of the criteria for foreign-invested enterprises (FIEs) to enjoy the special incentives. This fits with Resolution No.50-NQ/TW on orientations to perfect mechanisms and efficiency of foreign investment by 2030, in which the ratio of enterprises using advanced technology and protecting the environment towards is targeted to be 50 per cent by 2025, and 100 per cent by 2030.

In order to enjoy a ‘honeymoon’ corporate income tax (CIT) rate for a few decades, FIEs should spend around 0.5-2 per cent of their annual profit on R&D, and the ratio of labour in R&D among the total employees of the FIE should be 1-3 per cent.

“This is expected to create promising land to develop Vietnam as a high-tech hub and lure much more foreign direct investment,” said Do Nhat Hoang, director general of the MPI’s Foreign Investment Agency.

According to Circular No.78/2014/TT-BTC released in 2014 on guiding CIT, CIT has been set at 20 per cent since 2016. However, according to the Law on Investment, high-technology FIEs like Samsung, LG, and Intel have been applied special incentives on the tax.

Setting foot in Vietnam in 2009, Samsung enjoyed a 10 per cent CIT only, with an exemption for up to four years and a 50 per cent CIT reduction for up to nine subsequent years under the law on CIT. After that the company will continue enjoying the same CIT cut within the next three years, according to the People’s Committee of the northern province of Bac Ninh home to Samsung projects worth over $9 billion.

“When the decision on special incentives that the MPI is drafting is adopted by the prime minister, if any FIE develops new projects in Vietnam that meet criteria related to high technologies and R&D, they will be able to enjoy the best incentive of 5 per cent CIT for 37.5 years,” the MPI representative emphasised.

Specifically, the draft proposes 5 per cent during that timeframe to be the best CIT for FIEs if the business line is classified as high technology, or revenues of high-tech products make up at least 90 per cent.

Besides that, annual total expenses for R&D (including depreciation of infrastructure and assets, annual recurrent expenditure on R&D, training, and royalties) in annual total profits must be at least 2 per cent. Employees in the R&D department should be at least 3 per cent of the corporation’s total employees.

If the proportion of high-tech product revenues reduces to 70-80 per cent, investing into R&D to 0.5-1 per cent, and employees in R&D to 1-2 per cent, the FIE shall enjoy CIT at 7 per cent for 30 years or 9 per cent for 20 years, according to the draft.

“The more investment into high technologies and R&D is, the less CIT businesses shall have to pay,” Hoang said, noting that the MPI and the government hope to launch the new policies soon to welcome new investment as much as possible.

He also mentioned the case of Austrian high-end circuit board manufacturer AT&S, after its CEO recently announced it had chosen Malaysia to locate its first production plant and R&D centre in Southeast Asia. The new plant will have $2 billion investment and create 5,000 high-tech jobs.

Previously, in March, AT&S COO Ingolf Schroeder arrived in Vietnam and met with State President Nguyen Xuan Phuc to share the company’s plan of setting up a new plant in the region, possibly in Vietnam. However, the current foreign investment mobilisation policies of Vietnam were not deemed attractive enough for the company to follow through.

“The requirements on high technologies and R&D that are being drafted in the decision are not hard for such technology giants to follow. So the new incentives on CIT, if approved, will be attractive enough to lure investors to Vietnam, and we won’t see any more regrets as in the case of AT&S,” said Hoang.

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