Decree 218 guiding the implementation of the amended CIT law has just been issued, and is effective from 1 January 2014. The circular to implement this decree is still awaited. Some notable changes include:
1.CIT rate reduced
• The standard CIT rate is reduced from 25% to 22% in 2014, and further reduced to 20% from 2016. For enterprises with total revenues of less than VND20 billion (equivalent to approximately US$1 million), the 20% rate will apply from 2014.
2. CIT incentives
• Large manufacturing projects (except for those manufacturing products subject to special sales tax or exploiting mineral resources) are eligible for CIT incentives if the projects meet either of the following criteria:
(i) having minimum investment capital of VND 6,000 billion, disbursed within 3 years after being licensed, and having minimum revenue of VND 10,000 billion/annum for at least 3 years after the first year of generating revenue; or
(ii) having minimum investment capital of VND 6,000 billion, disbursed within 3 years after being licensed, and using minimum 3,000 headcount for at least 3 years after the first year of generating brevenue.
• New investment projects in industrial zones (except for industrial zones in cities Type 1) are now entitled to CIT incentives. Cities Type 1 include Ho Chi Minh City, Hanoi, Hai Phong, Da Nang, Can Tho, Hue, Vinh, Dalat, Nha Trang, Quy Nhon, Buon Me Thuot, Thai Nguyen, Nam Dinh and Viet Tri.
New investment projects are defined as projects which are carried out for the first time or are independent of an existing project, except projects established from division, demerger, merger, acquisition or conversion and projects established from a change of owner, or inheriting fixed assets,business location, business sectors from existing enterprises.
Business expansion projects are now entitled to CIT incentives if any of the following criteria are met:
(i) they involve additional fixed assets costing at least VND 20 billion (or VND 10 billion if the projects are in certain specified regions with difficult socio-economic conditions); or
(ii) they involve additional fixed assets of at least 20% compared with the period before expansion; or
(iii) they constitute an increase of at least 20% of the designed capacity compared with the period before expansion.
3. Taxable income
The definition of taxable income of foreign companies in Vietnam is changed to include income sourced from Vietnam for the distribution of goods (this clause covers on-the-spot export/import and supply of goods under certain Incoterms (e.g. DDP, etc)).
Losses from transfer of immovable property, transfer of investment projects, transfer of rights to participate in an investment project (except exploiting mineral resources) are allowed to be offset against profits from normal business activities.
4. Deductible expenses
• The deductibility cap applying to A&P expenses is increased from 10% to 15% for all enterprises. Payment discounts are now not subject to the A&P cap.
• The requirement for registration of material consumption levels is abolished.
• Voluntary employer pension contributions are now deductible, but subject to a cap of VND 1 mil/month/person and the entitlement must be stated in the labour contract, internal labour agreement or financial rules of the company.
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