Law Amending and Supplementing Certain Provisions of the Law on Corporate Income Tax No. 32/2013/QH13

LAW

Amending and Supplementing Certain Provisions of the Law on Corporate Income Tax

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BASED ON THE CONSTITUTION OF THE SOCIALIST REPUBLIC OF VIETNAM IN 1992 AS AMENDED AND COMPLEMENTED BY RESOLUTION NO. 51/2001/QH10;

The National Assembly enacts this Law amending and supplementing certain provisions of the Law on Corporate Income Tax number 14/2008/QH12.

Article 1

Amending and supplementing certain provisions of the Law on Corporate Income Tax:

1. Clause 3 of Article 2 shall be amended and supplemented as follows:

"3. The permanent establishment of foreign enterprises is a production and business facility through which foreign enterprises conduct part or all of their production and business activities in Vietnam, including:

a) Branches, management offices, factories, workshops, means of transportation, oil wells, gas fields, mines or other natural resource extraction sites in Vietnam;

b) Construction sites, construction projects, installation, assembly works;

c) Service provision facilities, including consulting services provided through employees or other organizations and individuals;

d) Agents for foreign enterprises;

đ) Representative offices in Vietnam where such representatives have the authority to sign contracts on behalf of foreign enterprises or do not have such authority but regularly handle the delivery of goods or provision of services in Vietnam."

a) Providing investment loans;

"2. Other income includes income from the transfer of capital, the transfer of capital contribution rights; income from the transfer of real estate, investment project transfers, participation rights in investment projects, exploration, exploitation, and processing of mineral rights; income from the use of assets, asset ownership rights, including income from intellectual property rights as prescribed by law; income from the sale, lease, liquidation of assets, including negotiable instruments; income from interest on deposits, lending, selling foreign currency; revenue from debts previously written off that are now recovered; revenue from unidentifiable payables; income from business operations in previous years that were overlooked and other types of income, including income from production and business activities outside Vietnam."

3. Amending and supplementing Clause 1 and Clause 4 of Article 4; adding Clauses 8, 9, 10, and 11 to Article 4 as follows:

"1. Income from crop cultivation, animal husbandry, aquaculture, salt production of cooperatives; income of cooperatives operating in agriculture, forestry, fisheries, salt industry in areas with difficult socio-economic conditions or extremely difficult socio-economic conditions; income of enterprises from crop cultivation, animal husbandry, aquaculture in areas with extremely difficult socio-economic conditions; income from marine fishing activities."

"4. Income from the production and business activities of enterprises employing at least 30% of the average annual workforce consisting of persons with disabilities, former drug addicts, HIV/AIDS patients, and having an average annual workforce of twenty or more people, excluding financial sector enterprises and real estate businesses."

"8. Income from the transfer of Certified Emission Reductions (CERs) certificates of enterprises that have been issued CERs certificates.

9. Income from implementing state tasks assigned to the Vietnam Development Bank in credit investment development and export credit activities; income from credit activities for the poor and other policy targets of the Social Policy Bank; income of state financial funds and other state funds operating without profit-making objectives as prescribed by law; income of organizations wholly owned by the State with 100% of the charter capital established by the Government to handle non-performing loans of Vietnamese credit institutions.

10. The portion of income not distributed by socialized entities in education-training, healthcare, and other socialized sectors retained for reinvestment in development according to specialized laws on education-training, healthcare, and other socialized sectors; the portion of undistributed income forming assets of cooperatives established and operated according to the Law on Cooperatives.

11. Income from technology transfer in priority sectors transferred to organizations and individuals in areas with extremely difficult socio-economic conditions."

4. Clause 3 of Article 7 is amended and supplemented as follows:

"3. Income from transferring real estate, investment projects, participation rights in investment projects, exploration, exploitation, and processing of mineral rights must be separately declared for tax purposes. Losses from transferring investment projects (excluding mineral exploration and exploitation projects), participation rights in investment projects (excluding participation rights in mineral exploration and exploitation projects), and real estate transfers can be offset against profits from production and business activities in the tax period."

5. Amend and supplement Article 9 as follows:

"Article 9. Deductible and Non-deductible Expenses when Determining Taxable Income

1. Except for expenses specified in Clause 2 of this Article, enterprises may deduct all expenses when determining taxable income if they meet the following conditions:

a) Actual expenses incurred in connection with the enterprise's production and business activities; expenses incurred in fulfilling national defense and security tasks of the enterprise as prescribed by law;

b) Expenses supported by valid invoices and receipts as prescribed by law. For invoices for purchases of goods and services exceeding twenty million VND per transaction, there must be non-cash payment vouchers, except in cases where non-cash payment vouchers are not required by law.

2. Non-deductible expenses when determining taxable income include:

a) Expenses that do not meet the conditions stipulated in Clause 1 of this Article, except for losses due to natural disasters, epidemics, and other force majeure situations that cannot be compensated;

b) Administrative fines;

c) Expenses reimbursed by other sources of funding;

d) Excess management costs allocated by foreign enterprises to their permanent establishments in Vietnam beyond the limits set by Vietnamese law."

d) The portion exceeding the limit prescribed by laws on setting up reserve funds;

e) The portion of interest paid on production and business loans from entities that are not credit institutions or economic organizations, exceeding 150% of the basic interest rate published by the State Bank of Vietnam at the time of borrowing;

g) Depreciation expenses for fixed assets not in accordance with the provisions of the law;

h) Prepaid expenses not in accordance with the provisions of the law;

i) Wages and remuneration of the owner of a private enterprise; remuneration paid to founders who do not directly participate in management and operation; wages, remuneration, and other accounting expenses for employee payments but not actually made or without invoices and receipts as required by law;

k) The portion of interest paid on borrowed capital corresponding to the shortfall in subscribed capital;

l) Input VAT already deducted, VAT paid under the deduction method, corporate income tax;

m) Advertising, marketing, promotional, brokerage commission, reception, ceremonial, conference, marketing support, and other expenses directly related to production and business activities exceeding 15% of total deductible expenses. Total deductible expenses do not include expenses specified herein; for trade activities, total deductible expenses do not include the purchase price of goods sold;

n) Sponsorship, except sponsorship for education, healthcare, scientific research, disaster relief, solidarity houses, benevolent houses, houses for policy beneficiaries as provided by law, and sponsorship under programs of the Government for localities in particularly difficult socio-economic conditions;

o) Contributions to voluntary retirement funds or social welfare funds, or purchasing voluntary retirement insurance for employees exceeding the limits prescribed by law;

p) Expenses of banking, insurance, lottery, securities, and other special business activities as prescribed by the Minister of Finance;

3. Foreign currency expenditures shall be deductible when converted into Vietnamese Dong at the average inter-bank foreign exchange transaction rate published by the State Bank of Vietnam at the time of the foreign currency expenditure;

The Government shall provide detailed regulations and guidance on implementing this Article.";

6. Article 10 is amended and supplemented as follows:

"Article 10. Tax Rate

1. The corporate income tax rate is 22%, except for cases stipulated in Clause 2 and Clause 3 of this Article and enterprises eligible for preferential tax rates as provided in Article 13 of this Law.

Enterprises subject to a 22% tax rate as stipulated in this clause shall apply a 20% tax rate from January 1, 2016.

2. Enterprises with annual turnover not exceeding twenty billion dong shall apply a 20% tax rate.

The basis for determining whether an enterprise qualifies for a 20% tax rate under this clause is the turnover of the preceding year.

3. The corporate income tax rate for oil and gas exploration, development, and extraction, and other rare resources in Vietnam ranges from 32% to 50%, depending on each project and business entity;

The Government shall provide detailed regulations and guidance on implementing this Article.";

7. Article 13 is amended and supplemented as follows:

"Article 13. Preferential Tax Rates

1. A 10% tax rate shall be applied for fifteen years for:

a) Income from new investment projects in areas with particularly difficult socio-economic conditions, economic zones, high-tech zones;

b) Income from new investment projects, including: scientific research and technology development; application of advanced technologies listed in the priority investment and development catalog under the High-Tech Law; incubation of high-tech technologies and high-tech enterprises; venture investments in high-tech development listed in the priority investment and development catalog under the High-Tech Law; construction and operation of high-tech incubation facilities and high-tech enterprise incubation facilities; investment in critical national infrastructure as prescribed by law; software production; composite material production, lightweight building materials, rare materials; renewable energy production, clean energy, energy from waste disposal; biotechnology development; environmental protection;

c) Income from new investment projects in high-tech enterprises and high-tech agricultural enterprises as prescribed by the High-Tech Law;

d) Income from new investment projects in manufacturing (excluding projects producing goods subject to special consumption taxes and mineral extraction projects) meeting one of the following criteria:

- Projects with a minimum investment capital of sixty billion dong, disbursed within three years from the date of investment certificate issuance, and achieving a minimum annual turnover of ten billion dong within three years from the year of turnover;

- Projects with a minimum investment capital of sixty billion dong, disbursed within three years from the date of investment certificate issuance, employing more than three thousand workers;

2. A 10% tax rate shall be applied for:

a) Income from socialized activities in education, vocational training, healthcare, culture, sports, and environment;

b) Income from housing social investment projects for sale, lease, or lease-purchase for eligible groups as stipulated in Article 53 of the Housing Law;

c) Income from print media activities, including advertising in print media as prescribed by the Press Law; income from publishing activities as prescribed by the Publishing Law;

d) Income from: forest planting, care, and protection; farming, forestry, and aquaculture in areas with difficult socio-economic conditions; crop and livestock breeding; salt production, refining, and processing, except for salt production as stipulated in Clause 1 of Article 4 of this Law; post-harvest agricultural product preservation, food preservation, and seafood preservation.

d) Income of cooperatives operating in agriculture, forestry, fisheries, salt production that are not located in areas with difficult socio-economic conditions or particularly difficult socio-economic conditions, except for income of cooperatives as prescribed in Clause 1, Article 4 of this Law.

3. Apply a tax rate of 20% for a period of ten years for:

a) Income of enterprises from implementing new investment projects in areas with difficult socio-economic conditions;

b) Income of enterprises from implementing new investment projects, including: high-quality steel production; production of energy-saving products; production of machinery and equipment for agricultural, forestry, fisheries, and salt production; irrigation equipment production; production and refining of livestock, poultry, and aquaculture feed; development of traditional trades.

From January 1, 2016, the income of enterprises specified in this clause shall be subject to a tax rate of 17%.

4. Apply a tax rate of 20% on the income of People's Credit Funds and microfinance organizations.

From January 1, 2016, the income of People's Credit Funds and microfinance organizations shall be subject to a tax rate of 17%.

5. For investment projects requiring special attraction with large scale and high technology, the duration of applying preferential tax rates may be extended, but the extension period shall not exceed fifteen years.

6. The duration of applying preferential tax rates as stipulated in this Article shall be calculated from the first year when the enterprise's new investment project generates revenue; for high-tech enterprises and high-tech agricultural enterprises, it shall be calculated from the date of issuance of the certificate recognizing them as such enterprises; for high-technology projects, it shall be calculated from the date of issuance of the certificate recognizing the project as a high-technology project.

The Government shall provide detailed regulations and guidance on implementing this Article.";

8. Article 14 is amended and supplemented as follows:

"Article 14. Preferential treatment regarding tax exemption and reduction periods

1. Income of enterprises from implementing new investment projects as prescribed in Clause 1, Point a, Clause 2, Article 13 of this Law and high-tech enterprises, high-tech agricultural enterprises shall be exempted from tax for a maximum of four years and have their tax reduced by 50% for a maximum of nine years thereafter.

2. Income of enterprises from implementing new investment projects as prescribed in Clause 3, Article 13 of this Law and income of enterprises from implementing new investment projects in industrial zones, excluding industrial zones located in areas with favorable socio-economic conditions as provided by law, shall be exempted from tax for a maximum of two years and have their tax reduced by 50% for a maximum of four years thereafter.

3. The tax exemption and reduction period for income of enterprises from implementing new investment projects as prescribed in Clause 1 and Clause 2 of this Article shall be calculated from the first year when the project generates taxable income; if there is no taxable income in the first three years, the tax exemption and reduction period shall be calculated from the fourth year. The tax exemption and reduction period for high-tech enterprises and high-tech agricultural enterprises as prescribed in Point c, Clause 1, Article 13 of this Law shall be calculated from the date of issuance of the certificate recognizing them as such enterprises.

4. Enterprises with ongoing investment projects in fields and areas eligible for corporate income tax incentives under this Law that expand their production scale, increase capacity, and upgrade production technology (expansion investment) shall, if they meet one of the criteria prescribed in this Clause, choose to enjoy tax incentives based on the ongoing project for the remaining time (if any) or be exempted from tax and have their tax reduced by 50% on additional income generated by expansion investment. The tax exemption and reduction period for additional income due to expansion investment as prescribed in this Clause shall be equal to the tax exemption and reduction period applicable to new investment projects in the same area and field eligible for corporate income tax incentives.

Investment expansion projects enjoying incentives as prescribed in this Clause must meet one of the following criteria:

a) The original value of fixed assets increased when the investment project is completed and put into operation reaches at least twenty billion VND for expansion investment projects in fields eligible for corporate income tax incentives under this Law or ten billion VND for expansion investment projects implemented in areas with difficult socio-economic conditions or particularly difficult socio-economic conditions as provided by law;

b) The proportion of the original value of fixed assets increased reaches at least 20% compared to the total original value of fixed assets before investment;

c) The designed capacity increased is at least 20% compared to the designed capacity before investment.

In cases where enterprises currently operating have expansion investments in fields and areas eligible for tax incentives under this Law but do not meet one of the criteria prescribed in this Clause, tax incentives based on the ongoing project for the remaining time (if any) shall apply.

If enterprises enjoy tax incentives under the expansion investment category, the additional income generated by expansion investment shall be accounted for separately; if separate accounting is not possible, the income from expansion investment activities shall be determined according to the ratio between the original value of newly invested fixed assets put into use for production and business over the total original value of fixed assets of the enterprise.

The tax exemption and reduction period prescribed in this Clause shall be calculated from the year the investment project is completed and put into production and business.

The tax incentives prescribed in this Clause shall not apply to expansion investments resulting from mergers, acquisitions of enterprises, or ongoing investment projects. The Government shall provide detailed regulations and guidance on the implementation of this Article."

9. Supplement Clause 3 to Article 15 as follows:

"3. Enterprises transferring technology in priority fields to organizations and individuals in areas with difficult socio-economic conditions shall have their corporate income tax reduced by 50% on income from technology transfer."

10. Article 16 is amended and supplemented as follows:

"Article 16. Carry Forward Losses

1. A business with losses may carry forward such losses to the next year; these losses shall be deducted from taxable income. The period for carrying forward losses shall not exceed five years, starting from the year following the year in which the losses occurred.

2. Losses arising from the transfer of real estate, the transfer of investment projects, and the transfer of participation rights in investment projects after offsetting according to Clause 3, Article 7 of this Law, if there are still losses, and losses arising from the transfer of exploration and exploitation rights of mineral resources may be carried forward to the next year and deducted from the taxable income of those activities. The period for carrying forward losses shall be governed by Clause 1 of this Article.

11. Clause 1 of Article 17 shall be amended and supplemented as follows:

"1. A business established and operating in accordance with Vietnamese law may allocate up to 10% of its annual taxable income to establish a Science and Technology Development Fund. For state-owned enterprises, in addition to implementing the allocation of the Science and Technology Development Fund as prescribed by this Law, they must also ensure the minimum allocation ratio of the Science and Technology Development Fund as prescribed by laws on science and technology."

12. Article 18 is amended and supplemented as follows:

"Article 18. Conditions for applying tax incentives"

1. Tax incentives for corporate income tax stipulated in Articles 13, 14, 15, 16, and 17 of this Law apply to businesses that comply with accounting records, invoices, certificates, and tax declarations.

Corporate income tax incentives under new investment project provisions in Articles 13 and 14 of this Law shall not apply to cases of division, separation, merger, consolidation, conversion of enterprise forms, change of ownership, and other cases as prescribed by law.

2. Businesses must separately account for income from production and business activities eligible for tax incentives stipulated in Articles 13 and 14 of this Law and income from production and business activities not eligible for tax incentives; in cases where separate accounting is not possible, income from production and business activities eligible for tax incentives shall be determined based on the ratio of revenue from production and business activities eligible for tax incentives to the total revenue of the business.

3. The 20% tax rate stipulated in Clause 2, Article 10 and the tax incentive provisions in Clauses 1 and 4, Article 4, Articles 13 and 14 of this Law shall not apply to:

a) Income from capital transfers, contribution right transfers; income from real estate transfers, except social housing as stipulated in Article 13 of this Law; income from investment project transfers, participation right transfers in investment projects, exploration and exploitation rights transfers of mineral resources; income from production and business activities outside Vietnam;

b) Income from oil and gas exploration, exploitation, rare resource exploitation activities, and income from mineral exploitation activities;

c) Income from services subject to special consumption tax as prescribed by the Special Consumption Tax Law;

d) Other cases as prescribed by the Government.

4. Within the same period, if a business enjoys multiple levels of tax incentives for the same income, the business may choose to apply the most favorable tax incentive level.

Article 2

1. This Law shall take effect from January 1, 2014, except for the provision in Clause 2 of this Article.

2. The provision regarding the application of a 20% tax rate for businesses with annual turnover not exceeding twenty billion dong in Clause 6, Article 1 and the provision regarding the application of a 10% tax rate for income from social housing investment projects in Clause 7, Article 1 of this Law shall be implemented from July 1, 2013.

3. Businesses with investment projects that, as of the end of the tax period in 2013, are still within the period of enjoying corporate income tax incentives (tax rates, periods of exemption and reduction) according to previous tax laws in force before the effective date of this Law shall continue to enjoy the remaining period according to those laws. If the conditions for tax incentives under this Law are met, they may choose between the current incentive or the incentive provided under this Law for new investments for the remaining period if currently benefiting from new business establishment incentives or for expanded investment incentives for the remaining period if currently benefiting from expanded investment incentives.

As of the end of the tax period in 2015, for businesses with investment projects applying the preferential tax rate of 20% as stipulated in Clause 3, Article 13 of the Corporate Income Tax Law No. 14/2008/QH12, revised and supplemented in Clause 7, Article 1 of this Law, from January 1, 2016, they will switch to applying a tax rate of 17% for the remaining period.

4. Abolish the contents of the provisions on corporate income tax in the following articles and clauses of the following laws:

a) Clause 2, Article 7 of the Deposit Insurance Law No. 06/2012/QH13;

b) Clause 2, Article 4 of the Health Insurance Law No. 25/2008/QH12;

c) Clause 1, Article 10; Clause 1, Article 12; Clause 2, Article 18; Clause 2, Article 19; Clause 1 and Clause 2, Article 22; Clause 3, Article 24 and Clause 2, Article 28 of the High-Tech Industry Law No. 21/2008/QH12;

d) Clauses 1, 4, 5, 6, 7 and 8, Article 44 and Article 45 of the Technology Transfer Law No. 80/2006/QH11;

đ) Clause 1, Article 53; Clause 5, Article 55 and Clause 3, Article 86 of the Vocational Training Law No. 76/2006/QH11;

e) Clause 1, Article 68 of the Law on Vietnamese Workers Working Abroad No. 72/2006/QH11;

g) Clause 2, Article 6 of the Social Insurance Law No. 71/2006/QH11;

h) Clause 3, Article 8 of the Legal Aid Law No. 69/2006/QH11;

i) Clause 3, Article 66 of the Higher Education Law No. 08/2012/QH13;

k) Article 34 of the Persons with Disabilities Law No. 51/2010/QH12;

l) Clause 4, Article 33 of the Investment Law No. 59/2005/QH11;

m) Clause 2, Article 58; Clause 2, Article 73; Clause 3, Article 117 and Clause 3, Article 125 of the Enterprise Law No. 60/2005/QH11.

5. The Government shall provide detailed regulations and guidance on the implementation of the provisions assigned in this Law.

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This Law was passed by the National Assembly of the Socialist Republic of Vietnam, the 13th term, the fifth session, on June 19, 2013.