Tax alert - Draft Decree on CIT incentives for projects manufacturing prioritised supporting industry products

Law No. 71/2014/QH13 promulgated by the National Assembly on 26 November 2014 amends and supplements some articles of tax laws (effective from 01 January 2015 supplementing articles on Corporate Income Tax (“CIT”) incentives for projects manufacturing prioritised supporting industry products (hereinafter referred to as "SI projects")). Law of Investment No. 67/2014/QH13 also provides assurance for business investment in the case of any legal changes, however, such assurance is only applicable to investors who have already enjoyed CIT incentives. Accordingly, SI projects licensed and operating before 01 January 2015 shall not be eligible to apply CIT incentives. Decree No. 12/2015/ND-CP dated 12 February 2015 providing detailed guidances on the implementation of Law No. 71 also does not mention CIT incentives for SI projects licensed and operating before 01 January 2015.

Following these regulations, SI projects operating before 01 January 2015 are not eligible to CIT incentives, causing discrimination in this business community. In order to tackle the issue of CIT incentives for SI projects licensed and operating before 01 January 2015, ensuring equality for all SI projects, the Ministry of Finance (“MoF”) issued Document No. 7773/BTC-TCT dated 25 June 2020 presenting to the Prime Minister on the amendment and supplement of Decree No. 218/2013/ND-CP (amended by Decree No. 12/2015/ND-CP) (“Decree No. 218”) on CIT incentives for SI projects. Following direction from Prime Minister Nguyen Xuan Phuc in Document No. 6148/VPCP-KTTH dated 18 July 2020 of the Government Office, MoF developed and issued a draft Decree amending and supplementing Decree No. 218, where Point g, Clause 2 of Article 20 is added as below:

Enterprises having SI projects (including new investment projects or investment expansion projects) operating before 01 January 2015, if satisfying the conditions of SI projects according to Amended Tax Laws 2014 and are granted with the Certificate of incentive on supporting industrial manufacture (referred to as "Certificate of SI incentives") are entitled to CIT incentives for the remaining period from the tax year this draft Decree takes effect (expectedly tax year 2020), as follows:

(i) For projects that were granted with Certificate of SI incentives by competent authorities before the effective date of this Decree but the projects have not been entitled to CIT incentives before: The remaining CIT incentives period is determined by the total CIT incentive period under the conditions of SI project minus the number of years from the year Certificate of SI incentives is granted to the year before the effective year of this Decree.

(ii) For projects that are granted with Certificate of SI incentives from the effective date of this Decree but the projects have not been entitled to CIT incentives before: The remaining CIT incentives period is determined by the total CIT incentive period under the conditions of SI project minus the number of years from the year this Decree takes effect to the year before the year the Certificate of SI incentives is granted.

(iii) For projects that were granted with Certificate of SI incentives before the effective date of this Decree and have been entitled to CIT incentives under other preferential conditions (other than the conditions for SI projects): The enterprise can choose to enjoy CIT incentives under the conditions of SI projects for the remaining period (*) from the tax period this Decree takes effect.

(iv) For projects that are granted with Certificate of SI incentives from the effective date of this Decree and have been entitled to CIT incentives under other preferential conditions (other than conditions for SI projects): The enterprise can choose to enjoy CIT incentives under the conditions of SI project for the remaining period (*) from the year of being granted with Certificate of SI incentives.

(*) Regarding scenario (iii) and (iv), the remaining CIT incentive period is determined by the total CIT incentive period under the conditions of SI project minus the CIT incentive period that project has been enjoying under other preferential conditions (both incentive tax rate and tax holiday period, if any).

The draft Decree is expected to take effect from the date of signing and apply from tax year 2020.

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