Corporate income tax is a significant financial consideration for organizations engaged in the production and trading of goods and services, particularly those with taxable income according to the stipulations of the Law on Corporate Income Tax. So, which income is exempt from tax and what are the corporate income tax incentives?
1. Are newly established businesses exempt from corporate income tax?
Pursuant to the provisions of Article 13 and Article 14 of the Law on Corporate Income Tax 2008 (amended 2013, 2014), preferential regimes on tax rates, tax exemption periods, and corporate income tax reduction are applied according to investment projects. The new business of the enterprise belongs to the field of incentives and does not depend on whether the enterprise is newly established or not.
That means, newly established enterprises are only exempt from corporate income tax if they are established to implement new investment projects that are exempt from corporate income tax and are only exempt from corporate income tax for a certain period of time.
Corporate Income Tax Incentives and Exemptions
2. If your company fulfills the prerequisites for tax exemption and reduction, you can avail of the following incentives, which can be classified into three distinct regimes:
2.1. Tax Exemption for 4 Years and a 50% Reduction of Tax Payable for the Next 9 Years for the Following:
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Enterprises generating income from the implementation of investment projects that qualify for a 10% tax incentive spanning 15 years.
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Income earned by enterprises executing new investment projects in the field of socialization within regions characterized by challenging or extremely difficult socio-economic conditions, as detailed in the appendix associated with Decree No. 218/2013/ND-CP.
2.2. Tax Exemption for 4 Years and a 50% Reduction of Tax Payable for the Next 5 Years for Income Derived From:
Enterprises carrying out new investment projects in the realm of socialization in regions not included in the list of areas with demanding socio-economic conditions, as specified in the appendix accompanying Decree No. 218/2013/ND-CP.
2.3. Tax Exemption for 2 Years and a 50% Reduction of Tax Payable for the Next 4 Years for Income Originating From:
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New investment projects eligible for a preferential tax rate of 17% over a 10-year period.
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Enterprises conducting new investment projects within Industrial Parks (except those situated in areas characterized by favorable socio-economic conditions).
Notably, areas deemed to have favorable socio-economic conditions encompass inner-city districts in special-class urban areas, class I urban areas directly administered by the central government, and class I urban areas under provincial jurisdiction. This excludes districts in special-class urban areas, class I urban areas directly administered by the central government, and class I urban areas under provincial jurisdiction that have transitioned from district status since January 1, 2009. In instances where industrial parks are located in both favorable and unfavorable areas, the determination of tax incentives for industrial parks is contingent on the actual location of the investment project on the ground.
Which income is exempt from tax and what are the corporate income tax incentives?
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3. The period of tax exemption and reduction of income tax for newly established enterprises
This period is calculated consecutively from the first year the enterprise generates taxable income from a new investment project that enjoys tax incentives.
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Should an enterprise not have taxable income in the initial three years, the tax exemption or tax reduction period commences from the fourth year of revenue from the new investment project.
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In the case of high-tech enterprises or agricultural enterprises applying high technology, the tax exemption or tax reduction period is computed from the year in which the Certificate of Recognition as a high-tech enterprise or agricultural enterprise applying high technology is conferred.
In conclusion, not all newly established businesses will qualify for complete corporate income tax exemption. Instead, eligibility for tax exemptions and reductions is contingent on whether the business originates from a new investment project or expansion investment project meeting the specified criteria.
4. Pertinently, the Investment Law of 2014 elucidates the concept of an investment project as follows:
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An investment project entails a set of proposals to allocate medium or long-term capital for conducting business investment activities in a specified area within a defined timeframe.
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An expansion investment project denotes an investment project aimed at expanding an existing business investment project by enhancing scale, augmenting capacity, innovating technology, reducing pollution, or improving the environment.
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A new investment project is an endeavor executed for the first time or one operating independently from an existing business investment project.
This article offers guidance on the subject of tax exemptions for newly established businesses, equipping businesses with crucial knowledge to navigate the intricacies of corporate income tax incentives and exemptions.
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