Is an enterprise exempt from corporate income tax when established in a particularly difficult economic area?

Do businesses have to pay corporate income tax when established in a particularly difficult economic area?

1. Who pays corporate income tax?

In Article 2 of Circular 78/2014/TT-BTC, specific regulations on taxpayers are as follows:

1. Corporate income tax payers are organizations that produce and trade goods and services with taxable income (hereinafter referred to as enterprises), including:

– Enterprises are established and operate according to the provisions of the Enterprise Law, Investment Law, Credit Institutions Law, Insurance Business Law, Securities Law, Petroleum Law, Commercial Law and other legal documents in the following forms: Joint stock company; Limited liability company; Partnership company; Private enterprise; Law Office, Private Notary Office; The parties in the business cooperation contract; Parties to the petroleum product distribution contract, Petroleum Joint Venture Enterprise, Joint Operating Company.

– Public and non-public service units that produce and trade goods and services with taxable income in all fields.

– The organization is established and operates under the Cooperative Law.

– Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) have a permanent establishment in Vietnam.

A permanent establishment of a foreign enterprise is a production and business establishment through which a foreign enterprise conducts part or all of its production and business activities in Vietnam, including:

+ Branches, executive offices, factories, workshops, means of transport, mines, oil and gas fields or other natural resource exploitation locations in Vietnam;

+ Construction sites, construction, installation and assembly projects;

+ Service providers, including consulting services through employees or other organizations or individuals;

+ Agent for foreign businesses;

+ Representative in Vietnam in the case of a representative with authority to sign contracts in the name of a foreign enterprise or a representative without authority to sign contracts in the name of a foreign enterprise but who regularly delivers goods or provides services in Vietnam.

In case the Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam has different provisions on permanent establishments, it shall comply with provisions of that Agreement.

– Organizations other than the organizations mentioned in Points a, b, c and d, Clause 1 of this Article that have activities of producing and trading goods or services, and have taxable income.

2. Foreign organizations doing business in Vietnam not under the Investment Law, Enterprise Law or with income arising in Vietnam pay corporate income tax according to separate instructions of the Ministry of Finance. If these organizations have capital transfer activities, they must pay corporate income tax according to the instructions in Article 14 Chapter IV of this Circular.

2. Do I have to pay corporate income tax when establishing a business in a particularly difficult economic area?

Pursuant to Article 4 of the Law on Corporate Income Tax 2008 and Clause 3, Article 1 of the Law on Corporate Income Tax, amended in 2013, Clause 2, Article 1 of Law No. 71/2014/QH13 on Tax, amended in 2014, regulating the following: Specific tax-exempt income is as follows:

1. Income from farming, animal husbandry, farming, processing agricultural and aquatic products, and salt production of cooperatives; income of cooperatives operating in the fields of agriculture, forestry, fishery, and salt production in areas with difficult socio-economic conditions or in areas with particularly difficult socio-economic conditions; Enterprise income from farming, animal husbandry, farming, and processing of agricultural and aquatic products in areas with particularly difficult socio-economic conditions; income from fishing activities

2. Income from performing technical services directly serving agriculture.

3. Income from performing scientific research and technology development contracts, products in the trial production period, products made from new technology applied for the first time in Vietnam.

4. Income from production and sales of goods and services of enterprises with 30% or more of the average number of employees per year being disabled, people recovering from drug addiction, people infected with the virus that causes acquired immunodeficiency syndrome in humans (HIV/AIDS) and having an average number of employees per year of twenty people or more, excluding businesses operating in the field of finance and real estate business.

5. Income from vocational training activities reserved for ethnic minorities, disabled people, children in extremely difficult circumstances, and subjects of social evils.

6. Income is divided from capital contribution activities, joint ventures, and associations with domestic enterprises, after paying corporate income tax according to the provisions of this Law.

7. The grant received will be used for educational activities, scientific research, culture, art, charity, humanitarian and other social activities in Vietnam.

8. Income from transferring emission reduction certificates (CERs) of enterprises that are granted emission reduction certificates.

9. Income from performing State-assigned tasks of the Vietnam Development Bank in development investment credit and export credit activities; income from credit activities for the poor and other policy beneficiaries of the Bank for Social Policies; income of state financial funds and other state funds operating for non-profit purposes according to the provisions of law; income of organizations whose charter capital is 100% owned by the State established by the Government to handle bad debts of Vietnamese credit institutions.

10. The undivided income of an establishment carrying out socialization in the field of education – training, health care and other socialized fields is left to invest in the development of that establishment according to the provisions of specialized laws on the field of education – training, health care and other socialized fields; The income forms the undivided assets of cooperatives established and operating in accordance with the provisions of the Law on Cooperatives.

11. Income from technology transfer belongs to the priority areas for transfer to organizations and individuals in areas with particularly difficult socio-economic conditions.

3. Where to pay corporate income tax

Pursuant to Article 12 of Circular 78/2014/TT-BTC stipulates on where to pay corporate income tax specifically as follows:

– Enterprises pay taxes at the place of headquarters. In case an enterprise has a production facility (including processing and assembly facilities) with dependent accounting operations in a province or centrally run city other than the area where the enterprise’s head office is located, the tax amount shall be calculated and paid in the place where the head office is located and where the production facility is located.

– The allocation of tax amounts payable specified in this Clause does not apply to cases where the enterprise has works, work items or construction facilities. Build dependent accounting.

Thus, the case of a company establishing and buying and selling goods in difficult areas does not fall into the cases of corporate income tax exemption specified above. Therefore, the company is not exempt from corporate income tax.