Reduced income tax Do businesses, in case of employing ethnic minority workers?

How do companies established and operating in difficult areas receive tax exemption periods and corporate income tax reduction?

According to Article 14 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 8, Article 1 of the Law on Corporate Income Tax amended in 2013, Point b, Clause 4, Article 75 of the Law on Investment 2020), regulations on tax exemption and tax reduction periods are as follows:

– Income of enterprises from implementing new investment projects specified in Clause 1, Point a, Clause 2, Article 13 of this Law and high-tech enterprises and agricultural enterprises applying high technology are exempt from tax for a maximum of no more than four years and a 50% reduction of the tax payable for a maximum of no more than the next nine years.

– For investment projects specified in Clause 2, Article 20 of the Investment Law, the Prime Minister decides to apply tax exemption for a maximum of 6 years and a 50% reduction of tax payable for a maximum of 13 subsequent years.

– Income of enterprises from implementing new investment projects specified in Clause 3, Article 13 of this Law and income of enterprises from implementing new investment projects in industrial parks, except for industrial parks in areas with favorable socio-economic conditions according to the provisions of law, are exempted from tax for a maximum of no more than two years and reduced by 50% of the tax payable for a maximum of no more than the next four years.

– The tax exemption and tax reduction period for an enterprise’s income from implementing a new investment project specified in Clauses 1 and 2 of this Article is calculated from the first year of taxable income from the investment project. In case there is no taxable income in the first three years, from the first year of revenue from the project, the tax exemption and tax reduction period is calculated from the fourth year. The tax exemption and tax reduction period for high-tech enterprises and agricultural enterprises applying high technology specified in Point c, Clause 1, Article 13 of this Law is calculated from the date of certification as a high-tech enterprise or agricultural enterprise applying high technology.

– Enterprises that have investment projects to develop active investment projects in fields and areas with corporate income tax incentives according to the provisions of this Law to expand production scale, increase capacity, innovate production technology (expansion investment), and if they meet one of the three criteria specified in this Clause, can choose to enjoy tax incentives according to the active project for the remaining time (if any) or be exempted or reduced in tax for the additional income due to expansion investment. The tax exemption and tax reduction period for additional income due to expanded investment specified in this Clause is equal to the tax exemption and tax reduction period applicable to new investment projects in the same area and field with corporate income tax incentives.

Expansion investment projects eligible for incentives specified in this Clause must meet one of the following criteria:

+ The historical cost of fixed assets increased when the investment project is completed and put into operation, reaching a minimum of twenty billion VND for expansion investment projects in the field of corporate income tax incentives according to the provisions of this Law or from ten billion VND for expansion investment projects implemented in the area

having difficult socio-economic conditions or areas with particularly difficult socio-economic conditions as prescribed by law;

+ The proportion of additional original price of fixed assets is at least 20% compared to the total original price of fixed assets before investment;

+ Design capacity increased by at least 20% compared to design capacity before investment.

In case an operating enterprise invests in expansion in a field or area with tax incentives according to the provisions of this Law but does not meet one of the three criteria specified in this Clause, tax incentives will be applied according to the active project for the remaining time (if any).

In case an enterprise enjoys tax incentives in the form of expansion investment, the increased income due to expansion investment is accounted for separately; In cases where separate accounting is not possible, income from expansion investment activities is determined according to the ratio between the original price of newly invested fixed assets put into use for production and business to the total original price of the enterprise’s fixed assets.

The tax exemption and tax reduction period specified in this clause is calculated from the year the investment project is completed and put into production and business.

Tax incentives specified in this Clause do not apply to cases of expanded investment due to mergers, acquisitions of businesses or active investment projects. The Government details and guides the implementation of this Article.

Thus, companies established and operating in areas with difficult socio-economic conditions are entitled to tax exemption for a maximum of no more than two years and a 50% reduction of the tax payable for a maximum of no more than the next four years.

Is corporate income tax reduced in case of employing ethnic minority employees?

According to Article 15 of the Law on Corporate Income Tax 2008 (supplemented by Clause 9, Article 1 of the Law on Corporate Income Tax, amended in 2013), it is stipulated that cases of corporate income tax reduction are as follows: following:

“1. Manufacturing, construction, and transportation enterprises that employ many female workers are entitled to a corporate income tax reduction equal to the amount spent on female workers.

2. Enterprises that employ many ethnic minority workers are entitled to a reduction in corporate income tax equal to the amount spent on ethnic minority workers.

3. Enterprises that transfer technology in areas prioritized for transfer to organizations and individuals in areas with difficult socio-economic conditions are entitled to a 50% reduction in corporate income tax calculated on income from technology transfer.

The Government shall detail and guide the implementation of this Article.”

Thus, in cases where businesses employ ethnic minority workers, they will receive a reduction in corporate income tax.

What are the conditions for applying corporate income tax incentives?

According to Article 18 of the 2008 Corporate Income Tax Law (amended and supplemented by Clause 12, Article 1 of the 2013 revised Corporate Income Tax Law), the conditions for applying corporate income tax incentives are as follows:

(1) Corporate income tax incentives specified in Articles 13, 14, 15, 16 and 17 of this Law apply to enterprises that implement accounting, invoices, and vouchers and pay taxes according to declaration.

Corporate income tax incentives in the form of new investment projects specified in Articles 13 and 14 of this Law do not apply to cases of division, separation, merger, consolidation, conversion of business form, ownership conversion and other cases prescribed by law.

(2) Enterprises must separately account income from production and business activities eligible for tax incentives specified in Articles 13 and 14 of this Law from 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 is determined according to the ratio of revenue from production and business activities eligible for tax incentives to the total revenue of the enterprise.

(3) The 20% tax rate specified in Clause 2, Article 10 and regulations on tax incentives in Clauses 1 and 4, Article 4, Article 13 and Article 14 of this Law do not apply to:

– Income from capital transfer, transfer of capital contribution rights; income from real estate transfer, except social housing specified in Article 13 of this Law; income from transfer of investment projects, transfer of rights to participate in investment projects, transfer of rights to explore and exploit minerals; income from production and business activities outside Vietnam;

– Income from activities of searching, exploring and exploiting oil, gas and other rare and precious resources and income from mineral exploitation activities;

– Income from service business is subject to special consumption tax according to the provisions of the Law on Special Consumption Tax;

– Other cases according to Government regulations.

(4) During the same time, if an enterprise enjoys many different tax incentives for the same income, the enterprise can choose to apply the most beneficial tax incentive.

Therefore, the conditions for applying corporate income tax incentives include the conditions mentioned above.

Thus, in case businesses employ ethnic minority workers, they will receive a reduction in corporate income tax.