Law Amending Law on Enterprise Income Tax, Law No. 32/2013/QH13

Law Amending and Supplementing a Number of Articles of the Law on Enterprise Income Tax

(No. 32/2013/QH13)

Pursuant to the 1992 Constitution of the Socialist Republic of Vietnam, which was amended and supplemented under Resolution No. 51/2001/QH10;

The National Assembly promulgates the Law Amending and Supplementing a Number of Articles of Law No. 14/2008/QH12 on Enterprise Income Tax.

Article 1.

To amend and supplement a number of articles of the Law on Enterprise Income Tax:

1. To amend and supplement Clause 3, Article 2 as follows:

“3. Resident establishments of a foreign enterprise means production and business establishments through which the foreign enterprise conducts some or all production and business activities in Vietnam, including:

a/ Vietnam-based branches, executive offices, factories, workshops, vehicles, oil fields, gas fields, mines or other sites for exploiting natural resources;

b/ Construction sites, construction, installation and assembly works;

c/ Establishments providing services, including consultancy services provided via employees or other organizations or individuals;

d/ Agents for the foreign enterprise;

dd/ Vietnam-based representatives that are competent to sign contracts in the name of the foreign enterprise or representatives that are not competent to sign contracts in the name of the foreign enterprise but regularly deliver goods or provide services in Vietnam.”

2. To amend and supplement Clause 2, Article 3 as follows:

“2. Other incomes include income from the transfer of capital or transfer of the capital-contributing right; income from the transfer of real estate, transfer of investment projects, transfer of the right to participate in investment projects or transfer of the right to explore, exploit and process minerals; income from asset use rights or asset ownership, including income from intellectual property rights in accordance with law; income from the transfer, lease or liquidation of assets, including valuable papers; income from interest on deposits, loans provided or foreign currency sold; revenue from written-off bad debts which are now recovered; revenue from debts of unidentifiable debtors; omitted income from business activities of previous years, and other incomes, including income from production and business activities outside Vietnam.”

3. To amend and supplement Clauses 1 and 4 of, and add Clauses 8, 9, 10 and 11 to, Article 4 as follows:

“1. Incomes of cooperatives from cultivation, animal husbandry, aquaculture and salt making; incomes of cooperatives from agricultural, forest, fishery and salt-making activities in areas with difficult or extremely difficult socio-economic conditions; incomes of enterprises from cultivation, animal husbandry or aquaculture in areas with extremely difficult socio-economic conditions; and incomes from marine fishing activities.”

“4. Incomes from goods production and service provision activities of enterprises which have at least 30% of their employees being handicapped people, detoxified people, HIV/AIDS-infected people and at least twenty employees on average in a year, excluding financial and real estate enterprises.”

“8. Incomes from the transfer of certificates of emission reduction (CERs) of enterprises that have these certificates.

9. Incomes from the performance of state-assigned tasks of the Vietnam Development Bank in development investment credit and export credit activities; incomes from credit activities for the poor and other policy beneficiaries of the Vietnam Bank for Social Policies; incomes of state financial funds and other state funds operating not for profit in accordance with law; incomes of institutions with 100% charter capital owned by the State established by the Government for settling non-performing loans of Vietnamese credit institutions.

10. Undistributed incomes of establishments engaged in education and training, heath and other sectors under the socialization policy, which are retained for the development of these establishments in accordance with specialized laws; incomes forming undistributed assets of cooperatives established and operating under the Law on Cooperatives.

11. Incomes from the transfer of technologies in prioritized fields to organizations and individuals in areas with extremely difficult socio-economic conditions.”

4. To amend and supplement Clause 3, Article 7 as follows:

“3. Incomes from the transfer of real estate, transfer of investment projects, transfer of the right to participate in investment projects and transfer of the right to explore, exploit and process minerals must be separately determined for tax declaration and payment. If an enterprise suffers a loss from the transfer of investment projects (excluding mineral exploration and exploitation projects), transfer of the right to participate in investment projects (excluding transfer of the right to participate in mineral exploration and exploitation projects), and transfer of real estate, such loss may be offset against the profit from production and business activities in the tax period.”

5. To amend and supplement Article 9 as follows:

“Article 9. Deductible and non-deductible expenses when determining taxable incomes

1. Except the expenses specified in Clause 2 of this Article, when determining taxable incomes an enterprise may deduct all expenses that fully meet the following conditions:

a/ Actual expenses are related to the enterprise’s production and business activities; expenses are paid for the performance of the enterprise’s defense and security tasks in accordance with law;

b/ Expenses have sufficient invoices and documents as prescribed by law. Goods and service purchase invoices with a value of twenty million Vietnam dong or more each must have non-cash payment documents, except the cases in which these documents are not required by law.

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

a/ Expense failing to meet the conditions specified in Clause 1 of this Article, except the uncompensated value of losses caused by natural disasters or epidemics or other force majeure events;

b/ Fines for administrative violation;

c/ Expenses offset by other funding sources;

d/ Business management expense distributed by a foreign enterprise for its resident establishment which exceeds the level calculated according to the allocation method prescribed by Vietnam’s law;

dd/ Expenses in excess of the level prescribed by the law on setting-up of provisions;

e/ Expense for interests on loans for production and business activities provided by entities other than credit institutions or economic institutions, which exceeds 150% of the prime interest rate announced by the State Bank of Vietnam at the time of loan provision;

g/ Illegal depreciation of fixed assets;

h/ Illegally advanced expenses;

i/ Salaries and wages of owners of private enterprises; remunerations for founders of enterprises who do not directly administer production and business activities; salaries, wages and other amounts which are accounted as expenses for employees but are not actually paid or do not have lawful invoices and documents;

k/ Expense for interests on loans corresponding to the insufficient amount of charter capital;

l/ Credited input value-added tax, value-added tax paid according to the credit method, and enterprise income tax;

m/ Expenses for advertising, marketing, sales promotion, brokerage commission, receptions, conferences, marketing support, support for expenses directly related to production and business activities, which exceed 15% of the total deductible expense. The total deductible expense excludes the expenses specified at this Point; for trade activities, the total deductible expense excludes the purchase price of goods sold;

n/ Donations, excluding donations for education, health, scientific research, remedy of consequences of natural disasters, building of great unity houses, houses of gratitude and houses for policy beneficiaries in accordance with law, donations under state programs for localities in areas with extremely difficult socio-economic conditions;

o/ Deductions paid to the voluntary pension fund or social protection fund, voluntary pension insurance premiums paid for employees, which exceed the law-prescribed level;

p/ Expenses for business activities: banking, insurance, lottery, securities and some other specific business activities as prescribed by the Minister of Finance.

3. Foreign-currency expenses to be deducted when determining taxable incomes must be converted into Vietnam dong at the average inter-bank exchange rate announced by the State Bank of Vietnam at the time they arise.

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

6. To amend and supplement Article 10 as follows:

“Article 10. Tax rates

1. The enterprise income tax rate is 22%, except the cases specified in Clauses 2 and 3 of this Article and except the entities eligible for tax rate preferences specified in Article 13 of this Law.

The entities eligible for the tax rate of 22% prescribed in this Clause shall apply the tax rate of 20% from January 1, 2016.

2. Enterprises having a total annual turnover not exceeding twenty billion dong shall apply the tax rate of 20%.

Turnover serving as a basis for identifying whether enterprises are eligible for the tax rate of 20% in this Clause is the turnover of the preceding year.

3. The enterprise income tax rate for prospecting, exploration and exploitation of oil, gas and other rare and precious natural resources in Vietnam is between 32% and 50%, depending on each project and business establishment.

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

7. To amend and supplement Article 13 as follows:

“Article 13. Tax rate preferences

1. To apply the tax rate of 10% for fifteen years to:

a/ Enterprises’ incomes from the implementation of new investment projects in areas with extremely difficult socio-economic conditions, economic zones and hi-tech parks;

b/ Enterprises’ incomes from the implementation of new investment projects, including scientific research and technological development; application of high technologies on the list of high technologies prioritized for development investment in accordance with the Law on High Technologies; incubation of high technologies and incubation of hi-tech enterprises; venture investment in the development of high technologies on the list of high technologies prioritized for development investment in accordance with the Law on High Technologies; investment in the construction and commercial operation of establishments incubating high technologies and incubating hi-tech enterprises; investment in the development of the State’s particularly important infrastructure facilities in accordance with law; production of software products; production of composite materials, lightweight building materials and rare and precious materials; generation of renewable energy, clean energy and energy from waste destruction; biotechnology development; and environmental protection;

c/ Incomes of hi-tech enterprises and hi-tech agricultural enterprises in accordance with the Law on High Technologies;

d/ Enterprises’ incomes from the implementation of new investment projects in production sectors (excluding projects to produce commodities subject to excise tax, and mining projects) provided that such a project satisfies either of the following criteria:

- Having the investment capital of at least six trillion Vietnam dong to be disbursed within three years after being granted the investment certificate and having a total annual turnover of at least ten trillion Vietnam dong within three years after the year it begins earning turnover;

- Having the investment capital of at least six trillion Vietnam dong to be disbursed within three years after being granted the investment certificate and employing more than three thousand workers.

2. To apply the tax rate of 10% to:

a/ Enterprises’ incomes from education and training, vocational, health, cultural, sports and environmental activities implemented under the socialization policy;

b/ Enterprises’ incomes from the implementation of projects on investment in social houses for sale, lease or lease-purchase for the entities defined in Article 53 of the Housing Law;

c/ Press agencies’ incomes from printed newspapers, including advertising on printed newspapers in accordance with the Press Law; publishing agencies’ incomes from publishing activities in accordance with the Publishing Law;

d/ Enterprises’ incomes from forest planting, tending and protection; agriculture, forestry and aquaculture in areas with difficult socio-economic conditions; production, multiplication and crossbreeding of plant varieties and animal breeds; making, exploitation and refining of salt, except salt making prescribed in Clause 1, Article 4 of this Law; investment in the preservation of post-harvest agricultural products, aquatic products and food;

dd/ Incomes of cooperatives from agricultural, forest, fishery and salt making activities  outside areas with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions, except incomes of cooperatives prescribed in Clause 1, Article 4 of this Law.

3. To apply the tax rate of 20% for ten years to:

a/ Enterprises’ incomes from the implementation of new investment projects in areas with difficult socio-economic conditions;

b/ Enterprises’ incomes from the implementation of new investment projects, including manufacture of high-grade steel; energy-saving products; machines and equipment for agricultural, forest and fishery production and salt making; and irrigation equipment; production and refining of livestock, poultry and aquatic feeds; and development of traditional trades and occupations.

From January 1, 2016, enterprises’ incomes specified in this Clause will enjoy the tax rate of 17%.

4. To apply the tax rate of 20% to incomes of people’s credit funds and microfinance institutions.

From January 1, 2016, incomes of people’s credit funds and microfinance institutions will enjoy the tax rate of 17%.

5. For large hi-tech projects which need special investment attraction, the period of application of preferential tax rates may be extended for not more than fifteen years.

6. The period of application of preferential tax rates prescribed in this Article is counted from the first year the new investment project earns turnover; for a hi-tech enterprise or hi-tech agricultural enterprise, this period is counted from the date it is granted the certificate of hi-tech enterprise or hi-tech agricultural enterprise; for a hi-tech application project, this period is counted from the date it is granted the certificate of hi-tech application project.

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

8. To amend and supplement Article 14 as follows:

“Article 14. Tax exemption and reduction period preferences

1. Enterprises’ incomes from the implementation of new investment projects prescribed in Clause 1 and at Point a, Clause 2, Article 13 of this Law as well as hi-tech enterprises and hi-tech agricultural enterprises are eligible for tax exemption for not more than four years and 50% reduction of payable tax amounts for not more than nine subsequent years.

2. Enterprises’ incomes from the implementation of new investment projects prescribed in Clause 3, Article 13 of this Law and enterprises’ incomes from the implementation of new investment projects in industrial parks, except industrial parks in areas with favorable socio-economic conditions as prescribed by law, are eligible for tax exemption for not more than two years and 50% reduction of payable tax amounts for not more than four subsequent years.

3. The periods of tax exemption and reduction for enterprises’ incomes from the implementation of new investment projects prescribed in Clauses 1 and 2 of this Article are counted from the first year an enterprise earns taxable incomes from these investment projects. In case the enterprise earns no taxable income in the first three years from the first year it earns turnover from a project, the periods of tax exemption and reduction will be counted from the fourth year. The periods of tax exemption and reduction for hi-tech enterprises and hi-tech agricultural enterprises prescribed at Point c, Clause 1, Article 13 of this Law are counted from the date an enterprise is granted a certificate of hi-tech enterprise or hi-tech agricultural enterprise.

4. Enterprises having investment projects to develop operating investment projects in the fields and geographical areas eligible for enterprise income tax preferences in accordance with this Law which expand production, increase capacity or renew production technologies (make expanded investment) and satisfy one of the three criteria specified in this Clause may select to enjoy tax preferences under the operating projects for the remaining period (if any) or enjoy tax exemption and reduction for the incomes increased as a result of expanded investment. The periods of tax exemption and reduction for the incomes increased as a result of expanded investment prescribed in this Clause equal the periods of tax exemption and reduction applicable to new investment projects in the same geographical areas and fields eligible for enterprise income tax preferences.

To be eligible for preferences prescribed in this Clause, an expanded investment project must meet one of the following criteria:

a/ The historical cost of fixed assets when the project is completed and put into operation has increased by at least twenty billion Vietnam dong, for expanded investment projects in the fields eligible for enterprise income tax preferences in accordance with this Law, or at least ten billion Vietnam dong, for expanded investment projects in areas with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions as prescribed by law;

b/ The historical cost of fixed assets has increased at least 20% of the total historical cost of fixed assets before the investment is made;

c/ The design capacity has increased at least 20% of the design capacity before the investment is made.

An operating enterprise which makes expanded investment in the fields and geographical areas eligible for tax preferences in accordance with this Law but fails to satisfy one of the three criteria specified in this Clause will enjoy tax preferences like those for operating projects for the remaining period (if any).

For an enterprise eligible for tax preferences like those for expanded investment, the income increased as a result of expanded investment must be separately accounted; if this income cannot be separately accounted, it shall be determined based on the proportion between the historical cost of fixed assets newly put into use for production and business activities and the total historical cost of fixed assets of the enterprise.

The periods of tax exemption and reduction specified in this Clause are counted from the year the investment project is completed and put into production and commercial operation.

Tax preferences specified in this Clause do not apply to cases of expanded investment as a result of enterprise merger or redemption and to operating investment projects.

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

9. To add the following Clause 3 to Article 15:

“3. Enterprises which transfer technologies in prioritized fields to organizations and individuals in areas with difficult socio-economic conditions are entitled to 50% reduction of enterprise income tax amounts calculated on the incomes from technology transfer.”

10. To amend and supplement Article 16 as follows:

“Article 16. Carrying forward of losses

1. Enterprises may carry forward their losses to subsequent years; these losses may be subtracted from taxed incomes. The period of loss carrying-forward must not exceed five years, counting from the year following the year when the losses arise.

2. Enterprises which suffer losses from the transfer of real estate, transfer of investment projects or transfer of the right to participate in investment projects even after making offsetting under Clause 3, Article 7 of this Law, and enterprises which suffer losses from the transfer of the right to explore and exploit minerals may carry forward losses to subsequent years and include them in taxed incomes from such transfer. The loss-carrying forward period complies with Clause 1 of this Article.”

11. To amend and supplement Clause 1, Article 17 as follows:

“1. Enterprises established and operating under Vietnam’s law may deduct up to 10% of their annual taxed incomes for setting up scientific and technological development funds. Particularly, state enterprises shall set up scientific and technological development funds in accordance with this Law and at the minimum rate prescribed by the science and technology law.”

12. To amend and supplement Article 18 as follows:

‘Article 18. Conditions for application of tax preferences

1. Enterprise income tax preferences prescribed in Articles 13 thru 17 of this Law apply to enterprises that implement the regime on accounting, invoices and documents and pay tax according to declarations.

Enterprise income tax preferences for new investment projects prescribed in Articles 13 and 14 of this Law do not apply to cases of separation, split-up, merger, consolidation, transformation and ownership change of enterprises and other cases prescribed by law.

2. An enterprise shall account incomes from production and business activities eligible for tax preferences prescribed in Articles 13 and 14 of this Law separately from incomes from production and business activities ineligible for tax preferences. If these incomes cannot be separately accounted, incomes from production and business activities eligible for tax preferences are determined based on the proportion of turnover from production and business activities eligible for tax preferences and the total turnover of the enterprise.

3. The tax rate of 20% specified in Clause 2, Article 10 and tax preferences specified in Clauses 1 and 4, Article 4, and Articles 13 and 14, of this Law do not apply to:

a/ Income from the transfer of capital or transfer of the capital-contributing right; income from the transfer of real estate, except social houses specified in Article 13 of this Law; income from the transfer of investment projects, transfer of the right to participate in investment projects or transfer of the right to explore and exploit minerals; and income from production and business activities outside Vietnam;

b/ Income from the prospecting, exploration and exploitation of oil, gas and other rare and precious natural resources and income from mining activities;

c/ Income from the provision of services liable to excise tax under the Law on Excise Tax;

d/ Other cases as prescribed by the Government.

4. In the same period, an enterprise which is entitled to different tax preferences for the same income may select to apply the highest preference.”

Article 2.

1. This Law takes effect on January 1, 2014, except the provisions in Clause 2 of this Article.

2. The provisions on application of the tax rate of 20% to enterprises having a total annual turnover not exceeding twenty billion Vietnam dong in Clause 6, Article 1 and the provisions on application of the tax rate of 10% to enterprises’ incomes from the implementation of social housing projects prescribed in Clause 7, Article 1, of this Law apply from July 1, 2013.

3. Enterprises having investment projects which are still in the period of enjoying enterprise income tax preferences (tax rate preferences and tax exemption and reduction periods) by the end of the 2013 tax period according to legal documents on enterprise income tax issued before the effective date of this Decree may continue to enjoy these preferences for the remaining period according to such documents. If they satisfy the conditions on tax preferences prescribed in this Law, they may select to apply the current preferences or preferences prescribed in this Law like preferences for new investment for the remaining period if they currently enjoy the preferences like enterprises newly established from investment projects, or preferences for expanded investment for the remaining period if they currently enjoy preferences for expanded investment.

By the end of the 2015 tax period, if an enterprise having investment projects eligible for the preferential tax rate of 20% prescribed in Clause 3, Article 13 of Law No. 14/2008/QH12 on Enterprise Income Tax, which was amended and supplemented under Clause 7, Article 1 of this Law, it may apply the tax rate of 17% for the remaining period from January 1, 2016.

4. To annul the provisions on enterprise income tax in the articles and clauses listed below:

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

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

c/ Clause 1, Article 10; Clause 1, Article 12; Clause 2, Article 18; Clause 2, Article 19; Clauses 1 and 2, Article 22; Clause 3, Article 24; and Clause 2, Article 28, of Law No. 21/2008/QH12 on High Technologies;

d/ Clauses 1, 4, 5, 6, 7 and 8, Article 44, and Article 45, of Law No. 80/2006/QH12 on Technology Transfer;

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

e/ Clause 1, Article 68 of Law No. 72/2006/QH11 on Vietnamese Guest Workers;

g/ Clause 2, Article 6 of Law No. 71/2006/QH11 on Social insurance;

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

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

k/ Article 34 of Law No. 51/2010/QH12 on People with Disabilities;

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

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

5. The Government shall detail and guide the implementation of articles and clauses as assigned in the Law.

This Law was passed on June 19, 2013, by the XIII^th National Assembly of the Socialist Republic of Vietnam at its 5^th session.-

Chairman of the National Assembly
NGUYEN SINH HUNG