No CIT incentives for business activities outside the designated investment projects zones
Pursuant to Clause 4, Article 15, Decree 124/2008/ND-CP, newly established enterprises from investment projects lo-
cated in socio-economic difficulties are entitled to a preferential CIT rate of 20% in 10 years, a CIT exemption in 2 years
and a 50% CIT reduction in 4 subsequent years. Accordingly, such investment projects of the newly-established enter-
prises must be invested and located in such incentive zones, as stated in the Law on Investments, Circular 130/2008/
TT-BTC and Circular 18/2011/TT-BTC. If a newly established enterprise implements its investment project in other areas
outside the incentive zones, it would not qualify to enjoy the CIT incentives.
Above is the guidance in Official Letter 2017/TCT-CS by General Department of Taxation dated 14 June 2012.
No CIT incentives granted for existing investment project sold to invest in new projects
On 11 June 2012, the General Department of Taxation (“GDT”) issued Official Letter
1959/TCT-CS providing guidance on CIT incentives when an existing investment
project is sold to invest in new projects. Accordingly, in the case where owner of an
enterprise (with Investment Certificates) sells its current operating projects then utilize the capital to invest in new
projects in other locations, no incentives shall be granted for these new projects.
Non-deductible expense for foreign exchange loss from foreign loan agreed with fixed exchange rate
On 4 June 2012, the Ministry of Finance issued Official Letter 1891/TCT-CS providing guidance on foreign exchange
losses from foreign loans by a fixed foreign exchange rate as follow:
Under regulations on accounting in Circular 105/2003/TT-BTC dated 4 November 2003 by the Ministry of Finance, en-
terprises with economic transactions in foreign currency must record in their accounting books and prepare financial
statements in one currency unit, being Vietnamese dong (VND), or another currency unit used in accounting (if ap-
proved) (“other currency”). A conversion of foreign currency to VND or the other currency must be based on the actual
exchange rate of the transaction or on interbank average exchange rates by the State Bank of Vietnam at the point of
transactions (herein as an exchange rate) to record in the accounting books. If there is a foreign exchange loss due to
a conversion of foreign exchange by a fixed exchange rate agreed in a loan contract rather than the required basis as
mentioned above at the point of transaction, this would not comply with regulations under Circular 105/2003/TT-BTC
dated 4 November 2003 by the Ministry of Finance. Accordingly, this loss is a non-deductible expense for CIT taxable
30%CIT reduction for exchange gains in 2011
On 6 August 2011, The National Assembly passed Resolution 08/2011/QH13 on tax policy to help small and medium
enterprises and individuals to overcome economic difficulties. Accordingly, small andmediumenterprises are entitled
to a 30% CIT reduction in 2011. Circular 154/2011/TT-BTC by the Ministry of Finance guiding on the implementation
of Resolution 08/2011/QH13 stipulates that: “The CIT reduction for small and medium enterprises does not include
taxes imposed on incomes from the following activities: lottery, real estate, securities, finance, banking and insurance
business activities, production and provision of goods and services subject to Sepcial Consumption Tax, and mineral
exploitation and processing.”
If an enterprise which qualified as a small and medium enterprise and in 2011 incurred a foreign exchange gain from
business activities and re-evaluation of payables at fiscal year-end, such gain is subject to 30%CIT reduction in 2011 as
stated in Circular 154/2011/TT-BTC.
Above is the guidance of Official Letter 1624/TCT-CS by the General Department of Taxation dated 16 May 2012.
(Source: Deloitte)
Update on Corporate Income Tax (“CIT”)
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