Expansion project is subject to investment incentives, among these incentives, corporate income tax incentives are an issue to note. Companies that are investing or have invested or are preparing to invest, are always interested and wondering whether they are eligible for tax incentives or not?
On the other hand, because the tax law changes frequently and the accountants do not follow closely, it often happens that they believe that they are entitled to tax incentives until they are in tax inspection and not enjoying tax incentives.
To avoid this situation, in episode 1, we need to clearly understand what is the concept of "expansion project" and distinguish between “new investment project” and regular investment activities.
Firstly, what is an "expansion project"?
As prescribed clause 5, Article 3 of the Law on Investment in 2020, the expansion project is:
“expansion project” means an investment project on development of a running project by expanding the scale, improving the capacity, applying new technologies, reducing pollution or improving the environment.
In practice, this concept is often associated with an increase in contributed capital, or an increase in investment capital.
Secondly, distinguish new investment project and regular investment activity.
Regarding new investment project: As prescribed clause 6, Article 3 of the Law on Investment in 2020 on the definitions: ““new investment project” means a project that is executed for the first time or a project independent from any other running project.”
As specified by the tax law, at Clauses 3 Article 10, Circular 96 in 2015, a new investment project have to meet the following conditions:
- Projects which are granted the first-time investment certificates.
- Investment projects independent from projects of operating enterprises.
- And do not belong to the following projects:
- One: Investment projects formed from the splitting, separation, merger or transformation of enterprises in accordance with law;
- Two: Investment projects formed from ownership conversion (including also implementation of projects of new investment with assets, business locations and lines of old enterprises)
Regarding regular investment: According to the official letter No. 4769 of the Ministry of Finance on 07/04/2016: The regular investment activity is the activity executed from 1 of 3 dependent sources to additionally invest machinery, equipment regularly for the project which is enjoying EIT incentives, including:
- One: Fund of fixed asset depreciation of the enterprise.
- Two: Using after - tax profits to reinvest.
- Three: Using capital within the scope of investment capital already registered with state management agencies.
The regular additional investment in machinery, equipment from the above - said sources must ensure the condition that it does not increase the production and business capacity in accordance with the business plan already registered
In summary, the accurate classification and identification of incremental investment projects will give you orientation to determine incentives in corporate income tax for each type:
- Expansion project;
- New investment project;
- And regular investment activity;
Corporate income tax incentives relating to expansion project is a difficult topic. In episode 1, we have transferred to you these concepts need to know. In episode 2, we will transfer to you these regulations on tax incentives for expansion project in each stage.
In each stage, the guidance of the tax authority on the expansion investment incentives is different. We summarize into the following stages:
ü Before 2009: According to the provisions of Section 2, Chapter 4, Part E, Circular 134 of the Ministry of Finance issued on November 23, 2007: “Operating business establishments that invest in the installation of new production chains, expansion of production scale, renewal of technologies, improvement of ecological environment or raising of production capacity are entitled to enterprise income tax exemption or reduction for additional incomes brought about by such investment shall separately account to determine the exempted or reduced enterprise income tax amount”.
ü From 2009 to 2013: According to the provisions of Section 6, Part 1, Circular 130 of the Ministry of Finance issued on December 26, 2008: “For operating enterprises which have from 2009 investment projects on building new production chains, expanding production scales, renewing technologies, improving the eco-environment or raising the production capacity, incomes from these projects will be ineligible for enterprise income tax incentive”.
According to the provisions of Section 3, Article 18, Chapter 4, Circular 123 of the Ministry of Finance issued on July 27, 2012: “If an enterprise adds more business lines or expand its business scale, the income from the additional business activities are not eligible for enterprise income tax incentives”.
ü From 2014 to present: According to the provisions of Section 6, Article 18, Chapter 4, Circular 78 of the Ministry of Finance issued on June 18, 2014 (Added at Clause 4, Article 10, Circular 96, 2015): “Enterprises operating since 2014 that develop the operating investment projects such as expansion of production scale, increase of capacity and renewal of production technology, the income from this investment project” will enjoy corporate income tax incentives, if it meets a number of conditions as prescribed.
According to the regulations at Section 20, Article 1, Decree 12 of the Government issued on February 12, 2015: “Enterprises having projects of expansion investment that have been granted the investment licenses by competent agencies or have executed the investment during 2009 - 2013, if meeting the conditions on tax incentives under the provisions of Law No. 32/2013/QH13, they shall be entitled to tax incentives for the expansion investment as prescribed in this Decree for the remaining time as from the tax period of 2015”.
In summary, in determining an expansion project, we determine firstly what type of investment project is like the content of episode 1, then we consider the project in what stage as the content of this episode 2.
- Before 2009,
- From 2009 to 2013
- From 2014 to present
We have introduced to you what is expansion project in episode 1 and tax incentives in each stage in episode 2 in topic expansion project.
Today, we will learn what are the conditions for enjoying expansion project incentives and what are the preferential rate according to current regulations?
According to the provisions in Circular 96 of the Ministry of Finance dated June 22, 2015 on corporate income tax, we should pay attention to the following three points:
Firstly, expansion projects that are eligible for tax incentives have to be engaged in the fields or areas eligible for corporate income tax incentives as prescribed Decree No. 218 dated December 26, 2013, except for industrial parks located in urban districts of special-grade cities, centrally run grade-I cities and grade-I provincial cities will not be eligible for tax incentives.
Secondly, must satisfy one of three following criteria:
Criterion 1: The historical cost of fixed assets added is at least VND 20 billion, in the fields eligible for corporate income tax incentives or VND 10 billion, in geographical areas with difficult or particularly difficult socio- economic conditions under Decree No. 218/2013/ND-CP.
Criterion 2: Cost of fixed assets increases by at least 20% of the cost before investment.
Criterion 3: The design capacity after expansion investment is at least 20% higher than the design capacity stated in the techno-economic study report prior to the initial investment.
Thirdly, the preferential rates are selected as follows:
Option 1: To enjoy corporate income tax incentives, (including tax exemption and tax reduction and tax rate) for their operating projects for the remaining duration, the expansion project must be in the field or the area with the operating projects.
Option 2: Applying tax exemption and tax reduction for the additional income brought by expansion investment (not eligible for the preferential tax rate), equal to the applicable tax exemption or tax reduction duration applicable to projects of new investment.
In summary, corporate income tax incentives for expansion investment will need to pay attention to:
First of all, project is in the field or area eligible for tax incentives;
Next, project must satisfy 1 of 3 criteria on the size of the expansion investment project;
Finally, the enterprise considers and chooses the most profitable option.
