Understanding Vietnam’s Decree No. 57/2021/ND-CP: A Boost for Supporting Industries
The Vietnamese government has taken a significant step to revitalize its economy by issuing Decree No. 57/2021/ND-CP (Decree 57), which amends and supplements the earlier Decree 218/2013/ND-CP. This crucial change is aimed at easing the corporate income tax (CIT) incentives for enterprises involved in the manufacturing of prioritized products within the supporting industries (SI). Particularly, it targets those enterprises that began operations before January 1, 2015.
Background of Supporting Industries
According to Decree No. 111/2015/ND-CP (Decree 111), supporting industries encompass sectors that provide essential components, raw materials, and spare parts to manufacturing industries. These include electronics, mechanical engineering, garment and textile, leather and footwear, high-tech sectors, and automotive industries. The list of prioritized supporting industrial products can be found in the appendix of Decree 111, outlining which sectors will receive the most attention and support.
Rationale Behind Decree 57
The introduction of Decree 57 is viewed as a strategic measure to stimulate business growth, especially at a time when local enterprises grapple with challenges posed by public health issues and an unstable macroeconomic environment. By reducing tax burdens, the government aims to promote production and expansion activities within the SI sector.
Tax Incentives Provided
The CIT incentive policy for supportive industry projects was initially established under Law 71/2014/QH13, which took effect on January 1, 2015. Decree 111 then provided further guidance on these initiatives. The incentives available under this framework are substantial. Specifically, projects involved in the manufacture of SI products can benefit from:
- Tax exemption for four years,
- A 50% reduction in taxable income for the following nine years,
- A preferential CIT rate of 10% for up to 15 years.
Additionally, enterprises can enjoy exemptions from import duties, reduced value-added tax obligations, and other incentives related to investment credits and land use.
Addressing Previous Limitations
A significant barrier under previous regulations was that CIT incentives were not available to enterprises that operated prior to 2015. This gap led to many SI enterprises not being able to leverage the incentives that newer companies could benefit from, thus putting older businesses at a disadvantage.
Eligibility Criteria for Tax Incentives
Under the new provisions of Decree 57, the eligibility for CIT incentives around projects manufacturing SI products is governed by Circular 21/2016/TT-BTC. To qualify, enterprises must adhere to the following criteria:
- They should be new investment or expansion projects focused on SI products that are prioritized for development, which may include high-tech products.
- They must have received the Certificate of Incentives for SI product manufacture.
Beneficiaries of Decree 57 include:
- Enterprises that previously did not receive CIT incentives but now qualify based on the new regulations.
- Enterprises that have fully benefited from CIT incentives under other preferential terms can continue to apply for the remaining period as stipulated post-certification.
- Enterprises currently benefitting from incentives can access the highest CIT incentive levels retroactively.
Managing Overpaid Tax Liabilities
With these reforms, some enterprises may find they have previously overpaid their CIT due to now applicable incentives. According to Article 60 of the Law on Tax Administration, these companies can request tax authorities to adjust their overpaid liabilities and late payment fees accordingly.
Anticipated Effects on the Market
The timing of Decree 57’s implementation is pivotal, as it may provide much-needed financial relief to SI enterprises, especially those impacted by the ongoing Covid-19 pandemic. The potential tax savings could foster a more robust business environment, signifying the government’s commitment to tax reform and supporting local industries.
Strategic Considerations for Enterprises
To effectively leverage the benefits of Decree 57, enterprises in the SI manufacturing sector should:
- Conduct thorough assessments of current policies, eligibility criteria, and potential benefits for their specific SI projects.
- Consider applying for SI Certification to enable access to CIT incentives and ensure compliance with the required tax procedures.
- Maintain qualification for incentive criteria during their project operations to maximize the benefits.
- Seek professional advice to navigate the complexities of the regulations and ensure they meet conditions outlined in the decree.
This exploration of Vietnam’s Decree 57 offers a glimpse into the government’s efforts to bolster its economy by supporting key sectors critical to the nation’s growth. For any organization operating within these realms, staying informed and prepared will be essential in maximizing the opportunities presented by this regulatory shift.