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CIT – Tax incentive treatment

Released at: 14:38, 05/11/2014 TAX CONSULT

CIT – Tax  incentive treatment

Decree No 91 dated October 1, 2014 from the government stipulates that additional income derived from additional machinery and equipment for normal production/business activities is entitled to the incentives of the original project for the remaining incentive period, effective from the tax year 2014.

Q: A company is entitled to CIT incentives and had additional investment during 2009-2013. Is the income from the additional investment entitled to the CIT incentives?

A: Decree No 91 dated October 1, 2014 from the government stipulates that additional income derived from additional machinery and equipment for normal production/business activities is entitled to the incentives of the original project for the remaining incentive period, effective from the tax year 2014. However, in the case of additional investment as an expanded investment project during 2009-2013, the CIT incentive treatment is still being considered by taxation policymakers. 

Q: What is the incentive treatment for companies that conducted an IPO during 2004-2006?

A: On October 3, 2014, the General Department of Taxation (GDT) issued Official Letter No 1404 confirming that where companies registered for tax incentives based on conducting an initial public offering (IPO) from 2004 to 2006 but had not yet declared tax incentives, the tax incentives will be forfeited from fiscal year 2009. From 2009, if companies still declared the tax incentives they will be required to revise the CIT returns and pay the under-declared tax. No penalty or interest payment will be imposed. Further, from 2014, if companies still declare the tax incentives they will be subject to penalties and interest payments.

Q: What are the tax incentives applicable to branches and business expansion projects established by a company having no incentives?

A: According to Official Letter No 12404 dated September 5, 2014 of the GDT, from 2014, in cases where a company with no incentives establishes a branch in an incentive industrial park or a business expansion project in the incentive business domain or location (based on Decree No 218), the branch or the business expansion project will enjoy tax incentives applicable to a new investment project or business expansion, respectively.

Q: In cases where a company is entitled to tax incentives on a location basis but has income from both incentive and non-incentive locations, what is the tax incentive treatment? 

A: Official Letter No 12024 dated August 27, 2014 from the GDT provides detailed guidance for companies that were entitled to tax incentives on a “location” basis but have income from other non-incentive locations, in which case the income from these other locations will not be subject to tax incentives. Companies are required to revise CIT returns for 2009-2013 tax years, if applicable, and pay the under-declared tax amount. No penalty or interest payment would be imposed in such cases.

This column is prepared in cooperation with KPMG Vietnam

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