Draft Decision On Special Investment Incentives

LEGAL UPDATE

To implement the obligations set out in Resolution No. 50/NQ-TW dated 20 August 2019[1] the 2020 Law on Investment (2020 LoI) and Decree No. 31/2021/ND-CP[2] implementing some articles of the 2020 LoI (Decree 31) have provided for special investment incentives and assigned the Prime Minister to determine the levels and eligibility period of the same.

In June 2021, the Prime Minister released a draft decision on special investment incentives (Draft Decision) for public comments.

The Draft Decision has been elaborated with a view to selectively attracting foreign investments that focus on quality, efficiency, technology application and environment protection. Simultaneously, the projects that apply high technology, create added value, and connect global chains of production and supply will be prioritised.

In this update, we would like to set out some notable points in the Draft Decision for your information.

1. Scope

The Draft Decision stipulates the levels and eligibility period of special investment incentives for the investment projects stipulated in Article 20.2 of the 2020 LoI, including:

- Investment projects of new establishment or expansion of the National Innovation Center under the Prime Minister’s decision and its affiliates located outside its headquarters (Group 1);

- Investment projects of new establishment or expansion of R&D or innovation centers with a total investment capital of at least VND3,000 billion (~USD129 million) and with a minimum capital amount of VND1,000 billion (~USD43 million) being disbursed within 3 years from the issuance date of the Investment Registration Certificate (IRC) or the approval date of the investment policy (Group 2); and

- Investment projects in business sectors eligible for special investment incentives (as stipulated in Schedule II.A of Decree 31) having a total investment capital of at least VND30,000 billion (~USD1.3 billion) and a minimum capital amount of VND10,000 billion (~USD430 million) being disbursed within 3 years from the issuance date of IRC or the approval date of investment policy (Group 3).

2. Application and Adjustment of Special Investment Incentives

Decree 31 has stipulated a principle for application of special investment incentives that any investor submitting a proposal for application of special investment incentives must undertake to satisfy the conditions on business sectors, total registered investment capital, capital amount to be disbursed and duration of disbursement as specified in Article 20.2 of the 2020 LoI (as specified in Section 1 above) and other conditions prescribed in the IRC, decision on approval of investment policy, or written agreement with a competent authority under the Prime Minister’s decision.

The Draft Decision further affirms that special investment incentives shall be specified in the IRC, decision on approval of investment policy, or written agreement with a competent authority under the Prime Minister’s decision. During the period of special investment incentive entitlement, the relevant economic organisation implementing the investment project shall be entitled to incentives subject to the extent of its satisfaction of the eligibility conditions in the remaining entitlement period.

The Draft Decision also stipulates that in case an investor fails to comply with its undertakings, or its investment project fails to satisfy the eligibility conditions for special investment incentives, the relevant economic organisation implementing the investment project shall:

- not be entitled to special investment incentives if it has not enjoyed the incentives yet; and

- be liable to refund the granted special investment incentives for the period of non-compliance or non-satisfaction if it has already enjoyed the incentives.

3. Levels and Eligibility Period of Special Investment Incentives

Based on the legal framework stipulated in the 2020 LoI and Decree 31, the Draft Decision provides for 3 levels of specific investment incentives as follows:

- Level 1: application of CIT rate of 9% for 30 years, exemption from CIT for 5 years and reduction of 50% CIT for the subsequent 10 years; exemption from land and water surface rent for 18 years and reduction of 55% of the same for the remaining years;

- Level 2: application of CIT rate of 7% for 33 years, exemption from CIT for 6 years and reduction of 50% CIT for the subsequent 12 years; exemption from land and water surface rent for 20 years and reduction of 65% of the same for the remaining years; and

- Level 3: application of CIT rate of 5% for 38 years, exemption from CIT for 6 years and reduction of 50% CIT for the subsequent 13 years; exemption of land and water surface rent for 23 years and reduction of 75% of the same for the remaining years.

The 3 incentive levels above shall apply to the following investment projects set out in section 1 of this update:

- Level 1 to the investment projects in Group 3;

- Level 2 to the investment projects in Group 2; and

- Level 3 to the investment projects in Group 1.

If an investment project in Group 3 satisfies certain additional conditions in relation to high technology application, Vietnamese enterprises participating in the chain of value, added value of products or technology transfer as prescribed in the Draft Decision, it will be entitled to the special investment incentives of Level 2 or Level 3 subject to the extent that such conditions are satisfied.

The Draft Decision does not mention any cases where the investment projects in Group 2 may satisfy additional conditions and be entitled to the special investment incentives of Level 3. There may be further changes in the final version of the Decision.

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[1] Decision 50 of the Politburo on orientation for perfecting institutions and policies, and enhancing quality and effectiveness of foreign investment cooperation towards 2030.

[2] Read our update Decree 31 Guiding the Implementation of the 2020 Law on Investment.