The government has released a series of incentives and policies in recent years to boost Vietnam’s support industry (SI), but improvements are yet to be fully seen. One of the main reasons is the ambiguity in the corporate income tax (CIT) incentive policy for SI.

Policy development

The role of SI is to produce and supply materials, components, and spare parts for finished products, which have been recognized as a prerequisite for the sustainable development of manufacturing and assembly industries.

In recognition of the importance of SI, Vietnam has operated a wide range of preferential policies for enterprises in the SI field, such as credit access and import-export tax incentives. More specifically, the government has approved the Program for Support Industry Development from 2016 to 2025 and issued a list of prioritized SI products.

In 2014, the National Assembly issued a Law on Amendments to Tax Laws (Law No.71) for the first time, introducing a tax rate of 10 per cent applicable for 15 years for SI projects, a four-year tax exemption, and a nine-year tax reduction from the time taxable income is earned.

Under expectations

According to the SI development program in the period from 2016 to 2025, SI products will account for 45 per cent and 65 per cent of domestic demand by 2020 and 2025, respectively. In 2020, the proportion of raw materials and auxiliary materials supplied to the textiles industry is expected to exceed 65 per cent, and in the footwear industry 75-80 per cent. By 2020, 35 per cent of demand for components serving priority industries will be met and will increase to 55 per cent by 2025.

Metal components and spare parts can only meet 15-25 per cent of demand for automobile components and approximately 20 per cent of complete equipment manufacturing demand, and the new electronic components sector has satisfied only 30-35 per cent of demand for consumer electronic components. The localization ratio for nine-seat motor cars is only 7-10 per cent on average, while the value-added ratio of garment products is 50 per cent, due to materials mostly being imported, while nearly 80 per cent of materials for the footwear industry must be imported.


As a trusted tax advisor in Vietnam with rich experience in assisting numerous enterprises, the author’s viewpoint is that the main reason behind the issues is unclear CIT incentive policies. Although the policy is regulated in Law No.71/2014/QH13, it has experienced difficulties in practice.

It will no longer be a matter of capital, human resources, technology, and management if we can encourage SI companies, especially FDI enterprises, to re-invest and expand from increased after-tax profit thanks to tax incentives.

Two critical points

There are two unclear points: tax incentive transition, and the criteria for the determination of incentive beneficiaries.

According to Law No.71, enterprises have the right to make a “tax incentive transition”: choose between CIT incentives prescribed by the old regulations at the time when the license/investment certificate was granted or under the new regulations (if more favorable) for the remaining period.

Thus, operating SI projects granted licenses before January 1, 2015 that were initially not eligible for incentives can now be treated as subject to incentives for the period since January 1, 2015 (the effective date of Law No.71).

Decree No.12/2015/ND-CP providing guidance on Law No.71 already regulates in detail the application of tax incentive transition for investment projects locating in areas being not eligible for incentive areas prior to January 1, 2015 but becoming incentive areas from January 1, 2015. However, Decree No.12 does not regulate tax incentive transition for investment projects in fields and industries being not entitle for incentive fields and industries prior to January 1, 2015 but turning into incentive fields and industries from January 1, 2015 according to Law No.71.

Then came Circular No.21/2016/TT-BTC from the Ministry of Finance regulating tax incentives applicable to the income of SI projects from January 1, 2015. This ambiguous regulation probably caused enterprises to understand that only SI projects from January 1, 2015 were eligible for tax incentives.

Many enterprises have also been confused in applying the criteria to identify whether they are subject to incentives regulated in Decree No.111/2015/ND-CP on SI development and Circular No.55/2015/TT-BCT on procedures for incentive certification and the post-audit of SI projects.

As a result,projects eligible for CIT incentives are new SI investment projects and ongoing projects that expanded in scope, enhanced capacity, and introduced technological innovation in manufacturing using new equipment and manufacturing processes with an increase in productivity of at least 20 per cent. In fact, enterprises do not know whether increased fixed assets, increased capacity, increased investment capital, or increased revenue should be the approved criteria in determining if they are subject to preferences in terms of an increase in productivity of at least 20 per cent. 


Following the spirit of a “constructive government”, the supplementation and amendment of policies for SI is urgent. As for tax incentive transition, the government should consider amending Decree No.12/2015/ND-CP and, on that basis, the Ministry of Finance should issue a circular amending Circular No.21/2016/TT-BTC. As for the criteria for determining incentive beneficiaries, amendments to Circular No.55/2015/TT-BTC would be appropriate.