During the period 2009 – 2013, many enterprises have frequent investment activities which have been considered business expansion and consequently not entitled to Corporate Income Tax (“CIT”) incentives as of the initial projects.
From 2014, Circular 151/2014/TT-BTC (“Circular 151”) dated 10 October 2014 issued by the Ministry of Finance (“MOF”) has re-introduced the incentives for such frequent investment carried out during 2009-2013 which generally include supplementary investment in machinery and equipment used for business operation and was not a new investment project or expansion investment projects. Accordingly, the additional income generated from such frequent investment shall be entitled to CIT incentive as of the initial project but from 2014 only; also, it is still confusing for practical application as Circular 151 does not provide specific criteria/definition of the frequent investment activities (versus the new/expansion investment activities).
Related to this issue, on 07 April 2016, the MOF has issued Official Letter (“OL”) No. 4769/BTC-TCT providing more specific guidance on criteria to determine the frequent investment activities and the applicable tax incentives for the period 2009 – 2013 as follows:
1. Criteria to determine the frequent investment activities
(i) Frequent investment activities are those funded from one of the three independent sources as below in order to make frequent additional investment in machinery and equipment for the current projects:
- Depreciation fund of fixed assets;
- Re-investment from retained earnings;
- Investment within the investment capital registered with the competent authorities.
(ii) Frequent investments from above sources must not result in an increase in production capacity as registered or approved in the business plan of the initial project.
Accordingly, the additional investment shall not be considered frequent investment activities (and hence not eligible for CIT incentives) if it results in an increase in production scale compared to the one stated in the Investment Certificate (“IC”)/ Investment License (“IL”).
This criterion shall not be applied if the IC/IL does not have the production scale of the project or the investment is not under cases of being granted with an IC/IL.
In case of failure of this criterion, the additional income from the excessive production capacity compared to that stated in the IC/IL shall not enjoy the CIT incentives.
2. Application of the incentives
- Enterprises which have frequent investment activities during period 2009 – 2013 and satisfy the conditions to enjoy CIT incentives as above can now make adjustments to its CIT Return according to Law on Tax Administration and other legal documents guiding tax administration.
In case where the enterprises have already declared and paid CIT amounts (including the case that the enterprises are in a tax arrears decision or in the process of settling a complaint/appeal) for the frequent investment activities during the period 2009 – 2013, but now being entitled to CIT incentives under this guidance of OL No. 4769/BTC-TCT, they shall be able to offset against the amount of tax payable for the next period or get reimbursement for the overpaid amounts.