Investment Incentives for Foreign-invested Projects in Vietnam

Who qualifies: the two axes of sector and location

The law lists incentive criteria along two axes: sector (specially encouraged or encouraged business lines — see market access conditions to identify the project’s business line correctly) and location (areas with difficult or especially difficult socio-economic conditions; industrial parks, economic zones, high-tech parks…). An electronic components factory in an industrial park in a difficult area may meet several criteria at once — and the incentive level is determined under the most favourable applicable criterion. Conversely, a wrong location or a wrongly described business line can regrettably push the project out of incentive eligibility.

So the first step is not to ask “how much incentive” but to run an incentive mapping of the project plan: compare the business line, location, capital scale and expected headcount against the current incentive criteria, determine which criteria the project meets and the corresponding incentive level for each type (tax, land, infrastructure). This mapping feeds every subsequent project-structuring decision.

Types of incentives and their corresponding “gates”

There is no single “incentive counter” — each incentive type has its own “gate”, its own dossier, its own legal basis:

• CIT incentives: a preferential rate below the standard rate for a fixed period; tax holidays for the first years followed by a 50% reduction in subsequent years. Applied by the tax authority when the company self-assesses at finalisation; the tax authority may audit and disallow incentives if conditions are not met. Levels vary by beneficiary — do not copy another project’s numbers onto yours.
• Land rental / land use fee incentives: exemption or reduction of land rental during basic construction and for a number of following years; handled by the land administration authority upon the investor’s request and based on the IRC — a procedure independent of the tax procedure.
• Import duty incentives: import duty exemption for goods forming the project’s fixed assets; work with customs/tax authorities.
• Incentives in industrial parks, economic zones, high-tech parks: “one-stop” procedural support from the Management Board, infrastructure incentives, usually combined with high tax and land incentives. For projects inside a park, the Management Board is the main working counterpart throughout the project life.
• Other incentives: workforce training support, land access support.

Investors must proactively work with each authority — incentives recorded in the IRC still need separate implementation procedures in each field.

Recording incentives in the IRC: the mandatory “ticket”

Investment incentives and their eligibility conditions must be recorded in the Investment Registration Certificate (IRC) — the “ticket” for later dealings with the tax and land authorities. The IRC application dossier must therefore show the incentive basis clearly: the business line on the encouraged list, the location in an incentivised area, the capital scale and the commitment to meet the conditions.

The biggest risk here is receiving an IRC “blank” on incentives — recording nothing. Many investors chase the IRC timeline and forget the incentive content; when they later deal with the tax authority on CIT incentives, they are asked to show the basis recorded in the IRC and have none. Adding incentives after the IRC is issued is a far more complex amendment procedure than recording them from the start. How the incentive basis is worded in the project proposal determines whether the investment registration authority records it fully — one vague sentence can cost the company an incentive worth billions of dong over many years.

Optimise incentives from the project design stage

The only time “incentive optimisation” is still cheap is when the project is still on paper: shifting the site between two industrial parks with different incentive policies, adjusting the business-line mix to “touch” an encouraged criterion, raising the capital scale to the threshold for a higher incentive tier — all easy on paper and extremely expensive once the project is underway.

But keep the overall equation in view: do not chase incentives and forget business efficiency. Picking a remote location just for higher incentives, while logistics, recruitment and management costs soar — the overall equation can lose money. Incentives are a “plus”, never the sole reason for a location decision. A reliable analysis must quantify each incentive type over the project timeline and set it against the real operating costs of each location option.

Maintaining incentives: the most easily forgotten ongoing duty

Incentives are not “enjoy once and done”: the company must continuously meet the conditions throughout the enjoyment period — maintaining the committed business line, scale and location; keeping to schedule; meeting tax and reporting duties. The two most common stumbling points:

• Separate accounting for incentivised income: a company with both incentivised and non-incentivised activities must account separately for each activity’s income; applying incentives to everything because the income cannot be separated is wrong and will be disallowed in a tax audit.
• Review before every project adjustment: relocating, downsizing, adding business lines — each change can cost part or all of the incentives. The impact on incentives must be assessed before making any adjustment.

Put the incentive conditions into the company’s periodic compliance checklist: review condition compliance before each tax finalisation, rather than waiting for an assessment to act.

Five ways companies lose incentives

1. IRC “blank” on incentives: not recording incentives from the start makes claiming them later very difficult.
2. Project changes without impact assessment: moving out of the incentivised area, downsizing below the threshold, adding non-encouraged business lines.
3. Failing maintenance conditions: the tax authority disallows incentives for the non-compliant portion and recovers the exempted/reduced tax plus late-payment interest for the years enjoyed — the recovery is usually far larger than the initial compliance cost.
4. Wrong accounting of incentivised income: not separating incentivised from non-incentivised activities.
5. Chasing incentives, forgetting business efficiency: a high-incentive location with higher total operating costs than a lower-incentive one.

When to engage a lawyer

A lawyer should be involved as soon as the project plan is drawn up — before the site and capital scale are finalised. A lawyer is essential when drafting an IRC dossier with incentive content: how the incentive basis is worded in the project proposal determines the recording. When the company prepares to adjust the project, the lawyer assesses the impact on each incentive enjoyed and designs the adjustment to lose as little as possible. And when the tax authority disallows incentives or issues an assessment, a tax lawyer assesses the decision’s correctness, prepares explanations and complaints — and reviews the whole condition-maintenance mechanism to prevent recurrence.

FLAT LAW FIRM runs an incentive mapping for each project option: comparing the business line, location and capital scale against current incentive criteria, quantifying each incentive type over the project timeline. At the dossier stage, we present the incentives in the project proposal and the IRC, work with the investment registration authority for full recording, and accompany the incentive implementation procedures at each “gate” (tax, land, park Management Board). At the operating stage, we put incentive maintenance conditions into the periodic compliance programme and assess incentive impact before each project adjustment.

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