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Vietnam To Cut Corporate Tax Rates In 2014

by Mary Swire,, Hong Kong

17 December 2012

The Ministry of Finance is to place a draft bill before the National Assembly early next year, which would make changes to Vietnam’s corporate income tax code, including a cut in tax rates from 2014.

Earlier this month, at the 2012 Business Forum in Hanoi, the Deputy Prime Minister Vu Van Ninh had come under pressure to introduce tax measures to help businesses and incentivize more investment in the economy, particularly as the government plans to increase minimum wages substantially next year.

It was then said that the current 25% corporate tax rate is out of line with Vietnam’s competitors, and is discouraging both domestic and foreign investment. It was pointed out, for example, that in Thailand the tax rate was reduced this year to 23%, and is to be cut further to 20% in 2013, while many other Asian countries also apply much lower rates.

However, when he was asked to match Thailand’s 20% corporate tax rate, Ninh did not promise that the government would go that far. A rate cut by 2020 had, however, already been included within the government’s plans, and it has now been proposed that the present rate will fall to 23% from January 1, 2014, and cost the government some VND12.1 trillion (USD582m) in annual revenue.

However, lower tax rates (currently 10% and 12.5%) are retained to incentivize selected commercial sectors, such as publishing, education and healthcare, while small- and medium-sized enterprises, which represent the vast majority of all businesses within Vietnam, with earnings of less than VND20bn and less than 200 employees, will enjoy the targeted lower rate of 20%.

The draft legislation would also modify the current limits on tax-deductible expenses for advertising and promotion, to raise the percentage of such expenses being non-deductible from 10% to 15%, and also change the country’s thin capitalization rules to discourage excessive borrowing by restricting the deductibility of interest paid on loans totaling over four times a company’s equity capital from 2016.

TAGS: Finance | tax | business | tax incentives | law | corporation tax | ministry of finance | small and medium-sized enterprises (SME) | legislation | tax rates | tax breaks | legislation amendments | Vietnam

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