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Draft Enterprise Income Tax Law – details

The Ministry of Finance has recently circulated for public comments the draft Law on Enterprise Income Tax (LEIT), which is expected to be effective from 1 January 2009 and will supersede the LEIT of 2003. The draft comprises of 21 articles and is organized into 4 chapters. In addition to the proposed reduction of the current enterprise income tax rate from 28% to 25%, the following changes are proposed:

Tax rate and incentives

-   tax incentives would be streamlined and in order to qualify for these incentives, enterprises are required to demonstrate that the regulations on accounting records have been adhered to;
-   tax incentives would not apply to the transfer of immovable property;
-   the tax exemption period will commence from the first year the company generates revenue, which departs from the current treatment where tax exemption starts from the first year taxable income arises;
-   business expansions such as the upgrading of technology, installation of new production lines, improvements beneficial to the environment and increases in production capacity will not be granted for the expansion of business. Instead, an accelerated depreciation will apply; and
-   companies established before the effective date of the draft LEIT and have been granted tax incentives have the following options: (i) elect to apply the tax incentives and tax rate based on the current LEIT. Upon expiration of the tax incentive period, the enterprise will be subject to the standard tax rate of 28%, as provided in the current LEIT; or (ii) elect for tax incentives in accordance with the draft LEIT, and thereafter, these enterprises will be subject to the standard rate of tax at 25%, as prescribed in the draft LEIT.


-   the loss carry forward period of 5 years remains. Losses from the sale of immovable property can only be offset against income derived from the same activity.

Research and development fund

-   enterprises established in accordance with the laws of Vietnam would be permitted to allocate up to 10% of their taxable income to establish a development fund for science and technology research activities. However, if less than 70% of the fund has been utilised within a 5-year period, the enterprise is required to pay back taxes and interest.


-   the current surtax on income from the transfer of rights to use or rent land is abolished; and
-   individuals and households will be taxed under the personal income tax regime. Currently, EIT taxpayers include organizations, individuals, and households engaged in the production of goods, the provision of services or trade.

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