Expansion investment project – notable legal and tax issues

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Nowadays, expansion investment is a type of investment chosen by many investors specializing in manufacturing. Accordingly, the investor will increase the production and their capacity to manufacture or build a new production line to expand the current business volume. Especially, expansion investment helps the growth of the company.

In addition, there are notable legal and tax regulations on which you should concern for developing an expansion investment project in Vietnam.

1. What is an “expansion investment project” regulated by the laws of Vietnam?

An expansion investment project is defined by the prevailing Law on Investment No. 61/2020/QH14 dated 17 June 2020 (“LOI 2020”) as an investment project on the development of a running project by expanding the scale, improving the capacity, applying new technologies, reducing pollution or improving the environment[1].

2. Registration of expansion investment project with the competent authority

To proceed with expansion investment, the investor is required to register such expansion on the basis of the existing project with the competent authority under the laws of Vietnam.

Pursuant to LOI 2020, the investor must apply to modify the investment registration certificate (“IRC”) of the existing investment project to expand the project’s scale such as increasing fixed assets or design capacity, adding business lines, etc.,

After receiving the application to modify IRC, the competent authority will consider issuing the amended IRC to the investor. This procedure will be taken within 15 – 20 working days or more depending on the process of authority.

3. CIT incentives are applied to an expansion investment project

In case the existing investment project is being received CIT incentives during a certain period, the expansion investment project will be inherited such CIT incentives for the remaining period.

For example, 4 years of CIT exemption and 9 next years of 50% CIT reduction have been applied for the existing investment project since January 2019. After being registered in January 2022, the expansion investment project shall take 1 year of CIT exemption and 9 next years of 50% CIT reduction from 2022 onwards. However, the investor is allowed to apply CIT incentives for the expansion investment project as the new investment project if satisfying one of the statutory conditions below. It means that 4 years of CIT exemption and 9 next years of 50% CIT reduction will be applied from 2022 onward.

The mentioned statutory conditions for an expansion investment project to be applied CIT incentives as a new investment project cover[2]:

  • The cost of fixed assets increases when the completed investment project comes into operation at least VND 20 billion;
  • The proportion of fixed asset costs increases to at least 20% compared to the total cost of fixed assets before investment;
  • The design capacity when expanding investment increases by at least 20% compared to the design capacity according to the technical and economic argument before the initial investment.
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The investors should determine such conditions aforesaid by themselves to apply CIT incentives for the expansion investment project.

4. VAT refund for expansion investment

Currently, there are regulations of VAT refund for the new investment project during the investment stage[3]. Meanwhile, the VAT refund for the expansion investment project is not governed by any regulation. Besides, some suggestions on VAT refund for the expansion investment project proposed to the Ministry of Finance are under the consideration but have not been accepted yet. In this regard, please refer to the official letter No. 13751/BTC-CST dated 02 December 2021.

However, there exist VAT refund acceptance for the expansion investment projects from local authorities based on the principle of “similar laws apply”. From this, an investment project must meet the following conditions for the VAT refund:

  • Applying tax credit method for declaring and paying VAT;
  • The investment project is in the investment stage;
  • Declaring separate VAT for the investment project;
  • Having the input VAT amount of goods and services incurred in the accumulated investment period not yet fully deducted from 300 million VND or more as a result of the compensation of the investment project’s input VAT amount with the VAT amount subject to payment of current business production activities of company (if any);
  • Completing capital contribution of members or shareholders of the company;
  • Meeting all conditions for conditional business lines (if any) and remaining satisfied conditions during the operation.

All the above are legal and tax issues related to the expansion investment project in Vietnam for the investors’ reference. As per our experience, the investor should thoroughly research and ask for instruction from the competent authorities before conducting the above procedures for an expansion investment.

Should you have any questions about this article, please contact us via email: [email protected]

[1] Article 3.5 of LOI 2020

[2] Article 18.6 of Circular No. 78/2014/TT-BTC and Article 10.4 of Circular No. 96/2015/TT-BTC

[3] Article 13 of the Law on VAT, Article 1.3 of Decree No. 49/2022/ND-CP and Article 18.3 of Circular 219/2013/TT-BTC

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