Subsidiaries, affiliates ineligible for preferential corporate income tax in Vietnam

Subsidiaries and affiliates of enterprises in Vietnam will not be eligible for preferential corporate income tax (CIT) rates of 15-17%, starting from October 1, a move aimed to prevent abuse of incentives.

The National Assembly, the country's legislature, last Saturday approved the adjusted Law on Corporate Income Tax, with more than 94% of delegates present voting in favor. The common CIT rate is 20%.

The preferential tax rate of 15-17% is applied to firms with a maximum annual total revenue of VND3 billion ($115,120) and VND50 billion ($1.92 million), respectively. However, these rates do not apply to subsidiaries or affiliates of enterprises.

Previously, presenting a report on the draft at the National Assembly Standing Committee's discussion session, Phan Van Mai, Chairman of the Financial and Economic Committee, said that the draft provision aims to ensure strictness of the law and avoid the situation where enterprises abuse the policy by splitting income to enjoy tax incentives.

Mai argued that small and medium-sized enterprises (SMEs) that have an affiliated relationship with a large company are "not ordinary SMEs by nature".

In addition, they also enjoy incentives and support at a higher level under Resolution 198 of the National Assembly on special mechanisms for private economic development, he added.

Applying preferential tax rates based on revenue, the committee chairman noted, is in line with reality and does not contradict current laws, such as the Law on Support for Small and Medium Enterprises.

Also under the adjusted law, a CIT rate of 10% for 15 years is applied to new investment projects in such fields as high technology application, venture capital, supporting industries, renewable energy production, and software.