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Income from scientific and technological research of start-up businesses may be entitled to 17%.

Preferential CIT rate of 17%

The Ministry of Finance expects to apply the corporate income tax rate of 17% effective from January 1, 2017 to December 31, 2020 for SMEs (including companies with a total turnover of less than 20 billion vnd). The revenue assessed for the enterprise to be entitled to the tax rate of 17% is the revenue of the preceding year.

A representative of the Tax Policy Department - Ministry of Finance said that in Vietnam, SMEs accounted for the majority of actively operating businesses and played an important role in economic development as well as social stability. Thus, in order to support SMEs, the rationalisation of tax policy is one of the tools that Government should utilise. In fact, SMEs have enjoyed the preferential corporate income tax rate of 20% earlier than the roadmap of 2.5 years (from July 1, 2013 instead of January 1, 2016) compared to other types of enterprises.

The reduction of tax rate for SMEs to 17% in the period 2017-2020 is equivalent to preferential tax rates applied to new investment projects in poor areas with low socio-economic conditions and even greater than that in the period 2014-2015, which has helped SMEs increase and promote capital accumulation, reinvestment, production and business development, capacity building, without impacting a lot on State budget revenues, because the contribution of SMEs to the State budget is quite small.

Not only can SMEs enjoy preferential tax rates, but start-up businesses also have a chance to enjoy 17% corporate income tax rate from 2017-2020 under this draft resolution. According to the Ministry of Finance, the concept of start-up businesses has not been specified in the legal documents. However, according to international experience, they are individuals, groups of individuals, organizations and businesses that are in the process of implementing business ideas and forming business models which have high added value, with a rapid growth based on technology and knowledge. Therefore, unlike traditional manufacturing and commercial companies, the elements of research and innovative technologies in start-up companies are very high, associated with many risks. If start-up companies can overcome challenges, they will bring great economic value and even change consumer habits.

Exemption of late payment penalties in case of force majeure

A notable content in the draft resolution is the removal and exemption of tax debts and penalties for late payment is some specific situations.

Regarding the content of exemption of late payment penalties in case of force majeure, a representative of the Tax Policy Department said: “In order to conform with reality, the Ministry of Finance submitted to the Government to implement exemption of late payment penalties for enterprises which own goods and services paid by the State budget, but not yet paid. Accordingly, the amount of exemption of late payment penalties to December 31, 2015 is 542,525 billion vnd.

Speaking to a reporter of Customs Newspaper about the exemption of tax debt and late payment penalties for some specific enterprises, Mrs. Nguyen Thi Cuc, chairwoman of Vietnam Tax Consultants' Association confirmed that this would save many businesses in danger of insolvency or bankruptcy. Because previously, the interest rate for late payment penalties was very high, 0.05% per day. In the case of more than 90-day loans, the interest rate for late payment was 0.07% per day. Even, in some cases, the actual penalty for late payment was larger than the original debt and enterprises would have to sell their assets if to pay all tax debts, leading to insolvency or bankruptcy of many enterprises. Therefore, if enterprises try to pay the original debt, the authorities should consider removing late payment penalties and tax debts.

More than 7,421 billion vnd of tax debt exemption for enterprises in bankruptcy

Apart from the removal of late payment penalties as above, the Ministry of Finance is proposing to remove tax debt, late payments and fines for those enterprises actually in bankruptcy, leaving business or ceasing operations and similar cases from January 1, 2014 to December 31, 2015.

In fact, there are many enterprises which are unable to carry out payments and go bankrupt but do not complete the orders and procedures for insolvency or bankruptcy under the law. According to statistics of the Ministry of Finance, this figure accounts for about 10% of the annual total of more than 500,000 businesses in operation. Therefore, the removal of tax arrears, late payments and fines for such cases will reduce the burden on the tax office for debt collection. In addition, the Ministry of Finance also has added that new business identification numbers for the founder or a representative of a company are issued after at least 2 years from the time of bankruptcy, if they want to again set up a business.

Also, the Ministry of Finance proposed to remove tax debt, late payments and fines of households and individuals ceasing business operations before January 1, 2014 and confirmed the amount of tax arrears, late payments and fines of households and individuals ceasing business operations from Januray 1, 2014 to December 31, 2015.

According to statistics of the Ministry of Finance, the amount of tax arrears and late payments proposed to be removed for taxpayers in bankruptcy or ceasing operations before January 1, 2014 is 7,421.286 billion vnd, including 6,432.141 billion vnd of enterprises and organizations; and 989.145 billion vnd of individuals and households ceasing operations.

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In a difficult period for balancing the budget, the reduction and exemption of corporate income tax, tax debt, late payments and fines for a number of enterprises have demonstrated a great effort of Finance under the policy of the Government in promoting the development of enterprises. If this draft resolution is approved by the National Assembly, it will remove difficulties for enterprises and reduce the burden of the tax office on tax collection, because in fact, the debt collection for businesses in bankruptcy is almost impossible to accomplish.