Support for innovative start-ups

Start-ups have not been supported yet by specific policies

The policy is unclear

In Vietnam, according to statistics of the Ministry of Science and Technology, by the end of 2017, the country has about 3,000 start-ups out of a total of 600,000 enterprises. These enterprises are considered to be the pioneering force with high growth potential to contribute effectively to the economic and social development of the country.

Currently, the State has been building many financial policies to support and promote these enterprises. In particular, preferential tax policy is considered as a powerful tool, helping innovative start-ups have more financial resources to invest in expanding production and business, reduce dependence on bank loans, save costs, thereby reducing costs, contributing to improve competitiveness and attract investment capital.

In the Draft Law amending and supplementing 5 tax laws, as proposal of the Ministry of Finance submitted to the Government, newly established enterprises with investment projects in preferential sectors or in underdeveloped, rural and remote areas, will be applied the tax rate of 10% for 15 years, at the same time, tax exemption for 4 years and 50% reduction of tax payable in the next 9 years for new projects. The Ministry of Finance noted that the criteria to identify enterprises will be newly set up for enterprises based on exploitation of intellectual property, technology and new business models to create innovative goods and services which have practical applications in the areas of life. In addition, it must meet the criteria of total revenue that does not exceed 20 billion VND per year. Proposed exemption and reduction for corporate income is expected to strongly support financial resources for businesses, helping businesses expand production and business, reducing dependence on bank loans, contribute to improve competitiveness and attract more investment.

However, according to experts, tax incentives for start-ups in Vietnam are only in the formative period and are applied step by step in practice through the issuance of new supplements and amendments to the provisions of law, and to organize the implementation of laws.

On the other hand, according to Assoc. Prof. Vu Van Ninh, Department of Corporate Finance, Academy of Finance, tax policy support for business is still unclear, it is also integrated with preferential policies for enterprises. Therefore, there are many limitations.

"Enterprises are often ranked with newly established companies, while the nature of business activities of these two types of enterprises is different. When applying the same policy it will create the difference between them. Moreover, due to the lack of regulations on innovative start-ups, the preferential corporate income tax rate is not clearly stipulated for this group of enterprises which only stipulates the application of tax rates such as high technology enterprises, enterprises which are applying high technology in the current regulations. Start-ups are not entitled to preferential rates during the period of operation. Therefore, the preferential policies for corporate income tax exemption and reduction should have specific regulations for enterprises, rather than integration with traditional enterprises”, said Associate Professor Vu Van Ninh.

Supplement provisions in tax law

From the perspective of tax policy and practice, it can be seen that for the development of start-ups, it needs to have a specific tax mechanism for support. Associate Prof. Dr. Vu Van Ninh said that, "In order to encourage start-ups, the corporate income tax rate applied to start-ups should be lower than the normal tax rate. Tax incentives may apply for the first 2-5 years, which may be extended depending on the specific conditions of the enterprises. In addition, to make a difference in the tax incentives for start-ups in the fields that need encouragement, we can apply the combination of preferential tax exemption, tax reduction, low tax rates.

Assoc. Prof. Le Xuan Truong, Academy of Finance, said that the regulations on conditions and procedures for identifying small and medium size enterprises should be finalized soon. The Law on Supporting Small and Medium Enterprises and the Decree No. 39/2018/ ND-CP dated March 11, 2018 clearly regulate the criteria and procedures for identifying micro, small and medium enterprises. The Decree No. 39/2018/ND-CP also stipulates the modalities and conditions for small and medium start-ups to be selected to participate in the scheme to support small and medium enterprises. However, there are no regulations on conditions for small and medium start-ups to entitle their tax incentives. It is possible to apply the modalities, conditions and procedures for selecting small and medium start-ups to start their own businesses, participating in the scheme to support small and medium enterprises to apply for tax incentives”.

Mr. Le Xuan Truong also proposed, it should amend and supplement the law provisions on corporate income tax incentives. Specifically, to supplement the provisions on the application of preferential tax rates to small and medium enterprises at the tax rate of 15% and supplement the regulations on tax exemption and reduction for enterprise income tax for the establishments of small and medium enterprises, technical facilities, mutual working areas to support small and medium enterprises and investors for small and medium start-ups.

Most of all, to help start-ups have the best development environment, in addition to the tax incentives, it is necessary to accelerate the reform of tax administrative procedures, simplify tax reporting regulations for enterprises, strictly control, strictly handle tax evasion and tax arrears to create equality for enterprises.