Tax incentives for enterprises for renovation of old condominiums

	Enterprises should be considered as a driving force in tax administration reform
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	Circular outlines tax incentives

The renovation of old condominiums will contribute to attracting investors.

More than 200 blocks seriously degraded

In order to provide tax incentives for renovation of old condominiums, on July 3, 2007, the Government introduced Resolution No. 34/2007/ NQ-CP on a number of solutions to implement the reform and restructure of old condominiums which are damaged or degraded. In particular, these solutions mainly focus on land and finance to encourage the rehabilitation and reconstruction of old condominiums which are damaged or degraded. Specifically, the investors are entitled to an income tax rate of 10% over 15 years, from the time of starting business operations, with tax exemption for 4 years from when they start to receive taxable income. In addition, these investors will receive a reduction of 50% of the tax payable in the next 9 years for the resettlement sites which are not liable to Value Added Tax.

Since 2009, when Corporate Income Tax Law No. 14/2008/ QH12 and guidelines came in force, the tax incentives on corporate income tax from the transfer of real estate have been also terminated. Also, since 2014, the 10% tax rate has only applied to corporate income tax from investment on projects such as social housing for sale, rent or lease.

Thus, under the provisions of current laws on corporate income tax, the renovation of old condominiums was not entitled to receive corporate income tax incentives.

According to statistics from the Ministry of Construction, Vietnam has more than 3 million m2 with about 4,000 old condominums or blocks built before 1991. In particular, Hanoi has 1,516 blocks from 2 to 5 floors, Ho Chi Minh City has 900 blocks, including 484 blocks built before 1975. After a preliminary assessment, there are more than 200 blocks seriously degraded, which need to be demolished and rebuilt to ensure public safety, mainly in Hanoi and Ho Chi Minh city, Hai Phong, Nam Dinh, Viet Tri and Vinh, etc.

After the Government introduced Resolution No. 34/2007 / NQ-CP on a number of solutions to implement the rehabilitation and reconstruction of old condominiums which are damaged or degraded, some provinces and cities have implemented in particular geographical areas. However, the results have not yet achieved the required target.

The failure to achieve the target comes from a variety of different reasons, but the most important reason is that policies supporting the finance, credit and exemption of land use, land rent and taxes have not been aggressively implemented, which cause difficulty in attracting investors.

Additional incentives to attract investors

Regarding the management of tax collection, the Ministry of Finance has received a number of proposals from enterprises in Hanoi and HCM City to ask for guidelines and solutions on finance and land under Government Resolution No. 34/2007 / NQ-CP.

In fact, up to now, the Government has issued many policies to remove difficulties in land and capital raising. In Hanoi, the management regulations of high-rise blocks in cities allows investors to increase the height from 18 to 24 floors for renovation of old condominiums, which was been issued in early 2016.

In order to contribute to promoting renovation and reconstruction of old condominiums and improving living conditions for citizens, Mr. Pham Dinh Thi, the Director of Tax Policy Department said that the Ministry of Finance preparing a draft for the Government to propose to the National Assembly to implement additional regulations on the taxable income of business from investment projects of renovation and reconstruction of old condominiums owned by the State or sold to tenants, or heavily damaged, or in danger for users to sell, lease or hire under the provisions of the Housing Law to apply preferential income tax rate of 10% in the period 2017-2020. Enterprises must account separately for each project of renovation and reconstruction of old condominiums to enjoy these tax incentives accordingly.

The list of investment projects on rehabilitation and reconstruction of old condominums owned by the State which have been sold to tenants will be managed by People's Committees of provinces and cities and reported to the Prime Minister.

According to Mr. Thi, this content should be defined in the law, however, in order to deal with serious degradation of old condominiums, the Ministry of Finance will take this content to resolutions to be submitted to the National Assembly in the session of October 2016 and apply it for 3 years.

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"In the process, we will continue to review, evaluate and apply for supplements and amendments of the Law. The duration of 3 years in the draft resolution is to solve the immediate problems, as a basis to put this content into the Law to ensure the effectiveness of long-term policy ", a representative of the Tax Policy Department confirmed.