The Ministry of Finance recently issued the Circular No. 43/2019/TT-BTC that came into force on August 26, 2019, with regard to the incentives for investments in economic or industrial zones of Vietnam. It is stated in Circular 43/2019 that firms can enjoy tax incentives for investments in industrial or economic zones in order to improve the living standards and quality around the areas.
The tax incentives particularly apply to investments in condominium apartment or housing’s construction, operation, or renting. It also applies to investments in infrastructure for employee’s medical, cultural, recreational purposes at the industrial and economic zones.
Income Tax Incentives for Investments in Industrial Zones
Investors are eligible for reduction in their taxable income for investments in employee’s facilities. There are two types of tax incentives for them:
- Value of fixed assets: the facilities’ depreciation costs can be deducted through the deductible expenses in corporate income tax
- Other expenses: The rest of the expenses subject to deductible expenses reduction is described in the corporate income tax law
Why Housing Investments in Industrial Zones Are Vital
The development of industrial zones is the main driver behind the increasing employment rates and local economy. However, several challenges exist that would probably halt the development in the future. Therefore, the Circular was enacted to overcome the below challenges.
1. Lack of Housing at Industrial Zones
According to Vietnam General Confederation of Labour, among the 2.7 million working at Vietnam’s industrial zones, only 1.5 million of them have proper housing at or around the industrial zones. More than 50% of the workers are foreign labour workers.
2. Opportunities for Investors
It is for certain that more and more opportunities have appeared in the industrial zones as there is a surging number of workers moving into this area. More people coming in means there are numerous opportunities available for real estate and property developers and investors.
Particularly in central Vietnam, these are less developed places give investors more advantages to invest in real estate, housing and infrastructure and gain the highest return. These places find it hard to retain qualified workers and that’s why the investments in facilities can attract workers coming into this less developed area.
One of the most notable examples include Samsung, a South Korean business giant, invests in extensive modern housing and facilities for its 100,000 workers in industrial zones in Thai Nguyen Bac Ninh provinces.
3. Foreign Investments in Industrial Zones in Vietnam
It is a fact that businesses put their investments in worker’s infrastructure and facilities often see their success in talent acquisition and retention, thus boosting their competitive edge on the market.
The Circular makes sure that investors with investments in Vietnamese industrial zones will further enjoy more incentives so that the investments can be long term and sustainable. Vietnam wants to compete with China and aims to become the next destination for export manufacturing.
According to the latest data, there are 8,970 foreign direct investment (FDI) projects in the industrial zones now, contributing to a total registered capital of US$187.4 billion in the industrial and economic zones. Other than just FDI projects, 9,140 local investment projects are recorded with US$89.2 billion of total registered capital.
In conclusion, industrial zones in Vietnam are key to bring in more FDIs to the country and thus moving the country’s economy forward. Therefore, the Circular sets out many corporate and personal income tax incentives in an effort to heighten the FDI scene in the industrial zones.
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