23 March 2021

Scientific and technological activities are “encouraged investment activities” in Vietnam and are granted certain investment incentives. These activities are mainly governed by the Law on Science and Technology 2013, which came into force on 1 January 2014, and Decree No. 13/2019/ND-CP, in force from 20 March 2019. On 11 January 2021, the Ministry of Finance issued Circular No. 03/2021/TT-BTC (“Circular 3”) to provide guidance on the exemption or reduction of corporate income tax (“CIT”) for science and technology enterprises (“STEs”). Circular 3 came into effect on 1 March 2021, repealing and replacing Joint Circular No. 06/2008/TTLT-BKHCN-BTC-BNV and Joint Circular 17/2012/TTLT-BKHCN-BTC-BNV.

This article discusses some of the key supporting policies and incentives for STEs in Vietnam.

What is an STE?

STEs are enterprises that produce and trade products or provide services in relation to science and technology and based on the application of achievements in scientific research and technological developments.

These achievements must be in one of the following forms:

  • Invention, useful solutions, industrial designs, integrated circuit designs and plant varieties which have been granted a protective certificate under Vietnamese laws on intellectual property, or are internationally recognised under international treaties to which Vietnam is party;
  • Computer programs that have been granted a copyright registration certificate;
  • New livestock breeds, plant varieties, fish breeds, forest tree varieties and technical advances which have been recognised by the Ministry of Agriculture and Rural Development;
  • Scientific and technological achievements which are awarded, certified or recognised by the competent Vietnamese authorities;
  • Technologies received under a technology transfer, certified by the competent authorities.

What conditions must be fulfilled to be recognised as an STE?

To be recognised as an STE, an enterprise must obtain an STE Certificate from a relevant Department of Science and Technology or the Ministry of Science and Technology upon fulfilment of the following conditions:  

  • Having an enterprise registration certificate reflecting the establishment of an enterprise according to the Law on Enterprises;  
  • Having the ability to create or apply the scientific and technological achievements, which are certified or recognised by competent authorities, into the production of goods and/or provision of services; and 
  • The turnover from the goods or services generated from the scientific and technological achievements accounts for at least 30% of the total turnover of the enterprise. This condition will not apply if the enterprises’s operation term is less than five years from its establishment.  

What incentives are available for STEs?

Certain investment incentives, depending on the activities undertaken by STEs, will be granted including exemption or reduction of rent of land and water surface, facilitation for STEs to access preferential-interest sources of capital, and exemption or reduction of taxes.

Regarding the incentives in relation to CIT, the most notable change under Circular 3 is that STEs are no longer entitled to a prefential tax rate of 10% as provided under the previous regulations. Under Circular 3, STEs will be subject to the normal CIT rate of 20%. All STEs, including those currently enjoying the preferential tax rate of 10%, ceased to enjoy this incentive from 1 March 2021.

Circular 3 seeks to provide CIT incentives in the manner of tax exemption and tax reduction, particularly as follows:

  • CIT incentive period: Exemption from CIT for four years and a reduction of 50% of the payable CIT amount for the subsequent nine years from the date of the STE Certificate. If no assessable income is generated within the first three years from the date of the STE Certificate, these time periods shall be counted from the fourth year of the issuance of the STE Certificate. 
  • Condition for enjoyment of CIT incentive: In a specific year, an STE is only eligible for the CIT incentive if the turnover from the goods or services generated from scientific and technological achievements accounts for at least 30% of its total turnover in that year. This change is favourable to the STEs as, under previous regulations, this threshold varied for each year of operation (i.e. 30% for the first year, 50% for the second year and 70% from the third year).

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