Outlook for Central Vietnam, including Tax Incentives Presentation by Nguyen Quang Phuc, Director, Tax and Advisory Services ECV Business Forum, 24 November 2017
Outlook for Central Vietnam, including Tax Incentives 01 02 Macroeconomic Outlook & Tax Environment Tax Incentives in Central Vietnam 15 minutes 30 minutes 03 Question & Answer Session 10 minutes 2
Macroeconomic Outlook ECV Business Forum 2017, Da Nang
Vietnam continues to grow faster than the regional average Vietnam s GDP is expected to grow at 6% per year till 2025, one of the fastest growing economies in the region Vietnam s GDP versus ASEAN countries 2016 Indonesia 932 Thailand 409.742 Philippines 305 Malaysia 297 Singapore 297 Vietnam 201.4 Myanmar 74.012 Cambodia 19.476 Laos 13.359 GDP growth 2016 (%) 5.0% 2.9% 6.9% 4.2% 2.0% 6.2% 8.6% 6.9% 7.4% Indonesia Thailand Philippines Malaysia Singapore Vietnam Myanmar Cambodia Laos GDP forecast from 2015-25 2.7% 3.8% 4.5% 6.0% 5.8% 6.2% 7.6% 6.6% 6.6% Expected to grow above 6.0 per cent per year 0 200 400 600 800 1000 USD billion 0.0% 2.0% 4.0% 6.0% 8.0% In percentage Source: Economic Intelligence Unit and Economywatch 4
With more cautious measures to ensure stability The government shifted from a high growth strategy to one that would bring macroeconomic stability Before 2012, high growth, high inflation % 8 7 6 5 4 3 2 1 Real GDP growth and inflation rate in 2016 6.8 6.6 6.0 5.2 5.4 4.1 6.7 0.6 6.2 6.6 6.8 6.3 6.2 4. 4.0 5.0 4.8 4.5 Vietnam Dong 25,000 24,000 23,000 22,000 21,000 20,000 19,000 Exchange rate against USD (Average) 21,189 21,909 20,859 21,017 20,649 22,317 22,801 23,331 23,690 Boosting export 23,964 0 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f Real GDP Growth rate Inflation rate 18,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: GDP growth (% real change per annual Inflation rate (% change per annum; average) Source: Economic Intelligence Unit, GSO 5
A bit of variety among GRDP rates in Central Vietnam GRDP in Provinces of Central Vietnam 16.00% 14.80% 14.00% 12.00% 10.00% 8.00% 6.00% 9.04% 8.10% 7.11% 7.44% 6.36% 5.00% 7.53% 7.45% 5.84% 6.03% 9.31% 7.24% 8.60% 7.73% 7.42% 6.68% 4.00% 2.00% 0.00% Thừa Thiên Huế 1.25% Đà Nẵng Quảng Nam Quảng Ngãi Bình Định Phú Yên Khánh Hòa Ninh Thuận Bình Thuận FY2016 YTD2017 6
FDI trends in Central Vietnam Up to October, 2017, there are 98 FDI projects in central Vietnam with capital of nearly $717 million. 80 70 60 50 40 30 20 10 Number of FDI projects in Central Vietnam (projects) Most FDI projects: Da Nang (73 projects in 2016 and 52 up to Oct 2017). Least # FDI projects: 0 Đà Nẵng Bình Định Đăk Lăk Đăk Nông Kon Tum Lâm Đồng YTD2017 Quảng Bình FY2016 Quảng Nam Quảng Trị Quảng Ngãi Thừa Thiên Huế Dak Nong and Quang Tri (1 project each in 2 years). 35 Major Investors in Central Vietnam (by # projects) 30 25 20 15 10 South Korea invested the most # projects, 33 projects in 2016 and 22 projects in YTD2017. 5 0 South Korea Taiwan Singapore China Hong Kong Japan Thailand USA Australia Next, Japan has 29 projects in 2016 and 18 up to Oct 2017. FY2016 YTD2017 7
Growth Sectors Industrial Manufacturing $192 million Energy & Natural Resources $189 million Textile, Garment $123 million 8
Key economic zones and industrial parks Number of IPs by region Vietnam Northern Vietnam key economic region (117 IP s) Bac Ninh 15 Vinh Phuc 20 Hai Duong 18 Quang Ninh 7 Hai Phong 19 Thai Nguyen Central Vietnam key economic region (24 IP s) Quang Nam 7 Da Nang 6 Binh Dinh 4 Southern Vietnam key economic region (96 IP s) Dong Nai 29 Ba Ria Vung Tau 14 Binh Duong 27 HCMC 17 Long An 28 Economic zones (Central Vietnam): 1. Dung Quat, Quang Ngai 2. Chu Lai Open Economic Zone, Quang Nam 3. Chan May, Thua Thien-Hue 4. Nhon Hoi, Binh Dinh 6 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Southern key economic region 41% Central key economic region 10% Land area and average occupancy rate of IPs by region 40,429 43.6% Northern key economic region 21,998 23.7% Southern key economic region 6,791 7.3% Northern key economic region 49% Central key economic region 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Total land area (hectares) Average ocupancy rate (%) Key industrial parks/zones (Central Vietnam): 1. Da Nang Hi-tech Park (DHTP), Da Nang 2. Hoa Khanh, Da Nang 3. Phu Bai, Thua Thien-Hue 9
Tax Environment
Plans for Vietnam s 2017 socio-economic development 6.3% Gross Domestic Product (GDP) growth rate 3.71% Consumer Price Index (CPI) Focus on attracting hi-tech investment projects 20.7% 3.5% Export turnover increase State Budget deficit compared to GDP (Source: GSO and EIU) Review current laws to comply with international commitments, FTAs Customs Tax admin Tax laws Other laws 11
But managing current State budget balance is challenging 1,600,000 constant fiscal deficit 1,400,000 1,200,000 In VND Billion 1,000,000 800,000 600,000 400,000 200,000 2013 2014 2015 2016 2017 (planned) Revenue Expenditures Source: Ministry of Finance, General Statistics Office of Vietnam 12
Key measures to meet 2017 State budget revenue Key measures: No proposing/issuing of new policies that reduce collections, except where an existing international commitment requires Enhance tax audits, transfer pricing review, tax fraud inspections, stricter control on VAT refunds Provide amendments to important tax laws Action plans by the tax authority: Increase domestic taxes collection by 7-8% to cover the budget deficit due to crude oil price collapse and tariffs reduction under international commitment Establish Transfer Pricing Audit Division in GDT and Ha Noi, HCM, Dong Nai, Binh Duong; Capital Transfer Tax Audit Division in Ha Noi, HCM Perform more thorough, detail-oriented, and rigorous audit in transfer pricing and capital transfer in 2017 Determine the list of tax audit target in 2017 (Resolution 01/NQ-CP dated 01 January 2017) 13
The 2017 Tax Audit targets & early results 2016 Tax Audit Results 2017 Tax Audit Targets ~87,500 companies were tax audited, with a focus on: - Gas and petroleum, minerals, real estates, project transfer, ecommerce, etc.; - Foreign-invested companies; - Large tax refunded; - Transfer pricing (established 5 TP audit centers across the countries) Total tax collection: VND10.247b (~USD470m) Total tax loss reduction: VND19,600b (~USD890m) Total tax refund reduction: VND5,215b (~USD237m) Total No. of : 101,706 companies ( 14%) First 6 months of 2017: 36,600 companies Total No. of tax audit cases for VAT refund should be at least 20% No. of VAT refund amounts receiving refund decisions. Using taxpayer risk assessment (TPR) software for analyzing tax risk to choose tax audit target Focusing on the tax payers not yet being subject to tax audit for more than 5 years. The tax audit principles: - Tax examination, tax audit, financial audit not being conducted more than once per year to avoid overlapping; - No re examination, re audit the issues being concluded by the previous competent authorities 14
Tax environment landscape Government s support and development of businesses up to 2020 Issue a Resolution on tax relief measures for businesses Reduce CIT for SMEs (SME Law) Reduce land lease fees, road tolls, BOT fees Amend CIT regulation to extend the scope of deductible expenses Adjust regional minimum salary and social insurance mechanism Amend the current laws and regulations to reduce cost for businesses The Government s target up to 2020: one million enterprises in Vietnam private businesses contributes 48-49% of annual GDP (Resolution 35/NQ-CP dated 16 May 2016) 15
Tax Incentives in Central Vietnam
Tax Incentives Package Tax Incentive Package Corporate Income Tax (CIT) exemption/reduction Personal Income Tax (PIT) reduction Import Duty exemption Land rental fee exemption/reduction, and etc. $ Application Mega Projects and Specially-encouraged investment Projects Designed and subject to the approvals of Government and/or Provincial People s Committees on a project-by-project basis (Government Guarantee Agreement, Tax Incentive Agreement, etc.) (Resolution 35/NQ-CP dated 16 May 2017) 17
CIT Incentives - New Investment Projects Encouraged sectors: education, health care, sport/culture, high technology, environmental projection, scientific research, infrastructural development, processing of agricultural and aquatic products, software production and renewable energy, etc; Encouraged locations: qualifying economic and hightech zones, certain industrial zone and difficult socio-economic areas Large manufacturing projects Encouraged Sectors Encouraged Locations Large manufacturing projects New Investment Projects (Circular 78/2014/TT-BTC dated 18 June 2014) 18
CIT Incentives - Overview # Conditions (fields and location) CIT Incentive 1. Projects in economic zones, or in specially difficult locations specified by Government; Hi-tech; biotech, specific supporting industries; Important infrastructure projects, socialized projects in education, sporting, health care. Large manufacturing projects (e.g. investment capital of VND6k billion and number of labor 3000, capital of VND12k billion). Projects of manufacturing or processing agricultural products in difficult locations Software production, environmental protection 2. Projects in difficult locations, manufacturing of agricultural machinery and equipment, high quality steel. 3 Projects of manufacturing or processing agricultural products in normal locations Tax rate: 10% for 15 years or for whole life for special projects CIT Exemption: 4 years 50% CIT Reduction: 5 years to 9 years Tax rate: 17% for 10 years Exemption: 2 years Reduction: 4 years Tax rate: 15% for whole life 4 Investment projects in industrial zones Exemption: 2 years Reduction: 4 years 19
PIT incentives 50% PIT reduction Employment income of employees physically working in economic zones (Decree 29/2008/ND-CP dated 14 March 2008) Employment income of employees working in IT sectors (Resolution 41/NQ-CP dated 26 May 2016) $ 20
Import duty incentives Exemption Machinery & Equipment imported to form Fixed Assets of the prescribed specially-encouraged investment/encouraged investment sectors, or special difficult social-economic locations Materials imported for production of export goods Materials imported for further processing, processed exports Limited at five (5) year exemption when importing materials, which cannot be locally produced, used for production of specially-encouraged investment sectors (except for Special Consumption Tax related projects) or for special difficult socialeconomic locations Registration of the list of exempt items is required $ 21
Possible tax incentives in Central Vietnam: Da Nang Investments in Da Nang may be entitled to the following tax incentive scheme depending on the condition of locations: Corporate Income Tax (CIT) Personal Income Tax (PIT) Import Tax Duty IPs in suburban districts: Exemption for 2 years plus 50% CIT reduction for 4 years Not available yet Exemption for projects in IPs Investments in Da Nang Hi-Tech Park may be entitled to CIT rate of 10% for 15 years, 4 years of CIT exemption and 9 subsequent years of 50% reduction 22
Possible tax incentives in Central Vietnam (outside of Da Nang) Investments in Quang Nam, Quang Ngai, and Hue may be entitled to the following tax incentive schemes depending on locations: Corporate Income Tax (CIT) Personal Income Tax (PIT) Import Tax Duty IPs: Exemption for 2 years plus 50% CIT reduction for 4 years 50% reduction if working in economic zones Exemption if investing in zones (IP, EZ) Enterprises inside special economic zones like Chu Lai Open Economic Zone, Dung Quat and Chan May may also be subject to CIT rate of 10% for 15 years, 4 years of CIT exemption and 9 subsequent years of 50% reduction and 50% PIT reduction 23
Thank you
Q & A
Contact us Nguyen Quang Phuc Director, Corporate Services T: +84 (28) 3821 9266 Ext. 8967 E: dthoang@kpmg.com.vn Nguyen Thi Gia Lai Markets Manager, Head of Danang Office T: +84 236 351 9051 E: LaiNguyen@kpmg.com.vn kpmg.com/socialmedia kpmg.com/app The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2017 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo are registered trademarks or trademarks of KPMG International.