Corporate income tax incentives based on investment location are one of the important policies stipulated in Circular 96/2015/TT-BTC. In practice, accurately determining the scope of income eligible for incentives not only helps businesses optimize their tax obligations but also significantly reduces the risk of being subject to tax audits and inspections by tax authorities in 2026.
Principles for applying preferential treatment to income generated in preferential areas.
According to the guidelines in Official Letter No. 1785/CTBDU-TTHT from the Binh Duong Provincial Tax Department, if a business has an investment project that meets the conditions for preferential treatment regarding location (such as industrial parks, economic zones, high-tech zones, etc.), then income generated from production and business activities in that area will be eligible for corporate income tax incentives.
The key point in this guideline lies in the concept of "income arising within the preferential area." Accordingly, only income originating from actual economic activities taking place within the geographical boundaries of the preferential area is eligible for preferential tax policies.
Distinguishing between preferential income and non-preferential income.
To help businesses understand and apply the regulations consistently, income can be classified according to the tax authorities' guidelines as follows:
- Income from the project's main business activities: This is income directly generated from investment activities in the preferential area, and therefore qualifies for corporate income tax incentives.
- Income from the liquidation of fixed assets, machinery, and equipment: If the assets are attached to an investment project and the liquidation takes place within the preferential area, this income is still considered to have arisen within the preferential area.
- Income from the sale of tools, equipment, and scrap materials: This is a natural outcome of the production process at the project, and therefore continues to be eligible for tax incentives.
- Income from interest on bank deposits outside the designated area: This interest arises from financial activities outside the geographically preferential area, therefore it is not eligible for tax exemption or reduction and is subject to the standard tax rate.
- Income from capital gains and real estate transfers: This income group is excluded from preferential treatment as stipulated in Circular 96/2015/TT-BTC, regardless of the project's location.
In some cases, the nature of income generation requires careful consideration.
When applying for tax incentives, businesses need to analyze the nature of each income item instead of just relying on the method of recording it:
- Regarding the liquidation of assets, tools, and equipment: If the machinery and equipment were used for production activities in the preferential project and the liquidation occurs while the project is still operational, then this income is still considered to be linked to the preferential location.
- Regarding interest on bank deposits: If a business deposits money at a bank or bank branch located outside the preferential area, the interest earned is considered off-location income and is subject to corporate income tax at the normal tax rate (20%).
The responsibility of businesses in declaring and proving incentives.
According to the provisions of the Law on Tax Administration No. 38/2019/QH14 and the guidance in Article 22 of Circular 78/2014/TT-BTC, enterprises are responsible for self-determining and self-declaring tax incentives, and are also responsible for the accuracy of the application of these incentives. Specifically:
- Separate accounting for income: Businesses need to clearly separate income generated within and outside the preferential geographical area right from the accounting stage.
- Record keeping: This includes asset liquidation records, scrap metal sales documents, contracts, and bank deposit statements for explanatory purposes when necessary.
- Monitoring investment conditions: Ensure that changes related to the Investment Certificate or project scope do not invalidate the initially established preferential treatment conditions.
Understanding and correctly applying the principle of income generated in preferential tax areas not only helps businesses protect their legitimate tax rights but also creates a solid foundation when working with tax authorities during inspections and audits in Binh Duong province and similar localities.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
