Economic Sector

Last updated: Tuesday, March 26, 2019


Tax Policies Needed to Support Start-ups

Posted: Monday, December 24, 2018

The development of innovative start-ups has a huge impact on economic growth, so tax policies supporting this group of enterprises need to be more specific in the regulations and separate with other tax incentives.

According to the statistics by the end of 2017 of the Ministry of Science and Technology, Vietnam now has about 3,000 innovative start-ups out of 600,000 enterprises. These enterprises are considered the pioneering force with high growth to contribute effectively to the economic and social development of the country.

At present, Vietnam has established many financial policies to support and promote these companies. In particular, tax incentive policy is considered a powerful tool in helping creative start-ups have more financial resources to invest in expanding production and business, reduce dependence on bank loans, save business costs, thereby reducing prices, contributing to improving competitiveness and attracting investment capital.

Limited tax incentives
In the Draft Law amending and supplementing five tax laws submitted to the Government by the Ministry of Finance, newly established start-ups with investment projects in preferential sectors or in underdeveloped and rural areas, and in remote areas will be applied the tax rate of 10 per cent in 15 years, at the same time, tax exemption for four years and 50 per cent reduction of tax payable in the next 9 years for new projects. Ministry of Finance noted that the criteria for the enterprises to be considered as newly established businesses will be based on exploiting intellectual property, technology, new business models to create creative and practical goods and services in various areas of life. In addition, they must meet the criteria of total revenue less than VND20 billion per year. The exemption and reduction proposal of corporate income tax is expected to strongly support financial resources for innovative start-ups, help them expand production and business, reduce dependence on bank loans, and contribute to improving competitiveness and attracting more investment capital.

However, according to many experts, tax incentives for start-ups in Vietnam are in the forming period and applied step by step in practice through the issuance of new law provisions, revising, supplementing them and organising the implementation of these law provisions.

According to Dr Vu Van Ninh, from Department of Corporate Finance, Academy of Finance, the tax policy supporting for business is still unclear and also integrated with preferential policies for traditional enterprises, hence there is so many limitations.

"Start-ups are often considered as newly established companies, while the nature of business activities of these two types of enterprises is different. Applying the same policy will create a preferential gap between the objects. Moreover, due to the lack of regulations on innovative start-ups, the preferential corporate income tax rate is not clearly stipulated for this group of enterprises, but only for certain businesses such as high technology enterprises and companies applying high technology in the current regulations. Start-ups are not entitled to preferential rates during the period of operation. Therefore, the preferential policies for the exemption and reduction of corporate income tax should have specific regulations for start-ups, rather than combining with traditional enterprises," said Dr Vu Van Ninh.

The significance of supplementing provisions of tax law
From the perspective of tax policy and practice, it can be seen that innovative start-ups’ development requires a specific tax mechanism’s support. Mr Vu Van Ninh said: “In order to encourage start-ups, the corporate income tax rate for them should be lower than the normal tax rate. The tax incentive period may be applied for the first 2-5 years, and extended depending on the specific conditions of the enterprises. In addition, to make a difference in the tax incentives for start-ups in the encouraging fields, the Government can apply the combination of preferential tax exemption, tax reduction, and low tax rates”.

Dr Le Xuan Truong from Academy of Finance, said that the regulations on conditions and procedures for identifying small and medium enterprises should be finalised soon. The Law on Supporting Small and Medium Enterprises and Decree 39/2018/ND-CP dated March 11, 2018 clearly regulates the criteria and procedures for identifying micro, small and medium enterprises. Decree 39/2018/ND-CP also stipulates the modalities and conditions for small and medium creative start-ups to be selected to participate in Small and Medium Enterprise Support Scheme. However, there are no regulations on conditions for small and medium-sized creative start-ups to enjoy the tax incentives. It is possible to apply the modalities, conditions and procedures for selecting small and medium-sized innovative start-ups to participate in Small and Medium Enterprise Support Scheme and receive tax incentives.

Mr Le Xuan Truong also proposed that the Government should amend and supplement the law provisions on corporate income tax incentives. Specifically, it is necessary to supplement the provisions on the application of preferential tax rates at 15 per cent for small and medium enterprises and add regulations on tax exemption and reduction in definite period for business incubator centres, technical facilities, common working area supporting small and medium enterprises and businesses investing for small and medium enterprises to creatively start-up.

It is important to have a best development environment for creative start-ups in addition to tax incentives including accelerating tax administrative reform, simplifying tax reporting for enterprises, strictly controlling and handling tax evasion, tax arrears to create equality for businesses.

Thanh Nga

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