Industrial Zones has been favorite investment destinations of foreign investors since investing in Vietnam. With the preferential investment that Vietnam reserved for investment activities in Industrial Zones, it is not surprising that more and more global corporations opt for investing in Industrial zones in Vietnam, such as Samsung, Canon, Sumitomo, and Foxconn, ... So, what are the merits of investing in the Industrial Zone, why does this destination be able to attract a variety of foreign investors?
What is the Industrial zone?
Clause 16 Article 3 of the Law on Investment 2020 stipulates: “Industrial Zone means a zone with defined geographical boundaries which specialized in production of industrial goods and in provision of services for industrial production.”
It is clear that the purpose of Industrial Zone is create for manufacturing and providing services for industrial manufacture,. These zones is appropriate with the goal of industrialization and modernization of the economy of Vietnam. Therefore, in order to reach this goal, the State currently promulgates a lot of distinct regulations on investment merit in industrial zones, thereby promoting investment activities in this area, especially for foreign investors.
Benefits that foreign investors can receive since investing in Industrial zones
1. Straightfoward legal procedure
Currently, if a foreign investor opts for investing in Vietnam in the form of establishing a business entity, the investor first needs to have an investment project and apply for an Investment Registration Certificate. In case, the investment project is subject to the approval of the investment guidelines, this process will take a lot of time for the investor. According to the provisions of the Law on Investment 2020, when investing in an Industrial Zone, the investor will apply for an Investment Registration Certificate from a Management Board of Industrial Zones at provinces or municipal cities where the such Industrial Zone located (“Management Board”)[1], meanwhile, in certain cases, instead of the project having to be approved by a provincial People's Committee, the Management Board can do[2]. In addition, investors also have to carry out various legal procedures, such as environmental procedures, and construction, ... if the investment project is outside the Industrial zone, the investor must carry out these procedures at a specialized competent authority. However, when investing in the Industrial Zone, the Management Board will be the focal point for receiving and settling the above procedures of the investor[3]. Therefore, it can be seen that by investing in an Industrial Zone, foreign investors can carry out legal procedures in a simpler way through the Management Board.
2. Clear land dossiers, saving appraisal time
Unlike investment outside Industrial Zones, investors have to carry out legal procedures with State authorities to be allocated land or lease land, when investing in an Industrial Zone, foreign investors can sign land lease contracts with State authorities or sign land sublease contracts with infrastructure developers of an Industrial Zone. This option can save time in term of conducting this procedure. In addition, subleasing land from infrastructure developers can help investors reduce a load of land legal appraisal in the initial stage, because, at that time, they have also met certain conditions to be leased land.
3. Corporate income tax preference
It is obvious preference when foreign investors invest in Industrial Zones which they receiving is similar to in case of investing in areas with difficult socio-economic conditions, including tax policies[4]. In addition, foreign investors are eligible for other tax exemptions and reductions. Specifically, a preferential tax rate of 17% for 10 (ten) years from the time the enterprise has revenue from the investment project[5]. Meanwhile, foreign investors can be exempted from and reduced taxes as follows:
- In case foreign investors invest in Industrial Zones in the field of socialization: four-year tax exemption and 50% reduction of payable tax for the next nine years from (i) the first year the project has taxable income; or (ii) the fourth year after the first year in which the project has revenue if the previous three years have no taxable income[6].
- In case foreign investors invest in Industrial Zones in other fields: two-year tax exemption and 50% reduction of payable tax for the next four years from (i) the first year the project has taxable income; or (ii) the fourth year after the first year in which the project has revenue, if the previous three years have no taxable income[7].
4. Land lease preference
As mentioned above, when investing in Industrial Zones, foreign investors will be eligible for the same policies as when investing in areas with difficult socio-economic conditions. Therefore, enterprises will be exempted or reduced from land rent pursuant to Clause 1 Article 110 of the Law on Land 2013. In case foreign investors invest on Industrial Zone infrastructure, foreign investors through foreign-invested enterprises will be eligible for preference. For Industrial Zones that already have infrastructure developers, the exemption or reduction of land rent is only applied to them because they directly lease land from the State. However, in practice, in order to attract new investors, infrastructure developers often make a back-to-back agreements on whether investors can be exempted or reduced from land rent corresponding to the amount of land rent that they are exempted or reduced from the State.
5. Diversified utility services
Utility services in Industrial Zones have a promising potential developmentin the next time. With the trend of building a closed ecosystem in the Industrial Zone, most infrastructure developers want to follow the trend of linking production activities with utility services, fully meeting the living conditions and amenities for employees, and experts of enterprises. This creates favorable conditions for investors, especially foreign investors because they can minimize the costs associated with utility layout while attracting more highly qualified workers and professionals.
In conclusion, with the benefits mentioned above, it is perfectly understandable that Industrial zones are currently attracting a large number of foreign investors. With the preferential policies of the State on promoting the development of the country's industry, Industrial Zones have been becoming an attractive and ideal investment destination for foreign investors.
[1] Clause 1 Article 39 of the Law on Investment 2020.
[2] Clause 2 Article 32 of the Law on Investment 2020.
[3] According to Clause 2 Article 103 of the Law on Construction 2014 (amended by Clause 37 Article 1 of the amended Law on Construction 2020), provincial People's Committees decentralize and authorize Management boards of Industrial zones to grant construction permits within their functions and management.
Point d, Clause 3, Article 68 of Decree 35/2022.
[4] Clause 2 Article 19 of Decree 31/2021/ND-CP; Appendix III on the list of geographical areas eligible for investment preferences promulgated together with Decree 31/2021/ND-CP.
[5] Point a, Clause 3, Article 15 of Decree 218/2013/ND-CP; Clause 3 Article 10 of Circular No. 96/2015/TT-BTC.
[6] Point b, Clause 1, Article 16 of Decree 218/2013/ND-CP.
[7] Clause 3 Article 16 of Decree 218/2013/ND-CP.
