Local corporate income tax incentives are one of the important and highly effective policies that the State applies to support and encourage enterprises to invest in areas with difficult socio-economic conditions, mountainous areas, remote areas, islands or industrial parks, export processing zones. According to the report of the General Department of Taxation, although the number of enterprises enjoying incentives only accounts for about 3% of the total number of enterprises, the amount of corporate income tax exempted and reduced accounts for 27,01% total corporate income tax revenue year 2020.
In the context of an increasingly competitive economy, taking advantage of tax policies to reduce operating costs is one of the important strategies that businesses need to master. Applying local corporate income tax incentives helps businesses save significantly on tax costs, increase capital flows for investment in production expansion, and improve competitiveness. At the same time, this policy also contributes to promoting regional economic development, reducing development gaps between localities.
This article will help you understand the concept, legal basis, types of incentives as well as how to apply local corporate income tax incentives in practice. At the same time, we will provide illustrative examples, analyze the benefits and important notes so that businesses do not miss the opportunity to take advantage of this policy.
Concept of corporate income tax incentives by location
Corporate income tax incentives Local tax policy is a mechanism for tax reduction, tax exemption or application of lower tax rates for enterprises investing, producing and doing business in certain geographical areas as prescribed by the State. This policy aims to attract investment capital and promote economic development in disadvantaged areas, remote areas, mountainous areas, islands or key industrial zones and export processing zones.
The difference between local incentives and other forms of incentives is that the main criteria for consideration of incentives are the location of investment, headquarters or project implementation, not just based on industry or capital scale. This helps balance the socio-economic development between regions, while creating opportunities for businesses to access local resources and labor.
Legal basis of corporate income tax incentives by locality
To help businesses easily grasp the system of legal documents related to incentives corporate income tax Depending on the locality, it can be divided into groups: laws, decrees, circulars and specific resolutions. Each type of document plays a different role, from regulating the legal framework, detailed instructions to specific support policies. The table below will summarize typical documents for businesses to refer to and compare when applying.
| Text group | Typical text | Content related to corporate income tax incentives by location |
| Law | Law on Corporate Income Tax 2008 (amended and supplemented 2013, 2020, 2025) | Prescribe the general legal framework and principles for applying incentives by industry and location. |
| Decree | Decree 218/2013/ND-CP | Detailed instructions on the implementation of the Law on Corporate Income Tax, specifying the list of preferential areas. |
| Circular | Circular 96/2015/TT-BTC | Instructions on declaration, settlement, procedures and documents to apply tax incentives by locality. |
| Special Resolution | Resolutions of the National Assembly and the Government | Policy to support the development of private economy and small and medium enterprises in difficult areas. |
Current types of corporate income tax incentives by location
To encourage investment and create balanced development between regions, the State has designed a system of preferential corporate income tax policies by region with different levels. Depending on the socio-economic conditions of each region, enterprises can be exempted, have their taxes reduced or apply lower preferential tax rates than usual. These policies not only help reduce financial burdens but also contribute to promoting enterprises to expand production, create jobs and develop the local economy. Below are typical incentive groups that enterprises need to understand.
Tax exemption and reduction in difficult and especially difficult economic areas
One of the most prominent policies is tax incentives for businesses investing and operating in areas with difficult or especially difficult socio-economic conditions. According to the Corporate Income Tax Law 2008 (amended and supplemented in 2013, 2020 and 2025) and Decree 218/2013/ND-CP, enterprises are entitled to:
| Preferential policies | Applicable content | Illustrative example |
| Corporate income tax exemption | The first 2 – 4 years from the date of taxable income | Enterprise A invests in a factory in a mountainous province (particularly difficult area) → Tax exemption for the first 4 years |
| Reduce 50% corporate income tax | In the next 4 – 9 years | From year 5 to year 9, Enterprise A only paid 50% of corporate income tax. |
| Preferential tax rate | 10% for 15 years or 17% for 10 years (instead of 20%) | Help enterprise A save costs and increase reinvestment capacity |
Incentives in industrial parks and export processing zones
In addition to difficult areas, enterprises setting up production and business facilities in industrial parks or export processing zones also enjoy preferential policies. According to Circular 96/2015/TT-BTC and Circular 78/2025/TT-BTC:
| Preferential policies | Applicable content | Illustrative example |
| Preferential tax rate | Apply lower than normal tax rates to new investment projects | Enterprise B establishes a factory in a new industrial park → enjoys a lower tax rate than 20% |
| Corporate income tax exemption and reduction | Tax exemption and reduction in the first years when taxable income arises | Enterprise B is exempted for the first 2 years and has a 50% reduction for the next 4 years. |
| Special incentives | Priority is given to projects in supporting industries or export production. | Enterprise B invests in an electronic component production line for export → enjoys higher incentives |
Conditions are often associated with large capital scale, modern technology or creating many jobs for local workers.
Incentives for businesses investing in rural, remote and isolated areas
To attract resources for agricultural development, infrastructure construction and job creation, the State also offers tax incentives to businesses operating in rural, remote and isolated areas. Pursuant to the Law on Corporate Income Tax 2008 (amended 2025):
| Preferential policies | Applicable content | Illustrative example |
| Corporate income tax exemption | Businesses can be exempted from taxes for the first 2-4 years. | Enterprise C invests in agricultural farms in remote areas → tax exemption for the first 3 years |
| Reduce 50% corporate income tax | Reduce 50% corporate income tax for the next 5-9 years | From year 4 to year 9, Enterprise C only paid 50% of the tax payable. |
| Special preferential tax rates | In special cases, apply preferential tax rate 10% for 15 years. | Enterprise C invests in large-scale fisheries infrastructure in remote areas → enjoys tax rate of 10% for 15 years |
Conditions for enterprises to enjoy corporate income tax incentives by location
Not all businesses are automatically eligible for preferential policies. To be eligible, businesses must simultaneously meet the conditions regarding legal status, investment projects and operating locations, as well as application procedures.
Business conditions
To enjoy preferential corporate income tax policies based on location, enterprises must first meet basic requirements regarding legal status and actual operations. This is a fundamental condition to ensure that only enterprises operating transparently, in accordance with the law and truly investing in preferential locations can benefit from the policy. Specific requirements include:
- Enterprises must be established and operate legally under the Enterprise Law 2020. Types such as: joint stock companies, single-member or multi-member LLCs, partnerships, and private enterprises can all register to enjoy incentives.
- Enterprises must have actual production and business activities in the preferential areas. If they only register their headquarters but do not have actual activities, they will not be eligible.
- Enterprises must comply with tax obligations and not violate financial and accounting laws.
Project and location conditions
In addition to the legal status of the enterprise, the investment project and the location of operation are also key factors in determining the eligibility for corporate income tax incentives based on the location. The State clearly stipulates the scope of the location and project requirements to ensure that the policy is truly directed towards areas that need investment incentives.
To be eligible for incentives, businesses must meet the following requirements:
- Investment projects must be legally licensed (investment registration certificate, business registration certificate, investment policy approval decision, etc.).
- The investment location must be on the list of preferential locations issued by the Government (for example: Decree 218/2013/ND-CP and amended and supplemented decrees).
- Enterprises need to have documents proving land use rights or production facilities, including: land lease contracts, investment certificates, and construction permits in preferential areas.
- The project must be actually implemented in that area, not just stopping at registration or licensing.
Conditions on procedures and documents
To be confirmed by the tax authority and apply incentives, businesses need to prepare and submit complete documents, including:
- Corporate income tax incentive registration form (usually submitted in the first year of taxable income).
- Investment decision, construction permit, land lease contract or documents proving investment rights in the area.
- Financial report with accompanying notes and documents proving actual production and business activities in preferential areas.
- Tax incentive dossiers must be submitted together with the annual corporate income tax declaration for tax authorities to check, compare and confirm.
How to calculate and apply corporate income tax incentives by location
In order for businesses to effectively take advantage of the policy, they need to understand how to calculate corporate income tax when enjoying incentives. In fact, the calculation formula does not change much compared to the normal tax calculation method, the difference lies in the applicable tax rate and the exemption level for each period.
Formula for calculating preferential corporate income tax
General formula:
|
Corporate income tax payable = Taxable income x Preferential tax rate - Exemption (if any) |
In there:
- Taxable income: Is the remaining profit after deducting reasonable and eligible expenses from revenue and losses carried forward as prescribed.
- Preferential tax rate: Is a tax rate lower than the normal tax rate (20%).
- Exemption, reduction (if any): In addition to applying preferential tax rates, enterprises can also be completely exempted from tax for the first few years, or have their tax payable reduced by 50% in the following period.
Real-life examples
Suppose Enterprise B has taxable income of VND 10 billion in the fiscal year and has a production facility in a particularly difficult area. This case will show a clear difference between when not enjoying incentives and when applying CIT incentives based on the area.
First, in the absence of incentives, the enterprise must apply the general tax rate of 20%. Then, the amount of corporate income tax payable is calculated as follows:
|
Corporate income tax payable = 10 billion x 20% = 2 billion VND |
This means that every year the business will have to pay 2 billion VND to the state budget from its 10 billion VND profit.
On the contrary, in case of local tax incentives, enterprise B is applied the preferential tax rate of 10% instead of 20%. Then, the tax payable is only:
|
Corporate income tax payable = 10 billion x 10% = 1 billion VND |
The results show that, thanks to preferential policies, the amount of corporate income tax payable has been halved, from 2 billion VND to only 1 billion VND.
Thus, investing and operating in a particularly difficult area has helped Enterprise B save VND 1 billion in corporate income tax each year. This savings can be used to expand production, reinvest or improve employee welfare, creating a more sustainable competitive advantage for the enterprise in the long term.
Benefits of local corporate income tax incentives for businesses
Local corporate income tax (CIT) incentives not only help businesses reduce their short-term financial burden but also create long-term value for both businesses and local communities.
Strengthening competitiveness
Thanks to the reduced tax payable, businesses retain a significant portion of their profits. This can be reinvested in machinery, technology, expanding production or developing new products. As a result, businesses improve productivity, quality and competitiveness in the market.
Promoting investment in disadvantaged areas
Tax incentives become a lever to encourage domestic and foreign enterprises to boldly invest in areas with difficult or especially difficult socio-economic conditions. Thanks to that, areas that have received little attention have more opportunities to attract new investment capital, creating a foundation for sustainable economic development.
Contribute to solving employment and social security
When businesses invest and operate, the demand for local labor increases. Local people have more stable jobs and their incomes improve. This not only improves their lives but also contributes to reducing unemployment and promoting social security in the area.
Towards balanced and sustainable development
The preferential corporate income tax policy based on location also has long-term significance for the economy. By encouraging businesses to allocate investment to many localities, the State contributes to balancing the development speed between regions, limiting the situation of over-concentration in large cities.
Notes and risks when applying corporate income tax incentives by locality
Although local corporate income tax incentives bring many benefits, businesses need to be cautious during implementation because significant risks may arise. If they do not comply with the regulations, businesses will not only lose the right to enjoy incentives but also be subject to collection and penalties.
| Notes/Risks | Detailed explanation |
| Incomplete legal documents | Enterprises need to prepare a complete set of documents proving eligibility for incentives, including: investment certificate, land lease contract, construction permit, tax incentive registration form, etc. If one of the important documents is missing, the tax authority has the right to refuse to apply the incentives. |
| Errors in tax declaration | Some businesses make mistakes when determining taxable income, applying the wrong tax rate or exemption period. This can lead to the tax authority recovering the preferential amount they have enjoyed, along with late payment penalties and administrative penalties. |
| Risks from policy changes | The Corporate Income Tax Law and its guiding decrees and circulars are regularly amended and supplemented. If businesses do not update in time, they may apply the wrong incentives, leading to financial losses or loss of policy benefits. |
| Risk of inspection and examination | Tax-exempt and tax-reduced projects are often closely monitored by tax authorities. Businesses need to keep complete records and transparent financial reports to be ready to explain when being inspected. |
Frequently asked questions about corporate income tax incentives by location
Are newly established businesses eligible for incentives?
Yes. As long as the location of the headquarters or investment project is in a preferential area as prescribed by the Government.
Can location-based and industry-based incentives be combined?
In many cases, businesses can combine both types of incentives. However, it is necessary to carefully check legal documents to avoid duplication or incorrect application of regulations.
Will the corporate income tax incentives last forever?
No. The preferential period is usually limited, ranging from 4 to 15 years depending on the location and nature of the investment project.
Must a business register for incentives before or after generating taxable income?
Enterprises must register and declare from the beginning in the tax settlement declaration, and submit documents proving the conditions for preferential treatment. If omitted, they may lose their benefits.
If a business moves its headquarters or project out of the preferential area, will the incentives still be valid?
No. When moving out of the preferential area, the enterprise will no longer enjoy the preferential corporate income tax policy according to the locality for the following period.
Conclude
Local corporate income tax incentives are one of the important policies of the State to encourage enterprises to expand investment, develop production and contribute to the economic and social balance between regions. Understanding the conditions, calculation methods and applicable procedures will help enterprises not only save significant tax costs, but also create long-term competitive advantages.
However, along with the opportunities come strict requirements on documents, procedures and regular updates of legal policies. If the business does not have much experience, consulting experts or reliable consulting partners is a safe solution to make the most of the incentives while avoiding legal risks.
Monitor MAN – Master Accountant Network to quickly update the latest information on tax, accounting and business administration. This will be a reliable source of knowledge to help you make effective and sustainable financial and legal decisions for your business.
Service contact information at 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
