International experience in corporate income tax policy in order to support smes and implicatons for Vietnam
HỘI THẢO QUỐC TẾ: PHÁT TRIỂN
DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0
INTERNATIONAL EXPERIENCE IN CORPORATE INCOME TAX
POLICY IN ORDER TO SUPPORT SMEs AND IMPLICATONS FOR
VIETNAM
Pham Thi Thu Hong,
National Institute for Finance, Ministry of Finance
Abstract:
Small and medium-sized enterprises (SMEs) play an important role in socio-economic
development in most countries around the world. In fact, SMEs account for a relatively high
proportion of the total number of enterprises in many countries (90-98%). Therefore, many
governments have approved various policies and support programs in order to create
advantageous conditions and promote the development of SMEs, in which the policy of
corporate income tax (CIT) is the most commonly used tool.
Key words: SMEs, CIT, tax rate, tax exemption
KINH NGHIỆM QUỐC TẾ VỀ CHÍNH SÁCH THUẾ THU NHẬP DOANH NGHIỆP HỖ
TRỢ, PHÁT TRIỂN DOANH NGHIỆP NHỎ VÀ VỪA VÀ BÀI HỌC RÚT RA CHO
VIỆT NAM
Tóm tắt:
Doanh nghiệp nhỏ và vừa (DNNVV) đóng vai trò quan trọng trong sự nghiệp phát triển
kinh tế - xã hội ở hầu hết các quốc gia trên thế giới. Thực tế cho thấy, DNNVV chiếm tỷ lệ khá
cao trong tổng số doanh nghiệp ở nhiều quốc gia (90-98%). Vì vậy chính phủ nhiều nước đã
thông qua các ch nh sách và chương trình hỗ trợ trên các phương diện khác nhau nhằm tạo điều
kiện thuận lợi và thúc đẩy sự phát triển của DNNVV, trong đó ch nh sách hỗ trợ về thuế thu
nhập doanh nghiệp (TNDN) là công cụ thường được sử dụng nhiều nhất.
Từ khóa: SMEs, thuế thu nhập doanh nghiệp, thuế suất, miễn thuế,…
Introduction
As the predominant form of business and employment, small and medium-sized
enterprises (SMEs) are key actors for promoting more inclusive and sustainable growth,
increasing economic resilience and improving social cohesion. Across the OECD, SMEs account
for 99% of all businesses and between 50% and 60% of value added. The rapid increase of
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SMEs has forced the Governments having been proactive in levelling the playing field for
SMEs, making them a major target of public policy attention and support.
1. CIT tax rate for small and medium-sized enterprises
In the whole, the majority of countries apply CIT tax rate to SMEs lower than the
standard CIT tax rate (common at 10%, 15%, 17%, 19% and 20%). Specifically:
In Thailand: the general CIT tax rate is 20% but SMEs are applied lower tax rate. SMEs
with taxable income of 300,000 baht or less are tax exemption; from 300,001 to 3,000,000 baht
are applied to the tax rate of 15% and over 3,000,000 baht are applied to 20%. Especially, in the
period of 2016 – 20179, to promote the development of SMEs, Thailand implemented more
incentives for SMEs as follows:
+ From 01/01/2016 – 31/12/2016: Full tax exemption for SMEs.
+ From 01/01/2017 – 31/12/2017: Enterprises with taxable incomes of 300,000 baht or
less are tax exemption; enterprises with taxable incomes greater than 300,000 baht are applied to
the tax rate of 10%.
In Indonesia, the current standard CIT tax rate is 25%. Enterprises with revenues of less
than 4.8 billion rupees are applied to the tax rate of 1% on annual revenue. Enterprises with
revenues of between 4.8 billion rupees and 50 billion rupees are applied to the tax rate of 12.5%
for taxable income corresponding to the revenue of 4.8 billion rupees (decrease 50% compared
to the standard tax rate - the standard tax rate is 25%). [1]
In Singapore, small and medium-sized enterprises in all sectors (defined by operating
revenue not exceeding S$ 100 million and number of employees not exceeding 200 people)
occupy an significant position in Singapore's economy, the number of small and medium-sized
enterprises accounted for 99% of the total number of enterprises (to the time of 2018) [2]. The
Inland Revenue Authority of Singapore (IRAS) has implemented fair and free tax policies for
small enterprises to ensure that tax laws are enforced to encourage the growth of SMEs. [3]
The current CIT standard tax rate is 17% but for SMEs, the applicable tax rate is lower,
specifically [4]:
0% for taxed income not exceeding S $ 100,000
This tax rate applies to the first taxed income of S $ 100,000 for each of the first 3 years
of tax declaration and for newly established enterprises that meet the conditions (i) established in
Singapore; (ii) tax permanent residents in Singapore; (iii) have no more than 20 shareholders,
including at least 1 shareholder holding at least 10% of the shares
8.5% for taxed income from over S $ 100,000 to not more than S $ 300,000
All permanent enterprises in Singapore are eligible for partial tax exemptions with the
conversion to the 8.5% tax rate for taxed income within the threshold specified above.
9
In order to enjoy tax incentives in the period 2016-2017, SMEs must meet the following conditions: (1) The
contributed capital at the end of any accounting period does not exceed 5 million baht; (2) Income from the supply
of goods or services of any accountant period does not exceed 30 million baht; (3) Enterprises established before
1/1/2016.
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Enterprises with taxed income in excess of S $ 300,000 are applied to the standard tax
rate of 17%.
- In China [5], on January 17, 2019, the Chinese Government issued Circular No. 13 on
tax policy with the aim of reducing the tax burden for SMEs and taking effect from 1/1/2019 to
31/12/2021. Specifically:
Conditions for VAT exemption: Small-scale VAT payers with a monthly revenue of
less than 100,000 Yuan will be exempt from VAT (the previous exemption threshold was 30,000
Yuan).
Conditions for applying CIT tax rate incentives: the criteria for small businesses and
low profits have been expanded so that more businesses can enjoy tax rate incentives, thereby
over 95% of enterprises in China fits the new criteria. Specifically:
Criteria*
Previous Threshold
< 1 million Yuan
New Threshold
≤ 3 million Yuan
Annual taxed income
The number of employees
≤ 80
≤ 300
(≤ 100 for enterprises in the
industrial sector)
The total of assets
≤ 10 million Yuan
≤ 50 million Yuan
(≤ 30 million Yuan for enterprises
in the industrial sector)
* An enterprise that wants to be eligible for incentives must meet all three criteria.
The standard CIT tax rate in China is 25%. Previously, eligible enterprises would enjoy a
lower CIT tax rate of 10% (for enterprises with annual taxable income of up to 1 million Yuan).
Now eligible enterprises will only pay the CIT tax rate of 5% for the first 1 million Yuan of
taxed income and 10% for the next 2 million Yuan.
2. Other CIT incentives for SMEs
Besides applying CIT tax rate lower than the standard CIT tax rate, countries also offer a
variety of CIT incentives for SMEs. Specifically:
In Cambodia [6], Decree 124 R.N.Cr. BK, effective on October 2nd, 2018, introduced
important tax incentives for small and medium-sized enterprises that operate in priority-setting
areas in Cambodia10[7].
10The priority areas identified in Cambodia are: (1) New industries or manufacturing joint ventures capable of
penetrating new markets, with innovative, innovative and value-added products The competition is not only focused
on consumer products, but also on machinery manufacturing, mechanical / electronic assembly, transport assembly
and resource handling ...; (2) Small and medium-sized enterprises in all sectors, especially those involved in the
manufacture of drugs and medical equipment, construction materials, export packaging equipment, furniture
manufacturing furniture and industrial equipment; (3) Agro-industrial production for domestic and export markets;
(4) supporting industries for agriculture, tourism and textile as well as industries serving regional production chains
linked to global markets or global value chains in the form of links transiting and for industries that are linked to the
material supply network (in the form of backward linkages, especially for the apparel industry) for the production of
parts and assembly of other semi-finished products; (5) industries that serve regional production lines and those of
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Decree 124 applies to small and medium-sized enterprises according to the following
criteria of revenue and number of employees as below:
Criteria
Annual Revenue (USD)
The number of
employees
Small Enterprise
62.500-175.000
10-50
Medium-sized Enterprise 175.000 – 1.000.000
51-100
The Decree provides the following incentives:
- Exemption of income tax within 03 years for newly registered enterprises or from the
date of updating tax registration for existing enterprises.
- Exemption of income tax within 05 years for newly registered enterprises or from the
date of updating tax registration for existing enterprises, meeting one of the following criterias:
+ Enterprises use at least 60% of local materials; or
+ Enterprises increase by 20% of the number of employees; or
+ Enterprises located in the area of small and medium-sized enterprises
- Exempt 1% of monthly income tax and minimum annual tax during the income tax
exemption period.
- Incentives for deductible expenses, including:
+ The 200% deduction rate for accounting software, information technology-based
training and technical training for employees.
+ The discount rate for new equipment or technology that increases efficiency by 150%.
In Thailand, the number of small and medium-sized enterprises accounted for 99.72% of
total enterprises (to the time of2015), contributing to GDP of 41.1%. The majority of small and
medium-sized enterprises are categorized as small enterprises. [8]
The Government offers CIT incentives for new investment projects of SMEs under the
"New investment promotion strategy for the period 2015-2021" to enhance the competitiveness
and new investment of these enterprises are in the international market [9]. As a rule, in addition
to the CIT tax rate incentives, the implementation of a new investment project will be exempt
from CIT for 2 to 8 years (depending on the importance of the manufacturing sector that the
project implements [ 10]) and is exempt from import tax (effective from 1/1/2015). Enterprises
with new investment projects are eligible for incentives if they invest in one of 06 production
sectors and 02 service groups (including 38 production and service activities), including: (1)
Manufacturing biological and organic fertilizers; (2) Manufacturing glass or ceramic products;
(3) Manufacturing musical instruments; (4) Manufacturing metal products or metal parts; (4)
Manufacturing rubber tires; (5) Manufacturing electrical products or electrical components; (6)
strategic importance in the future such as information technology, telecommunications, energy, heavy industry,
culture / history / capital traditional technology and green technology.
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Pharmaceutical production; (7) Activities of logistics centers; (8) Providing cinematographic
support services.
Conditions for enterprises with new investment projects to enjoy the above incentives
include [11]:
- The project has a minimum investment capital of 500,000 baht (excluding capital for
land and current capital that enterprises have available);
- Domestic enterprises (of Thailand) must own at least 51% of the registered capital;
- Debt to equity ratio must not exceed 3:1;
- For total investment capital, the provisions of the size of real assets or the size of
investment capital (except capital for land and current capital) shall not exceed Baht 200 million
for all fields encouraged and not encouraged;
- Projects which are allowed to use domestic machinery and equipment must not exceed
10 million Baht and investment projects on new machinery and equipment must use at least 50%
of the value of such machinery and equipment in the project.
Projects that meet the above conditions must register before 31/12/2017.
3. Tax calculation method by the rate for enterprises applies the micro accounting regime
Experience from countries has shown that, in order to support SMEs and reduce
compliance costs, create more advantageous conditions for tax obligations, most countries apply
simple methods of determining tax obligations for SMEs (containing 03 elements: a) simple tax
calculation method (tax rates applicable to revenue, flat tax ...) ; b) simple tax filing and tax
reporting requirements, and c) exempt some or exempt all taxes).
Specifically, the following methods below [12]:
Firstly, apply a single tax rate calculated on the total revenue of medium-sized, small and
micro enterprises.
For example, in Indonesia [13], on 12/06/2013, the Government issued regulation No.
46/2013, whereby the tax liability of taxpayers is individual and enterprises (except for
enterprises with permanent establishment) with a total revenue of less than Rp 4.8 billion per
year are subject to the tax rate of 1% of the total monthly revenue. The above regulation takes
effect from 1/7/2013 until now.
In France, the standard CIT tax rate (33.33%) is also applied for small enterprises,
however this tax rate is applied on a certain ratio of the revenue of small enterprises.
Specifically, for small enterprises operating in the field of sales of goods with a revenue of less
than 82,200 Euro per year, they are exempt from VAT and pay tax at the standard CIT rate of
over 29% of annual revenue. For small businesses operating in the field of service provision with
a revenue of less than 32,900 Euros, they are exempt from VAT and pay tax at the rate of
standard CIT tax rate on 50% of annual revenue.
In Italy, for small and self-owned enterprises with revenue below 40,000 per year, the
applicable tax rate is 15% on annual revenue.
Secondly, the flat tax applies to small and micro enterprises.
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Flat tax is a form which enterprises pay a fixed monthly or yearly tax (instead of CIT) to
the tax authority. Flat taxes are largely determined based on the enterprise's annual revenue
(France, Italy, Brazil ...). The advantage of this method is simplicity, reduced compliance costs
and tax administration costs. The disadvantage is that in some cases it causes a large tax burden
on low-turnover businesses, especially when businesses have different capital size competition.
Therefore, this form is mainly applied to micro-enterprises and self-owned enterprises due to low
compliance costs.
In Brazil, the Microempreendedor Individual applies mainly to individuals who own a
small business, employing one employee at maximum (this employee is paid in a minimum) and
earns less than BRL 60 million per year, is exempt from federal taxes such as CIT (still has to
pay state tax) and must pay a fixed monthly tax to make public social contribution ... Flat tax
rates are specified as follows: 40.4 BRL/month for trade and industry sector; 44.4 BRL/month
for services sector and 45.4 BRL/month for commerce and services sector.
In addition, Brazil also applies progressive tax rates based on the revenue criteria of
small, medium-sized and micro enterprises in different industries and sectors. Specifically,
enterprises with a maximum total revenue of 3.6 BRL can choose to apply the simple tax regime
(Simple Nacional), thereby applying progressive tax rates for each field. For example, in the
commercial sector, the tax rate of 4% is applicable to enterprises with revenue less than 180,000
BRL; 11.61% for enterprises with revenue of 3.4 - 3.6 million BRL. However, under the simple
tax regime, enterprises are required to submit only one annual tax return instead of having to
submit multiple tax returns previously. Enterprises do not need to keep the traditional accounting
books, but just keep the tax reports as prescribed.
In Hungary, this country applies two simple tax regimes: (1) Taxes based on cash
circulation (instead of CIT, social contributions and vocational training contributions); (2) Flat
tax for an individual who owns a small business. Specifically:
Under the cash-based tax regime, the single applicable tax rate is 16% of the revenue of
SMEs, specifically for enterprises with fewer than 25 employees and the preceding year's
revenue reached less than 500 million HUF.
Under the flat tax regime, full-time enterprises that register as small businesses must pay
a fixed flat tax of 50,000 HUF per month, but these businesses can choose to pay a flat tax of
75,000 HUF / month to get higher social security services. Part-time enterprises (36 hours a
week) pay a fixed flat tax of 25,000 HUF / month. The presumption of a flat tax applies to
enterprises with a maximum revenue of 6 million HUF. If an enterprise has a revenue in excess
of 6 million HUF, it must pay the tax amount of 40% for the revenue exceeding 6 million HUF.
In France, for an individual-owned microenterprise, the amount of flat tax payable on a
monthly basis is calculated at the percentage applicable to the total monthly revenue and depends
on industry. Specifically: 1% for revenue from the sale of goods; 1.7% for revenue from service
provision; and 2.2% for revenue from providing professional services.
Thirdly, simplify the requirements related to tax payments (by revenue criteria) of small
and micro enterprises.
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Germany waives the requirement that small and micro businesses keep accounting
records for tax purposes if they have a revenue of less than 500,000 Euro per year. In India, only
businesses with income in excess of INR 120,000 required or in any year of the preceding 03
years that have an income in excess of INR 1 million are required to maintain accounting
records. In Chile, under the simple tax regime, small and medium-sized enterprises do not need
to keep reports on balance sheet, inventory, depreciation of assets or information on taxable
profits; however, these businesses still have to keep cash register records from time to time if
they have to pay VAT and ledger on purchases and sales.
Table 1: Simplifying tax payment for small and medium-sized enterprises of some OECD
countries
Country
Income Threshold
General Regulation
Canada
< 3.000 CAD
Pay annual CIT
< 300.000 DKK
< 500.000 DKK
Waive the requirement to provide a tax
accounting file with the tax return
Denmark
Hungary
< 5 triệu HUF (the
Pay quarterly CIT
preceding year)
Allow small and medium-sized
businesses to pay taxes according to
the simpler tax return
India
-
< 82.000 GBP
Allow businesses to submit simple tax
returns (only if total revenue, total
costs and profits/losses)
UK
(small businesses owned by
individuals)
USA
< 10 million USD
Tax exemption electronically
Source: OECD (2015)
4. Implications for Vietnam
In Vietnam, the number of SMEs for nearly 90% of the total number of operating
enterprises and 97% in terms of labor, thus maintaining an irreplaceable value in economic
development as well as social stability because this type of enterprise accounts for the majority,
contributing to creating jobs, increasing income for employees, helping mobilizing social
resources for development investment, hunger eradication and poverty reduction (creating more
than half a million new laborers every year, using up to 51% of social labors and contributing
more than 40% of GDP ...). Therefore, promoting, supporting and encouraging the type of SMEs
in Vietnam is really important.
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Firstly, the CIT rate applicable to SMEs
In general, international experiences show that most countries apply the CIT tax rate for
SMEs lower than the standard tax rates (usually lower than the standard tax rate of about 5%);
common at tax rates of 10%, 15%, 17%, 19% and 20%). For example, China applies a standard
CIT tax rate of 25% but SMEs are applied a tax rate of 10 - 20%; Thailand applies a standard
CIT tax rate of 20% but SMEs apply a rate of 10% -15%; Malaysia has a standard CIT tax rate
of 24% but SMEs apply a rate of 19%; Indonesia imposes a standard CIT tax rate of 25% but for
SMEs it is 12.5%; Singapore: 0% -8.5%; China: 5% -10% ...). Currently in Vietnam, the CIT tax
rate for small and medium-sized enterprises is 20% (applied from 1/7/2013 and earlier than the
schedule) but this tax rate is currently not actually supportive for small and medium-sized
enterprises, on the other hand, due to the increasingly important role of SMEs in the socio-
economic development of our country, is a driving force for growth, so it is necessary to support
more for this type of enterprise. Therefore, in order to ensure the goal of further promoting
SMEs' development, enhance competitiveness and ensure compliance with the principles of the
Law on SMEs Support, ensuring that it is consistent with the ability of the Government in each
period of time, it is necessary to research and propose suitable CIT rates for SMEs. The author
proposes to apply the CIT tax rate of about 15% for SMEs113 to suit the reality as well as
experience of other countries and not conflict with the Law on SMEs Support.
Secondly, supporting SMEs according to the criteria of taxable income threshold
International experience shows that most countries do not have a unified definition or
criteria to identify SMEs, but the common point is that SMEs are based on some criteria as
below: (i) Revenue; (ii) The number of regular and irregular employees every year; or (iii)
Capital or asset value of the enterprise. Whereby, the level of CIT support for SMEs also
corresponds to the criteria set out. Thailand provides tax exemption for SMEs with taxable
income of 300,000 baht or less. In Singapore, small and medium-sized enterprises in all sectors
are determined on the basis of operating revenue of not more than S $ 100 million and the
number of employees not exceeding 200 people. In China, SMEs who want tax incentives must
meet three criteria: (i) the annual taxed income is less than 3 million Yuan; (ii) the number of
employees is less than 300; (iii) total assets of less than 50 million Yuan. In Cambodia, SMEs
are determined by the criteria of revenue and number of employees: (i) small enterprises with
annual revenue of about US $ 62,500 - 175,000 and the number of employees in 10-50 people;
(ii) medium-sized enterprises have annual revenue of about 175 thousand to 1 million and the
number of employees from 51-100 people. Therefore, Vietnam can also review and re-consider
the criteria for determining SMEs.
Thirdly, other tax incentives for SMEs
A number of countries that implement tax exemption for a period of time for SMEs are
eligible for such tax incentives (Thailand completely exempted tax for SMEs in 2016, SMEs
with taxable income of 300,000 baht or less are tax exemption; SMEs implementing new
11 In which the criteria for SMEs are defined as in the Law on Corporate Income Tax No. 32/2013/QH13.
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investment projects are exempted from CIT for 2 to 8 years and exempted from import taxes ...;
China exempted VAT for small-sized enterprises with monthly revenue of less than 100
thousand Yuan; Cambodia implemented income tax exemption within 03 years with newly
registered SMEs ...). Therefore, Vietnam needs to revise tax incentives for SMEs to create
advantageous conditions for SMEs to grow in both quantity and quality.
Finally, accounting regime for SMEs
International experience shows that most countries apply a single tax rate calculated on
the total revenue of small, medium-sized and micro enterprises (Indonesia, France, Italy, ...),
simplifying the requirements related to the tax payment (in terms of revenue criteria) of small
and micro enterprises (Germany, India, Chile, ...), apply the flat tax rate to small and micro
businesses (Brazil, Hungary, France, ...). Therefore, Vietnam also needs to aim to establish a
simple accounting regime for SMEs to reduce business compliance costs as well as costs for tax
administration.
References
[1]. PWC (2016), ―Indonesian Pocket Tax Book 2016‖.
[7] Royal Government of Cambodia (2015), “Cambodia Industrial Development Policy 2015-
2025”.
[8]. OECD (2018), “Financing SMEs and Entrepreneurs 2018”.
[12]. OECD (2015), ―Taxation of SMEs in OECD and G20 Countries‖.
[13]. EY (2013), “Indonesia issues regulation on 1% tax rate on gross revenue applicable to
small and medium taxpayers”.
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