Vietnam has taken a new course designed to add value to its high-tech sector. It is moving toward a deeply rooted, vertically integrated industry which puts a higher premium on research and development ("R&D"). The idea is to move away from the encouragement of simple assembly work and to create a global hub of true high-tech research, innovation and development. To do this Vietnam has kept its high-tech incentives unchanged1, but has adjusted the conditions to qualify in a way that favors larger, better capitalized operators or smaller operators which devote a larger part of their resources to R&D.

Companies that meet certain requirements, are considered "high-tech" and entitled to various attractive investment incentives. Income tax incentives for high-tech firms include four years of tax exemption, then nine years of a 50% tax reduction, followed by fifteen years at a 10% tax rate. This remains unchanged. But on March 16, 2021, the Prime Minister issued Decision No. 10/2021/QD-TV ("Decision 10") which tweaks the criteria to be classified as a high-tech enterprise. Decision 10 replaces an older Decision, No. 19/2015/QD-TTg ("Decision 19"), issued by the Prime Minister on June 15, 2015. Decision 10, and the previous Decision 19, apply to all high-tech enterprises. The new emphasis is on R&D - specifically, the amount of resources a company dedicates to R&D, relative to the size of the investment. Generally, the smaller the investment, the larger the percentage of resources that must be dedicated to R&D. Thus, a smaller investment must make a higher commitment to R&D in order to enjoy the same incentives as a much larger investment with a smaller percent of its resources dedicated to R&D. Vietnam has created 3 Tiers within which to assess eligibility under its high-tech incentives regime.

Decision 19 (June 15, 2015)

Decision 10 (March 16, 2021)

1. Revenues from high-tech products:

  • must account for at least 70% of total annual revenues.


1. Revenues from high-tech products:

  • must account for at least 70% of total annual revenues.


2. Percentage of annual net revenues spent on R&D:

  • Tier 12: Enterprises with total capital of at least VND 100 billion and more than 300 employees - must spend at least 0.5% on R&D.

  • Tier 2: Enterprises with total capital under VND 100 billion - must spend at least 1% on R&D.

2. Percentage of annual net revenues spent on R&D:

  • Tier 1: Enterprises with total funding sources3 of VND 6,000 billion and 3000 employees or more - must spend at least 0.5% on R&D.

  • Tier 2: Enterprises not falling under Tier 1, with total funding sources of VND 100 billion or more and 200 employees or more - must spend at least 1% on R&D.

  • Tier 3: other enterprises (ie, enterprises that do not fall under Tier 1 or Tier 2) must spend at least 2% on R&D.

3. Percentage of all employees who participate in R&D (holding a "university or higher degree"):

  • Tier 1: at least 2.5% of its employees (not less than 15 employees).

  • Tier 2: at least 5% of its employees.

3. Percentage of all employees who participate in R&D ("having at least college level education of enterprises"4):

  • Tier 1: at least 1% of its employees.

  • Tier 2: at least 2.5% of its employees.

  • Tier 3: at least 5% of its employees.

High-tech enterprises have always been mandated to spend a certain percent of annual net revenue on R&D; this has not changed. Now, under Decision 10, the amount which must be spent on R&D depends on the enterprise's scale in terms of total funding sources, and number of employees. That is, while the requirement to dedicate a certain percent of an investment's resources to R&D previously existed, now the percentages have changed.

As shown in the chart above, Decision 10 distinguishes among large, medium, and small-scale enterprises, which for convenience we call tiers (Decision 19 had only two levels, or tiers). The outcome is that the smaller an enterprise, the higher the percent of its resources must be allocated to R&D -- including a higher commitment of its manpower. The lowest share of funding, employees, that must be allocated to R&D to qualify for incentives under Decision 10 is reserved for Tier 1 enterprises. But, of course, while the share may be less, the absolute expenditures are significant.

An important new feature added under Decision 10, is that expenditures for R&D will include vocational training, depreciation of fixed assets and infrastructure, recurrent expenditures and royalties, usage of intellectual property rights, and more. This is a major development, as it makes it easier to reach the mandated expenditures on R&D that allow an enterprise to fit into a particular tier. This was not the case under Decision 19.

Importantly, Vietnam continues to give generous incentives to high-tech investments. However, now, Decision 10 requires a higher commitment to earn those incentives. It is a clear sign that Vietnam wants to reach greater high-tech sophistication by requiring larger expenditures on R&D.

Investors and advisors in the space will continue to watch closely as further developments and guidance emerge. The government has signaled its intention to move away from low value, simple assembly work, to more sophisticated work backed by meaningful R&D. The change in criteria falls cleanly in-line with the ethos of Vietnam's Fourth Industrial Revolution, or its more common moniker "Industry 4.0". We believe the government will continue the trend to attract and to give priority to higher quality high-tech investment.


1 The Ministry of Planning and Investment is drafting a Decision which will include special incentives in the form of a corporate income tax "honeymoon" for foreign invested high-tech enterprises. While eligibility for these special incentives will depend partly on amounts spent each year on R&D, the specific incentives are beyond the scope of this article. The focus of this article is on Decision 10, which updates the criteria to be considered a high-tech enterprise, and thus eligible to receive incentives.

2 Decision 19 does not use the "tier" classification. Instead, it refers to "small and medium" enterprises and implies a second categorization that could be called "large enterprises". We use tiers here, in order to easily compare and reference the categories under both decisions.

3 A distinction is made between "total capital" in Decision 19 and "total funding sources" in Decision 10. We believe Decision 10 intends to include loans as well as paid in capital when fixing the level to qualify as a Tier 1 investor.

4 A distinction is made between employees who hold a "university degree or higher" in Decision 19 and employees "having at least college level education of enterprises (number of workers entering to employment contracts for at least 1 year or indefinite term employment contracts, in which number of workers having college level education must not exceed 30%)" in Decision 10. The meaning and reasoning behind this distinction is unclear.

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