Changes in tax policy affecting investment projects: what risks should enterprises identify to avoid losses?

Changes in tax policy affecting investment projects are often underestimated by enterprises during project implementation. In practice, even minor adjustments to tax regulations can significantly affect costs, profitability, and the overall feasibility of an investment project. Therefore, gaining a proper understanding of the nature of tax policy changes and their impact on investment projects is a crucial step in mitigating potential risks.

I. Common mistakes regarding changes in tax policy affecting investment projects

A common mistake is the assumption that tax policies remain stable throughout the process of a project, leading enterprises to neglect monitoring newly issued or amended legal regulations. Many enterprises also mistakenly treat initially granted tax incentives as vested and immutable rights, resulting in an inaccurate assessment of legal risks.

Moreover, failure to reassess financial efficiency, investment contracts, and tax obligations following policy changes may cause enterprises to incur unanticipated costs or become involved in disputes with regulatory authorities. Finally, delayed consultation with legal professionals may cause enterprises to miss opportunities to safeguard their lawful rights and interests.

II. Understanding changes in tax policy affecting investment projects

To avoid unnecessary risks, enterprises must develop a comprehensive and accurate understanding of changes in tax policy affecting investment projects, including the concept, causes, and practical impacts during the implementation and operation of projects.

1. What do changes in tax policy affecting investment projects mean?

Changes in tax policy affecting investment projects refer to adjustments made by the State to tax regulations, such as tax rates, tax incentives, tax bases, or tax declaration and payment obligations, which alter the costs, profits, or financial efficiency initially anticipated by enterprises when making investment decisions and implementing projects.

2. What factors may lead to changes in tax policy affecting investment projects?

Such changes commonly arise from the State’s macroeconomic and fiscal management requirements and evolving practical circumstances. Typical reasons include adjustments to stabilize the state budget, reorientation of investment incentive policies in different periods, amendments to tax laws to ensure compliance with international commitments, changes in development strategies for specific industries, sectors, or investment locations, as well as efforts to address shortcomings and overlaps revealed during the application of previous tax policies.

III. Legal provisions governing changes in tax policy affecting investment projects

Changes in tax policy affecting investment projects are not merely practical issues but are directly governed by various specialized legal instruments. A clear understanding of the relevant legal bases enables enterprises to properly assess their rights and obligations and to respond appropriately when new tax policies affect the efficiency and stability of their investment projects.

1. How does investment law regulate changes in tax policy?

The provisions of the Law on Investment 2020 play a pivotal role in defining the scope of projects eligible for investment incentives and the applicable mechanisms of tax policy, thereby clarifying the extent of impact when tax policies change during project implementation.

- Pursuant to Article 15 of the Law on Investment 2020:

• Clause 2 of Article 15 (as guided by Article 19 of Decree 31/2021/NĐ-CP) specifies eligible beneficiaries of investment incentives, including projects in incentivized sectors or trades; projects implemented in incentivized locations; large-scale capital projects; social housing projects; high-tech enterprises; science and technology enterprises; innovative start-up projects; and activities supporting small and medium-sized enterprises. It serves as a main legal basis for identifying projects directly connected to tax policies and therefore subject to impacts arising from changes thereto.
• Clause 3 of Article 15 provides that investment incentives apply to new investment projects and expanded investment projects. It demonstrates that changes in tax policy may affect not only ongoing projects but also enterprises’ plans to expand or adjust investment scale during their operations.
• Clause 4 of Article 15 stipulates that the specific levels of investment incentives are implemented in accordance with tax, accounting, and land laws. Accordingly, when tax policies are amended, the content and extent of incentives applicable to investment projects may be adjusted in line with relevant specialized legislation.

- Pursuant to Article 18 of the Law on Investment 2020:

• Article 18 provides for forms of investment support, including support for the development of technical and social infrastructure inside and outside project boundaries. It constitutes a legal basis for the State to consider alternative support measures for investors in cases where changes in tax policy cause difficulties affecting project efficiency and implementation progress.

- Pursuant to Article 20 of the Law on Investment:

• Article 20 reflects the State’s policy of empowering the Government to apply special incentive and support mechanisms for projects with large capital scale, high technological content, and significant spillover effects on socio-economic development. Such a provision creates policy flexibility to attract strategic investment in main sectors such as innovation, research and development, digital technology, semiconductors, and data infrastructure.
• At the same time, Article 20 affirms that the level and duration of incentives are not fixed but are subject to the prevailing tax and land legislation in each period. Consequently, when tax policies change, projects currently enjoying or eligible for special incentives under Article 20 may be directly affected in terms of their rights and financial obligations.

Accordingly, a thorough understanding of the provisions of the Law on Investment 2020 enables enterprises to promptly identify legal risks, accurately assess the impacts of changes in tax policy, and proactively develop appropriate project adjustment strategies in compliance with the current legal framework.

2. Who has jurisdiction to resolve disputes arising from changes in tax policy and investment projects?

Pursuant to Article 14 of the Law on Investment 2020, disputes arising from changes in tax policy affecting investment projects are first encouraged to be resolved through negotiation and mediation between the parties, with a view to minimizing conflict and ensuring investment stability.

Where negotiation and mediation fail, the competent dispute resolution body is determined based on the parties involved, specifically:

• Disputes between domestic investors, economic organizations with foreign investment capital, or between such entities and competent state authorities shall be resolved by Vietnamese arbitration or Vietnamese courts in accordance with law.
• Where a dispute involves a foreign element, meaning at least one party is a foreign investor, the parties may agree to resolve the dispute before Vietnamese courts, Vietnamese arbitration, foreign arbitration, international arbitration, or an arbitral tribunal established by agreement of the parties, depending on their agreement and the nature of the dispute.
• For disputes between foreign investors and competent state authorities, jurisdiction lies, by default, with Vietnamese courts or Vietnamese arbitration, unless otherwise provided in the investment contract or in an international treaty to which Viet Nam is a contracting party.

Accordingly, when conflicts arise due to changes in tax policy affecting investment projects, correctly identifying the parties to the dispute and the appropriate dispute resolution mechanism is a decisive factor in protecting enterprises’ lawful rights and interests.

3. What legal consequences may arise if enterprises fail to identify changes in tax policy affecting investment projects?

Failure to timely identify changes in tax policy affecting investment projects may expose enterprises to serious legal risks, not only financially but also in terms of legal compliance. Specifically:

• First, enterprises may declare and pay taxes in a manner inconsistent with the updated regulations, resulting in tax arrears, late payment interest, and administrative sanctions in accordance with tax administration laws, including Articles 16 and 17 of Decree 125/2020/NĐ-CP. In serious cases, violations may be subject to heightened legal liability, such as criminal prosecution for the offense of tax evasion under Article 200 of the Penal Code 2015.
• Second, improper application of tax policies may result in the loss of entitlement to investment incentives recorded in the investment registration certificate or the decision on investment policy approval, directly undermining the project’s long-term financial efficiency and feasibility.
• Third, enterprises may face disputes with tax authorities or investment management agencies, particularly where interpretations and applications of new tax policies are inconsistent. Such disputes entail substantial costs and time and may disrupt project operations.
• Finally, failure to keep pace with changes in tax policy may cause enterprises to breach information disclosure and reporting obligations to investors, shareholders, or partners, thereby triggering internal legal liabilities and undermining market credibility.

In summary, proactively updating and timely assessing changes in tax policy is a critical requirement for enterprises to ensure legal safety and stability for investment projects.

IV. Questions regarding changes in tax policy affecting investment projects

In practice, changes in tax policy raise numerous questions for enterprises during project implementation. The following questions clarify the scope of impact, enterprises’ rights and obligations, and potential legal risks arising from tax policy adjustments.

1. Which aspects of an investment project may be affected by changes in tax policy?

Changes in tax policy may directly affect multiple core aspects of an investment project, beyond mere financial obligations. In particular, total investment costs and financial performance may be impacted due to changes in tax rates, tax bases, or the scope of applicable tax incentives, thereby affecting cash flows, projected profits, and payback periods.

In addition, tax incentives incorporated into the original investment plan may be narrowed, modified, or rendered inapplicable, affecting project scale and implementation schedules. In some cases, enterprises may be required to reassess investment structures, financing arrangements, expansion plans, or even business lines to adapt to new tax policies.

Moreover, changes in tax policy may affect compliance obligations, including tax declaration, finalization, and inspection procedures, thereby increasing legal risks and compliance costs if enterprises fail to timely identify and appropriately adjust.

2. How may enterprises’ rights and interests be affected if they fail to comply with new tax policy requirements?

Where enterprises fail to timely update or properly comply with new tax policy regulations, their lawful rights and interests associated with investment projects may be significantly affected. First, enterprises may lose entitlement to or have tax incentives revoked, particularly where such incentives are conditional upon sector, location, or investment scale requirements.

Additionally, incorrect or delayed performance of tax obligations may result in tax arrears, late payment interest, and administrative sanctions, increasing unplanned costs and directly affecting project financial performance. In serious cases, enterprises may face prolonged tax inspections or audits, disrupting business operations.

Beyond financial impacts, non-compliance with new tax policies may undermine enterprises’ legal credibility, reducing trust among regulatory authorities, partners, and investors, thereby adversely affecting future expansion, adjustment, or continued implementation of investment projects.

3. What is the process for notifying shareholders of changes in tax policy affecting investment projects?

Currently, there is no specific statutory procedure mandating shareholder notification in the cases of changes in tax policy affecting investment projects. In practice, such a matter falls within internal corporate governance, and enterprises are responsible for establishing and implementing appropriate procedures to ensure transparency and shareholders’ access to information.

Typically, the shareholder notification process may include the following steps:

• Step 1: Reviewing and impact assessment: Analyzing the content of tax policy changes and determining their impact on costs, tax incentives, cash flows, and project performance.
• Step 2: Internal reporting: The finance and legal departments prepare a report for the Board of Directors or executive management, identifying risks, adjustment options, and anticipated impacts on shareholders’ interests.
• Step 3: Approval in principle (if necessary): Where tax policy changes materially affect investment plans, profits, or business strategies, the enterprise may seek approval or adopt a resolution of the Board of Directors or the General Meeting of Shareholders in accordance with the company charter.
• Step 4: Shareholder notification: Information is disclosed through appropriate channels such as written notices, shareholder meetings, publication on the corporate website, or information disclosure systems in accordance with corporate and securities laws (if applicable).
• Step 5: Ongoing updates and monitoring: Enterprises continue to monitor tax policy developments and project implementation and provide shareholders with updated information as necessary.

Establishing a clear notification process not only helps minimize internal disputes but also safeguards shareholders’ rights and enhances transparency in investment activities.

4. What difficulties may enterprises encounter in performing financial obligations if they fail to identify changes in tax policy?

Failure to timely identify changes in tax policy may lead enterprises to incorrectly determine their financial obligations, resulting in non-compliant tax declarations and payments. Common consequences include tax arrears, late payment interest, and sanctions, thereby increasing the financial burden beyond the project’s original plan.

Furthermore, misapplication of tax rates, mistiming of incentives, or failure to meet eligibility conditions may disrupt cash flows, impair liquidity management, and affect project implementation schedules. In some cases, enterprises may be compelled to revise financial plans and profit projections, imposing significant pressure on management and operations.

Additionally, inadequate awareness of new tax policies may hinder enterprises’ ability to explain and justify positions during tax inspections or audits, prolonging administrative procedures and heightening legal risks related to financial obligations.

5. What sanctions may enterprises face if they fail to timely disseminate information on changes in tax policy affecting investment projects?

Failure to timely update and disseminate information regarding changes in tax policy affecting investment projects may result in enterprises’ failure to correctly identify new tax obligations, leading to non-compliance or incomplete compliance with requirements of tax authorities during inspections and audits.

Pursuant to Article 15 of Decree 125/2020/NĐ-CP, enterprises may be subject to administrative penalties in the following cases:

• A fine ranging from 2,000,000 VND to 5,000,000 VND for failing to receive inspection or audit decisions; failing to comply with tax authority decisions within prescribed time limits; providing late, incomplete, or inaccurate accounting records and documents; or refusing to sign inspection or audit minutes as required.
• A fine ranging from 5,000,000 VND to 10,000,000 VND for failing to provide documents and materials serving the determination of tax obligations upon request; failing to properly comply with sealing decisions or arbitrarily removing or altering seals imposed by competent authorities.
• Remedial measures: mandatory provision of complete information, documents, and accounting records related to tax obligations.

Accordingly, failure to proactively disseminate and update tax policy changes not only adversely affects investment project governance but also exposes enterprises to administrative sanctions and remedial obligations, resulting in additional time and cost burdens.

V. Are you seeking a reputable legal expert to support matters related to changes in tax policy affecting investment projects?

In the context of frequent tax policy adjustments directly affecting investment project performance, engaging a legal advisory firm with in-depth expertise in investment, taxation, and incentive policies is a main factor in mitigating risks and safeguarding lawful interests. NPLaw, with a team of experienced lawyers in investment and tax law, is ready to assist enterprises in assessing the impacts of tax policy changes, reviewing investment incentives, resolving disputes, and accompanying enterprises throughout the project life cycle to ensure legal compliance and optimization of investment benefits.

The above information is provided for reference purposes only. For tailored advice on specific cases, please contact: