Legal regulations on expansion investment projects

An expansion investment project is a form of investment aimed at enlarging scale, increasing capacity, upgrading technology, or improving the quality of products and services of an enterprise. Implementing an expansion investment project must comply with relevant legal regulations to ensure legality, and may also be entitled to investment incentive policies as prescribed by the State. Below, NPLaw invites readers to explore the legal issues related to expansion investment projects.

I. Understanding expansion investment projects

An expansion investment project involves enlarging scale, increasing production capacity, or expanding the business fields of an existing enterprise to improve operational efficiency and broaden markets. This may include increasing investment capital, constructing additional infrastructure, expanding production scale, or implementing new business lines.

Implementing an expansion investment project helps enterprises leverage existing potential, meet the growing market demand, and increase competitive advantages. At the same time, such projects must comply with regulations on sectors and fields of investment, avoiding violations in conditional, prohibited sectors or national planning.

II. Legal regulations on expansion investment projects

1. What is an expansion investment project?

According to Clause 5, Article 3 of the Law on Investment 2020, the concept of an expansion investment project is defined as follows:

- An expansion investment project is a project that develops an existing investment project by enlarging scale, increasing capacity, upgrading technology, reducing pollution, or improving the environment.

Thus, an expansion investment project is not only limited to scale enlargement but also includes activities to improve production quality, optimize technology, and protect the environment.

2. Conditions for enjoying incentives for expansion investment projects

Pursuant to point a, Clause 6, Article 18 of Circular 78/2014/TT-BTC, as amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC, on expansion investment, enterprises may enjoy corporate income tax (CIT) incentives if they meet the following conditions:

- The expansion investment project is in a sector or location entitled to CIT incentives under Decree No. 218/2013/ND-CP, including economic zones, hi-tech parks, industrial parks (excluding industrial parks located in inner districts of special-class cities, centrally-run class I cities, and class I provincial cities);

- The expansion investment project carries out one of the following activities: enlarging production scale, increasing operational capacity, upgrading production technology.

3. What criteria must an expansion investment project meet?

According to point a, Clause 6, Article 18 of Circular 78/2014/TT-BTC, as amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC, an expansion investment project must meet one of the following criteria to enjoy corporate income tax incentives:

- Criteria on increased original value of fixed assets: The increased original value of fixed assets upon project completion and operation must reach at least VND 20 billion for projects in incentive sectors under Decree No. 218/2013/ND-CP or VND 10 billion for projects implemented in areas with difficult or especially difficult socio-economic conditions under Decree No. 218/2013/ND-CP;

- Criteria on proportion of increased original value of fixed assets: The increased original value of fixed assets must reach at least 20% compared to the total original value of fixed assets before investment;

- Criteria on increased design capacity: The design capacity upon expansion investment must increase by at least 20% compared to the initial design capacity under the pre-investment economic-technical justification.

III. Questions on expansion investment projects

1. Conditions for enjoying corporate income tax incentives for expansion investment projects

According to Clause 6, Article 18 of Circular 78/2014/TT-BTC (as amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC), an expansion investment project will enjoy CIT incentives if it meets one of the following criteria:

- Criteria on increased original value of fixed assets: The increased original value of fixed assets upon project completion and operation must reach at least VND 20 billion for projects in incentive sectors under Decree No. 218/2013/ND-CP or VND 10 billion for projects implemented in areas with difficult or especially difficult socio-economic conditions under Decree No. 218/2013/ND-CP;

- Criteria on proportion of increased original value of fixed assets: The increased original value of fixed assets must reach at least 20% compared to the total original value of fixed assets before investment;

- Criteria on increased design capacity: The design capacity upon expansion must increase by at least 20% compared to the initial design capacity under the pre-investment economic-technical justification.

Thus, an expansion investment project may enjoy CIT incentives if it meets one of these three criteria on increased original value of fixed assets, proportion of fixed assets, or increased design capacity as prescribed by Circular 78/2014/TT-BTC (as amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC).

2. If an enterprise expands an investment project in a hi-tech park, does it need to adjust the tax rate and incentive period?

According to point a, Clause 6, Article 18 of Circular 78/2014/TT-BTC (as amended by Clause 4, Article 10 of Circular 96/2015/TT-BTC), an enterprise with an expansion investment project in a hi-tech park may enjoy CIT incentives and has the right to choose one of the following two options:

- Enjoy CIT incentives as applied to the existing project;

- Apply the tax exemption and reduction period to the additional income arising from the expansion investment.

Thus, the enterprise does not need to adjust the tax rate, but simply selects one of the two suitable incentive options.

3. Is it mandatory to amend the Investment Registration Certificate for expansion investment projects?

According to Article 41 of the Law on Investment 2020, an enterprise is only required to amend its Investment Registration Certificate if the project expansion changes important contents in the certificate, such as:

- Increasing investment capital by 20% or more;

- Changing location, land area (by more than 10% or 30 hectares);

- Extending the schedule by more than 12 months;

- Adjusting the project operation term;

- Changing technology, investor, or project objectives.

If the scale expansion, capacity increase, or technology upgrade does not change these factors, the enterprise does not need to amend the Investment Registration Certificate.

4. Can an expansion investment project be exempted or reduced in land rental?

According to point a, Clause 1, Article 157 of the Land Law 2014, an expansion investment project may be exempted or reduced in land rental if the project is in an investment incentive sector or area under investment law. However, if the project uses land for commercial housing construction or for commercial, service purposes, it is not eligible for exemption or reduction under Clause 1, Article 157.

Thus, an expansion investment project may be exempted or reduced in land rental if it is in an incentive sector or area under the law.

5. What legal procedures must be implemented when implementing an expansion investment project?

When implementing an expansion investment project, enterprises need to carry out the following legal procedures:

- Procedures for registering changes in enterprise information;

- Procedures for obtaining an Investment Certificate;

- Procedures for approving environmental impact assessment reports;

- Procedures for obtaining construction permits (if any);

- Procedures for obtaining business licenses for new business lines (if any);

- Labor and insurance procedures;

- Tax procedures.

6. Are there restrictions on sectors and fields for expansion investment projects?

Expansion investment projects are not restricted in sectors and fields, except in cases falling into prohibited sectors or conditional sectors under the law. Specifically:

- Prohibited investment sectors: According to Article 6 of the Law on Investment 2020, sectors such as drug trading, human trafficking, organizing gambling, destroying natural resources, etc. are prohibited for both new and expansion investments.

- Conditional investment sectors: According to Article 7 of the Law on Investment 2020 and Appendix IV of Decree 31/2021/ND-CP, some sectors such as finance, banking, real estate, energy, healthcare, and education must meet legal conditions, technical standards, or minimum capital when expanding investment.

Thus, while there is generally no restriction on sectors and fields, expansion investment projects must comply with applicable laws, especially regarding conditional sectors or sectors eligible for investment incentives.

IV. Legal consulting services related to expansion investment projects

Above is NPLaw’s article on expansion investment projects. With a team of experienced lawyers and legal specialists, NPLaw is always ready to accompany, advise, and support clients on legal issues related to expansion investment projects. For assistance with other legal matters, please contact NPLaw via the following information: