Taxation of Corporate in Vietnam

Taxation & Custom in Vietnam

 

 

I. CORPORATE INCOME TAX (CIT)

Tax payer

1. Vietnam incorporated enterprises

2. Foreign enterprises with or without Permanent Establishment ( PE )

- Branches / Agents

- Service establishment
- Plants / Construction sites

- Others

Tax Caculation

CIT PAYABLE = TAX RATE X ASSESSABLE INCOME 

Assessable Income = (Total Revenue – Deductible Expenses) + Other Income - Carried Loss

1. ( Total revenue - Deductible expenses ) is considered an income from main business activities . Such income is entitled to CIT incentives, if any. 
2. Normally , other forms of income are not entitled to CIT incentives, and thus, shall be subject to the standard CIT rate of 20 per cent. Other income includes gains from foreign exchange revaluation income from disposal of fixed assets, interest income, ect . not related to main business.

Tax Rates 

From 1 January 2016 , the standard CIT rate is 20% . The CIT rate for enterprises operating in exploration and mining of petroleum, gas, and other rare and precious natural resources shall range from 32% to 50%, depending on the project locations and conditions.

Deductible Expenses

An expense might be deductible for CIT purpose if the following conditions are met : 

1. Actually incurred and relevant to the company's business activities Supported by proper documents 
2. Supported by proper documents
3. Payments above VND 20 million must be supported by bank payment vouchers or deemed as made via  bank
4. Not in the list of non - deductible expenses.

In addition , payments above VND 20 million must be supported by bank payment vouchers ( or deemed as made via bank ) to be deductible 

Non Deductible Expenses

Below are notable examples of non - deductible expenses: 

• Depreciation expenses of fixed assets not in accordance with prevailing regulations, i.e. (i) not for business purpose; (ii) not supported by proper documentation; and (iii) exceeding the regulated depreciation rates; 
• Labor expenses recorded but not actually paid or not stipulated with clear conditions and amounts under labor contracts , collective labor agreements or company's financial policies ; 
• Staff's welfare expenses exceeding the cap of one month average monthly salary, 
• Costs of raw materials, supplies fuel, power and goods exceeding the reasonable consumption levels as stipulated by the Government; 
• Interest on loans from non - economic and non - credit organizations exceeding 1.5 times of the interest rate announced by the State Bank of Vietnam; 
• Interest expenses exceeding 20 % EBITDA for enterprises having related party transactions; 
• Interests on loans corresponding to the portion of charter capital not yet contributed in accordance with registered contribution schedule; 
• Periodical accrued expenses not paid or not fully paid at the end of the period; 
• Provisions for financial investment losses, inventory devaluation, bad debts, product warranties or construction works, vocational risks a not in accordance with the prevailing 0 regulations; 
• Unrealized foreign exchange losses due to the year - end revaluation of foreign currency items other than account payables; 
• Overhead costs allocated to the Permanent Establishment ( PE ) by foreign companies exceeding the amount determined based on the revenue - based allocation ratio; 
• Contributions to voluntary pension funds and purchase of voluntary pension insurance , life insurance for employees exceeding VND 3 million / person / month; 
• Administrative penalties, fines, late payment interests  etc .; 
• Donations other than certain donation contributions for education, health care, natural disaster or building charitable homes , etc .; 
• Certain expenses related to the issuance, purchase and sale of shares.

LOSSES 

Tax loss is carried forward within a maximum period of 5 years after the loss - making year. The tax loss generated from January 2009 must be carried forward consecutively even during the tax exemption period. Carry - back of tax loss is not allowed. Losses from incentive business activities can be offset against income from non – incentive activities. Losses from the transfer of real estate, investment projects, rights to participate in investment projects (except for mineral exploitation and exploration projects ) can be offset against profits from other business activities .

TAX DECLARATION AND PAYMENT 

Enterprises are not required to submit the quarterly CiT declaration returns . However , provisional payments are still compulsory and will be calculated and settled based on best estimation . In case the difference between the fiscal - year end's CIT finalization amount and the sum of provisional CIT payments is more than 20 per cent of the CIT finalization amount,  the difference in excess of 20 per cent shall be subject to late tax payment interest. 

CIT finalization returns must be prepared and submitted to the tax authorities within 90 days from the end of fiscal year . Any outstanding tax liabilities arising from the tax finalization after utilizing all tax payments made quarterly shall be settled within 90 days from the end of fiscal year . 

The standard tax year is the calendar year. However, enterprises are able to adopt a tax year , i.e. fiscal year , which is different from the calendar year upon notification to tax authorities.

II. Personal Income Tax (PIT) 

Tax residency 

An individual is a tax resident if he / she meets one of the following conditions: 

• Residing in Vietnam for 183 days or more in 12 consecutive months from the first arrival date or in a calendar year; 
• Having a registered permanent residence in Vietnam as recorded by a temporary / permanent residence card; 
• Having rented a house in Vietnam with a term of 183 days or more within a tax year. 

Note: An individual having registered address or rented house over 183 days but residing less than 183 days in Vietnam may still be a tax resident if being unable to prove residency of another country 

Tax residents are subject to PIT in Vietnam on their world - wide income regardless of where such income is paid, earned or charged. Worldwide employment income is subject to tax at progressive tax rates ranging from 5% to 35% depending on income level Individuals who do not satisfy any of the above condition are classified as non - residents and subject to tax only on Vietnam - sourced income. The rate applicable to tax non - residents Vietnam - sourced employment income is currently fixed at 20%. Both residents and non - residents are also subject to PIT in Vietnam on incomes of non - employment nature which are taxed at different flat rates. 

Tax Year

The Vietnamese standard PIT reporting period is the calendar year. For foreign individual, the fist tax year will be the 12 - consecutive - month - period from the first arrival date in Vietnam in case the individual is present in Vietnam for less than 183 days dạring the first calendar year. From the second year, the tax year will be the calendar year. 

Employment Income

Employment income includes salaries and wages , and all forms of remuneration and fringe benefits whether in cash or in kind. However , certain income items are not subject to tax , typically: 

• Once - off relocation allowances for example, paid to foreigners first time comes to work in Vietnam; or Vietnamese citizens residing overseas return to work in Vietnam; 
• Transportation allowance: from home to work and vice versa under the Company's policy; 
• Wedding and funeral allowances under the Company's policy and being capped at one - month average monthly salary; 
• Airfare in kind one round trip per year for employee to travel back to home country; 
• Tuition fee in kind for children to study from nursery to high school level at host country; 
• Insurance premium : voluntary non - accumulative insurance for health & death;
• Membership / healthcare / entertainment in kind & non - identified beneficiary; 
• Supports for cure of fatal diseases to employees ( and close family members ); 
• Per - diem: Fully exempted if paid under the Company's policy; 
• Housing allowance: In excess of 15 per cent of total taxable income;
• Uniform allowance in cash below TA VND 5 million / year or in kind; • Overtime in excess of the normal rate. 

Non - Employment Income

Non - employment income includes income from business , capital ag investment , inheritance , gifts , fo prize winnings , transfer of capital , transfer of real estate , sale of shares / Vi securities , royalties , franchising , Vi copyrights , etc. which are subject to in various flat PIT rates. 

Tax deductions 

Tax residents of Vietnam are entitled to the following deductions from taxable a income : 

• A personal deduction of VND 9 million per month ; 
• A deduction for qualified dependent spouse , children and other eligible persons including parents in the amount T of VND 3.6 million per dependent per E month ( provided that certain conditions are met ) ; Eligible charitable or humanitarian donations ; 
• Compulsory social insurance , health insurance and unemployment insurance paid by employees ; and 
• Contribution to private pension fund made by the employer and the employee capped at VND 1 million per month pursuant to the Ministry a of Finance's guidance .

Tax Relief

Foreign tax credit

A tax resident is entitled to claim for Foreign Tax Credit ( i.e. the amount of tax paid overseas according to overseas regulations ) against their Vietnamese PIT on the foreign - sourced income ; however, the creditable amount shall not exceed the Vietnamese PIT payable according to Vietnamese PIT tariff allocated on the income arising overseas. 

Tax Treaty Relief

A tax non - resident may enjoy PIT exemption in Vietnam via tax treaty application if certain conditions under the treaty are met. To enjoy exemption , notification procedures are required. 

Tax Rates

Employment Income

 

Non - Employment Income ( applicable to both residents & non - residents ) 

 

Tax Declaration and payment

Each individual taxpayer must register for a personal tax code prior to the time limit for his first PIT filing . In case the employer makes tax registration for employees earning income from salaries or wages and tax registration for employees' dependents , the registration deadline shall be within 10 working days before the submission of annual PIT finalization return. 

 

Tax Finalization

Tax residents are required to file the PIT finalization return and settle outstanding PIT liabilities within 90 days from the end of the tax year. 

Residents foreign expatriates terminating their Vietnam assignment must file PIT finalization dossiers prior to their departure dates ( or within 45 days from departure dates in case of authorization following a recent specific guidance ) 

III. Value added Tax (VAT)

Scope of application

VAT is imposed on goods and services used for production , trading and consumption in Vietnam ( including those purchased from overseas organizations and individuals ). 

Tax rates 

There are three types of VAT treatment : non - taxable items ; items not required to declare VAT and taxable items ( at 0 per cent , 5 per cent and 10 per cent VAT rate ) . Below are some notable cases : 

Non – Taxable

• Land use rights ; 
• Insurance related to human; 
• Loan, credit services; 
• Education and vocational training according to prevailing regulations; 
• Medical services; 
• Machinery and equipment not locally produced , imported for some specific purpose; 
• Temporarily imported goods; 
• Capital transfer transactions between non - tariff zones and overseas; 
• Intellectual property rights , software ( except exported software ); 
• Unprocessed or semi - processed products of cultivation, agriculture, aquaculture; animal breeding stock, seedlings, salt products, etc .; 
• Imported goods / services for humanitarian aid; 
• Exported products directly processed from main materials being natural resources and / or minerals whose total value plus energy cost makes up at least 51 % of the prime cost.

Declaration not required

• Compensation, financial income; 
• Project transfer; 
• Transfer of assets within a company and dependent units; 
• Capital contribution by assets; 
• Commission for some agent services. 

Taxable

 

Tax Calculation

For general business activities , VAT liabilities must be paid to local tax authorities , where general business activities take place while for imported goods , VAT liabilities will be collected by customs authorities upon importation. 

There are two methods for VAT declaration : Credit method and Direct method.

• Credit method : VAT liabilities are calculated by offsetting input VAT with output VAT ; 
• Direct method : VAT liabilities for specific goods and services are calculated by using the deemed VAT rates.

Credit method

The credit method is adopted by enterprises maintaining complete books of accounts , invoices and documents in accordance with relevant regulations , including: 

• Enterprises with annual revenue subject to VAT of more than VND 1 billion ; 
• Enterprises in other cases who voluntarily register for VAT declaration under credit method . 

VAT calculation under credit method : 

VAT PAYABLE = OUTPUT VAT - INPUT VAT

OF WHICH:

• Output VAT shall be equal to the total VAT on goods or services sold as stated in the VAT invoice. 
• Input VAT shall be : 
  • VAT amount as recorded in all VAT invoices for the purchase of goods or services ; 
  • VAT amount stated on receipts for VAT payment on imported goods ; 
  • VAT amount stated on receipts for VAT payment on behalf of foreign contractors . 

In order to claim deductible input VAT , taxpayers must obtain the following documents for each type of goods / services purchased: 

 

(*) Non - cash payment vouchers are only required for payments of VND 20 million or more ( inclusive of VAT ).

In case the credit method is applied , taxpayers should note the following principles regarding credits:

 

If goods / services / fixed assets are used for the production / trading of both taxable good / services and non - taxable goods / services , then only the input VAT of goods / services / fixed assets used for the production / trading of taxable goods may be used for credit. 

Taxpayers must separate the credit - eligible input VAT from non - credit - eligible inputs . Otherwise , the input VAT shall be credited based on the ratio of the revenue of goods / services subject to VAT and not required for VAT declaration to the total revenue from sales of goods / services. 

Direct Method

The direct method is adopted in the following cases: 

• Enterprises with annual revenue subject to VAT of less than VND 1 billion unless they voluntarily register for credit method; 
• Enterprises not maintaining proper books of accounts and foreign organizations / individuals carrying out business activities not regulated under the Law on Investment; 
• Business individuals and households; 
• Enterprises engaging in trading in gold , silver and precious stones . VAT calculation under direct method : 

VAT PAYABLE = REVENUE x VAT RATE 

OF WHICH , THE APPLICABLE VAT RATES SHALL BE:

• 1 % Distribution ; supply of goods 
• 5 % Services ; construction excluding supply of materials 
• 3 % Manufacturing ; transportation ; services attached to the supply of goods ; construction , including supply of materials 
• 2 % Other cases Doing business in Vietnam 2020 .

For those enterprises engaging in the business of gold , silver and precious stones , VAT payable shall be calculated as 10 % of the added value. The value added of gold , silver , and precious stones equals their selling price minus their purchase price which are recorded by proper VAT invoices or payment receipts / vouchers. 

Tax Declaration and payment

Monthly VAT declaration shall be applied in most cases and is to be filed by the 20th day of the following month. 

Quarterly VAT declaration is applicable to taxpayers with total turnover from sales of goods / services of the preceding year not exceeding VND 50 billion . The deadline for quarterly VAT filing is by the 30th of the following quarter. 

Where the taxpayer are eligible for quarterly VAT declaration wish to instead file VAT monthly , they shall submit a notification to tax authorities not later than the deadline for VAT declaration in the first month of the tax year. 

VAT finalization is not required. 

Tax refund

From 1 July 2016, taxpayers can only claim VAT refund from tax authorities in the following common cases: 

New projects of taxpayers who adopt the VAT - deduction method that are in the pre - operation investment period , and with a total accumulated input VAT exceeding VND 300 million (some exceptions may apply); 

• Remaining input VAT for export production (after offseting the VAT liabilities of local sales) with an amount exceeding VND 300 million (but capped at 10 % of export revenue ), except : 

• ✓goods imported then re - exported ; 
• ✓goods that are not exported within a custom - controlled area as defined by the Customs Law . 

From 1 February 2018 with the effect of Decree No. 146 / 2017 / ND - CP in addition to the above , business establishments importing and then exporting goods into non - tariff zone or overseas at customs territories with a total accumulated inpu VAT exceeding VND 300 million are re - allowed to enjoy VAT refund . E – Invoice

Currently , taxpayers can choose between paper invoices or e - invoices. However , e - invoices must be used for all enterprises from 01 November 2020.

Foreign contractor withholding tax (FCWT)

Tax payer 

FCWT is applicable to foreign organizations / individuals who conduct business or earn income in Vietnam on the basis of a contract / agreement with ( i ) a Vietnamese party ( as a main foreign contractor ); or ( ii ) another foreign contractor to implement part of the contractual scope of works ( as a foreign sub - contractor ). FCWT is a tax collection mechanism that normally comprises both CIT and VAT , but may also include PIT for payments to foreign individuals. 

Scope of application

 

Important Note

There is no dividend withholding tax in Vietnam on corporate shareholders. 

Tax Declaration 

There are three methods for FCWT declaration including : ( i) Deemed method Hybrid method ; and (ii) Declaration method. 

While the Deemed method can be applied by foreign contractors without an specific conditions ( and is the most common method, which can be applied ) Hybrid method and Declaration method require foreign contractors to satisfy the following conditions: 

• Maintaining a contract duration of 183 days or more; 
• Having a Permanent Establishment ( PE ) in Vietnam, ( e.g a Project Office ); and 
• Applying the Vietnamese Accounting System. 

 

Tax rates 

In case of the deemed method, the following rates shall be applied for some notable cases: 

 

Taxation and customs double taxation avoidance agreement

Vietnam has a solid tax treaty network , with most treaties following the OECD - model treaty. Treaties generally provide for relief from double taxation on all types of income , limit the taxation by one country of companies' residents in the other and protect companies' residents in one country from discriminatory taxation in the other . Vietnam's treaties generally contain OECD - compliant exchange of information provisions . Tax relief under Double Taxation Avoidance Agreement ( DTA ) application is not automatically granted . Instead , foreign taxpayers are required to submit certain notification dossiers to Vietnamese tax authorities within 15 days prior to the tax payment deadline . Notification dossiers normally include tax residence confirmation , which must be translated into the Vietnamese the language and notarized , along with various Vietnamese Government forms . In the case the statutory deadline above is missed , taxpayers can still retain their right to claim tax treaty benefits as long as the notification is submitted within 3 year from the tax payment due date. The documentation can be submitted before the payment is made and Vietnamese tax is withheld , or alternatively , after tax has been withheld , in which case , the applicant would be seeking a tax refund . As of August 2019 , Vietnam has signed DTA agreements with 80 countries and territories around the world . The table below contains the withholding tax rates that apply to dividend , interest and royalty payments by Vietnamese companies to non - residents under current effective DTA of Vietnam with a number of countries.

Other taxes

Special Sales Tax

Special Sales Tax ( SST ) taxpayers include producers and importers of goods and providers of services that are subject to SST . SST rates are presented in the table below: 

 

Environment protection tax

Environment protection taxpayers are organizations , households and individuals producing and / or importing goods that are subject to the environment protection tax . The tax rates are presented in the table below :