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In particular, since Vietnam obtained memberships of international organizations e.g. ASEAN (1995) and WTO (2007), tax policy and tax reform has become more aligned with international rules and practices, and at the same time tax collection and administration processes have been improved. In 2007, the Law on Tax Administration was first implemented. The Law provides rules on tax administration, management of information, tax collection and enforcement, and has provided guidance in areas previously open to wide interpretation. Later in 2007, the National Assembly also passed the first Law on Personal Income Tax, covering taxation of all income of individuals in Vietnam for the first time. This Law introduced the concept of personal and family deductions in determining taxable income of individuals.
In 2008, three major tax laws were amended: Corporate Income Tax, Value Added Tax and Special Sales Tax. All of these laws were implemented in 2009 and were further amended in 2014, 2015 with various changes for implementation in 2014 and 2015 onwards.
Tax administration is controlled by the General Department of Taxation, which operates under the Ministry of Finance. Tax affairs may also be handled by local provincial Tax Departments.
Foreign investors are likely to be subject to the following common taxes:
Corporate Income Tax (CIT)
Scope
Organizations conducting business and earning taxable income in Vietnam, which do not benefit from tax exemptions, are subject to CIT, comprising:
A company is a tax resident if it is incorporated in Vietnam or has a permanent establishment (“PE”) in Vietnam. In these cases, the foreign enterprise must pay tax on its worldwide income. If the company is not either a tax resident or does not possess a PE, it is only required to pay tax on income arising in Vietnam.
Tax Calculation
CIT PAYABLE = TAX RATE x ASSESSABLE INCOME Accessable 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%. Other income includes gains from foreign exchange revaluation, income from disposal of fixed assets, interest income, etc. not related to main business.
Tax Rates
Currently, the CIT standard rate is 20%. For corporations with total revenues of less than VND20 billion, a 17% CIT rate shall be applied.
Certain industries are liable to a higher tax rate:
CIT may be reduced under investment incentive schemes.
Value Added Tax (VAT)
VAT is an indirect tax, the cost of which ultimately falls on the consumer. The majority of transactions involving the supply of goods, the provision of services and imports will be subject to this tax.
Broadly, VAT is levied on the value added, at each stage of the production and distribution supply chain. Registered businesses act as collection points for the Value Added Tax Department.
VAT rates
The standard rate is ten percent (10%). In addition, there are other rates of 5% and 0% and VAT exemption, as below:
0%: This rate applies to exported goods/services including goods/services sold to overseas/non-tariff areas and consumed outside Vietnam/in the non-tariff areas, goods processed for export or in-country export (subject to conditions), goods sold to duty free shops, certain exported services, construction and installation carried out for export processing enterprises, aviation, marine and international transportation services.
5%: This rate applies generally to areas of the economy concerned with the provision of essential goods and services. These include: clean water; teaching aids; books; unprocessed foodstuffs; medicine and medical equipment; various agricultural products and services; technical/scientific services; rubber latex; sugar and its by-products; certain cultural, artistic, sport services/products and social housing.
VAT exemption: Under this treatment, no output VAT shall be charged and the input VAT shall be uncreditable, but considered as deductible expenses for CIT purposes, comprising the followings:
Personal Income Tax (PIT)
Individuals liable to PIT and tax resident status
Individuals are subject to Vietnamese PIT based upon their tax resident status, i.e. PIT on their worldwide incomes for tax residents or PIT on Vietnam sourced income for non-tax residents.
Any foreign individual shall be considered a PIT resident if he/ she meets one of the following conditions:
A non-resident is any individual who does not satisfy the above conditions.
Taxable income
Taxable income generally comprises 10 main types of income: employment income, business income, income from capital investments, income from capital transfers, income from real property transfers, winnings or prizes, royalties, income from franchises, income from inheritances and receipts of gifts.
Tax rates
Employment income
MONTHLY ASSESSABLE INCOME
(million VND)
|
TAX RATE
|
|
RESIDENTS
|
NON-RESIDENTS
|
|
Up to 5
|
5%
|
20%
|
Over 5 to 10
|
10%
|
|
Over 10 to 18
|
15%
|
|
Over 18 to 32
|
20%
|
|
Over 32 to 52
|
25%
|
|
Over 52 to 80
|
30%
|
|
Over 80
|
35%
|
None-Employment Income (applicable to both residents & non-residents)
NONE-EMPLOYMENT INCOME
(Applicable to both residents and non-residents)
|
TAX RATE
|
Business Income |
1% - 5% on revenue
* Depending on type of business
|
Capital investment, i.e. interest, dividends (except for bank interest)
|
5%
|
Capital transfer
|
20% on net gains for tax resident; 0.1% on sales proceeds for non-residents
|
Sercurites / JSC share transfer
|
0.1% on sales proceeds
|
Real estate transfer
|
2% on sales proceeds
|
Income from winning prizes (in exess of VND 10 million)
|
10%
|
Income from copyright (in exess of VND 10 million)
|
5%
|
Income from royalty / franchising (in exess of VND 10 million)
|
5%
|
Income from gifts / inheritances (in exess of VND 10 million) | 10% |
Foreign Contractor's Tax (FCT)
FCT imposed on foreign business individuals and foreign organizations earning Vietnam-sourced income (herein referred as “foreign contractor” or “FC”), except: (i) “pure supply of goods” under INCORTERMS., i.e. where title passed at or before the border gate of Vietnam and there are no associated services performed in Vietnam, (ii) services performed and consumed outside Vietnam. It includes two kinds of taxes: VAT-FCT and CIT-FCT at varied FCT rates.
There are three methods of FCT payment at the FC’s selection:
Deduction method: This method allows the FC declaring: (i) VAT under the approach of crediting the input VAT against the output VAT, and (ii) CIT based on the declaration of revenue and expense similar to the local enterprises’ application. Of note, FC is required to meet some criteria, including FC’s adoption of the Vietnamese Accounting System.
Direct method: Under this method, FCT is the mechanism to withhold taxes. The FC’s VAT and CIT will be withheld by the Vietnamese customers at prescribed rates from the payments made to the FC. Various FCT rates are regulated under the nature of activities performed (please kindly see our below table briefing the FCT rates for each activities).
Hybrid method: This method is a mixed-up between the deduction method and direct method, i.e. allows the FC declares VAT based on the creditable approach and CIT at direct method.
FCT Rates
Ratio for FCT (%) | ||||
No. | Type of business activities | Deemed VAT-FCT rate (%) | Deemed CIT-FCT rate (%)x | |
1 | Trades | (i) Distributing, supplying goods; (ii) Distributing, supplying goods associated with services rendered in Vietnam (including the form of on-spot export and import); (iii) Supplying goods under INCOTERMS where the seller bears risk relating to goods in Vietnam. |
1/Exempt | 1 |
2 | Services | Services | 5 | 5 |
Restaurant/ hotel/ casino management services | 5 | 10 | ||
Service associated with goods supply (if contract doesn’t separate the value of goods and service) |
3 | 2 | ||
3 | Insurance | Insurance | 5 /Exempt | 0.1 |
Reinsurrance abroad, commission of the reinsurrance transfer | Exempt | 5 | ||
4 | Leasing | Leasing machinery and equipment | 5 | 5 |
Leasing aircraft, airplane engines/ spare parts, vessels (for aircraft and vessel cannot be produced in Vietnam) |
Exempt | 2 | ||
5 | Banking | Derivative financial services | Exempt | 2 |
Loan interest | Exempt | 5 | ||
6 | Capital investment | Transferring securities/ deposit certificates | Exempt | 0.1 |
7 | Oil and Gas | Supply of goods and/or services for oil & gas exploration and development | Standard: 10 (or 5%/ exempt) |
5 |
Leasing drilling rigs | Exempt | 5 | ||
8 | Construction | Construction, installation including supply of materials, machinery, equipment | 3 | 2 |
Construction, installation excluding supply of materials, machinery, equipment | 5 | 2 | ||
9 | Transportation | Transport (including the transport by seaway, by airway) | 3/0 | 2 |
10 | Royalty | Royalty/ Licence fee (*):Software licenses, transfer of technology, transfer of intellectual property rights are VAT exempt |
Exempt (*) | 10 |
11 | Others | Other production | 3 | 2 |
Other Business activities | 2 | 2 |
Special Sales Tax (SST)
SST taxpayers include procedures and importers of goods and providers of services that are subject to SST.
GOODS / SERVICES
|
TAX RATES (%)
|
Cigarettes, other products derived from tobacco plants
- From 1 January 2016 to 31 December 2018
- From 1 January 2018
|
70
75
|
Spirit / Wine
a) Spirit / Wine with ABV >= 20o
- From 1 January 2018
b) Spirit / Wine with ABV < 20o
- From 1 January 2018
|
65
35
|
Beer
- From 1 January 2018
|
65
|
Automobiles having fewer than 24 seats
|
5 ~ 150
|
Motorcycles with cylinder capacity above 125 cm3
|
20
|
Aircraft / Yacht
|
30
|
Gasoline |
7 ~ 10
|
Playing cards |
40
|
Votive papers
|
70
|
Dancing club business
|
40
|
Massage, karaoke business, betting business
|
30
|
Casino business, electronic casino game business
|
35
|
Golf course business
|
20
|
Lottery business | 15 |
Environemnt 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:
GOODS | UNIT | TAX RATE (VND/UNIT) |
Petro, oil and grease | Liter/kg | 300 - 1,000 |
Coal | ton | 10,000 - 20,000 |
HCFC solution | kg | 4,000 |
Taxable plastic bags | kg | 40,000 |
Herbicides restricted from use | kg | 500 |
Termiticides restricted from use | kg | 1,000 |
Forest product preservatives restricted from use | kg | 1,000 |
Storehouse disinfectants restricted from use | kg | 1,000 |
Export Duty
Exports are the factor that drives the growth of the Vietnamese economy; therefore, most of common goods are not subject to export duty. Export duty is applicable to only few specific goods such as natural resources, minerals or agricultural products, etc. with the duty rates ranging up to 40%.
Import Duty
Import duty is generally applied to goods physically crossing or "considered as crossing" Vietnamese border. Different import items are subject to diferrent duty rates, which are determined based on HS codes and the origins of the goods. Goods originating from different countries may be subject to different customs tariffs, which may be categorized as follow:
IMPORT DUTY RATE | |
Special preferential rates | Imports from countries that have an FTA with Vietnam. For example: Korea, Japan, China, Chile, India, the ASEAN members, New Zealand, Russia, and EU. |
MFN rates | Imports from countries that maintain the Most Favored Nation (MFN) status with Vietnam. The MFN rates are in accordance with Vietnam's WTO commitments and are applicable to goods imported from other member countries of the WTO. |
Ordinary rates | Imports from countries that neither maintain the MFN status with Vietnam nor have an FTA with Vietnam. Ordinary rates are genrerally 50% higher than MFN rates. |
For special preferential rates, the application of such tariffs requires a proper Certificate of Origin (C/O) accompanying the imported goods.
Classification of the HS code will be based on a number of sources, including not only domestic customs regulations but also guidance issued by the World Customs Organization as well as detailed goods specification.
Dutiable Value
The dutiable value is determined by six valuation methods in accordance with the WTO Valuation Agreement, in which transaction value (i.e. the price paid or payable for the imported goods, and where appropriate, adjusted for certain dutiable or non-dutiable elements) is the first priority. Only when the transaction value is not applied, will one of the five alternative methods for customs valuation be used. Besides import duty, imported goods might also be subject to import VAT, SST and environment protection tax - all are declared and paid at the importation stage.
Exemption
Import duty exemption might be applicable for certain cases including but not limited to the following:
Import duty exemption is also applicable to import transactions of an Export Processing Enterprise (EPE). An EPE is technically a non-tariff enterprise. To be considered as an EPE, a company must commit to export all of its products. All of the purchases in relation to the manufacture/processing of exported products if an EPE (including fixed assets) are exempted from import duty and import VAT.
Refund
A refund of import duties might be granted in certain cases, including but not limited to the followings:
Priority Enterprise Status
Businesses that are granted priority enterprise status are entitled to various privileges, waivers or exceptions of customs administrative requirements, including:
To apply for priority enterprise scheme, taxpayers must meet several conditions, some of which are as follows:
Once accredited with priority enterprise status, the status is valid for three years.
Customs Audit
For different business models, different typical customs risks might be triggered.
TYPICAL RISKS | MANUFACTURING/PROCESSING FOR EXPORT | EPE | TRADING & DISTRIBUTION |
Inventory reconciliation | V | V | N/A |
Duty exemption for fixed assets | N/A | V | N/A |
HS code classification | V | V | V |
Customs valuation | V | N/A | V |
Certificate of Origin | V | N/A | V |
The above risks might be exposed before, during, or after the customs declaration are carried out. Typically, a customs audit shall be conducted if there is any signal that there may be acts of taxpayers that violate legal requirements, or in accordance with a specific inspection plan of the customs authorities. The audit might be performed either at the customs authority offices or at the taxpayer's premises.