Taxation regulations: How many kinds of taxes in Vietnam? How many percent for each kind and how to calculate?

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
• Value Added Tax
• Personal Income Tax
• Foreign Contractor tax
• Others (e.g. Special Sales Tax, Environmental Tax, Import and Export Duties, Natural Resources Tax, Environmental Tax, Property Tax, etc.).

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:

• Enterprises established pursuant to the law of Vietnam
• Foreign enterprises earning income in Vietnam with or without a resident establishment in Vietnam
• Enterprises established pursuant to the Law on Co- Operatives
• Professional entities established pursuant to the law of Vietnam
• Any other organization conducting activities of production or business that earns income from activities, in Vietnam.

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

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:

• Companies operating in the oil and gas industry are subject to rates ranging from 32% to 50%, depending on the location and specific project.
• Any companies engaging in prospecting, exploration and exploitation of mineral resources are subject to CIT rates of 40% or 50% depending upon location.

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:

• Certain agricultural products;
• Supply of fertilizer, feed for livestock, poultry, seafood and other animals
• Goods/services provided by individuals having annual revenue of VND 100 million or below;
• Imported or leased drilling rigs, airplanes and ships of a type which cannot be produced in Vietnam;
• Transfer of land use rights (subject to limitations);
• Financial derivatives and credit services (including credit card issuance, finance leasing and factoring); sale of VATable mortgaged assets by a borrower under the lender’s authorization, in order to settle a guaranteed loan and provision of credit information.
• Various securities activities including fund management;
• Capital assignment;
• Foreign currency trading;
• Debt factoring;
• Certain insurance services (including life insurance, health insurance, agricultural insurance and reinsurance);
• Medical services;
• Teaching and training;
• Printing and publishing of newspapers, magazines and certain types of books;
• Public passenger transport;
• Transfer of technology, software and software services except exported software which is entitled to 0% rate;
• Gold imported in pieces which have not been processed into jewellery;
• Exported unprocessed mineral products such as crude oil, rock, sand, rare soil, rare stones, etc., or processed into other products in which the total value of such natural resources and minerals plus the energy cost are at least 51% of production costs
• Imports of machinery, equipment and materials which cannot be produced in Vietnam for direct use in science research and technology development activities;
• Equipment, machinery, spare parts, specialized means of transport and necessary materials which cannot be produced in Vietnam for prospecting, exploration and development of oil and gas fields;
• Goods imported in the following cases: international non-refundable aid, including from Official Development Aid, foreign donations to government bodies and to individuals (subject to limitations).
• In addition, there are regulated cases that goods and services are not required to declare and pay VAT. This means that no output VAT has to be charged but input VAT paid on related purchases can be creditable. These supplies include:
• Compensation, bonuses and subsidies, except those provided in exchange for marketing/promotional services;
• Transfers of emission rights and other financial revenues;
• Certain services rendered by a foreign organization which does not have a PE in Vietnam, where the services are rendered outside of Vietnam, including repairs to means of transport, machinery or equipment, advertising, marketing, promotion of investment and trade to overseas; brokerage activities for the sale of goods and services overseas, training, certain international telecommunication services;
• Sales of assets by non-business organizations or individuals who are not registered for VAT;
• Transfer of investment projects;
• Sale of agricultural products that have not been processed into other products or which have just been through preliminary processing;
• Capital contributions in kind;
• Certain asset transfers between a parent company and its subsidiaries or between subsidiaries of the same parent company;
• Collections of compensation/indemnities by insurance companies from third parties;
• Collections on behalf of other parties which are not involved in the provision of goods/services (e.g. if company A purchases goods/services from company B, but pays to company C and subsequently company C pays to company B, then the payment from company C to company B is not subject to VAT);
• Commissions earned by (i) agents selling services, including postal, telecommunications, lottery, airlines/bus/ship/train tickets, at prices determined by principals; and (ii) agents for international transportation, airlines and shipping services entitled to 0% VAT; and (iii) insurance agents;
• Commissions from the sale of exempt goods/services.

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:

• Being present in Vietnam for a period of 183 days or more within either a western calendar year or for 12 consecutive months counting from the first arrival date;
• Having a permanent residence in Vietnam (including a registered residence which is recorded on the permanent/temporary residence card in case of foreigners) and being unable to prove tax residence in another country;
• Having a leased house in Vietnam with a term of 183 days or more in a tax year and being unable to prove tax residence in another country.

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

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

Special Sales Tax (SST)

SST taxpayers include procedures and importers of goods and providers of services that are subject to SST.

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: