THE PORTAL FOR FOREIGN DIRECT INVESTMENT IN VIETNAM
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TAXATION

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

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:

  • 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

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
 

CUSTOMS DUTY AND PROCEDURES

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:

  • Raw materials, supplies and components imported for the processing of goods for export and finished products for use in the processed goods;
  • Materials, supplies, components imported for the manufacturing of goods for export.
  • Machinery and equipment, specialized means of transportation and construction materials (which cannot be produced locally) imported to form the fixed assets of certain projects (e.g. projects located in especially difficult areas or encouraged sectors)
  • Certain imports serving petroleum related activities.
  • Goods temporarily imported within a certain preriod of time for some specific purposes.

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:

  • Goods for which import duties have been paid but which are not actually physically imported;
  • Imported raw materials that are not used and must be re-exported;
  • Imported materials serving the production of products to be sold in the domestic market, but actually used for the production of products to be exported (either exported abroad or into the Export Processing Zone (EPZ)).

Priority Enterprise Status

Businesses that are granted priority enterprise status are entitled to various privileges, waivers or exceptions of customs administrative requirements, including:

  • Waiver of certain document requirements during customs clearance, customs inspection, ect,;
  • Exemption from the requirement of customs audit at customs offices;
  • The customs authority may conduct post-clearance audit at the enterprise's office only once every three years, on the basis of risk management, except for signs of violations of the legislation on customs.

To apply for priority enterprise scheme, taxpayers must meet several conditions, some of which are as follows:

  • Full compliance: No tax offence in two consecutive years before the application.
  • Annual export/import turnover: At least USD 100 million in total; or USD 40 million for goods manufactured in Vietnam; or USD 30 million for exported agriculture and sea foods manufactured or grown in Vietnam.

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.