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PART VIII
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TAXATION AND TAX POLICIES
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Since the commencement of “Doi Moi” policy (1986), Vietnam taxation has been gradually improved in line with promoting investment and with the international practices. On the principle of non-discrimination, the current tax policy is more transparent, simplified and consistent for ease of application of tax rate and calculation of tax by tax payers, who are Vietnamese and foreign investors doing business in Vietnam.
Up to April 2010, Vietnam has executed 61 Double Taxation Avoidance Agreements, of which 53 are in force. Accordingly, foreign individuals and companies are entitled to income tax exemption, reduction or refund subject to satisfaction of the conditions set forth in those agreements as well as the procedural requirements of Vietnam tax bureau. Moreover, citizens and legal entities, or goods and services as the case may be, from either the member countries of WTO or ASEAN Free Trade Area (AFTA) may enjoy tax incentives as provided in the schedules and as provide in the relevant treaties. The current tax system of Vietnam includes the following key taxes: |
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1. Corporate Income Tax (“CIT”)
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a. Scope of application
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The (ne) Law on CIT was promulgated on June 3, 2008 and became effective on January 1, 2009.
This Section addresses only the CIT imposed on companies established under the law of Vietnam (Vietnamese companies). CIT on incomes generated in Vietnam by those companies incorporated in foreign jurisdictions (“Foreign Companies”) is discussed in Section 3-Foreign Contractor Tax. Taxable income of Vietnamese companies consists of domestically and offshore generated income from: business, manufacture activities, capital transfer, real estate transfer, the ownership, use, transfer, lease and liquidation of properties, interests on deposit, loans, or sales of foreign currency, etc. |
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b. Tax calculation
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CIT is calculated by taxable income minus the deductible expenses, which is then multiplied by applicable tax rate.
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c. Tax rates
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The standard tax rate is 25% from 1 January 2009. Businesses in the exploitation of petroleum and other certain rare resources are subject to the tax rates ranging from 32% to 50%.
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d. Tax incentives
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Below are tax incentives granted to investors doing business in difficult socio-economic areas or in certain encouraged sectors:
• A preferential tax rate of 10% or 20% for a fixed or indefinite term; • Tax exemption for a fixed period of time upon the generation of profit and 50% tax reduction for the following certain years. Moreover, a company may also enjoy a tax reduction when it: • employs minorities; or • employs a large number of female employees in the business of manufacture, construction or transportation. |
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e. Declaration and Payment
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A company files tax returns and pays its CIT on a quarterly basis, and finalizes it at the end of the fiscal year.
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2.Value Added Tax (“VAT”)
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a. Scope of application
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The (new) Law on VAT was ratified on June 3, 2008, effective on January 1, 2009 and applies to goods and services which are manufactured, traded or consumed in Vietnam.
The VAT described in this section applies to Vietnamese companies and residents in Vietnam. With regard to Foreign Companies and non-residents, VAT is discussed in Section 3-Foreign Contractor Tax (*). |
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b.Tax calculation
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VAT amount is calculated based on (i) deduction method, equivalent to the difference between the VAT output and input, or (ii) method of direct calculation on the added value, equivalent to the added value of sold goods or services multiplied by the tax rate. The deduction method is allowable upon the presence of adequate input VAT invoices and the bank transfer note of any payment of more than VND20,000,000. Foreign entities and individuals having incomes generated, but having no permanent establishments in Vietnam, and failing to fully comply with the accounting, invoices and documents, or doing business in gold, silver and gem shall be subject to method of direct calculation on added value.
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c.Tax rate
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There are 3 tax rates for calculating output VAT on the selling price:-
• 0% on goods and services exported or deemed to be exported, international transportation, goods and services not subject to value-added tax according to the law; • 5% on goods and services crucial to public welfare and economic industries, namely education, health care, agriculture, sciences and technologies; • 10% on the remaining goods and services. |
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d. Declaration and Payment
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VAT shall be declared and paid on a monthly basis.
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3.Foreign Contractor Tax
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| a.Scope of application |
Foreign contractors doing business or generating incomes in Vietnam are liable for foreign contractor tax, including CIT and VAT ( *).
Foreign contractors are foreign companies regardless of permanent establishments in Vietnam, and foreign individuals residing or non-residing in Vietnam. Individual foreign contractor shall be liable for his/her Personal Income Tax (PIT) instead of CIT as mentioned in this section. |
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b. Tax calculation
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Two methods are provided for Foreign Contractor Tax calculation.
(i) CIT and VAT as mentioned in item 1 and 2 of this Section shall be applied to foreign contractors if they satisfy the following conditions: • maintaining a permanent establishment/residence in Vietnam; • doing business or being employed in Vietnam for one hundred and eighty three (183) days or more; and • adopting Vietnam’s accounting system. (ii) Otherwise, payable VAT shall be determined by added value multiplied by VAT rate, and payable CIT amount is turnover for CIT calculation multiplied by CIT rate based on such turnover. Depending on the nature of the services provided, CIT rate based on turnover for CIT calculation shall be 0.1-10%. In this case, the Vietnamese parties in the contractor contract shall, on behalf of the foreign contractor, declare, withhold and pay the relevant taxes upon each time of income generation. |
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4. Tax on transfer of capital and/or securities
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The transfer of capital and/or securities is subject to tax as stipulated in either the Law on PIT or the Law on CIT at the following tax rates:
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a. Tax rate
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b. Declaration and Payment
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Individuals and companies applying Vietnamese accounting system shall conduct the tax declaration and payment upon each generation of income.
The tax of other individuals and entities will be declared, withheld and paid by the buyer on the former’s behalf as provided in laws on foreign contractor tax and the Law on PIT. |
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5.Import – Export Duties
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| a. Scope of application |
Cross-border purchase or sale of goods shall be subject to import-export duties respectively.
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b. Import Duty
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Import duty on each item is the multiplication of the unit volume stated in the customs declarations and tax calculation price (actually paid price at the first importing border-gate under the contract) and tax rate.
Import duty rate is updated frequently and classified into three main categories as follows: • Preferential tax rates are applicable to goods imported from countries maintaining Most Favored Nation relations with Vietnam. Goods imported from the members of WTO shall be enjoyed the preferential tax rate in accordance with WTO Commitments on goods. • Special preferential rates are applicable to goods imported from countries or territories which apply special preferences on import tax to Vietnam. • Ordinary rates are applicable to the remaining goods, equivalent to 150% of preferential duty rates applicable to the same goods as specified in the Preferential Import Tariff. The imported commodities are also subject to VAT and Special Sale Tax (if any). |
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c. Export Duty:
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Taxable price is the contracted price.
Export tax rates vary from 0% to 45% levied on certain goods such as agricultural, forest, aqua, mineral products, etc. |
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d. Declaration and Payment
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Upon each import-exportation, the importer or exporter is obliged to declare and pay respective taxes unless the customs office authorizes payment for a taxable year.
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6.Special Sales Tax (“SST’)
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| a. Scope of application |
SST is imposed on special services and commodities including those imported goods as follows:
• Commodities: cigarettes, liquors, beer, automobiles with less than 24 seats, motorcycles with piton capacity of more than 125 cm3, aero plane, boat, gas, air-conditioners up to 90,000 BTU, cards, votive papers. • Services: discotheque, massage, karaoke, casino, gambling jackpot, betting, golf clubs and lotteries. |
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b. Tax rate
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SST is levied at different rates from 10% to 75% on each type of commodities and from 15% to 40% on services.
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7.Natural Resources Tax
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Businesses in exploitation of natural resources such as petroleum, minerals, forests, fisheries and natural water are subject to Natural Resources Tax.
The tax rates vary depending on the type of resources and the capacity of exploitation, but the maximum is 35%. |
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8.Personal Income Tax (“PIT”)
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| a. Scope of application |
Determination of PIT payers regardless of their nationality is a crucial point of the new 2009 PIT Law. PIT is levied on the income generated in Vietnam and offshore by residents and income generated in Vietnam by non-residents.
• A resident is: o a person who is present in Vietnam for one hundred and eighty three (183) days or more in a year or 12 (twelve (12) consecutive months upon arrival in Vietnam; or o a person who has an permanent domicile in Vietnam, which is a registered permanent residence or a leased dwelling under a lease contract with a term of ninety (90) days or more in the taxable year; • A non-resident is any person who does not meet the above conditions. |
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b. Tax deductions
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The following items shall be deducted from the taxable income earned by a resident:
• Contribution to compulsory social, health insurance, professional liability insurance; • Donation to charity funds, humanity funds, study encouragement funds; • Household deductions: VND4,000,000 per month for taxpayer and VND1,600,000 per month for each taxpayer’s eligible dependant. |
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c. Tax rate
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For income generated from business activities, salary, wages, a resident individual is subject to income tax with the progressive rate ranging from 5% - 35%.
For income generated from business activities, a non-resident shall be subject to a tax rate of 1%, 2% or 5% depending on respective business sector. For his/her salary or wages, the income tax rate of 20% shall be applied to a non-resident. Please refer to the tables at Index I for specific PIT rates. |
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d. Declaration and Payment
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PIT is declared and paid upon each generation of income, and finalized at the end of the same tax year.
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9.License Tax
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License tax amounting from VND 1 to VND3 million depending on its total registered capital is annually payable by a Vietnamese company.
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10.Stamp Duty
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Individuals and organizations shall be charged a registration fee when registering the title of land use right or ownership of constructions, means of transportation (namely airplanes, boats, automobiles, motorcycles) and guns.
The registration fee varies from 0.5% - 15% of the transaction price of the asset (depending on the involved asset). |