- 1 January, 2017
- Posted by: Expertis.vn
- Category: Bài viết tiếng anh
One uniform income tax regime is applied to both foreign-owned and domestic companies. Taxpayers are subject to tax rates provided in the CIT Law. The standard CIT rate effective from 1st January 2009 is 25%.
Oil and gas companies and companies involved in exploitation of precious minerals are subject to CIT at rates ranging from 32% to 50% depending on the specific project.
Tax incentives and criteria for eligibility to tax holidays and reductions are set out in the CIT regulations and is elaborated in Part C6 of this Guidebook.
Computation of CIT
CIT is computed under the following formula:
CIT payable = Assessible income * tax rate
Assessible income = Taxable income – (Tax exempt income + Loss carried forward in accordance with law)
Taxable income = (Turnover – Deductible expenses) + Other income
Determination of taxable income
The taxable income of an enterprise is the income shown in the financial statements, subject to certain adjustments due to the differences between tax rules and accounting rules. Taxable income includes income derived by business
operations and other activities (including income from the capital or securities transfer, transfer of immovable property which will be discussed in the next sections and extra earnings).
Deductibility of expenses
In general, expenses will be deductible provided that they are related to revenue generation, supported by proper invoices/documentation and not specifically identified as being non-deductible items for CIT calculation purposes. Examples of non-deductible expenses include:
i) Depreciation of fixed assets which is not in accordance with the prevailing regulations
ii) Employee remuneration expenses which are not actually paid or are not stated in one of the following documents: labour contract, collective labour agreement, financial regulations and reward regulations
iii) Life insurance premiums for employees
iv) Interest on loans from non-credit institution organizations or non- economic organizations exceeding 1.5 times of the basic interest rate set by the SBV
v) Interest on loans corresponding to the portion of charter capital not yet contributed
vi) Provisions for stock devaluation, bad debts, financial investment losses, product warranties, or construction work which are not in accordance with the prevailing Ministry of Finance’s regulations
viii)Advertising, promotion (except certain items), conferences/parties, commissions, prompt payment discounts exceeding 10% of total other deductible expenses (this cap is increased to 15% for newly-established enterprises for the first 3 operating years)
ix) Donations except certain donations for education, health care, natural disasters, or building charitable homes for the poor
x) Management expenses allocated to permanent establishments in Vietnam by the foreign company’s head office which are not in accordance with the regulations
xi) Administrative penalties
xii) Creditable input VAT
For certain businesses, such as insurance companies, securities trading, and lotteries, the Ministry of Finance provides specific guidance on deductible expenses for CIT purposes.
Business entities in Vietnam are allowed to set up a tax deductible Research and Development fund with the amount up to 10% of assessable income to the fund.
Depreciation for tax purposes must follow the Ministry of Finance regulations. Current regulations on fixed asset depreciation provide three methods for calculation of fixed asset depreciation. Among the regulatory methods, the straight-line method is the most common.
Depreciation rates must be in accordance with the Ministry of Finance’s rules. A brief summary of maximum allowable annual depreciation rates are as follows:
|Categories||Annual depreciation rate (%)|
|Machinery and equipment||5 – 50|
|Means of transportation||3.3 – 16.6|
|Solid house/building||2 – 4|
|Other types of houses and buildings||4 – 16.6|
|Warehouses, containers, bridges, roads, parking places, and driving yards||5 – 20|
|Other construction work||10 – 20|
Accelerated depreciation is possible in certain cases. The accelerated depreciation rate shall be capped at 2 times higher than the rate set by the Ministry of Finance.
Loss carried forward
Taxpayers are allowed to carry forward their losses incurred in operations for a maximum period of five years. Carrying back losses is not allowed. Loss must be carried forward entirely and continuously to the following year. The tax year is in accordance with fiscal year which is the calendar year as regulated. A tax year (fiscal year) other than calendar year is allowable. In this case, notification to the relevant local tax authorities on a different fiscal year is required.
Provisional quarterly CIT returns are required to be filed based on either actual revenue/expenses arising in the quarter or the estimated ratio of taxable income over revenue deriving from the previous year’s result. The provisional return has to be submitted to tax authorities by the 30th day of the following quarter. Provisional CIT must be paid at the time of submitting the return.
The final CIT is filed on an annual basis. The annual tax finalization return must be submitted within 90 days from the end of the tax year (fiscal year). Outstanding tax (if any) must be paid on the same day the final return is submitted.
The amounts of CIT shall be assessed and payable where the business has its main head office and where the business has its dependently accounting production establishments (if they are in a province or city under central authority other than the locality of the main head office).
The amount of tax payable in the province where the enterprise has its dependant establishment shall equal the amount of CIT payable in the period multiplied by the ratio of expenses of the dependant establishment over the total expenses of the enterprise.
The enterprise lodges its annual tax finalization with the local tax authority where the head-quarter is located. The outstanding CIT payable upon finalization shall equal the amount payable in accordance with the tax finalization less the provisional quarterly tax paid amounts by its headquarters and its dependant establishments. The outstanding or refundable tax amount after tax finalization shall also be allocated at the same ratio to the places where the head-quarter and its dependant establishments are located.
Foreign investors shall be permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam after their tax obligations in Vietnam are fulfilled. Foreign investors are not permitted to remit profits if the investee company has accumulated losses.
The foreign investor or the investee company are required to notify the tax authorities of the plan to remit profits at least 7 working days prior to the scheduled remittance.
Income tax on capital gains and from transfers of securities
Gains from a capital transfer (capital gains) or the sale of securities (including shares, bonds, fund certificates and other regulated securities) are taxed at 25% CIT.
The taxable gain is determined as the excess of the sales proceeds less purchase price of transferred capital portion less transfer expenses.
Where the transferor is a domestic business, they shall be responsible for declaring the gains from capital and securities transfer as other income in their CIT declaration.
Where the capital transferor is a foreign organization having no legal status in Vietnam, the transferee is required to withhold the tax due from the payment to the transferor, and account for this to the tax authorities. Where the
transferor and the transferee are foreign organizations, the Vietnamese entity will be responsible for tax declaration and payment on behalf of these parties. The tax return and payment is required within 10 days from the date of the approval of the assignment by the competent authorities or the date of the assignment agreement in case no approval is required.
When foreign investment funds or foreign organizations having no legal status in Vietnam sell securities, e.g. shares (listed or non-listed), CIT is payable on a deemed basis at 0.1% of the total value of the securities sold.
In respect to bonds, 0.1% CIT will be calculated on the face value of the bond plus interest at the time the interest is received.
Income tax on transfer of immovable property
Income from transfer of immovable property includes those from transfer on LUR, land leased rights, sub-lease of land of real estate companies irrespective of whether or not there are any associated infrastructure and/or architecture work.
The assessable income from the transfer will be calculated based on the sale proceeds less the initial cost less deductible transfer expenses less losses carried forward (if any) from immovable transfer activities of previous years. CIT rate of 25% will apply.
If a company does not regularly conduct immovable property assignments, the gain on such transfer should be provisionally declared per each transaction. At the year-end, it will be included in the annual CIT finalization of the company.