This handbook provides an overview of the current Vietnamese tax system. It offers a general understanding for business managers.
The application of regulations may vary depending on the specific circumstances and nature of each transaction; therefore, please contact us for advice on how to apply them to your particular situation.
Most businesses operating in Vietnam are required to comply with and pay the following taxes. These taxes can be broadly categorized into three groups:
1. Types of taxes that apply generally to most businesses.
For a typical business, the types of taxes that a business must declare and pay according to the amount incurred are: Value Added Tax (VAT); Corporate Income Tax; and Personal Income Tax. In addition, businesses must also pay business license tax, or business license fee, which is a tax associated with obtaining a business license and is collected once a year.
Here's what business managers need to know about these types of taxes:
Value Added Tax (VAT)
Scope of application
The subjects of Value Added Tax (VAT) are goods and services used for production, business, and consumption in Vietnam. Domestic businesses must calculate VAT on the value of goods and services sold.
VAT payable = Output VAT – Input VAT eligible for deduction
Cases not required to declare, calculate and pay VAT
In these cases, businesses are not required to declare and pay output VAT, while the related input VAT remains deductible. Common examples include:
- Organizations and individuals producing and trading in Vietnam who purchase services from foreign organizations without a permanent establishment in Vietnam, foreign individuals who are non-residents in Vietnam, and services performed abroad, include: repair of transport vehicles, machinery and equipment; advertising and marketing; investment and trade promotion abroad; brokerage of goods and services for sale abroad; training; and certain international postal and telecommunications services.
- Businesses sell agricultural products to other businesses at the commercial stage that have not been processed into other products or have only undergone basic processing.
- Commission revenue is earned from (i) agency sales at the price stipulated by the principal for services such as: postal services, telecommunications, lottery ticket sales, airline tickets, car, train, and ship tickets; and (ii) international transport agency; agency for aviation and maritime services subject to a 0% VAT rate; and (iii) insurance agency;
- Agent commission revenue earned from agency activities selling goods and services that are exempt from VAT.
Objects not subject to VAT
Common goods and services that are exempt from VAT include:
- Transfer of land use rights (“Land Use Rights”)
- Medical services; services for the elderly and people with disabilities;
- Teaching, vocational training;
- Technology transfer, software and software services, excluding exported software, are subject to a 0% tax rate.
- Equipment, machinery, and materials that cannot be produced domestically are imported for direct use in scientific research and technological development activities;
Value Added Tax Rate
There are three VAT tax rates as follows:
- Tax rate 0%This applies to exported goods, including goods sold to free trade zones and export processing enterprises, goods for processing and re-export or on-site export (as regulated), goods sold to duty-free shops, certain export services, construction and installation activities for export processing enterprises, aviation, maritime and international transport services.
- A 5% tax rate is typically applied to specific sectors prioritized by the state, including: clean water; teaching aids; books; unprocessed food; medicines and medical equipment; animal feed; certain agricultural products and services; scientific and technological services; processed rubber latex, sugar and by-products; certain cultural, artistic, sports activities; and social housing.
- A 10% tax rate is the "standard" tax rate applied to entities subject to VAT but not eligible for the 0% or 5% tax rates.
Note: If an item cannot be classified according to the prescribed tariff schedule, the business must calculate and pay VAT at the highest tax rate applicable to the type of goods it supplies.
How to calculate output VAT
Output VAT is determined by multiplying the taxable price of taxable goods and services (excluding tax) by the corresponding VAT rate.
How to calculate deductible input VAT
For goods and services purchased domestically, the deductible input VAT is determined based on the VAT invoice for the purchase of those goods and services.
For imported goods, deductible input VAT is determined based on the VAT payment documents at the import stage. Input VAT paid on behalf of foreign entities (according to the foreign entity tax regime) is also deductible when calculating tax.
Note: Input VAT for goods and services with a certain value 20 million or more Deductions are only allowed when there is proof of payment through a bank.
When a business provides goods and services that are not subject to VAT, it is not allowed to deduct input VAT. However, businesses that provide goods and services subject to a 0% VAT rate or are exempt from VAT declaration and payment are still allowed to deduct input VAT.
In cases where a business has both VAT-taxable and non-VAT-taxable revenue, it is only entitled to deduct input VAT on the portion of goods or services purchased that are used in its VAT-taxable activities.
Deadline for filing and paying VAT
The deadline for filing tax returns is also the deadline for paying VAT if there is any VAT payable, as follows:
- For businesses that file VAT returns monthly, the deadline is no later than the 20th day of the following month.
- For businesses filing VAT returns quarterly, the deadline is no later than the last day of the first month of the following quarter.
Certain specific cases regarding VAT declaration and payment.
Businesses with operations across multiple provinces, but whose accounting is centralized at the head office and who are required to file taxes centrally at the head office, may allocate and pay taxes according to the respective provincial areas. The allocation rule applies in the following cases:
- The subsidiary unit, the business location is the production facility.
- Real estate transfer
- Construction activities (VAT only applies)
The VAT payable allocated to subsidiary units and business locations that are production facilities in different provinces and cities is calculated as the pre-VAT revenue of the respective production facility multiplied by 2% (for goods subject to 10% VAT) or 1% (for goods subject to 5% VAT).
VAT refund
Input VAT that is deductible may be refunded in some cases, such as:
- Exporting businesses have uncredited input VAT exceeding 300 million VND.
- The company's new investment project, which applies the deduction method, is in the investment phase and has not yet commenced operations, with uncredited input VAT exceeding 300 million VND.
Corporate income tax (CIT)
Corporate income tax is a type of tax levied directly on the taxable income of businesses, including: income from the production and sale of goods or services, and other income as prescribed by law.
Principles for calculating corporate income tax
Corporate income tax payable = (Taxable income – Amount allocated to the Science and Technology Fund) x Corporate income tax rate
In which:
- Taxable income = Taxable revenue – Tax-exempt income + Carried-forward losses
- Taxable income = Revenue – Deductible expenses + Other income
Determine the parameters for calculating corporate income tax in the formula above:
- Revenue: Taxable revenue is the total amount of money from the sale of goods, processing fees, and service fees, including subsidies, surcharges, and additional fees that the business receives, regardless of whether the money has been collected or not. (For businesses paying VAT using the tax deduction method, revenue excludes VAT / For businesses paying VAT using the direct method based on value added, revenue includes VAT.)
- Expenses to be deducted: Except for expenses that corporate income tax law deems non-deductible, businesses are allowed to deduct all expenses if they meet the following requirements:
- Actual expenses incurred in connection with the business's production and operations.
- The expenditure is fully supported by legal invoices and documents.
- Expenses with individual purchase invoices valued at 20 million VND or more (including VAT) must be paid using non-cash payment methods.
- Other sources of income: Other sources of income include: income from interest on deposits, loans, fines, compensation for breach of contract, gifts, etc.
- Tax-exempt incomeThese income streams are usually rare and only apply to certain specific businesses, for example: Income from farming, livestock breeding, aquaculture, processing of agricultural and aquatic products, and salt production by cooperatives; income from irrigation and drainage services; plowing and harrowing; income from the production and business activities of enterprises employing disabled workers; income from vocational training specifically for ethnic minorities; income received from capital contributions, share purchases, joint ventures, and economic partnerships with domestic enterprises, after the recipient of the capital contribution, the issuer of shares, the joint venture, or the partnership has paid corporate income tax as prescribed, including cases where the recipient of the capital contribution, the issuer of shares, the joint venture, or the partnership enjoys corporate income tax incentives; income from the initial transfer of Certified Emission Reduction (CERs) certificates by enterprises granted such certificates.
- The losses carried forward: After a business settles its annual tax return and incurs a loss, it is allowed to carry forward the entire loss to the taxable income of subsequent years. The continuous loss carryforward period cannot exceed 5 years from the year following the year in which the loss occurred.
Corporate income tax rate
The standard corporate income tax rate is 20%.
Special cases include: 32% to 50% depending on the location and specific conditions of each project for businesses operating in the field of oil and gas exploration and production in Vietnam. 40% or 50% depending on the location for businesses operating in the field of exploration and production of certain rare resources.
Non-deductible expenses
Although these expenses were actually incurred, specific regulations prohibit their deduction when calculating corporate income tax. Therefore, businesses are not allowed to deduct these expenses, for example:
- Depreciation expenses for fixed assets exceed the currently prescribed limits.
- Wages and salaries for employees that are not actually paid or are not specifically stipulated in the labor contract, collective bargaining agreement, or the enterprise's financial regulations;
- Employee benefits (including some benefits provided to employees' family members) exceeding one month's average salary. Health insurance and non-mandatory accident insurance are also considered employee benefits.
- The portion exceeding 03 million VND/month/person is allocated for contributions to voluntary retirement funds, voluntary retirement insurance, and life insurance for employees;
- Funding allocations for scientific and technological research and development do not comply with current regulations;
- The allocation of funds for unemployment benefits and the payment of unemployment benefits to workers exceeded the provisions of the Labor Law;
- Business management expenses allocated by foreign enterprises to their permanent establishments in Vietnam exceed the expenses allocated based on revenue during the period;
- Pay interest on loans corresponding to the remaining portion of the registered capital that is still outstanding, according to the capital contribution schedule stipulated in the company's charter;
- The portion of interest expense paid on loans for production and business activities for individuals that exceeds 1,5 times the basic interest rate announced by the State Bank of Vietnam at the time of borrowing;
- The portion of interest expense exceeding 30% of total accounting profit before tax, interest, and depreciation for businesses with related-party transactions.
- Provisions for impairment, bad debts, losses on financial investments, product warranties, goods or construction works that are not made, established, and used in violation of the Ministry of Finance's guidelines on provision establishment;
- Exchange rate losses arising from the revaluation of monetary items denominated in foreign currencies, excluding exchange rate losses arising from the revaluation of liabilities at the end of the tax period;
- Funding expenditures, excluding those for education, healthcare, scientific research, disaster relief, or the construction of charitable housing for the poor, must have complete documentation verifying the funding. Note that monetary and in-kind contributions and donations for Covid-19 prevention activities will be deductible for corporate income tax purposes in 2020 and 2021, subject to certain conditions;
- Administrative fines and late payment penalties;
- Service fees paid to ineligible affiliated parties are deductible.
For certain businesses such as insurance companies, securities firms, and lottery companies, the Ministry of Finance provides specific guidance on deductible expenses when calculating corporate income tax.
Businesses are allowed to deduct up to 10% of their annual taxable income to establish a Science and Technology Development Fund before calculating corporate income tax. Certain conditions must be met to qualify for this deduction.
Declare and pay corporate income tax.
Corporate income tax declarations are based on the following principles:
- Quarterly provisional payments: Businesses are required to make quarterly provisional tax payments based on estimates. The total amount of corporate income tax provisionally paid for the first three quarters of the tax year must not be less than 75% of the corporate income tax payable according to the annual settlement. If the quarterly provisional tax payment is lower than the stipulated amount, the business must pay late payment penalties for the outstanding tax amount. (0.03% / day)), calculated from the deadline for filing the third quarter tax return.
- Annual settlement: Corporate income tax settlement is carried out annually. The deadline for submitting the corporate income tax return and paying corporate income tax is the last day of the third month from the end of the fiscal year. Therefore, for businesses with a regular fiscal year following the calendar year, the deadline for submitting the tax return and paying corporate income tax is March 31st of each year.
- Change of fiscal yearThe tax year is typically the calendar year; however, for management convenience, foreign-invested enterprises often change their fiscal year. If an enterprise adopts a tax year (i.e., fiscal year) different from the calendar year, it must notify the tax authorities. For example:
- The UK, India, Canada, Hong Kong, and Japan: The financial year runs from April 1st to March 31st of the following year.
- Belgium, Germany, Netherlands, South Korea, Russia, France, Thailand, Switzerland, China, Vietnam: the fiscal year coincides with the calendar year.
- USA: The fiscal year begins on October 1st and ends on September 30th of the following year.
- Australia: The financial year runs from July 1st to June 30th of the following year.
If a taxpayer has dependent accounting units (e.g., branches) in a different province or centrally-governed city, they only need to file their corporate income tax return in the province where the head office is located. However, manufacturing businesses must allocate the tax payable to the corresponding tax authorities in the provinces where the dependent production facilities are located. The basis for allocating the tax payable in each province is based on the ratio of the costs of each production facility to the total costs of the business. However, for dependent units or business locations with income eligible for corporate income tax incentives, the business must determine (without allocation) the corporate income tax payable separately.
Corporate income tax incentives
In general, it can be said that corporate income tax incentives are applied to new investment projects in sectors and locations encouraged for investment, or projects of large scale, and certain expansion investment projects.
New investment projects and expansion investment projects do not include projects formed from mergers or restructuring.
Eligibility for preferential treatment is based on meeting the criteria outlined in the preferential policies, for example:
- Areas that Vietnam encourages Investment includes education, healthcare, culture, sports, high technology, environmental protection, scientific research and technological development, infrastructure development, agricultural and aquatic product processing, software production, and renewable energy.
- Areas where investment is encouraged This includes economic zones, high-tech zones, certain industrial parks, and areas with difficult socio-economic conditions as defined by regulations.
- Major investment projects in the manufacturing sector (excluding projects producing goods subject to excise tax and mineral mining projects).
Corporate income tax incentives vary depending on the project, for example:
- Special investment incentives for research and development activities as well as large-scale investment projects are stipulated in the Investment Law. Corporate income tax incentives vary depending on certain criteria. The highest level of incentives includes a preferential tax rate of 5% for 37 years, tax exemption for 6 years, and a 50% reduction in corporate income tax for the following 13 years. In addition, land and water surface lease fees are also exempted/reduced for a certain period.
- A preferential tax rate of 10% is applied for a period of 15 years, and a preferential tax rate of 17% is applied for a period of 10 consecutive years from the year revenue is generated from the tax-incentive activity. The preferential period may be extended in certain specific cases. After the preferential tax rate expires, the standard corporate income tax rate will be applied. A preferential tax rate of 15% is applied to some business sectors for the entire duration of operation. Some socialized sectors (such as education and healthcare) enjoy a 10% tax rate for the entire duration of operation.
- Software production that meets the criteria is exempt for 4 years, and receives a 50% reduction for the following 9 years from the year of profitability, or if not profitable, the application year is the 4th year from the year of establishment. A corporate income tax rate of 10% applies for 15 years from the year of revenue generation.
Personal income tax
Within the business context, we are talking about personal income tax on salaries and wages.
Principles for calculating personal income tax.
Personal income tax payable = Taxable income x Tax rate
In which:
- Taxable income = Taxable revenue – Deductions
- Taxable income = Total income – Exemptions
Personal income tax rates on salaries and wages are divided into two categories for two groups of subjects: resident subjects and non-resident subjects.
- Resident These are individuals who meet one of the following conditions:
- Residing in Vietnam for 183 days or more in a tax year;
- Having a permanent residence in Vietnam (including a residence registered on a permanent/temporary residence card or a rented house in Vietnam for a period of 183 days or more in the tax year) and being unable to prove being a tax resident in another country.
Residents are obligated to declare and calculate personal income tax on all taxable income earned both within and outside Vietnam, regardless of where the income is paid or received (global income declaration is required). Income from salaries/wages of residents is subject to tax. Progressive tariff schedule (See below) with other income levels being taxed at different tax rates.
Non-residents are individuals who do not meet the conditions to be considered residents. Non-residents pay personal income tax at the applicable tax rate. 20 % based on income from salaries/wages related to Vietnam.
Tax year
Vietnam's tax year is the calendar year. However, if an individual stays in Vietnam for less than 183 days in their first calendar year, the first tax year will be the 12 consecutive months from the date of their first arrival. After that, the tax year will be the calendar year.
What is income from salaries/wages?
Taxable income from salaries/wages includes all cash compensation and other material benefits. However, the following are not subject to tax:
- Paying travel expenses on a lump-sum basis;
- Allocate funds for telephone charges and office supplies.
- Clothing (with a fixed allowance if paid in cash);
- Overtime pay, night shift pay (the additional payment on top of the normal wage, not the full amount for overtime/night shift work);
- One-time relocation allowance: For Vietnamese citizens working abroad traveling from Vietnam; for foreign employees working in Vietnam; and for Vietnamese citizens residing long-term abroad returning to Vietnam to work.
- Transportation for workers to and from their homes;
- Round-trip airfare for foreign employees and Vietnamese citizens working abroad who return home for leave once a year;
- Tuition fees up to secondary school level in Vietnam (for children of foreigners working in Vietnam) / abroad (for children of Vietnamese working abroad);
- Train;
- Mid-shift meal (with a fixed allowance if paid in cash);
- Some in-kind benefits are shared among the workforce (e.g., membership fees, recreational expenses, healthcare);
- Airfare for workers on rotational assignments specific to certain industries (e.g., oil and gas, mining);
- Employer contributions to non-mandatory insurance products in Vietnam and abroad that do not accumulate premiums (e.g., health insurance, accident insurance);
- Money/gifts for funerals and weddings (with a set limit).
There are conditions and limits that apply to the aforementioned tax exemptions.
Other sources of income that are not salary/wages.
Taxable income other than salary/wages includes:
- Income from business activities (including rental income exceeding 100 million VND/year);
- Income from capital investments (e.g., interest, dividends);
- Income from the transfer of capital;
- Income from the sale of real estate;
- Income from inheritance exceeding 10 million VND;
- Income from winnings/gifts exceeding 10 million VND (excluding income from casino winnings);
- Income from royalties/franchises/intellectual property rights/gifts exceeding 10 million VND.
Tax-exempt income you should know about
Non-taxable income includes:
- Interest earned from deposits at credit institutions/banks or from life insurance contracts;
- Compensation is paid according to life/non-life insurance contracts;
- Pension payments are made in accordance with the Social Insurance Law (or equivalent foreign law);
- Income from the transfer of real estate between direct family members;
- Inheritance/gifts between immediate family members;
- Monthly pension payments are made through voluntary insurance schemes;
- Income from salaries and wages received by Vietnamese seafarers working for foreign shipping companies or Vietnamese shipping companies engaged in international transport;
- Income from winnings at casinos.
Deduction of taxes paid abroad
For tax-residents with income earned abroad, the personal income tax paid abroad on that income will be deducted from the tax payable in Vietnam.
Deductions
Deductions from taxable income include:
- Personal deductions for taxpayers:
- Tax deduction for individual taxpayers: 11 million VND/month;
- Deductions for dependents: VND 4,4 million/month/dependent. To be eligible for the dependent deduction, taxpayers need to register their eligible dependents and provide supporting documentation to the tax authorities.
- Workers' contributions to mandatory social insurance, health insurance, and unemployment insurance schemes;
- Contributions to domestic voluntary retirement insurance programs (with fixed rates);
- Employee contributions to certain approved charities;
Personal income tax rate
For residents with income from salaries/wages, the following rates apply:
|
Taxable income/year (million VND) |
Taxable income/month (million VND) |
Personal income tax rate |
|
0 - 60 |
0 - 5 |
5% |
|
60 - 120 |
5 - 10 |
10 % |
|
120 - 216 |
10 - 18 |
15 % |
|
216 - 384 |
18 - 32 |
20 % |
|
384 - 624 |
32 - 52 |
25 % |
|
624 - 960 |
52 - 80 |
30 % |
|
On 960 |
On 80 |
35 % |
The following table applies to non-residents:
|
Taxable income |
Personal income tax rate |
|
Income from salaries/wages |
20 % |
|
Income from business |
1% - 5% (depending on the type of business) |
|
Interest (excluding bank deposit interest)/dividends |
5% |
|
Securities sale/capital transfer |
0,1% of the transfer value |
|
Real estate transfer |
2% of the transfer value |
|
Income from royalties |
5% |
|
Income from intellectual property rights and franchise agreements. |
5% |
|
Income from lottery winnings |
10 % |
|
Income from inheritance/gifts |
10 % |
For reference only: The following table applies to residents and other income categories:
|
Taxable income |
Personal income tax rate |
|
Income from business |
0,5%-5% (depending on the type of business) |
|
Interest (excluding bank deposit interest)/dividends |
5% |
|
Selling securities |
0,1% of the transfer value |
|
Transfer of equity stake |
20% of net profit |
|
Real estate transfer |
2% of the transfer value |
|
Income from royalties |
5% |
|
Income from franchising/intellectual property rights |
5% |
|
Income from lottery winnings |
10 % |
|
Income from inheritance/gifts |
10 % |
Business license fee
Business license tax is an annual tax. The business license tax is based on the registered capital stated in the business registration certificate, with the following rates:
| STT | Base | Amount of money |
| 1 | Organizations with charter capital or investment capital exceeding 10 billion VND. | 03 million VND/year |
| 2 | Organizations with charter capital or investment capital of 10 billion VND or less. | 02 million VND/year |
| 3 | Branches, representative offices, business locations, non-profit organizations, and other economic organizations. | 01 million VND/year |
The business license tax has been abolished and will no longer be applied from January 1, 2026.
2. Types of taxes applicable when businesses have specific transactions.
The following are the types of taxes that businesses must declare according to regulations when specific transactions occur:
Foreign contractor tax
Contractor tax is a type of tax applied to foreign organizations and individuals doing business or earning income in Vietnam based on contracts or agreements with Vietnamese parties.
Contractor tax applies to certain payments including loan interest, royalties, service fees, rent, insurance fees, transportation services, and goods supplied in conjunction with services performed in Vietnam.
Some types of transactions incur foreign contractor tax, and the common tax rates are listed below:
- Interest on loans: Interest paid on loans to foreign organizations.
- Royalties: Payments for the right to use or transfer intellectual property (including copyright and industrial property rights), technology transfer, or software transfer to foreign organizations.
| Activity |
VAT rate |
Corporate income tax rate |
|
Services |
5% |
5% |
|
Restaurant, hotel, and casino management services |
5% |
10 % |
|
Construction and installation services do not include the supply of materials or machinery and equipment. |
5% |
2% |
|
Construction, installation, and contracting including materials or accompanying machinery and equipment. |
3% |
2% |
|
Transport |
3% |
2% |
|
Interest on loans |
5% |
|
|
Royalties |
|
10 % |
Copyright for computer software, technology transfer, and transfer of intellectual property rights (including copyright and industrial property rights) are exempt from VAT. Other types of copyright may be subject to VAT.
Foreign contractor tax on e-commerce activities
Circular 80/2021/TT-BTC stipulates the tax declaration mechanism for foreign enterprises engaged in e-commerce, digital business, and other business activities in Vietnam without a permanent establishment. Accordingly, foreign enterprises will be issued a tax identification number and declare taxes quarterly on the General Department of Taxation's ("GDT") electronic portal and pay taxes online.
In cases where foreign businesses do not directly register, declare, and pay taxes in Vietnam, the following responsibilities apply to Vietnamese organizations, entities, and parties.
- If the Vietnamese customer is a registered business, they must deduct and declare taxes on behalf of the foreign business (similar to the current foreign tax mechanism).
- If the Vietnamese customer is an individual, the bank or payment service provider is required to deduct and declare taxes monthly. The Vietnamese tax authorities will provide the names and websites of these foreign businesses to the banks and/or payment service providers for tax deduction purposes.
- In cases where individuals use cards or other payment methods that the bank or payment service provider cannot deduct, the bank or payment service provider must monitor and report monthly payments to foreign businesses to the Vietnamese tax authorities.
Capital gains tax
For individuals transferring capital contributions or shares, the following applies:
- The transfer of capital contributions in limited liability companies and partnerships is considered income from capital transfer. Accordingly, the transferor must pay 20% of the difference from the capital transfer. Therefore, when transferring capital contributions at par value, the transferring member will not have to pay tax.
- When transferring shares (listed or unlisted), the transfer of shares is still considered a transfer of securities. Therefore, the person transferring the shares must pay 0,1% of the total transfer amount as stipulated in the signed share transfer agreement.
For businesses transferring equity stakes or shares (listed or unlisted): :
- A corporate income tax rate of 20% will be applied to income from the transfer of ownership.
- In this case, income from the transfer = Selling price – Purchase price.
3. Types of taxes applied to the consumption of goods at specific stages.
Taxes are incurred when performing a specific step in the process of circulating goods and services, such as:
Special consumption tax
Excise tax is an indirect tax levied on certain luxury goods and services to regulate production, import, and consumption in society. It also strongly regulates consumer income.
Some typical goods subject to excise tax: Cigarettes; Alcohol; Beer; Cars with fewer than 24 seats; Two-wheeled and three-wheeled motorcycles with a cylinder capacity exceeding 125cm3; Aircraft and yachts (for civilian use); All types of gasoline; Air conditioners with a capacity of 90.000 BTU or less; Playing cards; Votive paper.
Some typical services subject to excise tax include: operating nightclubs; operating massage parlors and karaoke venues; operating casinos; electronic games with prizes, including jackpot machines, slot machines, and similar types of machines; betting businesses (including sports betting, entertainment betting, and other forms of betting as prescribed by law); golf businesses, including the sale of membership cards and golf tickets; and lottery businesses.
Resource tax
Currently, the law does not have specific regulations on the concept of resource tax. However, resource tax can be understood as a type of indirect tax that individuals and organizations must pay to the state when exploiting natural resources.
The following entities are subject to resource tax:
- Metallic minerals.
- Non-metallic minerals.
- Crude oil.
- Natural gas, coal gas.
- Products from natural forests, excluding animals.
- Natural seafood, including marine animals and plants.
- Natural water sources include surface water and groundwater.
- Natural bird's nest.
- Other resources are determined by the Standing Committee of the National Assembly.
Import and export taxes
Import and export taxes are taxes levied on the import and export of goods permitted to cross the Vietnamese border. These taxes are calculated and paid at the customs clearance stage.
Environmental protection tax
Environmental protection tax is an indirect tax levied on products and goods (hereinafter referred to collectively as goods) whose use has a negative impact on the environment.
Environmental protection tax payers are organizations, households, and individuals that produce or import goods subject to environmental protection tax.
Environmental protection tax payable = Number of taxable goods x Absolute tax rate per unit of goods
For example:
Plastic bags are subject to an environmental protection tax of 50.000 VND per kilogram.
4. Issues related to determining tax obligations
Related party transactions
Vietnam stipulates the principles, methods, and procedures for determining the factors forming the price of related-party transactions; the rights and obligations of taxpayers in determining the price of related-party transactions, the declaration procedures; and the responsibilities of state agencies in tax management for taxpayers with related-party transactions.
The regulations on related-party transactions also apply to related-party transactions conducted within Vietnam.
Cases that are related include:
The following checklist determines whether a business has related-party transactions (applicable from 2020 onwards):
| Both businesses have at least 25% of their owner's equity held directly or indirectly by a third party. |
| One business is the largest shareholder in terms of owner's equity and directly or indirectly holds at least 10% of the total shares of the other business; |
| A business that guarantees or lends capital to another business in any form (including third-party loans secured by related-party financing and similar financial transactions) provided that the loan amount is at least 25% of the owner's equity of the borrowing business and accounts for more than 50% of the total value of the borrowing business's medium and long-term debts; |
| An enterprise may appoint members to the executive board or control of another enterprise provided that the number of members appointed by the first enterprise exceeds 50% of the total number of members on the executive board or control of the second enterprise; or that a member appointed by the first enterprise has the authority to decide on the financial or operational policies of the second enterprise; |
| Two businesses that both have more than 50% of their board members or both have a board member with the authority to decide on financial or business policies designated by a third party; |
| Two businesses are managed or controlled in terms of personnel, finance, and business operations by individuals who are related to one of the following: spouse; biological parents, adoptive parents, stepfather, stepmother, parents-in-law; biological children, adopted children, stepchildren of the spouse, daughter-in-law, son-in-law; siblings with the same parents, half-siblings, half-siblings; brother-in-law, sister-in-law, daughter-in-law, son-in-law of a person with the same parents or half-siblings; paternal grandparents; grandchildren; aunts, uncles, and nieces/nephews. |
| The two business establishments have a relationship where the head office and the permanent establishment are, or both are permanent establishments of, a foreign organization or individual; |
| Businesses are controlled by an individual through that individual's capital contribution to the business or direct participation in its management; |
| Businesses that have transactions involving the transfer or acquisition of at least 25% of the owner's capital contribution during the tax period; or borrowing or lending at least 10% of the owner's capital contribution at the time of the transaction during the tax period with individuals managing or controlling the business or with individuals in a relationship as stipulated in point g of this clause. |
| One business directly or indirectly holds at least 25% of the owner's equity of the other business; |
| Other cases involve businesses being effectively managed, controlled, and having decisions made by other businesses regarding their production and business operations; |
Declare information about related-party transactions.
Businesses with related-party transactions are required to annually declare information about these transactions and the pricing methods applied to them, as well as to independently determine the transaction prices in accordance with independent transaction prices (or to independently determine them).
Depending on the level of related-party transactions, businesses may be required to disclose information included in both the National File and the Global File.
The possibility of being subject to tax assessment.
The tax authorities have the right to use internal databases to determine the transaction value if the business does not comply with the legal requirements regarding related-party transactions.
Exclude interest expense when calculating taxes.
Interest expense is capped at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for inclusion as a deductible expense. Businesses must either exclude or be excluded by the tax authorities when determining corporate income tax payable and are subject to penalties for interest expense exceeding 30% of EBITDA.
The portion of interest expense that is not deductible can be carried forward to the next five-year tax period.
Double Taxation Avoidance Agreement
A double taxation avoidance agreement is an international treaty signed between two subjects of international law (primarily states) to avoid double taxation and prevent tax evasion and avoidance with respect to income and property taxes.
This treaty applies to persons who are residents of one or both signatory parties. It applies to taxes levied by a signatory party on income and property, regardless of the form in which such taxes are applied.
To date, Vietnam has signed approximately 80 double taxation avoidance agreements with countries across all continents.
Overview of the allocation of tax authority for different types of income.
- Income from real estate: Agreements stipulate that all income generated from the direct use or rental of real estate must be taxed in the country where the real estate is located. Therefore, if the real estate is in Vietnam, all income generated from it must be taxed in Vietnam, regardless of whether the recipient of the income is a resident or whether the company has a permanent establishment in Vietnam.
- Regarding "dividends," "interest on loans," and "royalties," Vietnam and the signatory countries have the right to levy income tax on income from dividends, interest on loans, and royalties according to the principle of taxation at source.
- Salaries, wages, and other payments of a salary or wage nature will be subject to tax in both countries as follows:
- This applies if the person is present in the other country for a period or periods totaling no more than 183 days in each consecutive 12-month period; or if the person is present in the other country for less than 183 days but the employer or the employer's representative pays the person's wages and salaries and is a resident of the other country; or if the person is present in the other country for less than 183 days but the wages and salaries are paid by the employer's permanent establishment or fixed business in the other country.
- Remuneration and similar payments made by a company, enterprise, or similar entity that is a resident of one country to an individual who is a resident of the other country for having served as a director or member of the board of directors of the paying company may be taxable in both countries.
Measures to avoid double taxation are implemented in Vietnam and in countries that have signed agreements with Vietnam.
Based on double taxation avoidance agreements signed with other countries, Vietnam applies the following two methods to avoid double taxation:
- The full tax deduction method is as follows: if a resident of Vietnam receives income in a country that has signed a tax agreement with Vietnam, and according to the agreement, that income is taxable in both countries, Vietnam will deduct the amount of tax paid abroad from the tax payable in Vietnam. However, the amount of tax paid abroad that can be deducted cannot exceed the amount of tax payable in Vietnam.
- The method of deducting tax based on fixed rates applies when a resident of Vietnam receives income from a country that has signed a tax agreement with Vietnam. According to the agreement, this income is taxable in both countries, but under the laws of the other country, that income is exempt or reduced. In this case, Vietnam allows a deduction from the tax payable in Vietnam of the tax that would have been payable but was not actually paid in the other country due to the tax exemption or reduction. However, the amount of tax that would have been payable abroad that is deducted cannot exceed the amount of tax payable in Vietnam.
Transferring profits overseas
Principles of profit repatriation
Profits transferred by foreign investors from Vietnam to abroad are legitimate profits distributed or earned from direct investment activities in Vietnam in accordance with the Investment Law, after fulfilling all financial obligations to the Vietnamese State as prescribed.
Determine the amount of profit transferred abroad.
- Annual profits transferred abroad are the profits distributed or received by foreign investors in the fiscal year from direct investment activities based on audited financial statements and corporate income tax returns of the enterprises in which the foreign investors participate, plus (+) other profits such as untransferred profits from previous years; minus (-) amounts that foreign investors have used or committed to use for reinvestment in Vietnam, and profits that foreign investors have used to cover their expenses for production and business activities or for their personal needs in Vietnam.
- Profits repatriated upon completion of investment activities in Vietnam are the total profits earned by the foreign investor during the direct investment in Vietnam, minus (-) profits already reinvested, profits already repatriated during the foreign investor's operations in Vietnam, and profits used for other expenses of the foreign investor in Vietnam.
- Foreign investors are not allowed to transfer abroad any profits distributed or earned from direct investment activities in Vietnam in the year in which the profit is generated if the financial statements of the enterprise in which the foreign investor invests still show accumulated losses in the year in which the profit is generated, after losses have been carried forward in accordance with the law on corporate income tax.
The timing of transferring profits overseas.
- Annual profit repatriation abroad: Foreign investors are allowed to annually transfer profits distributed or earned from direct investment activities in Vietnam abroad at the end of the fiscal year, after the enterprise in which the foreign investor participates has fulfilled its financial obligations to the Vietnamese State as prescribed by law, has submitted audited financial statements and the corporate income tax return for the fiscal year to the direct tax authority.
- Transferring profits abroad upon completion of direct investment activities in Vietnam: Foreign investors are allowed to repatriate profits upon the completion of their direct investment activities in Vietnam, provided that the enterprise in which the foreign investor participates has fulfilled its financial obligations to the Vietnamese State as prescribed by law, submitted audited financial statements and corporate income tax returns to the direct tax authority, and fully complied with all obligations as stipulated in the Law on Tax Administration.
Methods and timing for transferring profits overseas.
Foreign investors, either directly or through an authorized enterprise in which they invest, must notify the tax authority directly managing the enterprise in which they invest about the transfer of profits abroad using the prescribed form, at least 07 working days before transferring the profits abroad.
5. Overview of tax audits
Tax audits are a regular activity of the tax authorities aimed at checking businesses' compliance with tax and accounting laws.
Tax audits are conducted regularly and typically cover a period of several tax years. Before conducting a tax audit, the tax authority will send a written notice to the business subject to the audit, specifying the time and scope of the audit.
Overview of the principles of sanctions When tax violations are detected, the administrative penalties are as follows:
- A penalty of 20% on the amount of underdeclared tax; and
- A late payment penalty at an interest rate of 0,03% per day will be applied to overdue tax payments (any additional tax discovered during an audit will be considered as overdue tax).
- A penalty of one or more times the amount of tax evaded.
- Administrative penalties will be imposed for the act of making false declarations.
Deadline for retroactive collection The statute of limitations for tax arrears, tax evasion, tax fraud, and late payment penalties is 10 years, and the maximum statute of limitations for administrative penalties for tax violations is 5 years. In cases where the taxpayer is not registered for tax, the tax authority may recover the tax arrears, tax evasion, tax fraud, and late payment penalties for the entire period prior to the date the violation was discovered.