Tax affecting foreigners doing business in Vietnam
These are the following taxes that may affect foreigners while conducting business in Vietnam:
- Corporate Income Tax
- Capital Transfer Tax
- Value-Added Tax
- Personal Income Tax
1. Corporate Income Tax (CIT)
CIT rates:
10%
Criteria:
If the newly established enterprise is
(1) Located in underdeveloped socio-economic conditions; Economic Zones, High Tech Zone established under the Prime Minister’s decisions
Period applicable: 15 years from the first year of revenue generation
(2) In sectors such as high technology, scientific research, technology development of vital infrastructure facilities, software production
Period applicable: 15 years from the first year of revenue generation (maximum 30 years at Prime Minister’s approval)
(3) Operates in the field of socialization (training, occupational training, healthcare, culture, sport, and environment)
Period applicable: Entire period
CIT Exemption: 4 years
50% CIT reduction (After CIT exemption period expires)
If the newly established enterprise in the socialization sectors operate in
(1) Areas with underdeveloped socio-economic conditions: 5 years
(2) Other areas: 9 years
20%
Criteria:
If the newly established enterprise is located in underdeveloped socio-economic conditions
Period applicable: 10 years from the first year of revenue generation
CIT Exemption: 2 years
50% CIT reduction (After CIT exemption period expires): 4 years
25%
Criteria:
Standard rate for all projects
Period applicable: N/A
CIT Exemption: N/A
50% CIT reduction (After CIT exemption period expires): N/A
32-50%
Criteria:
Projects in the field of oil and gas or rare and precious mineral exploitation
Period applicable: N/A
CIT Exemption: N/A
50% CIT reduction (After CIT exemption period expires): N/A
*** Expenditures in manufacturing, construction, and transportation in which enlists female or ethnic minority labor are deducted from CIT.
*** A 3-year limit is introduced after the application of tax exemption/reduction from the first profitable year.
The new CIT law has introduced a standard CIT rate of 25% for FICs, including foreign parties to BCCs since January 1st, 2009. FICs and foreign parties to BCCs obtained investment licenses or certificates before January 2009 and will continue the preferential tax incentives as stipulated in their investment license or certificate.
Preferential rates
Preferential rates of 10% (for 15 years or the whole operation period) and 20% (for 10 years) apply to a number of investment projects that satisfy certain conditions such as investment in sectors and/or underdeveloped geographical locations. Foreign investment companies and foreign parties to BCCs may also be applicable for CIT exemption between 2 to 4 years with a 50% reduction in CIT between 4 to 9 years subsequently.
CIT preferential rates, exemptions and reductions à SAME AS CIT RATES
Carried-forward losses
Losses during operations in any tax year may be carried over to the following years in order to be deductable from taxable income. It allows a maximum period of 5 consecutive years, starting with the year after the year that incurred the loss. Carrying back losses is not permitted.
Profit remittance tax
From January 1st, 2004, profits derived from foreign investments in Vietnam are not subjected to profit remittance tax when remitted out of Vietnam.
2. Capital Transfer Tax
Capital transfer tax for assessable income is 25% for corporations, 20% for individual tax residents, and 0.1% of the transfer price for individual non-tax residents.
After obtaining the amendment for the investment certificate, the transferor must register the transfer of capital with the tax authority.
3. Value-Added Tax
A tax placed on goods and services for use in production, exchange or consumption. VAT is calculated from the original sale/purchase price of the goods or service.
The applicable VAT rates are:
0% - Exported goods and services and international transportation
5% - Encouraged goods and services
10% - Normal rate for most goods and services
Goods/Services with VAT Exemption:
- Unprocessed agricultural products sold by the producer
- Certain insurance services
- Certain imported equipment
The difference between being subjected to VAT at 0% and exempted from VAT is the input VAT (what is it?) can be claimed from the tax authority.
VAT Exemptions:
The following imported items may be exempted from VAT:
- Machineries, equipment, and materials that are unable to be produced domestically and must be imported for direct use in scientific research and technological development activities.
- Machineries, equipment and materials that are unable to be produced domestically and must be imported for prospection, exploration and development of petroleum and natural gas field.
- Aircrafts, drilling platforms, and watercrafts that are unable to be produced domestically and must be imported to enterprises as fixed assets, leased from foreign parties for production and exchange, or sub-leased.
4. Personal Income Tax (PIT)
Taxpayers
Under the new Law on Personal Income Tax, taxpayers are tax residents and non-tax residents.
Tax Residents on a worldwide-sourced income (regardless of source of income) and Vietnam-sourced income are subjected to Personal Income Tax.
- Stayed in Vietnam for 183 days or more within a calendar year or within a consecutive 12-month period from his/her arrival in Vietnam.
- Have a registered permanent residence or a rented home in Vietnam that is under a lease contract of 90 days or more in a tax year.
Non-tax Resident: All others are subjected to PIT on income sourced in Vietnam.
Income Exemption and Permissible Deductions
PIT Exemption on the following source of incomes:
- Immovable properties that are transferred between:
o Spouses
o Parents and children
o Adopted parents; adopted children
o Parents-in-law; children-in-law
o Grandparents and grandchildren
o Siblings
- From the transfer of
o Residential homes
o Residential land rights
o Properties attached (if the main residential property serves as the only accommodation to the transferor)
- In the form of real property from an inheritance or gift between:
o Husband and wife
o Parents and children
o Foster parents; adopted children
o Parents-in-law; children-in-law
o Grandparents and grandchildren
o Siblings
- Interest from deposits or savings in credit institutions/bank
- Interest from life insurance policies
- Overseas remittances
- Night-shifts and overtime income
- Social insurance pensions
- Scholarships granted by the State and national/international organizations
- Insurance compensation under life insurance policies, non-life insurance policies, compensations for accidents at work
- Charity (non-profit) funds
- Governmental or non-governmental foreign aids for charity and humanitarian purposes
Family deductions: Tax residents are eligible for deductions from taxable business incomes and employment incomes prior to the tax assessment. These include:
- Personal deduction of VND 4 million/month (approx. USD200/month)
- Dependent deduction of VND 1.6 million (approx. USD 80/dependent/month)
Dependent: An individual whom relies on a taxpayer for support. These include:
- Infants, handicapped offspring or spouses
- Those receiving no income
- Those receiving income less than VND 500,000/month (approx. USD 25/month)
- Offspring studying in universities, colleges, high schools, technical, or vocational schools
- Parents past the working age
- Spouses or parents incapable to work
- Other persons directly reared or cared for by taxpayers, whom are past the working age, disabled for work, or without residence
*** Taxpayers are allowed to list as many dependents but can only report each dependent once.
Other deductions:
Other deductions may be from business incomes and employment incomes for the compulsory contributions of social, health, professional indemnity, or other statutory insurances.
Donations to licensed charity organizations, such as humanitarian funds and study encouragement funds, may also be deducted from business incomes and employment incomes of taxpayers.
PIT Rates Applicable to Tax Residents
Progressive tax rates on each portion of business/employment income:
Current Exchange rate: USD 1 (approx. as of 2012) = VND 20,850
|
Tax Bracket |
Portion of Annual Assessable Income (million VND) |
Portion of Annual Assessable Income (million VND) |
Tax Rate (%) |
|
1 |
Up to 60 |
Up to 5 |
5.00 |
|
2 |
60 - 120 |
5 - 10 |
10.00 |
|
3 |
120 - 216 |
10 - 18 |
15.00 |
|
4 |
216 - 384 |
18 - 32 |
20.00 |
|
5 |
384 - 624 |
32 - 52 |
25.00 |
|
6 |
624 - 960 |
52 - 80 |
30.00 |
|
7 |
Over 960 |
Over 80 |
35.00 |
Flat Tax rates on other taxable income:
|
Assessable Income |
Tax Rate (%) |
|---|---|
|
Capital investment, royalties |
5.00 |
|
Franchise, interests and dividends |
5.00 |
|
Inheritances |
10.00 |
|
Winnings/prizes, gifts |
10.00 |
|
Capital transfer |
20.00 |
|
Gains on transfer of securities Value transfer of securities (Gains are unable to be determined) |
20.00 0.100 |
|
Gains on transfer of immovable properties Value transfer of immovable properties (Gains are unable to be determined) |
25.00 2.00 |
PIT rates applicable to non-tax residents
|
Income Items |
Tax Rate (%) |
|
1. Business income (turnover arising from provision of goods & services): |
|
|
(a) For trading activities |
1.00 |
|
(b) For services |
5.00 |
|
(c) For production, construction, transportation and other business activities |
2.00 |
|
2. Employment income (regardless of income source) |
20.00 |
|
3. Capital investment (total amount received from the investment) |
5.00 |
|
4. Capital transfer (transfer price) |
0.100 |
|
5. Transfer of immovable properties (transfer price) |
2.00 |
|
6. Royalty and franchise (income exceeding VND10 million) |
5.00 |
|
7. Prizes, inheritances and gifts (income exceeding VND10 million) |
10.00 |
5. Import and Export Duties
Export Duties
The export duties have tax rates varying between 0% and 50% of the FOB (free on board) price of the exported goods and it is charged on primarily agricultural products (rice, forest products, and fish) and natural minerals.
Petroleum oil has an export duty rate between 0% and 8%.
Import Duties – Three categories
- Preferential rates:
Between 0%-150% of the CIF (Cost, Insurance, and Freight) price of the imported goods.
Imports from countries, including MFN (most favored nation) status with Vietnam.
- Special preferential rates:
Imports from countries with a special preferential agreement with Vietnam.
Ex: ASEAN member nations, along with Japan, China, Korea, Australia, and New Zealand
- Ordinary rates:
Up to 70% above the preferential rates applicable to MFN countries.
Imports from all other countries.
To be eligible for the preferential rates or special preferential rates, a Certificate of Origin must accompany the imported goods.
Import Duty Exemptions
Foreign investment companies and parties to BCCs may be exempted from import duties if any of these conditions apply:
1. The project is in an encouraged field of business set out in Appendix I, or in a geographical location set out in Appendix II --- What are these two appendixes?
2. Goods imported to become fixed assets of the enterprise.
a. Equipment and machinery
b. Specialized means of transportation for a product line that cannot yet be domestically produced or for the purpose of carrying workers (automobiles with 24 or more seas, and watercrafts).
c. Components, detachable parts, spare parts, accessories, molds, and supplements pertaining to or accompanying the equipment and machinery.
d. Raw materials or materials that cannot yet domestically manufacture equipment and machinery, that are an integral part of the production line.
e. Construction materials that cannot be domestically manufactured.
***Import duty exemptions also apply in the case of project expansion, replacement, or renovation of technology.
Investment projects in difficult socio-economic areas or in encouraged sectors shall be exempt from import duties for goods that cannot be domestically produced.
The duration for exemption begins from the date of commencement of production to a maximum of 5 years. This includes raw materials and components. This 5-year tax exemption does not apply to projects in the production and assembly of automobiles, motorcycles, air conditioners, refrigerators, and other items identified by the Prime Minister.
Goods imported in various circumstances may also qualify import duty exemption such as export processing, petroleum, software, and ship building.
The investment certificate requires FICs and parties to BCCs to register the list of import duty exempted goods with local custom office.
