Simple explanation for better understanding about Vietnam Corporate Taxation

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Taxation is a must-know topic for any investor before embarking on a market entry strategy. Vietnam has a distinct taxation system that includes a number of significant taxes. Any company established in Vietnam would be subject to the majority of the taxes listed below.

Corporate Income Tax (CIT)

Corporate Income Tax in Vietnam, or CIT, is levied at a rate of 20% on a company’s profit for the fiscal year.

In exceptional circumstances, the Vietnamese government may apply tax breaks (such as 30 percent deducted in 2020 due to the impact of the pandemic Covid 19).

Moreover, some industries that are subject to tax incentive policies, such as high-tech, biotech, material technology, automation, scientific research, social enterprise, and so on, may be subject to CIT exemption or a lower rate of CIT (5 percent -10 percent).

Vietnam CIT is payable based on the company’s business performance (pay tax whenever a profit is recorded), and the tax will be finalized by the end of the year.

Value Added Tax (VAT)

The most important indirect tax in Vietnam is the Value Added Tax. It is applied at one of three rates (0, 5%, or 10% ) to the product or service in question. However, most goods sold within the country are subject to a 10% tax. Importing and exporting goods may be subject to a 0% – 5% VAT tax. 0% VAT is usually applied to exporting activities with the condition that the product or service is used or implemented outside of Vietnam.

For example, if an Australian books a service with VNBG to establish an affiliate or a branch in Vietnam, the service is carried out within the territory of Vietnam, and thus the service charge is still subject to 10% VAT (even though the buyer is an overseas entity).

On the other hand, if the same Australian company commissions VNBG to develop software that will be used solely by the company in Australia after completion (or by users outside of Vietnam), this can be considered service exportation, which is subject to 0% VAT.

In addition, some special businesses are exempt from VAT, which means that all services/products sold under those businesses do not have to collect VAT from customers.

The company has two VAT taxation strategies: deductible VAT taxation and direct VAT taxation. Because the Deductible approach is preferable to the other, it is chosen by the majority of companies in Vietnam.

Every quarter, VAT must be reported and paid to the Tax Authority of Vietnam, with one finalization by fiscal year-end.

Personal Income Tax (PIT)

The rate of personal income tax in Vietnam varies depending on the source of income. Irregular earnings from work are subject to a 10% PIT for local Vietnamese and a 20% PIT for resident foreigners. Regular income (monthly paid) is taxed on a graduated scale, with different tax rates applied to different parts of the income (5 percent -35 percent ).

As the matter of fact, the Vietnamese PIT scale is difficult to comprehend because it incorporates numerous factors such as self-deduction, insurance contributions, minimum wages, taxable income thresholds, and so on. When any of the above factors change, the PIT will change accordingly.

For regular earnings from work, the company is responsible for collecting PIT and remitting it to the government on the employee’s behalf. And the company must implement PIT finalization for its employees by the end of the year, indicating how much tax has been paid and how much tax return is due for each individual. Paying PIT late or insufficiently will result in a penalty and possibly legal risk for the company.

Foreign Contractor Tax (FCT)

Cross-border service contracts are subject to the FCT tax. When a company from outside the country sells goods or services to a company in Vietnam, it must pay this tax. However, the entity in Vietnam is required to collect this tax and pay it to the Vietnamese government on behalf of its seller.

To be specific, the FCT tax rate ranges from 2%, 3% or 5% depending on the service. This tax may cause companies in Vietnam to be hesitant to use services from other countries. In many cases, they advise their overseas partners to establish a branch/entity in Vietnam to make things easier for them.

Business License Tax (BLT)

All businesses in Vietnam are required to pay a business license tax in the first month of the fiscal year. The tax amount is determined by the size of the capital investment. The lowest amount is 1M VND (approximately $45/year), and the highest amount is 3M (approximately $140/year). This business license tax in Vietnam does not apply to foreign companies’ Representative Offices.

The amount of the business license tax is insignificant, but failing to pay it by the deadline may result in a large fine, suspension of the business license, or blocking of the tax code.

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Vietnam’s tax and accounting systems pose some difficulties for foreign investors due to the many layers of regulations and frequent changes in the law. If a foreign investor is running a business in Vietnam, they will usually seek local assistance with tax compliance. Nobody wants to miss a tax deadline in this country, we bet. Our recommendation is to hire a qualified accountant or BPO firm to assist you in avoiding this penalty.

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Micheal Dinh

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