Taxation is a major component of Vietnam’s state budget revenues and as the country’s budget deficit increases, taxpayers and enterprises will continue to face increased scrutiny from tax authorities trying to meet their revenue targets.
Vietnamese tax authorities will enforce tax collection using tax audits. The tax system requires the business entity to self-assess their tax liabilities and exposure. This will subsequently be checked by the tax authorities.
Corporate Income Tax
Corporate income tax (CIT) is a direct tax levied on the profit earned by companies or organizations. In general, profits are considered gross revenue minus expenses. Taxpayers include business entities in all economic sectors, professional organizations, and foreign corporations with production and trading activities in Vietnam. Individuals and families conducting business are also subject to personal income tax (PIT) (discussed later in the PIT section).
Value Added Tax (VAT) is a broadly-based consumption tax assessed on the value of goods and services arising through the process of production, circulation and consumption. It is the applicable on the majority of goods and services bought and sold for use in Vietnam.
All organizations and individuals conducting business and deriving incomes in Vietnam related to goods or services subject to VAT must pay VAT regardless of whether they have Vietnam-based resident establishments or not.
VAT is an indirect tax on domestic consumption applied nationwide rather than at different levels such as state, provincial or local taxes. It a multi-stage tax which is collected at every stage of production and distribution chain and passed on to the final customer.
Personal Income Tax
Vietnam’s Law on Personal Income Tax recognizes ten different categories of income, with a host of different deductions, tax rates, and exceptions applying to each of them.
A tax resident is defined as someone residing in Vietnam for 183 days or more in either the calendar year or a period of 12 consecutive months from the date of arrival. Tax residents are subject to PIT on their worldwide employment income, regardless of where the income is paid or earned, at progressive rates from five percent to a maximum of 35 percent. Non-resident taxpayers are subject to PIT at a flat rate of 20 percent on their Vietnam-sourced income.
Among all the investment incentives available, tax breaks are regarded as the most prominent feature of the Vietnamese business landscape.
Tax incentives apply to investment projects in specific sectors and areas with different socio- economic conditions as well as those in high-tech zones and economic zones in order to encourage the development of the economy, technology, and education of these regions.
In order to repatriate profits, a company must ensure that it has completed the declaration of CIT of the relevant financial year and issued audited financial statements. The company must then report its intention to repatriate its profits to the tax bureau. If, within seven days, there is no notice from the tax bureau, the profits may be remitted out. Companies can expect it to be between the middle to the end of April before they are able to remit their profits out of the country. However, profit repatriation will not be allowed if the financial statements of the company show an accumulated loss.
Foreign contractor tax
Foreign contractor tax, or generally referred to as withholding tax, is imposed on foreign contractors or foreign sub-contractors who are defined as foreign organizations or individuals carrying out business in Vietnam under the contract signed with a Vietnamese contracting party or signed with a main foreign contractor (not under a direct investment form in accordance with the investment law of Vietnam).
Most goods exported or imported across the borders of Vietnam, or which pass between the domestic market and a non-tariff zone are subject to export or import duties.
Many foreign businesses delocalize their production facilities in Vietnam and charge their foreign outposts for administrative, technical, financial, and commercial services. However, financial administration teams need to be aware that their transactions must comply with the arm’s length and substance-over-form principles.
Companies that are considering an investment into Vietnam, as well as those companies that are already operating in the country, need to comply with the stricter regulatory requirements in Decree 20, which are based on Organization for Economic Cooperation and Development (OECD) and Base Erosion and Profit Shifting (BEPS) guidelines and actions.
Audit and Compliance
The Accounting Law governs the principles for accounting, audits, and organizational structure, for businesses to stay compliant in Vietnam.
The tax year in Vietnam is determined according to the calendar year, and a Vietnamese-based auditing company must conduct the audit. The financial reports should then be submitted to the local tax authority, Ministry of Finance, and the statistics office 90 days before the end of the fiscal year.
Vietnamese accounting standard
In addition to the Accounting Law, local and international companies are obligated to adhere to the Vietnamese Accounting Standards (VAS), which has been developed by the Vietnamese Ministry of Finance, when documenting financial transactions. The VAS provides the guidelines for bookkeeping, financial reporting, and financial statement preparations.
There are industry-specific accounting guidelines for businesses engaging in insurance, securities, as well as funds management.