Introduction to Corporate Income Tax in Vietnam
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).
Currently, enterprises are no longer required to file CIT quarterly, but still need to make provisional CIT payment within 30 days of the following quarter, based on estimates of business outcomes from previous years. If the total amount of provisional quarterly CIT payments is less than 20 percent or more than the amount payable, then the 20 percent difference will be subject to late payment interest from the last day of payment of the fourth quarterly CIT liability.
Types of Enterprises Subject to CIT
Decree No. 218/2013/ND-CP specifies which types of enterprises are subject to CIT:
- Local and foreign businesses established under Vietnam’s Law on Enterprises, Law on Investment, Law on Credit Institutions, Law on Securities, and Commercial Law in the forms of joint-stock companies, limited liability companies, partnerships, and business cooperation contract. These enterprises will pay tax on taxable incomes generated in and outside Vietnam.
- Enterprises established under foreign laws with or without a Vietnam-based permanent establishment. Enterprises with Vietnam-based permanent establishments will pay tax on taxable incomes generated in Vietnam and taxable incomes generated outside Vietnam that are related to business operations of the establishment. On the other hand, enterprises without Vietnam-based permanent establishment only need to pay tax on tax incomes generated in Vietnam.
Below are the forms of Vietnam-based permanent establishments through which foreign enterprises carry out some or all business operations and manufacture:
- Branches, representative offices, factories, workshops, means of transportation, oil fields, or other natural resources extraction sites in Vietnam;
- Construction sites;
- Service providing centers, including consulting services through employees or organizations;
- Agents of foreign enterprises; and
- Representatives in Vietnam who have the authority to sign contracts under the name of foreign companies or representatives who are responsible for providing goods and service regularly in Vietnam.
As of January 1, 2016, the standard CIT rate for all enterprises in Vietnam, both local and foreign, has been reduced from 22 to 20 percent. Other exceptions include:
- Companies involved in seeking, exploring, and exploiting petroleum and gas deposits in Vietnam are subject to a CIT rate of 32 to 50 percent;
- Companies involved in seeking, exploring, and exploiting rare minerals, such as silver, gold, and gemstones are subject to a CIT rate of 40 or 50 percent.
Decree No. 218/2013/ND-CP provides guidance on the CIT rate for the third type of enterprises based on the location, conditions for extraction, and mineral reserves. For platinum, gold, silver, tin, wolfram mines, the CIT rate is 50 percent, but for mines with an assigned area of at least 70 percent with difficult socio-economic conditions mentioned in the list of areas entitled to tax incentives, the CIT rate for enterprises will be 40 percent.
For small and medium-sized enterprises (SMEs), defined in Vietnam as a company with a total annual turnover not exceeding VND 20 billion (US$860,000), the CIT rate is 20 percent. Eligibility for this 20 percent tax rate is judged by the turnover of the preceding year.
Taxable income includes income from production and/or trading of goods and provision of services, as well as other incomes, including:
- Income from capital transfer and real estate transfer;
- Income from ownership of or rights to use assets;
- Income from assignment, leasing out, and liquidation of assets;
- Interest on deposits, loans, or income from the sale of foreign currency;
- Recoveries from contingency reserves;
- Recoveries from bad debts, which were written-off;
- Income from debts payable to unidentifiable creditors;
- Income from business unreported in previous years; and
- Other incomes including income from activities of production and/or business outside Vietnam.
An enterprise that conducts various business activities subject to different tax rates should calculate the income for each activity separately, multiplying income from each activity by the corresponding tax rate. In particular, income from real estate transfer must be separately accounted for when declaring and paying CIT and cannot be deducted against incomes or losses from other production and business activities.
Business establishments that suffer losses after tax finalization are entitled to carry forward those losses to future taxable income for a maximum period of five years. Under no circumstances may losses be carried backward.
Enterprises must pay tax in the localities where they are headquartered. For an enterprise that has a dependent cost accounting production establishment (including a processing and assembly establishment) operating in a province or city other than where it is headquartered, the tax amount shall be calculated and paid in both the locality where the enterprise is headquartered and the locality where its production establishment is based. The amount of CIT payable to the province or city where a dependent cost accounting production establishment is based is the payable CIT amount in a period multiplied by the ratio between expenses incurred by the production establishment and the total expenses incurred by the enterprise.