Corporate tax in Vietnam

Summary

Corporate Income Tax Rate (%) 20 (a)
Capital Gains Tax Rate (%) 20 (b)
Branch Tax Rate (%) 20
Withholding Tax (%)
Dividends 0
Interest 5
Royalties 10
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 5 (c)

a) The standard corporate income tax rate is 20%. However, tax incentives are available (see Section B). Enterprises operating in the oil and gas industry are subject to corporate income tax rates ranging from 32% to 50%, depending on the location and specific project conditions. Enterprises engaging in pros­pecting, exploration and exploitation of mineral resources (for example, sil­ver, gold and gemstones) are subject to corporate income tax rates of 40% to 50%, depending on the project’s location.

b) Gains derived from sales of capital or shares in entities are subject to tax at a rate of 20%. Transfers of securities by foreign investors are subject to pre­sumptive tax of 0.1% on total sales proceeds, regardless of whether the transfer is profitable.

c) See Section C.

Taxes on corporate income and gains

Corporate income tax. The following types of enterprises are sub­ject to corporate income tax:

  • Enterprises established under the Law on Enterprises, the Law on Investment, the Law on Credit Organizations, the Law on Insurance Business, the Law on Securities, the Law on Oil and Gas, the Trade Law and other legal entities including joint stock companies, limited liability companies, partnerships, private businesses, law offices, private public notary offices, parties to business cooperation contracts, parties to oil and gas product sharing contracts, and joint operation companies
  • Public and non-public organizations engaged in business
  • Organizations established under the Law on Cooperatives
  • Businesses established under foreign laws that have a perma­nent establishment in Vietnam
  • Other organizations conducting production and business activ­ities that generate taxable income

Rates of corporate income tax. The standard corporate income tax rate is 20%. However, tax incentives are available (see Tax incen­tives).

Enterprises operating in the oil and gas industry are subject to corporate income tax rates ranging from 32% to 50%, depending on the location and specific project conditions. Enterprises en­gaging in prospecting, exploration and exploitation of mineral resources (for example, silver, gold and gemstones) are subject to corporate income tax rates of 40% to 50%, depending on the project’s location.

Tax incentives

Incentive tax rates. Preferential tax rates of 10% or 17% may be available to eligible projects in industries or locations that are encouraged by the government.

A 10% rate for the 15-year period beginning with the first year of revenue may be available for the following:

  • Income from new investment projects in areas with especially difficult socioeconomic conditions, and in economic zones and high-technology zones
  • Income from new investment projects that are engaged in the following:

— Scientific research and technological development

— Application of high technologies in the list of prioritized high technologies provided by the Law on High Technology — Cultivation of high technologies

— Cultivation of high-technology enterprises

— High-risk investment in the development of high technolo­gies in the list of prioritized high technologies provided by the Law on High Technology

— Construction investment and commercial operation of establishments nursing high technologies

— Investment in development water plants, power plants, water supply and drainage systems, bridges, roads, railways, air­ports, seaports, river ports airfields, stations and other par­ticularly important infrastructure facilities determined by the prime minister

— Software production

— Production of composite materials, light building materials, rare materials, renewable energy, clean energy and energy from waste destruction

— Development of biological technology

  • Income of new investment projects in the field of environmen­tal protection, including manufacturing of equipment for treat­ing environmental pollution and equipment for environmental observation and analysis, environmental pollution treatment and protection, collection and treatment of wastewater, exhaust and solid wastes, and recycling and reuse of wastes
  • Income of high-technology enterprises and agricultural enter­prises that apply high technologies according to the Law on High Technology
  • Income from new investment projects that make products sup­portive of the high-technology industry in line with the Law on High Technology or products supportive of certain industries, including textile and garment, footwear, electronics, informa­tion technology, automobile assembly and mechanics, and that are not domestically produced as of 1 January 2015 or meet the quality standard of the European Union or an equivalent standard
  • Income from new investment projects in the production sector (except for projects producing goods subject to special sales tax and mineral exploitation projects) that have investment capital of at least VND6 trillion, if the capital is disbursed within three years from the date of the investment certificate and if either of the following conditions is satisfied:

— The project’s total revenue reaches VND10 trillion per year within three years from the first year of revenue.

— The project employs more than 3,000 employees.

  • Large-scale manufacturing projects (excluding projects man­ufacturing products subject to special sales tax or exploiting mineral resources) if all of the following conditions are satisfied: — The investment capital must be at least VND12 trillion.

— The technology used must be certified in accordance with the Law on High Technology and the Law on Science and Technology.

— The capital disbursement must be made within five years of the licensing date.

A 10% rate applies for the entire period of operation for enterpris­es in the sectors of education and training, occupational training, health care, culture, sports, environment, social housing, forestry, agriculture, fishing, salt production and publishing. How ever, this incentive is subject to detailed conditions provided separately by the prime minister.

A 17% rate for the 10-year period beginning with the first year of revenue may apply to the following:

  • Income from new investment projects based in areas with dif­ficult socioeconomic conditions
  • Income from new investment projects that are engaged in the production of high-qualified steel or energy-saving products, the manufacturing of machinery and equipment serving agri­culture, forestry, aquaculture, salt production, production of irrigation equipment, the production of foodstuff for cattle and the development of traditional trades

The duration of the application of preferential tax rates described above is counted consecutively from the first year in which enter­prises generate turnover from new investment projects eligible for tax incentives. For high-technology enterprises and agricultural enterprises applying high technologies, this duration is counted from the year in which they are certified as high-technology enterprises or agricultural enterprises applying high technologies. For other projects applying high technologies, this duration is counted from the year in which they are granted certificates of projects applying high technologies.

If, within an assessment period, an enterprise has both incentiv-ized activities and normal activities, it must conduct a separate accounting for income from each activity to declare and pay tax separately. Otherwise, taxable income must be prorated according to the ratio of revenue or deductible expenses of each activity to the total revenue or deductible expenses.

Income and losses from incentivized activities and normal ac­tivities (except for transfers of mineral exploratory, mining and processing rights) may be netted against each other before the tax rate of the activity with the highest amount of income is applied.

Tax incentives previously granted as a result of the export ratio are repealed, effective from 1 January 2012. Affected taxpayers can adopt either tax incentives for the remaining incentive period based on the prevailing regulations effective at the time they were licensed or those effective from 31 December 2011. Taxpayers are required to notify the tax authorities regarding the tax incen­tive option selected.

Tax exemptions and tax reductions. Criteria for eligibility to tax holidays and reductions, which are set out in the corporate in­come tax regulations, are described below.

Four years of tax exemption and nine subsequent years of 50% reduction apply to the following:

  • Income from new investment projects entitled to the 10% cor­porate income tax
  • Income from new investment projects operating in the social­ized sectors and difficult socio-economic areas

Four years of tax exemption and 50% tax reduction for five sub­sequent years apply to income from new investment projects in the socialized sectors and in regions not included in the list of difficult socio-economic areas.

Two years of tax exemption and four subsequent years of 50% reduction apply to the following:

  • Income from new investment projects in regions with difficult socio-economic conditions
  • Income from new investment projects, including production of high-grade steel, production of energy-saving products, pro­duction of machinery or equipment used to serve agricultural, forestry, fishery or salt production, production of irrigation equipment, production and refinement of foodstuffs for cattle, poultry or aquatic products, and development of traditional trades
  • Income from new investment projects in industrial zones (ex­cept for industrial zones located in regions with favorable socio­economic conditions)

The continuous period of tax exemption and reduction begins from the first year in which the enterprise earns taxable income from the new investment project that is granted tax incentives. If the enterprise does not have taxable income in the first three years, the period of tax exemption and reduction begins in the fourth year following the first year in which revenue is generated by the new project.

Capital gains. Gains derived from sales of shares or assignments of capital in enterprises are subject to tax at a rate of 20%. The taxable income equals the transfer price less the sum of the pur­chase price of the transferred capital and expenses incurred with respect to the transfer.

Foreign investors transferring securities (for example, shares of public companies) are subject to presumptive tax at a rate of 0.1% on total sale proceeds, regardless of whether the transfer is profitable.

Administration. Enterprises normally use the calendar year as their tax year. Enterprises that have their own particular charac­teristics of operational organization may choose a financial year of 12 months according to the Gregorian calendar and they must notify the local authorities of such year.

Enterprises must pay their quarterly income tax due within 30 days after the last day of the quarter. Enterprises must file a final income tax return and pay any balance of income tax due within 90 days after the end of the tax year.

An under declaration is subject to only a late-payment fine if it is self-corrected by the taxpayer. Otherwise, a penalty of 20% of the under-declared tax is imposed. Late payments of tax are subject to interest at a rate of 0.05% of the unpaid amount per day.

Dividends. Dividends and branch remittances are not subject to withholding tax.

Withholding taxes on interest and royalties. The rate of withhold­ing tax on interest paid under loan contracts is 5%.

A withholding tax at a rate of 10% is imposed on royalties paid to foreign legal entities with respect to technology transfers and licensing.

Foreign tax relief. Vietnam has signed tax treaties with several countries that provide relief from double taxation (see Section F).

Determination of taxable income

General. The taxable income of an enterprise is the income shown in the financial statements, subject to certain adjustments. Tax­able income includes income derived by branch operations from business and other activities.

An enterprise may deduct expenses if the following conditions are satisfied:

  • The expenses are actually incurred and related to the produc­tion and business activities of the enterprise.
  • The expenses are accompanied by complete invoices and source vouchers as required by law.
  • Expenses of VND20 million or more must be supported with cashless payments (for example, bank transfers and payments with cards).

Certain expenses are not deductible in determining taxable in – come, including the following:

  • Provisions that do not conform to the regulations of the Ministry of Finance.
  • Accrued expenses not corresponding to taxable turnover that has been recognized.
  • The compensated value of damaged goods resulting from expi­ration or biochemical processes.
  • Bonuses and life insurance expenses for employees that are not clearly stated in the labor contracts, the collective labor contracts, the financial regulations of the company or the re­ward re gulations promulgated by the chairman of the board of management.
  • Interest payments on loans corresponding to equity that is not contributed.
  • Interest payments on loans borrowed from lenders that are not credit institutions or economic organizations that exceed 150% of the basic interest rate quoted by the State Bank of Vietnam at the time of the loan agreement.
  • Expenses sourced from other funding and expenses paid from the Science and Technology Development Fund of the enterprise.
  • The portion of expenses that are permitted to be recovered and that exceed the ratio provided in an approved petroleum con­tract. If a petroleum contract does not provide the recoverable expenses ratio, the ratio is deemed to equal 35%.
  • The portion of business management expenses allocated by a foreign company to its resident establishment in Vietnam (for example, head office charges allocated to the Vietnam branch) that exceeds the level allowed under the regulations.
  • Input value-added tax (VAT) that has been credited or refunded, input VAT on the value of a car of nine seats or less that exceeds VND1,600,000,000, corporate income tax (except for the cor­porate income tax that a Vietnamese company pays on behalf of a foreign contractor under a net contract) and personal income tax (unless the employer pays net salary to employees).
  • Expenses that do not correspond to taxable revenue.
  • Exchange-rate loss as a result of the revaluation of the year-end balance of money items in foreign currencies, except for the revaluation of payables in foreign currencies.
  • Exchange-rate loss arising in the process of capital construction of fixed assets, which is governed by a separate regulation of the Ministry of Finance.

Inventories. Inventory valuation should be consistent with the accounting principles and standards selected by the company and approved by the MOF. No specific guidelines have been estab­lished by the tax authorities.

Tax depreciation. Depreciation of fixed assets is normally com put-ed using the straight-line method. The MOF has issued guidelines setting forth the minimum and maximum years for depreciation of various assets, but companies may apply to the MOF for per­mission to use different time periods. The following are the mini­mum and maximum years of depreciation for certain categories of assets.

Asset Years
Intangible assets Up to 20
Buildings and factories 5 to 50
Tools and machinery 3 to 20
Transportation vehicles 6 to 30
Other fixed assets 2 to 40

Depreciation at rates exceeding those allowed by the MOF is not deductible for tax purposes. For cars with nine seats or less pur­chased by enterprises for business other than passenger transpor­tation, hotel or tourism, the depreciable amount is capped at VND1,600,000,000.

Relief for losses. Enterprises that incur losses may carry forward the losses to the following five years and claim such losses as deductions from taxable income. Losses must be wholly carried forward to consecutive years (including the year of a tax holiday).

Enterprises that incur losses from real-property transfers may carry forward the losses to offset income from all of their activities.

Carrybacks of losses are not allowed.

Groups of companies. Dependent production establishments of a company operating in different areas of Vietnam must declare and pay tax with the local tax authorities where the dependent estab­lishments’ offices are located based on the ratio of the expenses of the dependent establishment to the total expenses of the com­pany. The off setting of losses and profits between parents and subsidiaries is not allowed.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate
Value-added tax (VAT); imposed on all
goods and services consumed in and
imported into Vietnam, including goods
and services subject to special consumption
tax, except for non-taxable items
General rate 10.00%
Exports of goods and services 0
Certain goods and services, such as water
supply, agricultural goods, medical goods
and teaching aids
5.00%
Special consumption tax; imposed on imported
or domestically produced cigarettes, beer, spirits,
motor vehicles, fuel and air conditioners, and
various services including casinos, betting, golf
courses and various places of entertainment
10% to 70%
Social insurance, health insurance and
unemployment insurance contributions, on
salaries (generally applicable to Vietnamese
employees only); paid by
Employer
Social insurance; the contribution is based
on the salary and other allowances of the
employees as provided in the labor contract
but not exceeding 20 times the minimum salary
18.00%
(The rate of 18% consists of a 3% contribution to the maternity and illness fund, a 1% contribution to the labor and professional accident fund and a 14% contribution to the pension and death fund.
Health insurance; calculated on the same
base as social insurance
3.00%
Unemployment insurance 1.00%
Employee
Social insurance 8.00%
Health insurance 1.50%
Unemployment insurance 1.00%
Foreign contractor tax; rate depends on type of business activity 1% to 10%
Land rent (land-use tax); imposed annually for the use of land; tax base is calculated by multiplying the amount of square meters of the land by land price rates, which vary by location; the higher land price rates apply to land in Hanoi, Ho Chi Minh City and other
urban locations
Various
Non-agricultural land use tax; taxable objects
include residential land in all areas and land
used for business purposes, except for
certain cases
Residential land 0.03% to 0.15%
Non-agricultural land used for business
purposes
0.03%
Land not used in accordance with granted
purposes
0.15%
Environmental Tax; taxable objects consist
of petroleum, oil, lubricants, black coal,
hydrochlorofluorocarbon (HCFC)
solutions, taxable plastic bags, herbicide
termite insecticides, forest products
protective agents and warehouse
insecticides
Petroleum, oil and lubricants VND300 to VND3,000
per liter/kilogram
Black coal VND10,000 to
VND20,000 per ton
HCFC solution VND4,000 per kilogram
Taxable plastic bags VND40,000 per kilogram
Herbicide (restricted use category) VND500 per kilogram
Termite insecticide VND1,000 per kilogram
(restricted use category)
Forest products protective agents VND1,000 per kilogram
(restricted use category)
Warehouse insecticides VND1,000 per kilogram
(restricted use category)
Natural Resources Tax (NRT); payable
by industries exploiting Vietnam’s
natural resources; taxable objects
include metallic minerals, nonmetallic
minerals, products of natural forests,
natural marine products, natural mineral
water, other natural resources and
petroleum; tax base for NRT calculation
includes the output of royalty-liable
natural resources, royalty-liable price of
a unit of natural resource and royalty rate
Metallic minerals 10% to 18%
Nonmetallic minerals 3% to 22%
Products of natural forests 5% to 35%
Natural marine products 2% to 10%
Natural mineral water and natural water 1% to 8%
Other natural resources 10% to 20%
Crude oil
Encouraged investment projects 7% to 23%
Other projects 10% to 29%
Natural gas and coal gas
Encouraged investment projects 1% to 6%
Other projects 2% to 10%

Miscellaneous matters

Foreign-exchange controls. Enterprises with foreign-owned capi­tal must open accounts denominated in a foreign currency or the Vietnamese dong (VND) at a bank located in Vietnam and ap – proved by the State Bank of Vietnam (SBV). All foreign-exchange transactions, such as payments or overseas remittances, must be in accordance with policies set by the SBV.

Enterprises with foreign-owned capital and foreign parties may purchase foreign exchange from a commercial bank to meet the requirements of current transactions or other permitted transac­tions, subject to the bank having available foreign exchange.

The government may guarantee foreign currency to especially important investment projects or assure the availability of foreign currency to investors in infrastructure facilities and other impor­tant projects.

Transfer pricing. The Vietnamese tax authorities may recalculate the purchase or sales price to reflect the domestic or foreign mar­ket price. The methods permissible under the regulation closely resemble the methods provided for by the Organisation for Eco­nomic Co-operation and Development guidelines. The following are the permissible methods:

  • Comparable uncontrolled price method
  • Resale price method
  • Cost-plus method
  • Profit-split method
  • Transaction net margin method

A contemporaneous Transfer Pricing Document (TPD) must be in place to substantiate the arm’s-length prices of related-party transactions for submission to the tax authority within 30 days on receipt of a written request. Under the Vietnamese transfer-pricing regulations, the documentation and analysis requirements are contemporaneous; that is, the TPD is required to be updated every year to reflect the current economic circumstances and lat­est financials of selected comparable companies and transactions.

The amended Law on Tax Administration provides for the appli­cation of Advance Pricing Agreements (APAs), effective from July 2013. An APA is an agreement between the Vietnam tax authority, tax authorities in other jurisdictions (for bilateral and multilateral APAs) and the taxpayer with respect to the pricing or margin in transactions between associated enterprises.

Treaty withholding tax rates

The withholding rates under Vietnam’s double tax treaties are listed in the following table.

Dividends

%

Interest

%

Royalties

%

Australia 10 10 10
Austria 5/10/15 (a) 10 10
Bangladesh 5 5 5
Belarus 15 10 15
Belgium 5/10/15 (a) 10 15
Brunei Darussalam 10 10 10
Bulgaria 15 10 15
Canada 5/10/15 (a) 10 7.5/10
China 10 10 10
Cuba 5/10/15 (a) 10 10
Czech Republic 10 10 10
Denmark 5/10/15 (a) 10 5/15
Finland 5/10/15 (a) 10 10
France 7/10/15 (a) – (b) 10
Germany 5/10/15 (a) 10 7.5/10
Hong Kong SAR 10 10 7/10
Hungary 10 10 10
Iceland 10/15 (a) 10 10
India 10 10 10
Indonesia 15 15 15
Ireland 5/10 10 5/10/15
Israel 10 10 5/15
Italy 5/10/15 (a) 10 7.5/10
Japan 10 10 10
Korea (North) 10 10 10
Korea (South) 10 10 5/15
Kuwait 10/15 15 20
Laos 10 10 10
Luxembourg 5/10/15 (a) 10 10
Malaysia 10 10 10
Mongolia 10 10 10
Myanmar 10 10 10
Netherlands 5/10/15 (a) 10 5/10/15
New Zealand 5/15 (a) 10 10
Norway 5/10/15 (a) 10 10
Oman 5/10/15 (a) 10 10
Pakistan 15 15 15
Palestinian
Authority 10 10 10
Philippines 10/15 (a) 15 15
Poland 10/15 (a) 10 10/15
Qatar 5/12.5 10 5/10
Romania 15 10 15
Russian Federation 10/15 (a) 10 15

 

Saudi Arabia 5/12.5 10 7.5/10
Serbia 10/15 10 10
Seychelles 10 10 10
Singapore 5/7/12.5 (a) 10 5/10
Slovak Republic 5/10 10 5/10/15
Spain 7/10/15 (a) 10 10
Sri Lanka 10 10 15
Sweden 5/10/15 (a) 10 5/15
Switzerland 7/10/15 (a) 10 10
Taiwan 15 10 15
Thailand 15 10/15 15
Tunisia 10 10 10
Ukraine 10 10 10
United Arab Emirates 5/15 10 10
United Kingdom 7/10/15 (a) 10 10
Uzbekistan 15 10 15
Venezuela 5/10 (a) 10 10
Non-treaty countries 0 5 10

a) The rates vary depending on the percentage of the payer’s capital that is owned by the recipient of the dividends.

b) The treaty with France does not cover the taxation of interest.

Vietnam has signed double tax treaties with Algeria, Egypt, Kazakhstan, Mozambique, San Marino and the United States, but

these treaties have not yet been ratified or have not yet taken effect.