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TAXATION

The tax system in Vietnam consists of the following main taxes:

  • Corporate Income Tax (CIT);

·         Import – Export Duties;

·         Value Added Tax (VAT);

·         Special Sales Tax (excise tax) or (SCT); and

·         Personal Income Tax (PIT).

Each of these taxes is administered by the General Department of Taxation (Ministry of Finance) except for the import-export duties (General Department of Customs).  In Ho Chi Minh City, the Department of Tax is responsible for collecting taxes and for tax finalization.  The Department of Customs will be in charge of import and export duties.

1. Corporate Income Tax

Enterprises producing and trading goods and services and earning income shall be liable to pay CIT.  The standard CIT rate shall be 25%.  Preferential CIT rates of 10% and 20% are available for enterprises investing in geographical areas with socio-economic difficulties, economic zones or hi-tech parks or in encouraged investment sectors for a certain period of time.  When the period for enjoyment of preferential rates expires, the CIT rate generally reverts back to the standard rate. 

 

We illustrate in the table below the CIT preferential rates and conditions thereto.   

 

No.

Preferential CIT Rates

Conditions

Enjoyed Duration

 

Tax holidays

CIT Exemption

CIT Reduction

1.      

20%

Newly set up enterprises under investment projects in geographical areas with socio-economic difficulties

10 years

2  years from generating taxable income

50% CIT reduction for 4 consecutive years.

2.      

10%

Newly set up enterprises under investment projects in geographical areas with extreme socio-economic difficulties, economic zones or hi-tech parks; newly set up enterprises under investment projects in the domains of high technology, scientific research and technological development, development of the State’s infrastructure works of special importance, or manufacture of software products

15 years

4 years from generating taxable income

50% CIT reduction for 9 consecutive years.

 

The duration for application of tax rate incentives is counted from the first year an enterprise has turnover.

The tax exemption or reduction duration is counted from the first year an enterprise has taxable income; in case an enterprise has no taxable income for the first three years from the first year it has turnover, the tax exemption or reduction duration is counted from the fourth year.

In addition, enterprises shall be exempted for CIT for income earned in the following circumstances: 

  • Production, construction or transport enterprises which employ many female laborers are entitled to reduction of enterprise income tax amounts equal to additional expenses for female laborers.
  • Enterprises which employ many ethnic minority laborers are entitled to reduction of enterprise income tax amounts equal to additional expenses for ethnic minority laborers.

2. Import and export duties

2.1. Export duties

Export is encouraged and thus, almost goods and services being exported are exempt from tax.  Export duties are only charged on a few items, basically natural resources such as minerals, forest products and scrap metal.  Rates range from 0% - 45%. 

The price for the computation of export duties is the Free-On-Board (FOB) price of the invoice.

2.2. Import duties

a. Goods subject to import duties

Generally, all goods crossing Vietnamese borders are subject to import duties.  In particular:

  • Goods imported through Vietnamese border gates by road, river, seaport, international railway, international post and other locations where customs procedures are made;
  • Goods transferred from the local market to non-tax areas or vice versa; and
  • Other goods that are permitted to trade or exchange.

The following goods are not subject to import duties:

  • Goods transited and transported by mode of border gate transshipment through Vietnam’s border gates or border;
  • Humanitarian aid goods, non-refundable aid goods;
  • Goods imported from abroad into non-tariff zones and only used therein;
  • Goods brought from one non-tariff zone to another.

b. Import duties rates

Consumer goods, especially luxury goods, are subject to high import duties, while machinery, equipment, materials and supplies needed for production, especially those items which are not produced domestically, enjoy lower rates of import duties, or even a 0% tax rate.  Duty rates for imported goods shall include (i) standard rate, (ii) preferential rate and (iii) special preferential rate depending on the origin of the goods.

  • The preferential duty (“MFN”) rate shall apply to imports originating from countries or groups of countries which have signed an agreement with Vietnam attaining a Most Favored Nation status in trade relations;
  • Standard duty rate shall apply to imports originating from countries that have not signed an agreement with Vietnam attaining a Most Favored Nation status in trade relations.  The standard duty rate shall be applied at a uniform rate that is 150% of the preferential duty rate.
  • Special preferential duty rate shall apply to imports originating from countries or groups of countries which have signed an agreement with Vietnam on special preferential import duties on the basis of free trade regions or customs unions or on the creation of favorable conditions for commercial exchange through border gates (e.g., the ASEAN Common Effective Preferential Tariff (“CEPT”) Scheme and the ASEAN-China Free Trade Area (“ACFTA”)).

c. Exemption from import duty

FIEs and foreign parties to BCCs which invest in the List of Encouraged Investment or the List of Special Encouraged Investment are entitled to an exemption of imports of raw materials, materials and semi-finished products which have yet been locally produced for production in projects in investment incentives sectors. 

In addition, import tax exemption will be granted to other cases, namely among others, (i) goods imported for direct use in scientific research and development of technology and technology which are not yet able to be produced domestically and (ii) raw materials, materials and component parts imported for production of projects on the List of Special Encouraged Investment or on the List of Special Encouraged Areas.

Imports used for export activities (raw materials and commodities, intermediate inputs, finished goods used in the manufacturing process) are normally exempted from import taxes; tariffs are not paid for such imports if foreign invested enterprises are located within the Export Processing Zone. 

If foreign invested enterprises are located elsewhere, they have to pay tariffs within 275 days from the date of import and shall be reimbursed for the amount of import tax paid upon export of the processed goods in proportion of the quantity of exported goods.  

d. Opening Bonded Warehouse by FIE

An FIE manufacturing products for export to set up “bonded warehouses”, where imported inputs destined for export processing can be kept in inventory with import taxes levied only on the fraction of the inputs that are not used in the export processing process. 

Foreign invested enterprises are allowed to set up such bonded warehouses under the following conditions:

  • The warehouse has to be located in an “appropriate” area allowing customs control (ports, airports);
  • Products stocked in the warehouse cannot be sold on the Vietnamese market and after the corresponding import taxes are paid; and
  • Stocked products in a bonded warehouse being damaged have to be re-exported or destroyed.

2.3. Customs Valuation

Customs valuation should be made at the same time the customs declaration for imported goods is registered with the customs agencies.  The customs valuation shall be computed in Vietnamese Dong.  The exchange rate for determining the customs value of imported goods is an average exchange rate of the inter-banks foreign currency market announced by the State Bank of Vietnam.

The primary basis for customs value under the regulations is “transaction value”, which is defined as the price actually paid or payable for the goods when sold to export to Vietnam adjusted compulsorily including (or excluding) certain payments specified in the regulations in (or from) such price.

The following methods of determining the customs value will be alternately applied where the customs value cannot be determined on the basis of the transaction value of imported goods:

  • Method of determining the customs value in accordance with the transaction value of identical imported goods; or
  • Method of determining the customs value in accordance with the transaction value of similar imported goods; or
  • Method of determining the customs value in accordance with the deducted value (comprising of selling price in the Vietnamese market minus reasonable costs and profit derived after importation); or
  • Method of determining the customs value in accordance with the calculated value (comprising of costs and profit for producing imported goods but subject to a number of adjustments such as transaction value); or
  • Method of assumption.

3. Value Added Tax

VAT applies to goods and services circulated and consumed in Vietnam. VAT is collected through production, trading and provision of services. 

When supplying goods and/or services subject to VAT, the business must charge VAT on the value of goods or services supplied.  In addition, VAT applies to the duty paid value of imported goods.  The importer must pay VAT to Customs at the same time it pays import duties. 

Applicable VAT rates are 0%, 5%, and 10%, respectively.  The 0% rate applies to export of goods and certain services including sales to EPZs.  VAT is calculated by multiplying the taxable price (net of tax) with the applicable VAT rate.  With respect to imported goods, VAT is calculated by adding the import price with the import duty and the special sales tax (if applicable).

The VAT system of Vietnam is also characterized by two types of VAT payers: deduction method VAT payers and direct method VAT payers.  Most companies and business organizations are deduction method VAT payers.  This means that the businesses will have to pay the output tax (i.e., VAT collected from their customers) after deducting the input tax (i.e., the VAT businesses have paid to their suppliers).  The businesses must file VAT returns monthly to the tax authorities.  The tax authorities, in turn, will process the tax return and issue a tax assessment notice to the tax payer.  The payable VAT must be paid to the State budget the following month.

The direct method generally applies to small business households that do not keep proper accounting records (there are currently over 1 million family businesses).  For these businesses, VAT is calculated at a deemed rate on gross turnover.

4. Special Sales Tax (Excise Tax)

Special sales tax is levied on the following products and services:

  • Cigarettes, cigars;
  • Spirits;
  • Beers;
  • Automobiles of less than 24 seats;
  • Assorted types of petrol, naphtha, reformat components, and other components to be mixed in petrol,
  • Air conditioners with a capacity of 90,000 BTU or less,
  • Playing cards,
  • Votive paper and
  • Some special services, including dancing halls, massage lounges, karaoke parlors, casinos, jackpots betting entertainment, golf, and lotteries.

Special sales tax rates range from 10% to 75%.  Goods and services subject to the special sales tax are also subject to the VAT with a rate of 10%.  Special sales tax on imports is calculated on the basis of price of taxable import plus import duties plus VAT.

5. Personal Income Tax

Currently, the following individuals are subject to personal income tax:

  • Vietnamese citizens being in Vietnam, or working or being on business trips overseas;
  • Other individuals who do not have Vietnamese citizenship but reside indefinitely in Vietnam; and
  • Foreigners working in Vietnam. 

The payers of personal income tax (“PIT”) are Vietnamese citizens and foreigners working in Vietnam, having a income.  Taxable income includes salaries, wages, remunerations, bonuses and allowances (excluding the severance allowance that does not exceed the minimum amount prescribed by the law as discussed above).  Below is the progressive tax rate schedule:

Unit: VND1,000,000

Level

Average yearly Income

Average Monthly Income

Rate (%)

1

to 60

To 5

5

2

Over 60 to 120

Over 5 to 10

10

3

Over 120 to 216 

Over 10 to 18

15

4

Over 216 to 384

Over 18 to 32

20

5

Over 384 to 624

Over 32 to 52

25

6

Over 624 to 960

Over 52 to 80

30

7

Over 960

Over 80

35

 

Foreigners residing in Vietnam for an aggregate of 183 days or more within a consecutive 12-month period from the first date of arrival, or in subsequent calendar years, will be treated as tax residents in Vietnam.

Foreigners who stay less than 183 days (please note that arrival and departure days together count as one day) in a consecutive 12-month period following the first date of arrival, or in subsequent calendar years, are considered as non-tax residents in Vietnam.  Non-tax residents are subject to PIT at a flat rate of 20% on their Vietnam-sourced income in the tax year.

 

A foreigner residing in Vietnam for 183 days or more within a tax year will be considered a tax resident, unless tax treaties between Vietnam and other countries provide otherwise.

 

Expatriates or foreign individuals working in Vietnam are allowed to transfer their income abroad after income tax and other payroll withholdings have been paid.

 

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