Tax Rates in Vietnam
As the Global Financial Crisis rumbles on, with certain reduced growth rates on the horizon for Europe and the United States, multinationals are looking elsewhere to achieve their business goals. Asia, a region riddled with wars and ineffective economic policies for much of the past century, has finally stepped into the front line of global trade and commerce. Here we look at the taxes most applicable to foreign businesses and individuals in Vietnam, i.e., corporate income tax, value-added tax, goods and service tax, standard tax on dividends and individual income tax. These rates are based on domestic laws and do not take into consideration reductions or exemptions provided by double tax treaties.
Corporate Income Tax
Vietnam’s standard corporate income tax (CIT) rate is 25 percent for both domestic and foreign-invested enterprises.
For companies involved in prospecting, exploring and mining of petroleum and gas and other rare and precious natural resources, the CIT rate ranges from 32 percent to 50 percent, depending on each special project and business establishment.
Vietnam’s Corporate Income Tax Law has a general deductibility clause that allows expenses to be deductible if they are properly substantiated, related to an enterprise’s production or trading activities, and not specifically identified as being non-deductible.
The CIT law also entitles a company to set aside 10 percent of its annual taxable income for R&D purposes if this amount is spent within the country and within five years. If a company uses less than 70 percent of the fund, uses the fund for incorrect purposes, or does not use the R&D fund within five years, then the company will have to pay the total amount of CIT exemption plus interest.
Value-added tax (VAT) is levied on the added value of most goods and services generated during the process of production, circulation and consumption in Vietnam.
There are three VAT rates: 0 percent, 5 percent and the standard rate of 10 percent. The 0 percent rate applies generally to exported goods and services, the 5 percent rate applies to 15 categories of essential goods and services, while the 10 percent rate is applicable to other goods and services.
Exemptions are applicable to 25 categories of goods and services.
The Vietnam government has abolished the tax on profit repatriation for overseas investors. Foreign investors are permitted to remit their profits annually at the end of the financial year.
Personal Income Tax
Personal income tax (PIT) is levied on the worldwide income of Vietnam residents and on Vietnam-sourced income of non-residents. Residents are defined as:
- Those living in Vietnam for 183 days or more in 12 consecutive months or in a calendar year; or
- Those having a permanent residence in Vietnam.
For residents, personal income is taxed according to seven progressive rates ranging from 3 percent to 35 percent. The PIT rate for non-residents is a flat rate of 20 percent.
There is a tax reduction of VND4 million per month or VND48 million annually for all taxpayers. In addition, the tax reduction for each dependent is pegged at VND1.6 million per month or VND19.2 million annually.
Qualified dependents include:
- Children below 18 years of age; and
- Individuals who have no income or have incomes not exceeding the prescribed level, including mature children who are studying at a university, college, professional secondary school or job-training establishment; taxpayers’ parents who are beyond working age or incapable of working; and other persons without support whom the taxpayer has to directly support.
Individual investors are required to pay 5 percent on income from dividends.
Dezan Shira & Associates is a specialized foreign direct investment practice, providing business and legal advisory, tax, accounting, payroll and due diligence service to multinationals investing in the emerging markets of Asia. Established in 1992, the firm is a leading regional practice in Asia with twenty offices in five jurisdictions, employing over 170 business advisory and tax professionals. For information or advice on establishing business operations in Vietnam, please contact Dezan Shira & Associates at email@example.com or visit www.dezshira.com.