Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Enterprises established under Vietnamese law are subject to enterprise income tax (EIT) on their worldwide income. Such enterprises are allowed to deduct income tax paid overseas against the EIT payable in Vietnam in accordance with the provisions of the EIT Law.
A permanent establishment (PE) of a foreign enterprise is subject to EIT on its income derived from Vietnam and on its income derived outside Vietnam related to the PE's activities.
Foreign companies that are located abroad but are engaging in business activities in Vietnam or deriving income in Vietnam are also subject to EIT.
Taxable profit (or actual assessable income) is based on an accrual basis and is subject to adjustments of non-deductible expenses for the purposes of calculating the EIT payable, except for the deemed tax rates applicable to the income of business entities established under foreign laws or of enterprises established under Vietnamese law, which can determine revenue but cannot determine expenses and business profits. Taxable income is made up of the taxable turnover minus tax-deductible expenses plus other taxable incomes. Assessable income is equal to the taxable income minus the tax-exempt income and the losses carried forward. In addition, funds for scientific and technological development set up by enterprises can be deducted against the assessable income before multiplying the tax rate for calculating the EIT payable.
'Tax-deductible expenses' means expenses incurred for business purposes and supported by appropriate documents, invoices or payment vouchers proving that payments were made on a non-cash basis (non-cash payment is a requirement for tax deductibility with respect to payments from 20 million dong or more), except for certain expenses subject to limitations on deduction (e.g., depreciation expense subject to the statutory depreciation rates, contributions of voluntary pension funds, voluntary pension premiums for employees).
Enterprises can use the straight-line method in calculating the depreciation of tangible fixed assets and amortisation of intangible fixed assets. Accelerated depreciation can be applicable to enterprises in business sectors that require fast changes or rapid development.Capital and income
To the extent that capital profits mean the profits gained from the transfer of capital or from the transfer of securities, generally capital profits will be considered as other taxable income of the enterprise, which will be included in the taxable income used as a base to calculate assessable income. However, with respect to enterprises eligible for EIT incentives, capital profits are not subject to tax incentives, but they are permitted to be offset against the losses from the business enjoying EIT incentives.Losses
Enterprises can carry forward the loss from a fiscal year entirely and consecutively for a maximum of five years, and the loss carry-forward years must be counted consecutively. This means that the loss must be carried forward 'entirely' and 'consecutively' even when enterprises are in a period of enjoying a tax holiday or tax reduction.
In cases where an enterprise undergoes a conversion, merger or consolidation, losses that occurred prior to such conversion, merger or consolidation can be offset against the taxable income of the year when such conversion, merger or consolidation occurs, or the loss may be permitted to continue to carry forward in the following years, but not exceeding five years from the year when the loss arose.Rates
The current standard rate is 20 per cent, applicable to corporate forms and non-corporate forms beginning 1 January 2016.
Investment projects that meet incentive conditions regarding industry, location or large-scale investment capital may enjoy preferential tax rates of 10, 15 or 17 per cent.Administration
There are three levels of tax authorities in Vietnam. The General Department of Taxation (GDT) is the central tax authority. The GDT implements tax laws and provides the Ministry of Finance (MOF) with feedback on enterprises and assists it in creating tax policy. The provincial-level tax department manages district-level sub-tax offices. The tax departments and the sub-tax offices are responsible for collecting all types of tax, except for duties and taxes relating to import and export, which are under the management of the customs authorities. Depending on the scale of its investments, an enterprise may either be administered by the tax department or the sub-tax office.
Enterprises must make provisional EIT payments on a quarterly basis, by the 30th day after the end of each quarter. Enterprises are also required to conduct annual EIT returns and pay any tax deficits by the 90th day after the end of the fiscal year. The fiscal year is usually the calendar year. If taxpayers choose a fiscal year different from the calendar year, the fiscal year must start on the first day of a quarter and must last for 12 months.
Tax authorities routinely conduct tax audits. A tax audit may be conducted at a tax authority if there are some unclear points in the tax documents submitted by an enterprise. Tax audits may be scheduled to be conducted at the enterprise's premises, or may occur when such enterprise has a tax refund or is suspected of being in breach of tax regulations.
When enterprises have tax issues, they may seek guidance on such issues by coming to the tax authority in person or by sending a letter to the tax authority. In practice, it may take the tax authority one month to reply to an enterprise's letter. However, there is no formal procedure provided by law regarding the responsibility of tax authorities to provide guidance or reply to enterprises.
Enterprises in Vietnam may challenge the tax authority's assessment by appealing to the tax authority that issued the tax assessment. If the enterprise is not satisfied with the initial tax authority's conclusion on the appeal, it may then appeal to the higher level of such tax authority. Enterprises are also permitted to bring a case to court upon the receipt of the tax authority's assessment or after receiving the conclusions on the appeals of the tax authority that issued the tax assessment or of the higher level of such tax authority.Tax grouping
A parent company is required to prepare and submit consolidated financial statements to the tax authorities in which the figures on assets, payable accounts, owner's equities, revenues, other incomes and costs stated in the consolidated financial statement reflect the amount added from the figures of the parent company and those stated in the financial statements of the subsidiaries. The names of the subsidiaries must be stated in the consolidated financial statement.
There are no specific provisions regarding tax treatments applicable to a group comprising a parent company and its subsidiaries. However, in principle, a parent company and its subsidiaries are independent and equal in contracts, transactions and other interactions. Each entity of a group is responsible for its own tax obligations and those of its shareholders.ii Other relevant taxesBusiness fee/licence fee
Enterprises and their branches, being business entities, are required to pay a business fee once a year. The annual business fee, as detailed below, will be applied based on the charter capital stated in the enterprise registration certificate or business registration certificate of the enterprise or branch.
|Charter capital||Annual business fee|
|More than 10 billion dong||3 million dong|
|From 10 billion dong or less||2 million dong|
|For branches, representative offices, business location, public service providers and other business organisations||1 million dong|
If an enterprise has no charter capital, it will depend on the investment capital stated in the investment registration certificate.
Branches of enterprises that do not state their registered capital in their business registration certificate must pay a business fee of 1 million dong annually.Value added tax (VAT)
VAT applies to the supply of goods and services that are deemed to be used 'for production, business or other consumption in Vietnam'. A number of goods and services are exempt from VAT.
The VAT Law provides three rates of tax: zero, 5 and 10 per cent. The standard VAT rate is 10 per cent. Exported goods and services are zero-rated if goods or services are provided to customers overseas and consumed outside Vietnam or within tariff-free zones.
Foreign companies located abroad and engaging in business activities in Vietnam or deriving income in Vietnam are also subject to VAT regardless of whether they have a PE in Vietnam or not.Special consumption tax (SCT)
Enterprises that produce or import goods or provide services subject to SCT are required to declare and pay SCT in addition to VAT. SCT does not apply to subsequent stages in the distribution of goods. However, from 1 January 2016, imported goods, except for gasoline, are subject to SCT at the importation stage based on the import price (import SCT) and at the distribution stage based on the distribution price (distribution SCT). Import SCT can be offset against distribution SCT for the purpose of calculating the distribution SCT payable. As a result, the SCT amount payable for imported goods is higher from 2016, since SCT is eventually calculated based on the distribution price rather than on the import price. SCT rates of certain commodities, including cigarettes, cigars, alcohol and beer, will be adjusted upward annually until 2019.
Goods and services subject to SCT include:
- cigarettes and cigars;
- spirits and beer;
- automobiles with fewer than 24 seats, motorcycles with a capacity of over 125cc, aircraft and yachts (except those used for business in the transportation or tourism sector);
- gasoline of all kinds;
- air conditioners with a capacity of 90,000BTU or less;
- playing cards and votive paper; and
- the operation of dancehalls, massage lounges, karaoke parlours, casinos, electronic prize games, betting businesses, golf and lotteries.
Enterprises are subject to land rental for land areas leased from the state or from companies developing industrial zones and export processing zones. Enterprises can also be subject to non-agricultural land use tax when using non-agricultural land for business purposes, such as for industrial zoning, mining and commercial use.Registration fee
Ownership of the following assets is subject to a registration fee:
- houses and land;
- motorcycles; and
- hunting and sporting rifles.
PIT is imposed on the income of employees of enterprises. However, enterprises being income payers are required to withhold PIT on employment income and then declare and pay PIT to the tax authority on behalf of their employees.
Residents are subject to progressive tax rates ranging from 5 to 35 per cent on worldwide employment income. Non-residents are subject to a flat tax rate of 20 per cent on Vietnam-derived employment income.