Updated at 20/08/2023 - 05:54 pm
This handbook provides an overview of the current tax system in place in Vietnam. This handbook is the ultimate guide to general understanding for business managers.
The application of regulations may vary depending on the case and the nature of each specific transaction, so please contact us for advice on how to apply on a case-by-case basis.
Most businesses operating in Vietnam will be required to comply with and pay the following taxes. In terms of the nature of these taxes, we divide them into 3 groups as follows:
For an ordinary business enterprise, the taxes that the enterprise must declare and pay according to the level of arising are: Value-added tax; Corporate income tax; Personal income tax. In addition, businesses also have to pay license tax, or license fee, which is a tax associated with being licensed for business and collected once a year.
Here's what business managers need to know about these taxes:
Scope of application
Objects subject to VAT are goods and services used for production, business and consumption in Vietnam. Domestic enterprises must calculate VAT on the value of goods and services sold.
Amount of VAT payable = Output VAT amount – Deductible input VAT amount
Cases not required to declare, calculate and pay VAT
In these cases, enterprises are not required to declare and pay output VAT while relevant input VAT is still deducted. Common cases include:
- Organizations and individuals doing business in Vietnam buy services from foreign organizations without permanent establishments in Vietnam, foreign individuals are non-residents in Vietnam and the services are performed. overseas, including: repair of means of transport, machinery and equipment; advertising, marketing; promoting investment and trade abroad; Brokerage selling goods and providing services abroad, training, some international postal and telecommunications services.
- Enterprises sell agricultural products to enterprises at the commercial stage that have not been processed into other products or have only undergone normal preliminary processing;
- Commission revenue is earned from activities of (i) agent selling at the right price set by the principal for commission of services: postal, telecommunications, selling lottery tickets, airline tickets, automobiles, etc. trains, ships; and (ii) international shipping agents; agents of aviation and maritime services that are entitled to the VAT rate of 0%; and (iii) insurance agents;
- Revenue from agency commissions is earned from agency activities selling goods and services that are not subject to VAT.
Objects not subject to VAT
Common types of goods and services that are not subject to corporate VAT include:
- Transfer of land use rights (“LURC”)
- Health services; Care services for the elderly and people with disabilities;
- Teaching and vocational training;
- Transfer of technology, software and software services, except for exported software, enjoys the tax rate of 0%;
- Equipment, machinery and supplies that cannot be produced at home are imported for direct use in scientific research and technological development;
Value added tax rate
There are three VAT rates as follows:
- 0 tax rate%: applies to exported goods, including goods sold into non-tariff zones and export processing enterprises for forward processing or on-spot export (according to regulations), goods sold to duty-free shops, a number of export services, construction and installation activities for export processing enterprises, aviation, maritime and international transportation services.
- Tax rate of 5%: usually applied to specific industries where clean water is prioritized by the state; teaching tools; book; unprocessed food; medicines and medical equipment; animal food; certain agricultural products and services; science and technology services; preliminarily processed rubber latex, sugar and by-products; a number of cultural, artistic, sports and social housing activities.
- Tax rate of 10%: is the "common" tax rate applied to objects subject to VAT but not entitled to the tax rate of 0% or 5%.
Note: If it is not possible to determine which type of goods an item belongs to according to the prescribed tax schedule, the enterprise must calculate and pay VAT at the highest tax rate for the type of goods provided by the enterprise.
How to calculate output VAT?
Output VAT is determined by the taxable price of taxable goods and services (excluding tax) multiplied by the corresponding VAT rate.
How to calculate deductible input VAT
For goods and services purchased domestically, the deductible input VAT is determined based on the VAT invoice for the purchase of goods and services.
For imported goods, the deductible input VAT is determined based on the receipt of VAT payment at the import stage. Input VAT paid on behalf of foreign contractors (under the FIT regime) is also deductible when calculating tax.
Note: Input VAT on valuable goods and services 20 million or more deducted only when there is a proof of payment via bank.
When an enterprise provides goods and services that are not subject to VAT, input VAT may not be deducted, while an enterprise providing goods and services enjoys the VAT rate of 0% or is not required to declare, calculate and pay. VAT is still deducted from input VAT.
In the case where an enterprise has both VATable and non-VAT taxable revenue, that enterprise may only deduct input VAT on the portion of purchased goods or services used in taxable activities. VAT.
Time limit for tax declaration and payment of VAT
The tax declaration deadline is also the tax payment deadline if there is a payable VAT amount, the time limit is as follows:
- For enterprises declaring VAT on a monthly basis, the deadline is the 20th day of the following month
- For enterprises that declare VAT quarterly, the latest is the last day of the first month of the next quarter.
Some special cases on VAT declaration and payment
Enterprises having business activities in many different provincial-level areas but these activities are centrally accounted for at the head office, must declare tax centrally at the head office, but allot and pay tax amounts must be paid at the head office. to be paid in each respective province-level area. Allocation rules apply in the following cases:
- Dependent unit, place of business is a production facility
- Real estate transfer
- Construction activities (VAT only)
The payable VAT shall be distributed to dependent units and business locations being production establishments located in different provinces and cities, which is the pre-VAT revenue of the respective production establishment multiplied by 2% ( for goods subject to VAT 10%) or 1% (for goods subject to VAT 5%).
Deductible input VAT can be refunded in a number of cases, such as:
- Exporting enterprises whose input VAT has not yet been fully deducted is over 300 million VND.
- The new investment project of the enterprise applying the deduction method is in the investment stage and has not yet been put into operation and has over 300 million VND in input VAT that has not yet been fully deducted.
Corporate income tax is a tax levied directly on the taxable income of an enterprise, including: Income from production and trading activities of goods or services, and other incomes as prescribed by law. .
Principles of corporate income tax calculation
CIT payable = (Taxable income – S&T fund appropriation)x CIT rate
- Taxable income = Taxable income – Exempt income + Carry forward losses
- Taxable income = Revenue – Deductible expenses + Other income
The parameters to calculate CIT in the above formula:
- Revenue: Taxable revenue is the total amount of goods sold, processing fees, and service provision fees, including price subsidies, surcharges and extras that an enterprise is entitled to, regardless of whether money has been collected or not. not yet. (Enterprises paying VAT by the tax credit method is the revenue excluding VAT / Enterprises paying VAT by the direct method on VAT is the revenue inclusive of VAT.)
- Expenses to be deducted: Except for the expenses that are determined by the CIT law to be non-deductible, all expenses may be deducted if the following requirements are satisfied:
- Actual expenses incurred in connection with production and business of the enterprise.
- Expenses with full legal invoices and documents
- Expenses if there is a purchase invoice each time with a value of 20 million or more (VAT included) when paying, there must be non-cash payment vouchers.
- Other income: Other revenues include: income from interest on deposits, loans, fines, compensation for breach of contract, goods given as gifts, etc.
- Free income tax: These amounts are very rare and are only available to a few specific enterprises, for example: Income from cultivation, livestock, farming, processing agricultural and aquatic products, salt production of cooperatives commune; income from irrigation and drainage services; plow, harrow…; Income from production and business activities of goods and services of enterprises with disabled employees; Incomes from vocational training activities exclusively for ethnic minorities; Income distributed from capital contribution, share purchase, joint venture, economic association with domestic enterprises, after the capital contribution recipient, Issuing shares, joint ventures and associates have paid corporate income tax according to regulations, including the case where the party receiving capital contribution, issuing shares, the joint venture or associate party is entitled to CIT incentives; Income from the transfer of emission reduction certificates (CERs) for the first time of the enterprise granted the emission reduction certificate.
- Carry forward losses: After an enterprise makes annual tax finalization and suffers a loss, the entire loss shall be transferred into the taxable income of the following years. The continuous loss transfer period shall not exceed 5 years from the year following the year in which the loss is incurred.
The general corporate income tax rate is 20%.
Special cases, such as: 32% to 50% depending on each location and specific conditions of each project with enterprises operating in the field of oil and gas prospecting, exploration and exploitation in Vietnam. . 40% or 50% depending on each location for enterprises operating in the field of search, exploration and exploitation of some rare and precious resources.
Expenses that are not deductible
Although these expenses are actually incurred, but because there are specific regulations that do not allow deduction when calculating CIT, enterprises are not allowed to deduct these expenses, for example:
- Depreciation of fixed assets exceeding current regulations;
- Salaries and wages for employees are not actually paid or are not specified in the labor contract or collective labor agreement or financial regulations of the enterprise;
- Employee benefits (including some benefits provided to employees' relatives) exceed one month's average salary. Expenses for health insurance and optional accident insurance are also considered employee benefits;
- Spending in excess of VND 03 million/month/person for voluntary retirement fund, voluntary retirement insurance and life insurance for employees;
- Deductions for setting up scientific and technological research and development funds not according to current regulations;
- The amount set aside for the reserve fund for job loss allowances and the payment of job loss allowances for employees in excess of the provisions of the Labor Law;
- Business administration expenses allocated by overseas enterprises to permanent establishments in Vietnam exceed the expenses allocated by revenue in the period;
- Payment of loan interest corresponding to the missing registered charter capital according to the capital contribution schedule stated in the charter of the enterprise;
- The cost of paying interest on loans for production and business loans for individuals, exceeding 1,5 times the basic interest rate announced by the State Bank of Vietnam at the time of borrowing;
- The portion of interest expense that exceeds 30% of the total accounting profit before tax, interest and depreciation for the enterprise have affiliate transactions.
- Provisions for making, making and using provisions such as provision for devaluation of inventories, bad debts, loss of financial investments, warranty of products, goods or construction works are not in accordance with the instructions of the Company. Ministry of Finance on setting up provisions;
- Loss on exchange rate difference due to revaluation of monetary items denominated in foreign currency minus loss on exchange rate difference due to revaluation of payables at the end of the tax period;
- Grants, except those for education, health care, scientific research, disaster recovery, or house of gratitude for the poor with sufficient records to identify accounts aid. Note, monetary and in-kind donations and sponsorships for Covid prevention activities will be deductible for CIT purposes in 2020 and 2021, subject to certain conditions;
- Fines for administrative violations, money for late payment;
- Service charges paid to affiliates are not eligible for deduction.
For a number of businesses such as insurance businesses, securities trading, and lottery, the Ministry of Finance has specific guidance on deductible expenses when calculating CIT.
Enterprises are allowed to deduct up to 10% of their annual taxable income to set up the Science and Technology Development Fund before calculating CIT. Certain conditions must be met in order to be deducted.
Declare and pay corporate income tax
The CIT declaration is applied based on the following principles:
- Provisional quarterly payment: Businesses must temporarily pay quarterly tax according to estimates. The total temporarily paid CIT amount of the first 03 quarters of the tax year must not be lower than 75% of the payable CIT amount according to the annual finalization. If the quarterly temporarily paid tax amount is lower than the prescribed amount, the enterprise must pay a late payment interest for the remaining tax amount (0.03% / day), calculated from the third quarter tax payment deadline.
- Annual settlement: The finalization of CIT is done annually. The deadline for submitting CIT finalization and CIT payment is the last day of the third month from the end of the fiscal year. Thus, for enterprises whose normal financial year is according to the calendar year, the deadline for submitting CIT declaration and payment is March 31 every year.
- Fiscal year change: The normal tax year is the calendar year, but for the sake of convenience in management, foreign-invested enterprises often change their fiscal year. In case the enterprise applies a tax year (that is, a fiscal year) other than the calendar year, it must notify the tax administration agency. Examples are:
- UK, India, Canada, Hong Kong, Japan: Fiscal year starts from April 1 and ends on March 4 of the following year.
- Belgium, Germany, Netherlands, Korea, Russia, France, Thailand, Switzerland, China, Vietnam: the financial year coincides with the calendar year.
- USA: The fiscal year begins on October 1 and ends on September 10 of the following year.
- Australia: Fiscal year starts from July 1 and ends on June 7 of the following year.
In case the taxpayer has a dependent accounting establishment (for example, a branch) in another province or centrally run city, the taxpayer only needs to submit a CIT return in the locality where the entity pays its taxes. headquarters. However, manufacturing enterprises must allocate the tax payable to the respective tax authorities in the provinces where there are dependent accounting production facilities. The basis for allocating tax payable in each locality is based on the ratio of the expenses of each production establishment to the total expenses of the enterprise. However, for dependent units or business locations whose income is eligible for CIT incentives, enterprises need to separately determine (without allocating) the payable CIT amount.
Corporate income tax incentives
In general, it can be said that CIT incentives are applied to new investment projects in areas and areas that encourage investment, or large-scale projects and a number of expansion investment projects. certain.
New investment projects and expansion investment projects do not include projects formed from merger or restructuring.
The basis for enjoying incentives is to meet the criteria under preferential policies, for example:
- Areas encouraged by Vietnam Investment includes education, health, culture, sports, high technology, environmental protection, scientific research and technological development, infrastructure development, processing of agricultural and aquatic products, manufacturing software products and renewable energy.
- Areas that are encouraged to invest including economic zones, high-tech zones, a number of industrial parks and areas with difficult socio-economic conditions as prescribed.
- Big investment projects in the field of production (except for projects to produce goods subject to excise tax, and for mining projects).
CIT incentives vary by project, for example:
- Special investment incentives for research and development as well as large-scale investment projects are regulated by the Law on Investment. CIT incentives vary depending on certain criteria. The highest incentives include a preferential tax rate of 5% for a period of 37 years, tax exemption for 6 years, and a 50% reduction in CIT for the next 13 years. In addition, land rent and water surface rent are also exempted/reduced for a certain period of time.
- The preferential tax rate of 10% is applied for a period of 15 years and the preferential tax rate of 17% is applied for a period of 10 consecutive years from the year of generating revenue from activities entitled to tax incentives. The offer period may be extended in certain cases. At the end of the preferential tax period, the common CIT rate will be applied. The preferential tax rate of 15% is applied to some business areas for the whole operation period. Some socialized sectors (such as education, healthcare) enjoy a 10% tax rate during the operation period.
- Software production that meets the criteria is exempted for 4 years, reduced by 50% for the next 9 years from the profitable year, or if there is no profit, the applicable year is the 4th year from the year of establishment. Apply the 10% CIT rate for 15 years from the year of revenue.
In the business scope, we talk about personal income tax from wages and salaries.
Principles of PIT calculation
Personal income tax payable = Taxable income x Tax rate
- Taxable income = Taxable income – Deductions
- Taxable Income = Gross Income – Exemptions
PIT rates from salaries and wages are divided into 2 ways for 2 groups of subjects: residents and non-residents.
- Resident object are individuals who meet one of the following conditions:
- Reside in Vietnam for 183 days or more in a tax year;
- Have a regular place of residence in Vietnam (including a place of residence registered on a permanent/temporary residence card or a rented house to stay in Vietnam for a period of 183 days or more in the tax year) and cannot prove prove to be a tax resident in another country.
Residents are obliged to declare and calculate PIT on all taxable income arising inside and outside Vietnam regardless of where the income is paid or received (Global income must be declared). Income from the resident's salary/wages is taxable under Partial progressive rate schedule (See below) with other income levels are taxed at different tax rates.
Non-residents: are individuals who do not meet the conditions to become residents. Non-residents pay PIT at the tax rate 20% on income from wages/wages related to Vietnam.
The tax year of Vietnam is the calendar year. However, in case an individual stays in Vietnam for less than 183 days in the first calendar year of arrival in Vietnam, the first tax year will be 12 consecutive months from the date that individual first arrives in Vietnam. Then the tax year is the calendar year.
What is salary/wage income?
Taxable income from wages/wages includes all cash remuneration and other material benefits. However, the following are not taxable:
- Payment of working-trip allowances;
- Paying for telephone and stationery bills;
- Costumes (with quota if paid in cash);
- Overtime, night work (additional payment on top of normal wages, not the full amount paid for overtime/night shift work);
- One-time allowance for roaming: Going abroad from Vietnam for Vietnamese working abroad; Coming to Vietnam for foreign employees coming to Vietnam to work; Coming to Vietnam for Vietnamese people residing abroad long-term to work in Vietnam.
- Means of transporting workers from their residence to the workplace and vice versa;
- Return airfare for foreign employees and Vietnamese working abroad on leave once a year;
- Tuition fees up to high school in Vietnam (for foreigners working in Vietnam) / abroad (for Vietnamese people working abroad);
- Meals in between shifts (with allowance if paid in cash);
- Some benefits in kind are shared with employees (for example, membership fees, entertainment costs, health care);
- Airfares for employees working in rotation according to specific cycles of some industries (for example: oil and gas, mining);
- Employer contributions to optional insurance products in Vietnam and abroad have no accumulation of premiums (e.g. health insurance, accident insurance);
- Amount of money/in-kind for filial piety and joy (with a norm).
There are conditions and norms that apply to the above tax exemptions.
Some other income that is not salary/wage income
Incomes other than salary/taxable wages include:
- Income from business (including income from house rental over 100 million VND/year);
- Capital investment income (e.g. interest, dividends);
- Income from capital transfer;
- Income from the transfer of real estate;
- Income from inheritance over 10 million dong;
- Income from winning prizes/gifts over VND 10 million (excluding income from winning casino prizes);
- Income from copyright/franchise/intellectual property rights/gifts over 10 million VND.
Non-taxable incomes you need to know
Non-taxable income includes:
- Interest received from deposits at credit institutions/banks or from life insurance policies;
- Compensation is paid under life/non-life insurance policies;
- The pension is paid in accordance with the Law on Social Insurance (or equivalent foreign law);
- Income from real estate transfer between immediate family members;
- Inheritance/gifts between immediate family members;
- The monthly pension is paid under voluntary insurance schemes;
- Incomes from salaries and wages of Vietnamese seafarers received from working for foreign shipping lines or Vietnamese shipping lines for international transport;
- Income from winnings in casinos.
Tax deductions paid abroad
For tax residents with income generated abroad, the PIT paid abroad on the income generated abroad will be deducted from the tax payable in Vietnam.
Deductions from taxable income include:
- Taxpayer personal deductions:
- Tax deduction for individual taxpayers: 11 million VND/month;
- Discount for dependents: 4,4 million VND/month/dependant. In order to enjoy the dependent deduction, the taxpayer needs to register the dependent eligible for the deduction and provide supporting documents to the tax authority.
- Contributions of employees under the compulsory social, health and unemployment insurance regimes;
- Contributions under domestic voluntary retirement insurance programs (with a limit);
- Employee contributions to a number of approved charities;
Personal income tax rate
Residents – salary/wage income apply the following rates:
Taxable income/year (million VND)
Taxable income/month (million VND)
0 – 60
0 – 5
60 – 120
5 – 10
120 – 216
10 – 18
216 – 384
18 – 32
384 – 624
32 – 52
624 – 960
52 – 80
The following table applies to non-residents:
Type of taxable income
Income from salary/wages
Income from business
1% - 5%
(depending on the type of business)
Interest (excluding bank deposit interest)/dividend
Securities sale/capital transfer
0,1% of transfer value
Real estate transfer
2% of transfer value
Income from copyright
Income from franchise intellectual property rights
Earnings from winnings
Income from inheritance/gift
For reference: Residents – other incomes apply the following table:
Type of taxable income
Income from business
(depending on the type of business)
Interest (excluding bank deposit interest)/dividend
0,1% of transfer value
Transfer of contributed capital
20% net profit
Real estate transfer
2% of transfer value
Income from copyright
Income from franchising/intellectual property rights
Earnings from winnings
Income from inheritance/gifts
The license tax is an annual tax. Enterprise license tax is based on the charter capital stated in the business registration certificate, the license tax rate is as follows:
|STT||Base||Amount of money|
|1||Organizations with charter capital or investment capital over 10 billion VND||03 million VND/year|
|2||Organizations with charter capital or investment capital of 10 billion VND or less||02 million VND/year|
|3||Branches, representative offices, business locations, non-business units, other economic organizations||01 million VND/year|
These are taxes that, when there are specific transactions, enterprises must declare according to regulations, such as: Foreign contractor tax; CIT or PIT when transferring capital.
Contractor tax is a tax applied to foreign organizations and individuals doing business or earning income in Vietnam on the basis of a contract or agreement with a Vietnamese party.
Contractor tax applies to a number of payments including loan interest, royalties, service charges, rent, insurance premiums, transportation services, goods supplied with services performed in Vietnam. .
Some types of transactions incurring foreign contractor tax and common tax rates are below:
- Loan interest: Interest on loans paid to foreign organizations
- Royalties: payments for the right to use or transfer intellectual property rights (including copyright and industrial property rights), technology or software transfer to foreign entities.
Restaurant, hotel and casino management services
Construction, installation does not include bidding for materials or machinery and equipment
Construction and installation of raw materials or associated machinery and equipment
Computer software copyright, technology transfer, and intellectual property rights (including copyright and industrial property rights) are exempt from VAT. Other types of copyright may be subject to VAT
Tax on foreign contractors for e-commerce activities
Circular 80/2021/TT-BTC stipulating the tax declaration mechanism for foreign enterprises doing e-commerce, digital business and other business in Vietnam without a permanent establishment. Accordingly, foreign enterprises will be granted a tax identification number and declare tax on the website of the General Department of Taxation (“TCT”) quarterly and pay taxes online.
In case foreign enterprises do not directly register, declare and pay tax in Vietnam, Vietnamese organizations, organizations and parties have the following responsibilities.
- If the Vietnamese customer is a registered enterprise, it must withhold and declare tax on behalf of the foreign enterprise (similar to the current foreign income tax regime).
- If Vietnamese customers are individuals, banks or payment intermediary service providers are required to withhold and declare tax on a monthly basis. The Vietnamese tax authorities will provide the names and websites of these foreign businesses to banks and/or intermediary payment service providers for tax deduction.
- In case individuals use cards or other payment methods that cannot be deducted by banks or payment intermediary service providers, banks or payment intermediary service providers must monitor and monthly reports of payments to foreign enterprises to the Vietnamese tax authorities.
For individuals transferring capital contributions or shares, the following applies:
- Capital transfer activities of limited companies and partnerships are considered income from capital transfer. Accordingly, the transferor must pay 20% of the difference from capital transfer. Therefore, when transferring contributed capital at par, the member transferring contributed capital will not have to pay tax.
- Transfer of shares (listed or unlisted), the transfer of shares is still considered as a transfer of securities. Therefore, the transferor of shares must pay 0,1% of the total transfer amount according to the signed share transfer contract.
For enterprises when transferring contributed capital, shares (listed or unlisted) : apply the CIT rate of 20% for income from transfer. In which, income from transfer = Selling price – Buying price.
Taxes incurred when performing a specific stage in the circulation of goods and services, such as: Special consumption tax; Resource tax; Import and export tax; Environmental Protection tax.
Special consumption tax is an indirect tax, levied on a number of luxury goods and services in order to regulate production, import and social consumption. At the same time strongly regulate the income of consumers.
Some typical goods subject to excise tax: Cigarette; Alcohol; Beer; Cars with less than 24 seats; Two-wheeled motorcycles and three-wheeled motorcycles with a cylinder capacity of over 125cm3; Aircraft, yachts (used for civil purposes); Gasoline of all kinds; Air conditioners with a capacity of 90.000 BTU or less; Cards cards; Votive.
Some typical services subject to excise tax are: Disco business; Business massage (massage), karaoke (karaoke); Casino business (casino); prize-winning electronic games including games of jack-pot machines, slot machines and similar machines; Betting business (including: Betting on sports, entertainment and other forms of betting as prescribed by law); Golf business (golf) includes selling membership cards, golf tickets; Lottery business.
Currently, the law does not have specific provisions on the concept of royalty. However, resource tax can be understood as an indirect tax that individuals and organizations must pay to the state when exploiting natural resources.
Subjects subject to royalties tax are as follows:
- Metallic minerals.
- Non-metallic minerals.
- Crude oil.
- Natural gas, coal gas.
- Products of natural forests, excluding animals.
- Natural seafood, including marine animals and plants.
- Natural water, including surface water and ground water.
- Natural bird's nest.
- Other resources prescribed by the National Assembly Standing Committee.
Import and export tax is a tax on the import and export of goods that are allowed to be exported or imported across Vietnam's borders. Import and export tax is calculated and paid right at the customs clearance stage.
Environmental protection tax is an indirect tax, collected on products and goods (hereinafter referred to as goods) when used, causing adverse impacts on the environment.
Environmental protection taxpayers are organizations, households and individuals that produce or import goods subject to environmental protection tax.
Environmental protection tax payable = Quantity of taxable goods units x Absolute tax rate per unit of goods
For example, a taxable plastic bag has an environmental protection tax rate of VND 50.000/kg.
Decree 132/2020 ND-CP stipulating the principles, methods and order of determining the factors forming the associated transaction price; rights and obligations of taxpayers in determining transfer pricing, declaration procedures; responsibilities of state agencies in tax administration for taxpayers having related transactions. Decree 132 takes effect from December 20, 12, applies to fiscal year 2020 onwards.
|Decree 132/2020/ND-CP stipulating tax administration for enterprises with associated transactions|
Regulations on related-party transactions also apply to related-party transactions performed within Vietnam.
How the definitions are related
The following checklist determines whether the enterprise has associated transactions or not (Applicable from 2020 onwards):
|Case||Affiliate relationship||Yes / No|
|a||One enterprise holds, directly or indirectly, at least 25% of the equity of the other enterprise;|
|b||Both businesses have at least 25% of the owner's equity held directly or indirectly by a third party;|
|c||An enterprise is the largest shareholder in terms of the owner's equity and holds directly or indirectly at least 10% of the total shares of the other enterprise;|
|d||An enterprise guarantees or lends money to another enterprise of any kind (including third party loans secured from affiliated party finances and financial transactions of an nature in nature. similar) provided that the loan is at least 25% of the equity of the borrower enterprise and accounts for more than 50% of the total value of the medium and long-term liabilities of the borrower;|
|đ||An enterprise appoints a member of the executive board or holds control of another enterprise provided that the number of members appointed by the first firm accounts for more than 50% of the total number of executive board members. or take control of a second firm; or a member appointed by the first firm has authority to decide the financial or business policies of the second firm;|
|e||Two businesses that have more than 50% of the board members or have a member of the board of directors who has the power to decide on financial policies or business activities is appointed by a third party;|
|g||The two businesses are run or controlled by personnel, finances, and business operations by individuals in one of the spousal relationships; biological parents, adoptive parents, stepfather, stepmother, mother-in-law, father-in-law; natural children, adopted children, stepchildren of husband or wife, daughter-in-law, son-in-law; siblings, siblings of the same parent, sibling of the same parent, sibling, sister-in-law, brother-in-law, brother-in-law, sister-in-law, sister-in-law of the same parent, same mother of different father; paternal grandparents, maternal grandparents; grandchildren, grandchildren; aunt, uncle, uncle, uncle and nephew;|
|h||The two business establishments have the relationship of head office and permanent establishment or are permanent establishments of the same foreign organization or individual;|
|i||Enterprises are controlled by an individual through his / her capital contribution to that enterprise or directly participate in operating the business;|
|k||Other cases in which the enterprise is subject to the actual management, control and decision on the production and business activities of the other enterprise;|
|l||The enterprise has transactions of transferring or receiving the transfer of contributed capital of at least 25% of the contributed capital of the enterprise's owner in the tax period; to borrow or lend at least 10% of the owner's equity at the time of the transactions in the tax period with the operator or controller of an enterprise or with an individual in a relationship as prescribed in point g this clause.|
Method of determining affiliate transaction price
The methods of determining the price of a related transaction are similar to those proposed by the OECD in the Guidelines for the Determination of Linked Transaction Pricing for Multinational Enterprises and Tax Authorities, in particular. These can be independent transaction price comparison method, resale price method, cost plus profit method, profit allocation method and net profit margin comparison method.
How to search for independent comparables
Taxpayers must select independent comparators in the same local, local, and domestic market and then expand the comparison area to countries in the region with industry conditions and economic development level. similar economy.
Declare information about affiliate transactions
Enterprises with related-party transactions are required to annually declare information on related-party transactions and the method of determining the prices applied to these transactions, as well as determine the transaction prices themselves according to the transaction prices. independent translation (or self-defining).
Depending on the extent of the affiliate transaction, businesses are required to declare the information included in the Country Profile and the Global Profile.
The possibility of being taxed
The tax authority has the right to use the internal database to determine the transaction value if the enterprise does not comply with the requirements under the law on related-party transactions.
Profile of affiliated transaction prices
Enterprises that have transactions with related parties must make and update a dossier of determining the price of associated transactions.
Decree 132 requires multinational enterprises to provide business operation information through the Linked Transaction Pricing Profile at three levels, namely the Country Profile, the Global Profile and the Profitability Report. transnational profits.
The transfer pricing documents must be prepared before the deadline for submitting the CIT finalization declaration.
No fee for setting up the linked transaction price determination file
To be exempted from making a file for determining transfer pricing if one of the following conditions is met:
- having a total revenue of less than VND 50 billion in the tax period and the total value of all associated transactions arising in a tax period under VND 30 billion; or
- entered into an Advance Agreement on the method of determining taxable prices (“APA”) and submitted an Annual Report in accordance with the laws of APA; or
- has a turnover of less than VND 200 billion and conducts business with simple functions, as well as achieves net profit before interest and CIT on sales, including the following areas: distribution (from 5%) ); production (from 10%); processing (from 15%); or
- Only transactions with related parties in Vietnam apply the same corporate income tax rate as the taxpayer and neither party is entitled to corporate income tax incentives in the tax period.
Check/check about affiliate transaction
In recent years, tax authorities have concentrated and built a specialized management department to check the price of associated transactions.
Tax authorities often require taxpayers to explain the validity of comparables used in related transaction price determination dossiers, the possibility of deduction for intra-group service fees. and changes in profit margins on an enterprise-wide or business-segment basis over the years.
Tax authorities also pay attention to businesses that record losses and often ask them to explain their business performance. Most general tax audits will now include a review of the taxpayer's associated transaction compliance.
Excluding interest expense when calculating tax
Interest is capped at 30% of accounting profit before interest, tax and amortization (EBITDA) for the deductible expense of interest expense. Enterprises must self-exclude or be excluded by tax authorities when determining CIT payable and sanction for loan interest above 30% EBITDA.
The part of interest expense that is not deductible can be carried over to the tax period for the next 5 years.
What is an advance pricing agreement (“APA Agreement”)?
According to current legal regulations (Decree 126/2020/ND-CP and Circular 45/2021/TT-BTC), enterprises can participate in unilateral, bilateral or multilateral APA Agreements with the agency. tax office.
Transactions proposed to apply APA need to meet certain conditions, one of which is that these transactions are not subject to tax disputes or complaints.
The APA application process consists of five stages: pre-application consultation (optional); submit an official application; expertise; exchange and negotiation; and sign. During the appraisal of APA dossiers, tax authorities may apply administrative measures to assess the completeness, accuracy, legality, reasonableness and validity of information and data provided by taxpayers. provided. There are no specific deadlines for each stage in the APA application process.
The effective period of a signed APA is up to 03 tax years, but not exceeding the actual number of years the taxpayer has operated in Vietnam.
Tax inspection/inspection is a regular activity of the tax authorities to check the compliance with tax and accounting laws of the business.
Inspections/inspections are carried out on a regular basis and are usually carried out for a period of a number of tax years. Before conducting a tax inspection/inspection, the tax authority will send a written notice specifying the time and scope of tax inspection/inspection to the enterprises subject to the inspection/inspection.
An overview of the sanctioning principles when detecting tax violations, the administrative fines are as follows:
- Penalty of 20% on understatement of tax; and
- Late payment penalty according to the late payment interest rate of 0,03%/day will be applied to late payment tax (Additional tax amount upon inspection is considered as late payment tax amount)
- Fine 1 or more times the amount of tax evaded.
- Administrative fines for false declarations.
The time limit for arrears tax amount, evaded tax amount, fraudulent tax amount, late payment interest is 10 years and the statute of limitations for sanctioning administrative violations of tax is 5 years. In case the taxpayer fails to register for tax, the tax authority may collect the missing tax amount, the evaded tax amount, the fraudulent tax amount, the late payment interest for the entire period from the date of issuance. conduct violations.
A Double Taxation Agreement is an international treaty concluded between two subjects of international law (mainly a state) to avoid double taxation and to prevent tax evasion and evasion on income and taxes. property tax.
This Treaty shall apply to persons who are residents of one or both of the Contracting Parties. This Convention applies to taxes levied by a Contracting Party on income and on property, regardless of the mode of application of such taxes.
So far, Vietnam has signed about 80 agreements on avoiding double taxation with countries on all continents.
Overview of the division of taxing rights for each income
- Income from real estate: in the agreements, all incomes arising from the direct use and rental of real estate must be taxed in the country where the immovable property is located. Thus, if the real estate is in Vietnam, all income arising from that real estate must be taxed in Vietnam, regardless of whether the beneficiary of that income is a resident or the company has a business establishment. resident in Vietnam or not.
- “Shares”, “Lending interest” and “Royalties”, Vietnam and the Contracting Party to the Agreement have the right to tax income on income from dividends, profits from loans and royalties under the principle of taxation at source.
- Salaries, wages and remuneration of a salary or wage nature shall be taxable in both countries as follows:
- In case of being present in the other country for a period or periods not exceeding in the aggregate 183 days in each consecutive 12-month period; or where the person is present in the other country for less than 183 days but the employer or the employer's representative paying the salary and remuneration to the person is a resident of the other country; or where the person is present in the other country for less than 183 days but the wages and salaries are paid by a permanent establishment or a fixed place of business which the employer has in the other country.
- Remunerations and similar payments paid by a company, enterprise or any similar organization which is a resident of one State to an individual who is a resident of the other State for having engaged in employment Remuneration by a director or a member of the board of directors is taxable in both countries.
Measures to avoid double taxation are implemented in Vietnam and the country that has signed an agreement with Vietnam.
Under the agreements to avoid double taxation signed with other countries, Vietnam applies two methods to avoid double taxation as follows:
- Total tax deduction method, the content of this method is the case where a resident in Vietnam receives income in a country that is a signatory to an agreement with Vietnam and under the provisions of the agreement, such income must be If tax is paid in both countries, Vietnam will deduct from the tax payable in Vietnam the tax paid abroad. However, the amount of tax paid abroad that is deductible is not greater than the tax payable in Vietnam.
- The flat tax deduction method, the content of this method is the case where a resident in Vietnam receives income in the country that has signed an agreement with Vietnam and according to the provisions of the agreement, such income must be taxed. In both countries, but according to the law of the other country, if such tax is exempted or reduced in the other country, Vietnam will still deduct from the tax payable in Vietnam the amount of tax that should have been paid but actually did not have to be paid. in the other country because the other country exempts or reduces taxes. However, the deductible amount of tax payable abroad is not greater than the tax payable in Vietnam.
Principles of transferring profits abroad
Profits transferred by foreign investors from Vietnam to abroad are legitimate profits distributed or obtained from direct investment activities in Vietnam according to the Law on Investment, after fulfilling financial obligations. for the State of Vietnam according to regulations.
Determine the amount of profit to be remitted abroad
- Annual profit remitted abroad is the profit that foreign investors are divided or earned in the fiscal year from direct investment activities based on audited financial statements, tax finalization declarations. corporate income of enterprises in which foreign investors invest plus (+) other profits such as profits that have not yet been carried over from previous years; minus (-) amounts used or committed by foreign investors to reinvest in Vietnam, profits used by foreign investors to cover expenses of investors foreign investors for production and business activities or for personal needs of foreign investors in Vietnam.
- Profits remitted abroad at the end of investment activities in Vietnam is the total profit earned by foreign investors in the process of direct investment in Vietnam, minus (-) profits already paid. used for reinvestment, profits remitted abroad during the operation of foreign investors in Vietnam and amounts used for other expenditures of foreign investors in Vietnam. Male.
- Foreign investors are not allowed to remit abroad the profit divided or earned from direct investment activities in Vietnam in the year where the profit is generated in the case in the financial statements of the enterprise that the investor Foreign investment in the year in which profits are generated still have accumulated losses after the loss has been carried forward in accordance with the law on corporate income tax.
Time to transfer profits abroad
Transfer profits abroad every year: Foreign investors are entitled to annually transfer profits distributed or earned from direct investment activities in Vietnam abroad at the end of the fiscal year, after the enterprise in which the foreign investor participates. the investor has fulfilled its financial obligations to the State of Vietnam in accordance with the law, has submitted its audited financial statements and corporate income tax finalization declarations for the fiscal year to the management agency. direct tax.
Remittance of profits abroad at the end of direct investment activities in Vietnam: Foreign investors are entitled to remit profits abroad at the end of their direct investment activities in Vietnam after the enterprise in which the foreign investor invests has fulfilled its financial obligations to the Vietnamese State. Nam according to the provisions of law, has submitted audited financial statements and corporate income tax finalization declarations to the direct tax administration agencies, and has fulfilled all obligations as prescribed by the Law on Management of Taxes. tax administration.
How and when to transfer profits abroad
The foreign investor directly or authorizes the enterprise in which the foreign investor participates to make a notice of the remittance of profits abroad according to the form sent to the tax authority directly managing the enterprise in which the investor is invested. Foreign investors participate in investment, at least 07 working days before making profits abroad.
Complying with regulations and following the right process not only helps you avoid legal risks, but also contributes to the transparency and financial health of your business.
Doing the above is not easy for businesses, the effective solution is to use a professional service: Cooperate with a financial, accounting and tax expert to ensure you follow the correct process and comply with the regulations. legislation.
See detailed information about our services in the article