Handbook | Understanding Vietnam Tax System Overview (Updated 2023)

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%).

VAT refund

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

In which:

• 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.

CIT rate

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

In which:

• 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.

Tax year

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);
• Train;
• 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

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:

The following table applies to non-residents:

For reference: Residents – other incomes apply the following table:

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: