The fact that Vietnam corporate tax rate keeps on being reduced over the last 10 years is one of the reasons why you should consider incorporating it in this jurisdiction. The fast-paced growing economy and the reduced corporate tax rate in Vietnam show that it is seeking more investment from both inside and outside of the country. Not to mention the fact that the government offers quite a lot of tax incentives for companies incorporated there.
Read this blog to learn more about Vietnam Tax System!
For a better understanding of the jurisdiction, in this article, BBCIncorp will provide you with a thorough guide to the corporate tax in Vietnam so that you can further finalize whether it is worth incorporating.
1. Overview of Corporate Tax in Vietnam
Taxpayers who are subject to corporate tax in Vietnam are all of the organizations that earn income from manufacturing, trading goods, and providing services. In particular, the taxpayers are:
- Enterprises incorporated in Vietnam under the laws of Vietnam;
- Foreign enterprises with or without permanent establishments* in Vietnam;
- Organizations incorporated under the Law on Co-Operatives;
- Business units incorporated under the laws of Vietnam;
- Other types of organizations that earn income.
*Permanent establishment of a foreign enterprise is defined as a fixed place through which that enterprise carries on partly or wholly its business. It can be a/an:
- Branch, office, plant, factory, or an outlet;
- Construction or construction site;
- A place to provide services.
1.2 Scope of application
Local companies incorporated in Vietnam are taxed on worldwide income, regardless of whether the source of income is inside or outside of the nation.
Foreign companies that have a permanent establishment in Vietnam are taxed on income arising within Vietnam (regardless of whether it relates to the activities of the permanent establishment or not). They are also taxed on income arising outside of Vietnam but only if it relates to the activities of the permanent establishment.
As for foreign companies that do not have a permanent establishment in Vietnam, they are taxed only on income arising within Vietnam’s territory.
1.3 Taxable Income
In general, taxable income is all the income generated from manufacturing, trading goods, and providing services.
Other types of income that are also subject to corporate tax in Vietnam are:
- Income from transfer of capital or transfer of rights to contribute capital;
- Income from real estate transfer;
- Income from transfer of investment projects or transfer of rights to participate in investment projects;
- Income from the rights to own and use assets (including intellectual property);
- Income from transfer, lease, or liquidation of assets (including shares or bonds);
- Income from selling foreign currencies and interest from deposit or lending;
- Other regulated types of income.
An enterprise in Vietnam receiving income from foreign investment in another jurisdiction, which has signed a double tax agreement with Vietnam, will be taxed according to the regulations in that agreement.
If Vietnam has not signed any double tax agreement with that other jurisdiction, the enterprise will be taxed only when the Vietnam corporate tax rate is higher than the tax rate of that other jurisdiction.
In such case, the rate applied to the income from foreign investment received in Vietnam is the difference between Vietnam corporate tax rate and the tax rate of that other jurisdiction (the applied rate in Vietnam = Vietnam corporate tax rate – the tax rate of that other jurisdiction).
1.4 Non-taxable Income
The following income types are exempt from corporate tax in Vietnam:
- Income from capital contribution or joint venture or association with local enterprises after the corporate tax imposed on that income has been paid;
- Income earned by co-operatives from doing agriculture or aquaculture or making salt;
- Income from providing direct technical services for agriculture;
- Income under contracts for doing scientific research or developing technology, products in the phase of manufacturing experiments or products that are applied the latest technology in Vietnam;
- Income earned from a company (excluding that in finance and real estate trading sectors) that has the yearly average number of employees no less than 20, and 30% of whom are the disables, people that recover after rehab or people that have HIV/AIDS;
- Income from providing vocational training for the ethnic minorities, the disables, or children with social difficulty;
- Funding receivable for scientific research or for cultural, artistic, charitable, humanitarian, and other social activities in Vietnam;
- Other regulated types of income.
1.5 Tax Year
The tax year can be the calendar year or financial year/fiscal year (approval needed).
2. Vietnam Corporate Tax Rate
According to the Consolidated Document No.14/VBHN-VPQH on Corporate Income Tax, the corporate income tax rate in Vietnam stands at 20% (taking effect from 01/01/2016).
However, for enterprises that operate in the field of oil, gas, and rare natural resources, the corporate tax ranges from 32% to 50% depending on specific types of projects and businesses.
3. How to Reduce Corporate Tax in Vietnam
The taxable corporate income is calculated as below:
[Taxable income = Total revenue – non-taxable income – deductible expenses –carried-forward losses + other income]
Based on the formula, it can be seen that the two ways to lower your corporate tax in Vietnam are to make use of deductible expenses and carried loss. Furthermore, you can also use tax incentives offered by the government to reduce corporate payable tax.
3.1 Deductible Expenses
The deductible expenses are the expenses that satisfy the following conditions:
- The expenses actually relate to business activities, avocational education, or national defense and security;
- The expenses must be backed up by invoices or suitable documents. For an invoice of purchasing goods or service that is worth no less than 20 million VND, there must be non-cash payment documents except for some circumstances regulated by the laws;
- The expenses are not defined as non-deductible expenses**.
**Non-deductible expenses are:
- Expenses/fine due to administrative offense;
- Expenses compensated by other financial sources;
- Business management expenses provided by a foreign enterprise to a permanent establishment in Vietnam that exceed the amount regulated by the laws;
- Expenses for reserve funds that exceed the amount regulated by the laws;
- Interest on loans from non-credit institutions or non-economic institutions that exceeds 1.5 times of the basic interest rate announced by the State Bank at the time of loaning;
- Depreciation of fixed assets that violates related law regulations;
- Accrued expenses that violate related law regulations;
- Wages or salaries paid to owners of sole proprietorships or business founders who are not directly involved in the business operation;
- Interest on loans corresponding to the portion of charter capital that has not been contributed yet;
- Credited/deductible input value-added tax, value-added tax to be paid by credit method, and corporate income tax;
- Financial supports, excluding those for educational and healthcare activities and for mitigating natural disaster consequences;
- Contributions to volunteer retirement funds or other social security funds that exceed the amount regulated by the laws;
- Other specific types of expenses that are regulated by the Ministry of Finance.
3.2 Losses Carried Forward
Enterprises that suffered from losses can carry their losses forward to the subsequent year(s), these losses can be offset against taxable income. The time-limited for carrying losses forward is 5 years, starting from the following year after losses arise.
Losses from the transfer of real estate, investment projects, rights to participate in investment projects (except for mineral exploitation and exploration) can be offset against taxable income as a whole (from all other activities) in a tax year.
However, if losses from the transfer of real estate, investment projects, rights to participate in investment projects are carried forward in the next year, they can only be offset against income generated from these activities.
3.3 Tax Incentives
The two kinds of tax incentives offered to enterprises in Vietnam are preferential tax rates and tax holidays.
Generally, the preferential rates for corporate tax in Vietnam are:
- 10% for 15 years
- 17% for 10 years
- 10% for lifetime
- 17% for lifetime
And which enterprises enjoy which rates will depend on the sectors, locations of business, and scale of investment projects.
As for tax holiday, eligible enterprises will benefit from tax exemption and reduction of payable income tax. Similarly, different categories of businesses will enjoy different timeframes of tax exemption and different percentages of tax reduction.
Particularly, the tax holidays offer:
- Tax exemption for the first 4 years and 50% reductions of payable income tax for the next 9 years; or
- Tax exemption for the first 2 years and 50% reductions of payable income tax for the next 4 years.
In addition to the two incentives above, more tax reductions are available to some specific businesses that hire female workforce or ethnic minorities.
4. Tax Payment
According to Resolution No.151/2014/TT-BTC, enterprises no longer have to submit tax returns quarterly. Instead, they must pay corporate income tax provisionally on a quarterly basis based on estimates. The payment deadline is no later than the 30th day of the following quarter.
Essentially, a final tax return must be filed and submitted annually. This must be done within 90 days after the end of the calendar year or fiscal year. The total sum of provisional quarterly payments will then be reconciled with the finalization amount.
If the sum of provisional quarterly payments accounts for less than 80% of the finalization amount, the shortfall which exceeds 20% is subject to late payment interest, applying from the date after the deadline for the fourth-quarter tax payment to the date on which the tax deficit is fully paid.
In summary, all organizations that earn income from manufacturing, trading goods, and providing services are subject to corporate tax in Vietnam. The rate currently stands at 20% for enterprises in almost all sectors.
As a corporate taxpayer, you can make use of deductible expenses, carried-forward losses, tax incentives offered by the government, and other tax reductions to lower your payable income tax.
Last but not least, you need to pay your corporate tax provisionally on a quarterly basis based on estimates. And after the end of a tax year, you must also submit a final tax return within 90 days.
Should you have any questions relating to corporate tax in Vietnam, feel free to ask our experts! BBCIncorp is always willing to help!