All these taxes are imposed at the national level.  There are no local, state or provincial taxes

Corporate Tax

Tax Rates

One uniform income tax regime is applied to both foreign-owned and domestic companies under CIT Law. The standard CIT rate is currently 22% and is expected to fall to 20% from 2016.  For corporations with total revenues of fromVND20 billion or less, the 20% CIT rate is currently applied.

Certain industries are liable to higher tax rates:

Companies operating in the oil and gas industry are subject to CIT rates ranging from 32% to 50% depending on the location and specific project conditions.

Companies engaging in prospecting, exploration andexploitation of mineral resources (e.g. silver, gold, gemstones etc.) are subject to CIT rates of 40% or 50%, depending on the specific project.

CIT may be reduced under investment incentive schemes.

CIT Incentives

Tax incentives and criteria for eligibility to tax holidays and reduction are set out in the CIT regulations, i.e. the tax incentives are granted to new investment projects based on regulated encouraged sectors, encouraged locations and the size of the project.

Business expansion projects which meet certain conditions are also entitled to CIT incentives. New investment projects and business expansion projects do not include projects established as a result of certain acquisitions or reorganizations.

Preferential CIT Rates

15% CIT rate shall be applied:

Losses

Taxpayers may carry forward tax losses fully and consecutively for a maximum period of five years. Carry-back of losses is not permitted.

Losses arising from incentivized activities can be offset against profits from non-incentivized activities, and vice versa. Losses from the transfer of real estate and the transfer of investment projects can be offset against profits from other business activities.

There is no provision for any form of consolidated filing or group loss relief.

Administration

Taxpayers subject to CIT are obliged to file tax declarations on an annual basis.

Provisional quarterly CIT returns are no longer required. Enterprises are instead required to make quarterly provisional CIT payments based on estimates.  If the provisional quarterly CIT payments account for less than 80% of the final CIT liability, the shortfall in excess of 20% is subject to late payment interest (currently as high as 18% per annum), from the deadline for payment of the fourth quarterly CIT liability.

The quarterly CIT shall be paid no later than the 30th day of the following quarter.  Timeline for both filing the annual CIT finalization return and paying taxes is no later than 90 days from the end of the fiscal or calendar year.

Where a taxpayer has a dependent accounting unit (e.g. branch) in a different province, a single CIT return is required.  However, manufacturing companies are required to allocate tax payments to the various provincial tax authorities in the locations where they have dependent manufacturing establishments.  The basis for allocation is the proportion of expenditure incurred by each manufacturing establishment over the total expenditure of the company.

The standard tax year is the calendar year.  Companies are required to notify the tax authorities in cases where they use a tax year (i.e. fiscal year) other than the calendar year.

Profit Remittance

Foreign investors are permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam.  Foreign investors are not permitted to remit profits if the investee company has accumulated losses.

The foreign investor or the investee company are required to notify the tax authorities of the plan to remit profits at least 7 working days prior to the scheduled remittance.

Transfer Pricing

Vietnam’s transfer pricing regulations outline various situations where transactions will be considered as being between related parties and the mechanisms for determining the market “arm’s length” transaction value.

Under the wide ranging definition of related parties, the control threshold is lower than in many other countries (20%) and the definition also extends to certain significant supplier, customer and funding relationships between otherwise unrelated parties.  Vietnam’s transfer pricing rules also extend to domestic related party transactions.

The acceptable methodologies for determining arm’s length pricing are analogous to the principles espoused by the Organization for Economic Cooperation and Development (OECD), i.e. comparable uncontrolled price, resale price, cost plus, profit split and comparable profits methods.

Compliance requirements include an annual declaration of related party transactions and transfer pricing methodologies used, which is required to be filed together with the annual CIT return.  For tax years commencing on or after 1 January 2014, a revised declaration form is required to be completed.  This form contains enhanced declaration requirements, specifically requiring companies to declare and self-assess the arm’s length value of their transactions (or, in the alternative, make a voluntary adjustment).

Companies which have related party transactions must also prepare and maintain contemporaneous transfer pricing documentation, which is required to be submitted to the tax authorities within 30 working days of a request, in Vietnamese.

An advance pricing agreement (“APA”) mechanism was introduced in 2014.  The GDT is working through the initial ‘pilot’ APA applications which allow taxpayers and the tax authorities to agree in advance the pricing methodology and outcomes.

Value Added Tax ('VAT')

Scope of Application

VAT applies to goods and services used for production, trading and consumption in Vietnam (including goods and services purchased from non­residents).  A domestic business must charge VAT on the value of goods or services supplied.

In addition, VAT applies on the duty paid value of imported goods.  The importer must pay VAT to customs authorities at the same time they pay import duties.

VAT payable is calculated as the output VAT charged to customers less the input VAT suffered on purchases of goods and services.  For input VAT to be creditable, the taxpayer must obtain a proper VAT invoice from the supplier.  For VAT paid on imports the supporting document is the tax payment voucher and for VAT collected via the FCT mechanism, the supporting document is the FCT payment voucher.

Tax Rates

The standard rate is ten percent (10%). In addition, there are other rates of 5% and 0% and VAT exemption, as below:

When a supply cannot be readily classified based on the tax tariff, VAT must be calculated based on the highest rate applicable for the particular range of goods which the business supplies.

Goods or services which are exempt from VAT; and not required to declare and pay VAT

Exported Goods and Services

Services rendered directly and goods sold to foreign companies, including companies in non-tariff areas, are subject to 0% VAT if they are consumed outside Vietnam or in non-tariff areas.

Various supporting documents are required in order to apply 0% VAT to exported goods and services (except for international transportation services): e.g. contracts, evidence of non-cash payment and customs declarations (for exported goods).

There are a number of services specified in the VAT regulations which do not qualify for 0% VAT, in particular advertising, hotel services, training, entertainment, tourism provided in Vietnam to foreign customers; and various services provided to non-tariff areas (including leasing of houses, transport services for employees to and from their work place and certain catering services).

VAT Calculation Methods

There are two VAT calculation methods:

1.      Deduction/Credit Method

This method applies to business establishments maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including: (i) Business establishments with annual revenue subject to VAT of VND1 billion or more; (ii) Certain cases voluntarily registering for VAT declaration under the deduction method.

Accordingly, VAT payable = Output VAT – Input VAT

Price discounts generally reduce the value on which VAT applies.  However, certain types of discounts may not be permitted as a reduction before the calculation of VAT and various rules and conditions apply. 

Goods and Services for Internal Consumption 

Goods and services for internal use are no longer subject to output VAT provided that they relate to the business of the company. 

Administration 

All organizations and individuals producing or trading VAT-able goods and services in Vietnam must register for VAT. In certain cases, branches of an enterprise must register separately and declare VAT on their own activities. 

Taxpayers must file VAT returns on a monthly basis, by the 20th day of the subsequent month, or on a quarterly basis by the 30th day of the subsequent quarter (for companies with prior year annual revenue of VND 50 billion or less). 

Refunds 

Where the taxpayer’s input VAT for a period exceeds its output VAT, it will have to carry the excess forward for a period of twelve months.  It can then claim a refund from the tax authorities.  In certain cases (e.g. exporters where excess input VAT credits exceed VND300 million), a refund may be granted on a monthly/ quarterly basis.  Newly established entities in the pre­operation investment phase may claim VAT refunds on a yearly basis or where the accumulated VAT credits exceed VND300 million.

Newly established entities and certain investment projects which are in the pre-operation stage may be entitled to refunds for VAT paid on imported fixed assets based on shorter timelines than normal, subject to certain conditions.

Tax Invoices

Entities in Vietnam can use pre-printed invoices, self-printed invoices or electronic invoices.  The tax invoice template must contain stipulated items and be registered with the local tax authorities.  For exported goods a commercial invoice can be used instead of domestic invoices.

Foreign Contractor Withholding Tax (‘FCT’)

FCT applies to certain payments to foreign parties including interest, royalties, service fees, lease rentals, insurance, transportation, transfers of securities and goods supplied within Vietnam or associated with services rendered in Vietnam, and certain distribution arrangements.  It normally comprises a combination of CIT and VAT at varying rates but can also include PIT for payments to foreign individuals.

FCT does not apply for: (i) “pure supply of goods” under INCORTERMS., i.e. where title passed at or before the border gate of Vietnam and there are no associated services performed in Vietnam, (ii) service performed and consumed outside Vietnam.

There are three methods of FCT payment:

 Criteria:

(1)   Having a PE in Vietnam, or being a tax resident of Vietnam; and

(2)   The term of business in Vietnam pursuant to the foreign contractor contract lasts 183 days or more from the date the contract comes into force; and

(3)   Adopting the Vietnamese Accounting System; or

(4)   Maintaining accounting records in accordance with the accounting regulations and guidance of the Ministry of Finance.

Double Tax Agreements (‘DTAs’)

The CIT withholding taxes may be affected by a relevant DTA. For example, the 5% CIT withholding on services supplied by a foreign contractor may be eliminated under a DTA if the foreign contractor does not have a PE in Vietnam.

Vietnam has signed more than 65 DTAs and there are a number of others at various stages of negotiation.  The DTA between Vietnam and the United States of America was signed by the two Governments on 07 July 2015 (After the Government’s signing procedures, the DTA shall be gone through the rectification process (i.e. approved by Congress/ National Assembly) then notification process between two Ministries of Foreign Affairs).

Additional guidance has been introduced on the application of DTAs and became effective in 2014.  The most notable and interesting changes relate to beneficial ownership and general anti-avoidance provisions.  DTA entitlements will be denied where the main purpose of the arrangements is to obtain beneficial treatment under the terms of the DTA (treaty shopping) or where the recipient of the income is not the beneficial owner.  The guidance dictates that a substance over form analysis is required for the beneficial ownership and outlines the factors that may be indicative of a lack of beneficial ownership:

· Where the recipient is obligated to distribute more than 50% of the income to an entity in a third country within 12 months;
· Where the recipient has little or no substantive business activities;
· Where the recipient has little or no control over or risk in relation to the income received;
· Back to back arrangements;
· Where the recipient is resident in a country with a low tax rate;
· The recipient is an intermediary or agent.

Capital Assignment Profits Tax (‘CAPT’)

Gains derived by an entity on transfers of interests (as opposed to shares) in a Vietnam limited liability company or other enterprises are subject to 22%CIT.  This is generally referred to as capital assignment profits tax (CAPT) although it is not a separate tax as such.  The taxable gain is determined as the excess of the sale proceeds less cost (or the initial value of contributed charter capital for the first transfer) less transfer expenses.

Where the vendor is a foreign entity, a Vietnamese purchaser is required to withhold the tax due from the payment to the vendor and account for this to the tax authorities.  Where the purchaser is also a foreign entity, the Vietnamese enterprise in which the interest is transferred is responsible for the CAPT administration.  The return and payment is required within 10 days from the date of official approval of the sale.

Capital assignment with a value of VND20m or more must be supported by documents evidencing non-cash payment.  The tax authorities have the right to deem the transfer price for CAPT purposes.

Transfers of securities (bonds, shares of public joint stock companies, etc.) by a foreign entity are subject to CIT on a deemed basis at 0.1% of the total disposal proceeds.  Gains derived by a resident entity from the transfer of securities are however taxed at 22%.

Special Sales Tax (‘SST’)

SST is a form of excise tax that applies to the production or import of certain goods and the provision of certain services.

Taxable Price

There are various anti-avoidance rules which specify minimum prices for SST purposes.  For example where a manufacturer produces goods subject to SST and sells such goods through an agent, the minimum price for calculation of SST is 90% of the average selling price of the agent.

Tax Credits

Taxpayers producing SST liable goods from SST liable raw materials are entitled to claim a credit for the SST amount paid on raw materials imported or purchased from domestic manufacturers.

Tax Rates

The SST rates are as follows:

 Natural Resources Tax

Natural resources tax is payable by industries exploiting Vietnam’s natural resources such as petroleum, minerals, forest products, seafood and natural water.

The tax rates vary depending on the natural resource being exploited and are applied to the production output at a specified taxable value per unit.  Various methods are available for the calculation of the taxable value of the resources, including cases where the commercial value of the resources cannot be determined.

Petroleum, natural gas and coal gas are taxed at progressive tax rates depending on the daily average production output. 

Property Taxes

The rental of land use rights by foreign investors (if not contributed as capital) is in effect a form of property tax.  It is usually known as land rental and the range of rates is wide depending upon the location, infrastructure and the industrial sector in which the business is operating.

In addition, owners of houses and apartments have to pay land tax under the law on non-agricultural land use tax.  The tax is charged on the specific land area used based on the prescribed price per square meter and progressive tax rates ranging from 0.03% to 0.15%.

Environment Protection Tax

Environment protection tax is an indirect tax which is applicable to the production and importation of certain goods deemed detrimental to the environment, the most significant of which are petroleum and coal. The tax rates are as follows:

* Excludes plastic bags used for packaging or which are considered as environmental friendly

Rates

Import and export duty rates are subject to frequent changes and it is always prudent to check the latest position.

Import duty rates are classified into 3 categories: ordinary rates, preferential rates and special preferential rates. Preferential rates are applicable to imported goods from countries that have Most Favoured Nation (MFN, also known as Normal Trade Relations) status with Vietnam.  The MFN rates are in accordance with Vietnam’s WTO commitments and are applicable to goods imported from other member countries of the WTO.

Special preferential rates are applicable to imported goods from countries that have a special preferential trade agreement with Vietnam.  Vietnam has such free trade agreements with various countries including the ASEAN member states, Japan, China, India, Korea, Chile, Australia and New Zealand and has concluded negotiations with the customs union of Russia, Belarus and Kazakhstan.

To be eligible for preferential rates or special preferential rates, the imported goods must be accompanied by an appropriate Certificate of Origin.  When goods are sourced from non-preferential treatment/non-favoured countries, the ordinary rate (being the MFN rate with a 50% surcharge) is imposed.

Calculations

In principle Vietnam follows the WTO Valuation Agreement with certain variations.  The dutiable value of imported goods is typically based on the transaction value (i.e. the price paid or payable for the imported goods, and where appropriate, adjusted for certain dutiable or non-dutiable elements).  Where the transaction value is not applied, alternative methodologies for the calculation of the customs value will be used.

SST applies to some products in addition to import duties.  VAT will also be applied on all imported goods and services (unless exempt under the VAT regulations).

Exemptions

Import duty exemptions are provided for projects which are classified as encouraged sectors and goods imported in certain circumstances.

There are 20 categories of import duty exemption, including:

Refunds

There are various cases where a refund of import duties is possible, including for:

Export Duties

Export duties are charged only on a few items, basically natural resources such as sand, chalk, marble, granite, ore, crude oil, forest products, and scrap metal.  Rates range from 0% to 40%.

The tax base for computation of export duties is the FOB /Delivered At Frontier price, i.e. the selling price at the port of departure as stated in the contract, excluding freight and insurance costs.

Personal Income Tax (‘PIT’)

Tax Residency

Non-Employment 

·         Interest earned on deposits with credit institutions/banks and on life insurance policies;

·         Retirement pensions paid under the Social Insurance Law (or the foreign equivalent);

·         Income from transfer of properties between various direct family members;

·         Inheritances/gifts between various direct family members;

·         Monthly retirement pensions paid under voluntary insurance schemes;

·         Income from life insurance policies;

·         Foreign currency remitted by overseas Vietnamese

·         Scholarships

·         Compensation payments from life and nonlife insurance contracts

·         Income of Vietnamese vessel crew members working for foreign shipping companies or Vietnamese international transportation companies; and

·         Income from winning at casinos.

Foreign Tax Credits

In respect of tax residents who haveoverseas income, PIT paid in a foreigncountry is creditable.

Tax Deductions

Tax deductions include:

1.     Contributions to mandatory social, health and unemployment insurance schemes;

2.     Contributions to local voluntary pension schemes (subject to a cap);

3.     Contributions to certain approved charities;

4.     Tax allowances:

·         Personal allowance: VND9 million/month;

·         Dependent allowance:VND3.6 million/month/dependent (the dependent allowance is not automatically granted, and the taxpayer needs to register qualifying dependents and provide supporting documents to the tax authority).

PIT rates

Progressive PIT rates on employment income:

Brief of PIT Rates and Bands for 2015

Administration

Tax Codes

Individuals who have taxable income are required to obtain a tax code. Those who have taxable employment income must submit the tax registration file to their employer who will subsequently submit this to the local tax office.

For individuals with taxable non-employment income, they must submit their tax registration file directly to the district tax office.

Tax Declarations and Payment

For employment income, tax has to be declared and paid provisionally on a monthly basis by the 20th day of the following month or on a quarterly basis by the 30th day following the reporting quarter.  The amounts paid are reconciled to the total tax liability at the year-end.  An annual final tax return must be submitted and any additional tax must be paid within 90 days of the year end.  Expatriate employees are also required to carry out a PIT finalization on termination of their Vietnamese assignments before exiting Vietnam.  Tax refunds due to excess tax payments are only available to those who have a tax code.