Doing Business in Vietnam & Taxation
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- COUNTRY OVERVIEW
- FORMS OF DOING BUSINESS
- FOREIGN OWNERSHIP
- OTHER CONSIDERATIONS
- FINANCIAL REPORTING, AUDITING, FOREX & BANKING REQUIREMENTS
- LABOUR CONSIDERATIONS
|Population||97 million, with approximately 48% male and 52% female|
|Active mobile phone subscribers||133 million|
|Active internet users||49 million, with 38 million active mobile phone social users, 72% smart phone penetration in urban areas and 53% in rural areas|
|Legal system||Based on communist legal theory and French civil law|
|Accounting standards||Vietnamese Accounting Standards (VAS) based on IFRS|
|Languages used in business||Vietnamese, English, French, Chinese, Korean, Japanese|
|Exchange controls||Cross-border remittances are generally subject to stringent reporting requirements and anti-money laundering controls.|
|Currency||Vietnamese Dong (VND). Exchange rate is USD1=~VND23,000|
|GDP per capita (USD)||1,753||1,902||2,051||2,109||2,215||3,310||3,211||3,415||3,499||3,694|
|Inflation rate||9.1%||6.6%||4.1%||2.2%||4.7%||> 3%||3.5%||2.8%||3.2%||1.87%|
2. FORMS OF DOING BUSINESS
A foreign investor may establish business presence in Vietnam in the form of a foreign contractor, representative office, branch, limited liability company (with single or multiple shareholders), joint-stock company. There are also special project-based platforms such as Business Co-operation Contract (BCC), Production Sharing Contracts (for petroleum projects), or Public Partnership Contracts (PPP) in the forms of Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO), Build-Own-Operate (BOO), Build-Transfer-Lease (BTL), Build -Lease-Transfer (BLT) and Operate-Manage (O&M) Contracts, and project management companies (for infrastructure and public service projects).
Generally, all types of foreign direct investment are welcomed in Vietnam, except where it is specifically prohibited by law. In some industries, foreign investment is subject to conditions, while in others, it is subject to specific appraisal and pre-approval by the licensing authorities, and by the Prime Minister in special cases.
To establish business presence in Vietnam, a foreign investor must first obtain the relevant licence, permit or certificate, which depends on the legal form of the business. To set up a company, a foreign investor must first apply for two certificates namely Certificate of Investment Registration (CIR) and Certificate of Enterprise Registration (CER) by filing an application to the relevant local licensing authority, which is required by law to process the application within 15 days but the licensing process often takes longer in practice.
4. FOREIGN OWNERSHIP
Generally, 100% foreign ownership is now permissible in most sectors, with the exceptions of certain protected sectors whereby local participation is still required.
The taxation of a company in Vietnam is summarised in the diagram below:
Vietnam taxation regimes are relatively quite attractive to foreign investors. There are various corporate tax incentives offered to new businesses (both local or foreign owned businesses) in Vietnam, which vary depending on the type and geographical location the business.
5.1 Corporate tax incentives
A typical tax incentive scheme comprises of (i) a tax holiday up to 4 years; (ii) a 50% tax reduction period up to 9 years following the tax holiday period; (iii) and a period of reduced tax rate of 10% for a period up to 15 years, or 17% for a period up to 10 years. The key tax incentive schemes are summarised below:
- 4 years of tax holiday followed by 9 years of 50% tax reduction, and 10% preferential tax rate for 15 years are applicable to new investments in geographical areas with extremely difficult socio-economic conditions, those situated in an industrial zone, economic zone, or hi-tech zone, or a central IT park; new investments in promoted sectors (i.e. scientific research and technological development; application of hi-tech; infrastructure development; software development; manufacture of composite products, light construction materials, rare and precious materials; production of recyclable energy, clean energy, and energy from waste substances; bio-technological development; new environment friendly projects etc.
- 2 years of tax holiday followed by 4 years of 50% tax reduction, and 17% preferential tax rate for 10 years are applicable to new investments in geographical areas with difficult social-economic conditions; new investments in promoted sectors including: manufacturing of high quality steels, energy efficient products, machinery and equipment for agricultural development, forestry, fishery, and salt productions; watering and irrigation equipment; production or processing of feeds for livestock, poultry and fishery; promotion of traditional skills (including craftsmanship and artisan products, processing of farm produces and production of cultural products).
In addition, there are various tax incentives applicable to “new investment” or “investment expansion” of an existing business, the regular increase in capital expenditures on machinery and equipment as part of a taxpayer’s organic growth, mega manufacturing projects and certain other criteria such as size of capital, revenue, number of employees, the application of hi-technology, employment of female/ethnic minority employees etc.
Appendix 1 lists all the geographical areas that qualify for corporate tax incentives – Appendix .
CIT applies to all corporate entities including resident foreign and domestic entities carrying on business in Vietnam, and income of non-resident foreign entities that have a source in Vietnam. All entities incorporated under the laws of Vietnam are deemed to be tax residents of Vietnam. A foreign entity is deemed to be a tax resident of Vietnam if its business activities in Vietnam give rise to a permanent establishment.
5.2 Corporate Income Tax (CIT)
The current standard CIT rate is 20%, effective from 1 January 2016. Tax incentives including lower preferential tax rates (10%, 15% or 17%), tax holidays (for up to 4 years) and 50% tax reduction (for up to 9 years) may be available, and are subject to various conditions including (amongst others) geographical location and business sector.
A deemed flat tax rate ranging from 1% to 10% of gross income is applicable to unincorporated entities and foreign contractors deriving Vietnam-sourced income, that do not maintain adequate accounting books and records to determine their tax deductions.
Tax assessment period is the taxpayer’s fiscal year which is commonly a calendar year, or a non-calendar as elected by the taxpayer. Generally, income recognition is on accrual or invoice basis, while recognition of expenses is generally on cash basis, with certain exceptions.
Tax deductions are governed by a set of generic deduction rules and a prescribed list of prohibited deductions which are embedded with relevant exceptions that form the specific deduction rules. Tax depreciation and amortisation must strictly follow the statutory accounting depreciation rates. Accelerated tax depreciation of up to 200% is allowable in certain cases where the taxpayer earns steady high profits.
Tax losses may be carried forward for a period up to 5 consecutive years following the loss-making year. Carry-backward of tax losses is not allowed.
Foreign income is taxable. Foreign tax credits are allowable at up to the equivalent of Vietnam’s tax liability, while carry-forward of foreign tax credits is not allowable. Tax treaty relief is available where a tax treaty applies.
CIT is an annual tax except where ad-hoc tax returns are required on transaction basis. However, a business must self-assess and pay interim CIT quarterly and reconcile the tax payments in the annual return by the 90th day following the last day of a fiscal year.
5.3 Value Added Tax (VAT)
Businesses are subject to VAT at the rate below, depending on the type of goods or services and the nature of transactions:
- 0% rate applies to exported goods and services, subject to certain conditions;
- 5% rate applies generally to essential goods and services (as listed in the legislation); and
- 10% standard rate applies to goods and services not specified as exempt or subject to 0% or 5%;
There are various categories of VAT-exempt goods and services. In addition, there are “VAT-ignored” transactions whereby they are not subject to output VAT but the input VAT paid on related purchases is creditable.
Generally, a company is required to register for VAT under the Deduction Method (i.e. VAT payable = output VAT less input VAT) and charge output VAT on all invoices it issues to local customers. The VAT payable to the government is calculated as the output VAT charged to customers less the input VAT suffered on local purchases of goods and services.
To claim input VAT credit, a taxpayer must maintain suppliers’ VAT invoices and supporting documents such as contracts, evidence of non-cash payment where the invoice value is VND20million (approx. USD880) or more.
VAT is a monthly tax, which is self-accessed, returned and paid monthly (for most businesses) or quarterly (for small businesses with annual revenue up to VND50 billion or approx. USD2.2 million). A company is required to file VAT returns monthly by the 20th day of the subsequent month or quarterly by the 30th day following the reporting quarter. Initially, new company may elect to file VAT returns quarterly until its annual revenue of the first calendar year reach VND50 billion (approx. USD2.2 million). Such election needs to be notified to the local tax office as part of the initial tax registration process. However, once the annual revenue has reached or exceed the VND50 billion threshold, the company must then file VAT returns monthly.
During the pre-operating period, as a new business may claim a VAT refund if its accumulated input VAT surplus exceeds VND300 million (approx. USD13,500) and if its pre-operating period extends beyond 1 year.
5.4 Withholding taxes
Vietnam’s domestic tax laws impose CIT and VAT on outbound remittances of contract payments by a resident entity to a non-resident recipient which is colloquially referred to as “foreign contractor”, and hence the term “foreign contractor tax” or “FCT”, which comprises of two components including a deemed CIT and a deemed VAT, both are normally calculated at a deemed flat rate on the gross amount of contract payments. These contract payments can be classified into main categories including dividend, royalty, interest, and contractor’s payment, and hence the tax imposed on them are commonly known as dividend withholding tax, interest withholding tax, royalty withholding tax and foreign withholding contractor tax. These are briefly described below.
5.4.1 Dividend withholding tax
Dividend withholding tax has been abolished since 2004. Therefore, the domestic dividend withholding tax rate is effectively 0%. Therefore, where a limit set by a tax treaty is higher, this domestic rate will apply.
5.4.2 Interest withholding tax
In Vietnam, debt financing is commonly used in the capital structure of a foreign owned company. Usually, the fund is often sourced by a loan provided by an offshore shareholder or affiliate, or by an offshore bank with guarantee by the shareholder or an affiliate.
Generally, a withholding tax of 5% is applicable to interest and any other amounts charged by the offshore lender. However, under some tax treaties the interest on offshore loans provided by government or a semi-government institution may be exempt from Vietnamese withholding tax.
The 5% interest withholding tax is solely the CIT component, as interest is exempt from VAT.
5.4.3 Royalty withholding tax
A royalty withholding tax of 10% is applicable to payments made to a foreign party for the right to use, or for the licensing of, patents, inventions, industrial property, designs, trademarks, copyright, technical know-how etc., which are broadly referred to as “transfer of technology” under Vietnamese tax laws. Where a tax treaty provides for a lower rate, the treaty’s rate shall apply.
Transfer of technology may be exempt from royalty withholding tax if the transfer of technology is made as part of legal capital to a Vietnamese company. The term “transfer of technology” is defined very broadly in the Vietnamese legislation and often subject to varying interpretations.
The 10% royalty withholding tax is solely the CIT component, as royalty is exempt from VAT.
5.4.4 Foreign contractor tax
Foreign Contractor Tax (FCT) is applicable to foreign entities which carry on business in Vietnam or engage in a transaction with a Vietnamese contracting party but do not have any legal entity in Vietnam in one of the forms prescribed in the laws of Vietnam, known as “foreign contractors”.
By default, foreign contractors are taxed through a withholding mechanism, hence the term “foreign contractor withholding tax”. However, the FCT regime also distinguishes between foreign contractors who pay tax through withholding by the Vietnamese contracting party and who is registered for taxation in Vietnam. A tax-registered foreign contractor may elect to pay taxes (including CIT and VAT) as it were an ordinary domestic taxpayer or elect a hybrid tax payment method whereby CIT is paid a deemed flat rate (as in the case of withholding tax) and VAT is paid under the conventional method (i.e. VAT payable equals output tax minus input tax). Such tax registration is optional, provided that the following criteria are satisfied:
- The foreign contractor has a permanent establishment in Vietnam or is a tax resident of Vietnam;
- The intended period of carrying on business in Vietnam under a contract with a Vietnamese contracting party is 183 days or more, from the effective date of the contract;
- The foreign contractor adopts Vietnamese Accounting Standards (VAS).
A foreign contractor who fully satisfies all three criteria above pay taxes (i.e. CIT and VAT) as if they were an ordinary domestic taxpayer. Whereas, foreign contractors who satisfy the first two criteria and do not fully satisfy the third criterion, pay taxes under the hybrid tax payment method (as mentioned above), provided that they follow certain (simplified) VAS bookkeeping requirements and MoF’s guidance.
In practice, most foreign contractors choose paying taxes through withholding by the Vietnamese contracting party and most tax-registered foreign contractors choose the hybrid method.
FCT is however exempt in the following circumstances:
- Local contractors being organisations or individuals resident in Vietnam;
- Foreign organisations or individuals supplying goods to a Vietnamese buyer without whatsoever services rendered in Vietnam, under the following delivery terms:
- The goods are delivered at a foreign border gate; the seller bears all liability, costs, and risks relating to export and delivery of the goods at the foreign border gate; and the buyer bears all liability, costs, and risks relating to receipt and transportation of the goods from the foreign border gate to Vietnam (including cases where the seller is responsible for warranty); or
- The goods are delivered at a Vietnamese border gate; the seller bears all liability, costs, and risks relating to the goods up to the place of delivery of the goods at the Vietnamese border gate; and the buyer bears all liability, costs, and risks relating to receipt and transportation of the goods from the Vietnamese border gate (including cases where the seller is responsible for warranty).
- Foreign organisations or individuals deriving income from services “rendered and consumed” outside of Vietnam.
- Foreign organisations or individuals that provide the following services to a Vietnamese customer, where the services are performed outside of Vietnam (i.e. offshore services):
- Repair of transport vehicles (including planes, planes’ engines or spare parts, and sea-going vessels), machinery or equipment (including sea cables and transmission equipment) with or without replacement of spare parts and equipment;
- Advertising and marketing; (except for on-line advertising and marketing)
- Trade and investment promotion;
- Brokerage for export of goods or services;
- Training (except for online-training);
- Shared services in international telecommunication whereby the services are provided outside of Vietnam; lease of transmission cables and satellite services outside of Vietnam as governed by the relevant law on post and telecommunication or by an international treaty on post and telecommunication to which Vietnam is signatory.
- The operation of bonded warehouse or international container depot (ICD) to support international transportation, transit or cross-border services, to store goods, or to lease processing space to other businesses.
5.4.5 Domestic withholding tax rates
The table below summarises the deemed withholding VAT and CIT rates which are applied to the gross revenue derived by a foreign contractor. The applicable rates depend on the type of business or transaction.
|Type of business/ transaction||Deemed VAT rate||Deemed CIT rate|
|Services; leasing machinery or equipment (including oil rigs); insurance.||5%(a)||5% or 2%(b)|
|Construction or installation with supply of materials, machinery or equipment.||3%||2%|
|Construction or installation without supply of materials, machinery or equipment.||5%||2%|
|Manufacturing; transportation; services provided together with supply of goods;||3%(c)||2%|
|Trading including: distribution or supply of goods, materials, parts, machinery, equipment; distribution or supply of goods, materials, machinery or equipment together with services in Vietnam (including the supply of goods in the form of in-country export, except for export processing); supply of goods under Inconterms.||1%(d)||1%|
|Transfer of securities or certificates of deposits; outbound re-insurance; re-insurance commissions||Exempt||0.1%|
|Management services for restaurants, hotels and casinos||5%||10%|
|Other types of business||2%||2%|
- Certain types of insurance are exempt from VAT (including life, health, student and other insurance relating human being; insurance for domestic animal, plants and other agricultural insurance; insurance for ships and vessels, fixtures, fittings, other equipment essential for fishery business; re-insurance).
- The 2% CIT rate is applicable to leasing of planes, plane’s engines or spare parts, or sea-going vessels.
- International transportation enjoys 0% VAT.
- VAT is not payable where goods are exempt from VAT or where import VAT is paid.
Of note, where a tax treaty applies, the CIT component may be exempt or reduced, but not the VAT component. However, the VAT component is a creditable input VAT to the Vietnamese contracting party that withholds and pays the VAT on behalf of its foreign contractor.
5.4.6 Domestic withholding taxes vs tax treaties
The deemed existence of a permanent establish (PE) will impact a foreign contractor’s eligibility to tax treaty exemption. If eligible to tax treaty exemption, the exemption will only apply to the CIT element of the FCT, which is a direct tax. The VAT element of the FCT, which is an indirect tax, will not be exempt, as indirect taxes are not covered by tax treaties.
The specific guidance for tax treaties provides for the following rules:
- If there is an inconsistency between the provisions a tax treaty and the provisions of domestic tax laws, the provisions of the tax treaties will prevail.
- The application of a tax treaty should not create new tax obligations or higher tax obligations than domestic tax laws – where a tax treaty provides Vietnam with a right to tax a particular type of income or it requires Vietnam to tax such income at a specific rate but the domestic tax laws do not tax such income or tax it at a lower tax rate, the domestic tax laws will prevail.
- Where a term in a tax treaty is not defined, it will be interpreted as defined by domestic tax laws. Where such a term is also not defined in domestic tax laws, the tax authorities of the contracting states will agree on their meaning through the mutual procedure under the relevant tax treaty. Where there is an inconsistency between the definition by tax laws and other laws, the definition by tax laws shall prevail, for the purpose of application of tax treaties.
- Unless otherwise specified in the relevant tax treaty, Vietnam may reject a claim of tax treaty relief in the following cases:
- A claim of tax treaty relief extends beyond 3 years in retrospect of the date of its lodgement;
- The dominant purpose of the transaction under review is to benefit tax treaty relief; or
- The applicant is not the beneficiary owner of the income.
A table of comparison of tax rates in the tax treaties with Vietnam is in Appendix .
Since 1 March 2012, the domestic interest withholding tax rate has been reduced from 10% to 5%. Therefore, where a tax treaty prescribes a higher rate, this 5% will apply. Also, as Vietnam has abolished dividend withholding tax since 2004, where a tax treaty prescribes a higher rate, the 0% rate will apply.Generally, the rates provided in these tax treaties are applicable to foreign direct investment. It is unclear how these rates will be applied in the context of portfolio investment due to the lack of regulations and guidance.
- In some cases, the limits set by the treaty are higher than the present withholding rate under domestic law. Therefore, the domestic rates will apply.
- Dividend withholding tax rates vary according to ownership interest in the company.
- Interest derived by certain government bodies is exempt from withholding tax.
- Royalty withholding tax rates vary for certain types of royalties.
- The agreements between Vietnam and Algeria, Egypt, Iran, Israel, Kazakhstan, Mozambique, Macedonia, San Marino, Serbia, Uruguay (East), Turkey, USA, Portugal are signed but not effective at present.
- Copies of these treaties were not publicly available at the time of this publication.
5.4.7 Permanent establishment (“PE”) issues
A foreign company will have a CIT exposure if it is deemed to have PE in Vietnam. The Vietnamese domestic tax legislation defines a PE as a business establishment through which a foreign company carries on part or whole of its business activities in Vietnam and earns income. It is defined to include, inter alia:
- A branch, an operating office, a factory, a workshop, a warehouse, means of transportation, a mine, an oil and gas well, or any place of mining of natural resources in Vietnam;
- A building site, construction, installation or assembly project.
- An establishment providing services including consultancy services provided through its employees or other persons/organisations;
- An agent for a foreign business;
- A representative in Vietnam (i) with the authority to sign contracts in the name of a foreign business; or (ii) without the authority to sign contracts in the name of a foreign business but habitually delivering goods or providing services in Vietnam.
In theory, where the Vietnamese tax office deems a foreign company having a PE in Vietnam, the standard CIT rate of 20% could be applied to the profits attributable to the PE. In practice, to date, most PEs are taxed under the FCT mechanism, as described above. Therefore, the absence or presence of PE has little relevance as far as domestic tax legislation is concerned. However, the absence of PE will remain critical, where a tax treaty is applied.
5.4.8 Tax treaties and the choice of the offshore holding entity’s jurisdiction
Exemption from CIT may be available to the direct transfer of shares in the Vietnamese company whereby the overseas holding entity belongs to a country which has an effective tax treaty with Vietnam, subject to the provisions of such tax treaty.
Vietnam has entered into tax treaties with around 80 countries, and most of them are already effective. It has also guidelines to provide a legal framework for the implementation of tax treaties. Most tax treaties follow the basic principles contained in the OECD Model Convention and the provisions of tax treaties generally prevail over the domestic tax laws. Tax treaties only provide tax relief in respect of direct taxes (i.e. CIT), and not indirect tax (i.e. VAT).
When a tax resident of another country which has an effective tax treaty with Vietnam is subject to CIT, such tax may be exempt or reduced under the relevant tax treaty. However, tax relief is not automatic. The taxpayer (or its authorised agent) must submit a claim for tax relief under the relevant tax treaty. In practice, the procedures for claiming tax treaty relief can be onerous, time consuming and costly.
For a list of all tax tax treaties with Vietnam, please click here.
5.4.9 Taxability of indirect transfer of shares in the offshore holding entity
It has been the practice in Vietnam until recent time that an indirect transfer of shares in the offshore holding entity is not subject to Vietnam’s taxation of the capital gain, provided that the transfer does not trigger a change in details of the foreign shareholder (e.g. shareholder’s name) or the shareholding structure in the business licenses of the Vietnamese entity. The rationales for the exemption include (amongst others) that the transaction occurs outside of Vietnamese tax jurisdiction; there is no mechanism for taxation; the capital gain does not have a source in Vietnam; and there is no look-through requirement in Vietnam’s tax legislation etc.
However, Vietnamese tax authorities have recently begun following the trends and developments in other jurisdictions (e.g. China and India) in attempting to tax capital gains from indirect offshore transfer of shares. To date a single legal basis relied upon by Vietnamese tax authorities is that allows “income that has a source in Vietnam is taxable in Vietnam”.
Vietnam’s tax laws do not clearly define “Vietnam-sourced income”. In practice, the tax authorities deem a capital gain having a source in Vietnam if (i) the buyer in an indirect offshore transfer of shares is in Vietnam and/or (ii) the payment is made by an entity in Vietnam. In this regard, there has been at least one case precedent whereby the tax authorities have succeeded in taxing a transaction under such circumstances. Further, there have been a case whereby the tax authorities also attempted successfully in taxing a transfer of shares at the offshore holding entity’s level whereby both seller and buyer are outside of Vietnam, not for purely technical reasons but rather that the parties to that transaction apparently decided to concede.
5.5 Capital gain tax
Generally, capital gains made by a business in Vietnam are characterised as part of other income which is taxable at the prevailing standard tax rate of 20% from 2016 and does not enjoy any tax incentive (except for income derived from a public housing development project that enjoys the preferential tax rate of 10%).
Gains from transfer of real estate, investment projects, or the right of participation in an investment project (amongst others) must be accounted for separately for CIT purposes.
Gains from transfer of a real estate investment project or the right of participation in an investment project may be offset against the business losses of the year of transfer (including losses carried forward from prior years).
5.6 Property taxes
Property taxes in Vietnam are levied in the form of “land-use fee”, “land rental” and “non-agricultural land-use tax”.
Generally, when an investor requires land for an investment project, it may acquire the land from the land management authority either by way of allotment and paying land-use fee or by way of leasing and paying land rental.
In the case of a joint-venture where the Vietnamese party contributes its capital in the form of land-use-right, the foreign investors generally need not be concerned about financial obligations in relation to the land contributed by the Vietnamese party as these are normally the responsibilities of the Vietnamese party, unless agreed otherwise. However, they are described in this report for completeness.
Effective 1 January 2012, an investor who holds land for commercial purposes other than agricultural purposes is required to pay the following levies for holding such land.
5.6.1 Land-use fee
The legislation provides that organisations which are allocated land by the State to develop infrastructure for sale or lease are subject to the payment of land-use fee. This fee is based on the area of land, unit price of the land (“land value”) and the purpose of use.
The land value is stipulated by the provincial People’s Committee. Where the land value prescribed by provincial People’s Committee does not match the market value for transfer of land-use-right, it will be based on market value.
5.6.2 Land rental
The legislation provides that a foreign investor may lease (or rent) land in Vietnam for an investment project and subject to the payment of land rental, which is based on the land area, the term of lease, the unit price of land, at the following rates:
Annual unit price = land rental rate x land value
Where, land rental rate is 1%, except for:
- Land in urban areas, commercial centers, traffic hubs, residential areas which has high potential profitability to build commercial real estate where the local provincial People’s Committees may set a different rate, provided that such a rate does not exceed 3%.
- Land in remote areas with socio-economic difficulties, agricultural land or land for special use where the local provincial People’s Committee may set a different rate, provided that such a rate is not below 0,5%.
Land rental rate is normally fixed for an initial period of 5 years. From time to time, the local tax office may adjust the annual unit price in so far as it complies with the above rates.
5.6.3 Non-agricultural land-use tax
Non-agricultural land-use tax is applicable to the following types of land:
- Residential land in rural and urban areas;
- Non-agricultural land which is used for commercial purposes; and
- Non-agricultural land which is exempt from non-agricultural land-use tax but is used for commercial purposes.
The tax liability is based on the land area, land value and tax rate. For residential land holding a multi-floor building, non-agricultural land holding a production or business establishment, the tax rate is 0.03%.
If there is a change in the purpose of land-use, the taxpayer is required to notify the tax office of such a change within 30 days following the date on which the change occurs. The taxpayer may opt to pay non-agricultural land-use tax on one-off basis or twice a year but the annual payment of tax may not be later than 31 December each year.
5.7 Personal Income Tax (PIT)
Generally, Vietnam taxes individuals based on their resident status, source of income, level of income, regardless of where income is paid and received.
An individual is deemed to be a tax resident of Vietnam if (i) he or she is physically present in Vietnam, in aggregate, at least 183 days within a calendar year or in the period of 12 consecutive months from the first date of arrival in Vietnam; (ii) he or she has a legal domicile in Vietnam, according to Vietnam’s domicile law; or (iii) he or she has a place or places of accommodation in Vietnam leased for a period or periods in the aggregate of 183 days or more during a tax year, whether or not his or her legal domicile is in Vietnam. An individual who does not fall in any of the mentioned tests is deemed to be a non-resident.
In respect of employment income, a resident is taxed on world-wide income at the progressive tax rates ranging from 5% to 35%, while a non-resident is taxed on Vietnam-sourced income at the flat rate of 20%.
In respect of business income, where an individual’s annual income exceeds VND100 million (equivalent to US$4,444), the entire income is taxed with both personal income tax (“PIT”) and value added tax (“VAT”) at deemed flat rates, from 0.5% to 5% for PIT and from 1% to 5% for VAT, depending on the type of business carried on by the individual.
An individual’s taxable income also consists of income from investment of capital, income from transfer of capital, income from transfer of real estate, windfall income, royalty income, licensing income, income from gift or inheritance. These incomes are subject to different tax rates and administrative filing procedures.
Expatriates whose employer is overseas are required to (i) apply for a tax code within 10 days following the date of first earning of taxable income in Vietnam; (ii) file quarterly interim tax returns and pay the relevant tax instalment directly to the tax office by the 30th day of the following quarter; and (iii) file an annual tax return and pay the additional PIT (if any) by the 90th day following the tax year. Upon departure from Vietnam, an expatriate taxpayer is required to file a final departure tax return and pay the additional PIT (if any) by the 45th day following the last day of employment in Vietnam.
6. OTHER CONSIDERATIONS
6.1 Customs duties and import/export VAT
Goods entering or leaving Vietnam are subject to import/export duties and import/export VAT, respectively. The rate applicable to each type of goods varies depending on the nature of the products, the Vietnamese authority’s import-export policy in each period as well as other international agreements in which Vietnam is a member. Vietnam’s accession to WTO and entry into international bilateral or multilateral trade agreements with other nations have certain positive impacts on import and export tariff. Import tariff has reduced significantly over years and the export of most products made in Vietnam enjoy a 0% export duty, with very few exceptions.
Similarly, goods entering to Vietnam are generally subject to import VAT at 5% or 10% unless they are listed exempt goods under VAT legislation or an exemption is granted under particular circumstances such as they fall in the criteria of items that are not yet produced in Vietnam etc. Goods leaving Vietnam for export enjoy 0% VAT.
6.2 Transfer pricing (TP)
The on-going development of TP regulation and practice in Vietnam deserves caution by multinational companies operating in Vietnam. The development demonstrates the Vietnamese tax authorities’ increasing focus on protecting revenue through the requirement of arm’s length transfer prices between related parties. Vietnamese tax authorities have been focusing their tax audits on TP issues, within the scope of general tax audits whereby TP has become one of the tax authorities’ priorities in relation to tax administration in recent years.
Both cross border and domestic related party transactions are covered by TP regulation in Vietnam. Therefore, transactions between a company and its overseas parent and/or affiliates within the group would be considered as related party transactions. The broad definition of related parties includes parties with substantial business transactions with one another.
Generally, a company is required to maintain contemporaneous TP to support the pricing of transactions of its related parties upon request by the tax authority, and to file an annual TP return (together with the annual CIT return) setting out details of all related party transactions not later than 90 days from the year end. In addition, the regulation places the burden of proof on taxpayers to demonstrate that related party transactions are conducted at arm’s length. In particular, taxpayers are required to prepare and maintain contemporaneous TP documentation which must be provided to the tax authority within 30 working days upon a written request by the tax authority, although a one-time 30-day extension may be granted at the tax authority’s sole discretion.
The TP regulation places emphasis on the need for taxpayers to adhere to the TP guidelines. It clearly defines, among others, related party transactions which are subject to the TP rules, methods, and disclosure requirements. Vietnamese tax authorities are given extensive power to make TP adjustments with respect to non-arm’s length RTPs and taxpayers’ failure to comply with the TP documentation and disclosure requirements. The regulation also prescribes the specific information to be included in the TP documentation (which must be available in Vietnamese). Extensive disclosures are required in relation to the related party(ies) involved, description of transactions and the rationale for the selection and application of TP methodologies.
6.3 Dividend repatriation
After fulfilling all tax and other financial obligations towards the Vietnamese Government, a foreign shareholder may repatriate its after-tax dividends out of Vietnam on an annual basis or upon divestment. The tax legislation specifically prohibits the remittance of dividends abroad while a company still carries “accumulated losses” in their financial statements. The after-tax dividends distributed to a corporate shareholder will not be subject to any further tax in Vietnam, as Vietnam has abolished dividend withholding tax.
6.4 Thin capitalisation
The capital structure of foreign owned companies in Vietnam typically includes charter (or legal) capital (ie. equity) and loans. A company’s legal borrowing capacity is measured by the difference between its “total investment capital” and charter capital. There is no longer minimum capital requirement, with very few exceptions which include a minimum charter capital requirement for a real estate business to be VND20 billion (approx. USD880,000). However, in practice size still matters and it may influence the licensing authorities’s appraisal of certain investment projects. Generally, the licensing authorities expect investors to contribute adequate charter capital to cover initial investment outlay and it must be fully contributed within 90 days after the grant of the Certificate of Enterprise Registration. Investors who fail to do so are required to notify the licensing authorities within the next 60 days to have their charter capital adjusted accordingly.
Generally, interest payments for a loan obtained from a credit institution (e.g. bank) or an economic organisation are deductible if the loan is for the purpose of income-generating activities. However, where a loan is borrowed at an excessive interest rate, the amount of interest paid to a lender other than a non-credit institution or non-economic organisations (e.g. a shareholder) is only deductible for up to 150% of the prime interest set by the State Bank of Vietnam (“SBV”) at the date of borrowing.
No CIT deduction is allowable in respect of capitalised interest expenses and interest payments for loans obtained for contributions to (or any other loans corresponding to the outstanding shortfall of the required charter capital of a company or the required investment capital of a sole proprietorship business, if such required investment capital has not been fully contributed in accordance with the capital contribution schedule stated in the taxpayer’s charter or Certificate of Enterprise Registration, even when the taxpayer has already commenced business operations (i.e. the loans are obtained for working capital).
Effective 1 January 2015, where a taxpayer has fully contributed charter capital, the interest expenses on loans acquired to invest in a subsidiary are deductible.
Under the regulations on foreign loans, a taxpayer is required to register its foreign loans, which are classified as medium or long term (i.e. the initial period of the loan or the aggregate of periods of the loan including the initial period and subsequent renewals is greater than one year) with the State Bank of Vietnam (SBV) after the loan agreement is signed and before the fund is disbursed. Failure to comply with this requirement may result in the relevant interest expenses being disallowed a CIT deduction.
In addition, the following rules apply to companies with foreign owned capital in Vietnam:
- During the pre-operating period, the sum of all loans (including both domestic and foreign loans and regardless of the term of loan) must not exceed the permitted borrowing capacity (i.e. the difference between the total investment capital and the charter capital) that causes the total investment capital to exceed the level specified in the business licenses. After the pre-operating period, short-term loans (i.e. up to 1 year) are disregarded in determining the level of borrowing subject to this restriction.
- At any time, the sum of all medium-term and long-term loans (i.e. loans exceeding 1 year) must not exceed the permitted borrowing capacity or the total investment capital specified in the business licenses.
6.5 Tax losses
Generally, tax losses of prior years may be carried forward to, and offset against the taxable income of, the subsequent years for a period up to 5 consecutive years from the loss-making year. Carry back of tax losses is not allowed.
Taxpayers are required to self-assess their tax loses. Where a loss assessed by the tax authority in a tax audit or tax inspection differs from the loss self-assessed by the tax payer, only the latter may be carried forward.
Effective from 2014, losses incurred from transfers of real estate, investment projects, or the right to participate in an investment project (except for losses incurred in a mineral mining project) are deductible against business income and other income.
6.6 Depreciation and amortisation
In Vietnam, accounting and tax depreciations must be the same. In the past, taxpayers were required to follow the accounting depreciation rules for tax purposes. In recent years, the Ministry of Finance (MoF) has issued specific regulations for tax depreciation. Although not specifically stated in the regulations, accounting depreciation is now required to follow tax depreciation.
Generally, depreciation is calculated based on asset’s usage, activity, or parts produced instead of the passage of time. Depreciation begins or stops on the date (i.e. counting on daily basis) that the fixed asset is added to or removed from the taxpayer’s fixed assets.
6.6.1 Tangible fixed asset
In general, to qualify as a fixed asset for tax depreciation, an asset must meet the following basic requirements:
- Future economic benefits are derived from the use of the asset;
- The useful life of the fixed asset is greater than one year; and
- The historical cost of the asset is at least VND30 million as substantiated by a reliable valuation source.
The historical cost of a fixed assets is the actual cost of purchase plus directly relevant expenses paid at the time of putting such fixed assets into the state ready for use (such as interest on loan invested in the fixed assets, transport expense, loading and unloading expense; expenses for upgrading, installation, commissioning; and applicable stamp duty etc.).
Where a fixed asset consists of buildings or other architectures connected to a land-use-right, the value of land-use-right must be ascertained and accounted for separately as intangible fixed asset.
6.6.2 Intangible fixed asset
An expenditure which satisfies all three test criteria for a fixed asset mentioned above and does not create a tangible fixed asset is considered as intangible fixed asset. Otherwise, such expenditure must be charged or amortised to operating expenses. Examples of intangible fixed assets include land-use-right with definite term, pre-establishment expenditures, intellectual property rights, and goodwill etc.
Generally, taxpayers are allowed to elect a useful life up to 20 years for intangible fixed assets. The useful life of land-use-right with definite term or land-lease-right is the term of the land-use-right or land-lease-right. The useful life of copyright or intellectual property is period of ownership protection specified in the certificate of ownership protection as prescribed by law.
6.6.3 Depreciation method
Three depreciation methods including (i) Straight-line, (ii) Reducing Balance and (iii) Unit/Volume of Production are allowable but taxpayers must adhere to certain requirements prescribed for each method in order to elect and apply them.
Taxpayers with high profitability may apply an accelerated tax depreciation rate up to 200% of the standard depreciation straight-line rate, provided that such accelerated depreciation is aimed to replace the existing fixed assets with new technology and ensures that the business remains profitable. However, accelerated tax depreciation is only applicable to certain fixed assets (including machinery, equipment, transport vehicles).
The reducing balance method (ii) is applicable to taxpayers whose business requires rapid technological change and development. Accelerated tax deprecation under method (ii) is allowable only if the fixed assets are brand new machinery or equiment.
Depreciation method (iii) is applicable to machinery and equipment whereby the production ouput is messured in units or volume according to their designed capacity and the monthly average of their usage is not below 100% of their designed capacity .
Taxpayers are required to register their elected depreciation method with the local office prior to applying such method. The registered method must be applied consistently during the useful life of the fixed assets. Under special circumstances, the depreciation method can be changed, provided that the taxpayer has valid economic reasons to do so and submits a written notice of such change to the local tax office. However, each item of fixed asset may change its depreciation method once throughout their useful life.
6.6.4 Depreciation rates
A taxpayer may depreciate new fixed assets according to their statutory useful life which is summarised as follow:
|Dynamic machinery and equipment||6 -20|
|Working machinery and equipment||3 – 20|
|Measurement equipment and laboratory instruments||2 – 10|
|Transport equipment and means of transport||6 – 30|
|Instruments for management||3 – 10|
|Real estate and architectural works||5 – 50|
|Livestock and perennial plantations||2 – 40|
|Other tangible assets (not specified in the above categories)||4 – 25|
|Other intangible fixed assets||2 – 20|
Used fixed assets are also depreciable over a useful life determined by an apportionment formula set by the depreciation regulation.
6.6.5 Amortisation of expenditure
A taxpayer may capitalise and amortise its intangible assets over their useful life except for those required to be classified as intangible fixed assets and depreciated or amortised according to specific rules. Typical amortisable items include pre-establishment expenditures, R&D expenditures, land-use-right with definite term, land-lease-right, intellectual property rights and goodwill.
“Pre-establishment expenditures” such as the costs of training, advertisement, feasibility study, business relocation, technical information, patent, certificate of transfer of technology, trademarks, commercial advantages (i.e. goodwill) are amortisable over a period up to 3 years from the date of commencement of business operation.
The value of land-use-right with definite term is amortisable over the period specified in the certificate of land-use-right. Where a taxpayer pays land-use-fees, such fees are also amortisable. Assets in the forms of equipment, tools, and recyclable packaging materials etc. which are not qualified as fixed assets are also amortisable over a period of up to 3 years.
6.7 Common methods of repatriation of funds and their tax implications
There are various methods in which a foreign investor may repatriate/extract funds from a business in Vietnam through intercompany transactions. The choice depends on the investor’s commercial objectives, their legal feasibility and the tax cost-and-benefits of those transactions. The following methods are possible:
6.7.1 Reduction of charter capital
In theory, it is possible to repatriate fund by way of a reduction of charter capital of an existing company in Vietnam. However, the reduction of charter capital requires pre-approval by the licensing authorities in Vietnam, which is currently very difficult to obtain. Therefore, this method is not popular and practical, although this method has no Vietnamese tax implication.
Technically, a limited liability company (with single or multiple shareholders) may reduce its charter capital if:
- It has been in business for at least 2 years;
- The charter capital will be returned to the relevant shareholder(s); and
- After reduction of the charter capital the company will continue to be able to meet its financial obligations such as debts and other liabilities;
6.7.2 Disposal of shares
Generally, a foreign shareholder may dispose its shares in a Vietnamese company and repatriate the proceeds of disposal abroad. If there is a gain derived from such disposal, the gain will be subject to capital gain tax i.e. CIT at the rate of 20%. Where the shares are in a public or listed company or a non-listed joint-stock company, the disposal of shares will be subject to CIT at the deemed flat rate of 0.1% of the proceeds of disposal. However, where a tax treaty applies, an exemption of capital gain tax may be sought in accordance with the provisions of such a tax treaty.
6.7.3 Dividend repatriation
A foreign shareholder of a Vietnamese company may repatriate its dividends distributed by the Vietnamese company after it has fulfilled all tax obligations of the relevant fiscal year(s) and obtained a tax clearance by the tax authority. However, it should be noted that the current tax regulation prohibits a company in Vietnam to remit dividends abroad if it still carries accumulated losses. Further, interim dividends are no longer allowed to be remitted abroad, although this was permissible in the past.
Vietnam has abolished dividend withholding tax since 2004. Therefore, the repatriation of (after-tax) dividends to a foreign corporate shareholder will not trigger any further tax. However, dividends distributed to an individual shareholder (other than the sole shareholder of a one-member limited liability company) will be subject to withholding PIT at 5%.
6.7.4 Shareholder’s loan interest
A foreign shareholder may provide a loan to its Vietnamese investee company and charge interest on such a loan. The interest payments by the Vietnamese company will be subject to interest withholding tax at 5% (which solely comprises of CIT, as interest is exempt from VAT).
Generally, the interest expenses are deductible to the Vietnamese company, if it has complied with the relevant foreign loan registration requirements (applicable to loans which have a maturity term more than one year). However, there are restrictions on the tax deductibility of interest expenses, as discussed in the relevant section of this report.
In addition, another way to repatriate fund under this method is to amend the loan agreement which allows the acceleration of repayment of exiting loans to the lending shareholders.
6.7.5 Royalty payments
A foreign shareholder or its affiliates may enter into a royalty arrangement with the Vietnamese company. A royalty payment may be a payment made to the foreign party for the right to use or for the licensing of patents, inventions, industrial property, designs, trademarks, copyrights, technical know-how etc., which are broadly referred to as royalty for “transfer of technology” under Vietnamese laws.
Royalty payments to a foreign shareholder/affiliate will be subject to a royalty withholding tax at 10% (which solely comprises of CIT, as royalty is exempt from VAT). Where a tax treaty provides for a lower rate, the treaty’s rate shall apply.
Royalty payments are generally deductible to the Vietnamese company, if they are substantiated by a proper royalty agreement, invoices and relevant supporting documents, as they may be required by tax auditors.
6.7.6 Inter-company service charges
A foreign shareholder or its affiliates may charge a company in Vietnam for services (e.g. management/consulting/technical services etc.) rendered by the foreign party. The service payments generally attract withholding taxes which comprises of 5% VAT and 5% CIT, for general services. Once paid, the 5% VAT is fully creditable to the Vietnamese company.
Where a tax treaty applies, the CIT component may be exempt under such a tax treaty, subject to a successful tax treaty exemption application. The CIT component is also deductible to the Vietnamese company for CIT purposes. However, the 5% VAT is not entitled to exemption or relief under tax treaties, since tax treaties do not cover indirect taxes.
In theory, service payments are deductible to the Vietnamese company for CIT purposes, if they are substantiated by proper service contracts, invoices, and proof of payment. However, in practice, claims of CIT deduction of inter-company service charges are becoming increasingly problematic where there is lack of adequate proof of services provided by the foreign entity. Therefore, caution should be taken when considering inter-company service charges as a method of fund repatriation, because it may not provide overall tax efficiency and may result in adverse tax consequences, if CIT deductions of the service payments are not allowable.
The tax implications of these methods of fund repatriation are summarised in the table below:
|Method of fund repatriation||Withholding taxes|
|Deemed VAT rate||Deemed CIT rate|
|Reduction of charter capital||n/a||n/a|
|Disposal of shares in a Vietnamese company by a foreign shareholder||n/a||(*)|
|Interest (e.g. shareholder’s loans)||n/a||5%|
|Royalty (e.g. software license, transfer of technology/intellectual property rights)||n/a||10%|
|Other inter-company service charges||5%||5%|
(*) 0.1% of proceeds of disposal shares in a public/listed or non-listed joint-stock company or 20% of net gain from disposal of shares in other companies.
(**) Where the foreign shareholder is an individual, there is a 5% withholding PIT.
6.8 Exit tax implications
Foreign investors in Vietnam that contemplate an eventual exit from Vietnam often plan to dispose their investment in Vietnam through a transfer of shares or transfer of assets.
In respect of transfer of shares, a capital gain from such a transfer will be taxable as follows:
- 20% of the net gains from the transfer of shares in a limited liability company;
- 1% of the proceeds of transfer of the shares in a public/listed company or non-listed joint-stock.
Transfer of shares is exempt from VAT. A transfer of assets (i.e. real estate) will attract the following taxes:
- 10% VAT on the transfer of value of assets other than land-use-right or land-lease-right;
- 20% CIT on the net gains from transfer of assets including goodwill. However, goodwill may be exempt from VAT if valued separately; and
7. FINANCIAL REPORTING, AUDITING, FOREX & BANKING REQUIREMENTS
7.1 Accounting and financial reporting
Generally, a company is required to apply Vietnamese Accounting Systems/Standards (VAS) as statutory financial reporting framework, and provided the VAS is applied without modification, the registration for the use of VAS with the Ministry of Finance (MoF) is not required. If a company’s fiscal year is not a calendar year, it must notify to the local tax office of the use of a different fiscal year end.
The basic set of financial statements prepared under VAS is comprised of balance sheet, income statement, cash flow statement, and notes to the financial statements.
Flexibility in the preparation of VAS financial statements is limited in that the report format and disclosure requirements have been prescribed by MoF. The information required to be disclosed in the notes to the financial statements include (among others) a disclosure on the change in equity, calculation of taxable income, commitments and contingencies, and related-party transactions.
Financial statements must be prepared annually, audited by a duly licensed independent auditor, and filed with various authorities including the city or provincial tax office, the provincial Department of Finance, the Ministry of Planning and Investment, the relevant license authority, and the General Statistics Office. The annual audited financial statements must be filed within 90 days after the close of each fiscal year. From time to time, a company may be requested to submit statistical reports to the General Statistics Office.
Generally, financial statements and information are generally not made available to the public, except for those of a listed company.
7.2 Appointment of Chief Accountant
A new company is required to appoint a Chief Accountant, who meets the qualifications prescribed under the Accounting Law, within the first fiscal year. During this period, a qualified accountant appointed by the company to be responsible for all accounting matters.
7.3 Annual statutory audit
The financial statements of foreign owned companies, listed companies, businesses in the form of Business Co-operation Contact (“BCC”), insurance companies and banks are required to be audited annually by an independent audit firm. International audit firms in Vietnam apply International Auditing Standards issued by the International Federation of Accountants. For the audits of VAS financial statements, Vietnamese Auditing Standards are applied. The MoF has issued Vietnamese Auditing Standards which closely resemble the International Auditing Standards.
7.4 Retention of documents and accounting records
Generally, a company is required to archive its documents and accounting records for at least 5 years in respect of documents and records for management purposes, or at least 10 years in respect of accounting data, accounting books, financial statements, and reports of independent auditors.
7.5 Foreign currency exchange and banking requirements
Vietnam has strict regulations on foreign currency exchange control. Generally, within the territory of Vietnam, all transactions and payments must be quoted and effected in local currency, with certain exceptions.
Foreign contractors and foreign owned companies in Vietnam may open bank accounts in local and foreign currency at a bank in Vietnam. Subject to certain conditions, they may buy foreign currency to fulfil their requirements for it. Foreign currency can be remitted out of Vietnam in most cases such as payment for imports and services from abroad, loan repayments abroad, transfer of salaries for expatriate employees and dividends to foreign shareholders. These transactions are subject to the presentation of proper supporting documentation at the remitting bank. The bank remitting the funds will have to satisfy itself for purpose of its compliance with regulatory requirements and generally require copies of contracts, invoices and customs documentation in case of import of goods or raw materials; or the loan agreement and proof of registration of such a loan with the State Bank of Vietnam etc.
A foreign owned company and its foreign shareholders are required open a “capital account” a bank in Vietnam and all capital transactions capital contributions, proceeds of transfer of shares, payments of dividends to foreign shareholders etc. must be effected through such capital account.
8. LABOUR CONSIDERATIONS
Under the Labour Codes, a foreign owned company in Vietnam may Vietnamese employees either directly or via an authorised labour agency. Employers are required to register the list of their Vietnamese employees with the local labour department and submit periodic reports on utilisation and changes of personnel to the labour department.
8.2 Labour contracts
There are three forms of labour contracts in Vietnam as follows:
- An indefinite term labour contract – is a contract in which the period of contract is not specified;
- A definite term labour contract – is a contract in which the period of contract is specified to be from 12 months to 36 months;
- Seasonal contract – is contract for a specific or seasonal job for a period below 12 months.
Where a labour contract as stipulated in (ii) and (iii) expires and the employment is to be continued, the employer and employee must enter into a new contract within 30 days following the date of expiry. If no new labour contract is entered into, the expired contract shall automatically become an indefinite term labour contract.
Previously, a labour contract must follow the standard form prescribed by labour legislation. However, effective 10 December 2013 the new labour legislation does not longer prescribe such standard form. In practice, it is still widely adopted by companies and authorities.
8.3 Pubic holidays
Employees in Vietnam are entitled to the following paid public holidays:
- New Year’s Day – 1 day
- Lunar New Year’s Day – normally 5 days
- King Hung’s Anniversary – 1 day
- Victory Day – 1 day
- International Labour Day – 1 day
- Independence Day – 1 day
When a public holiday falls in a weekend or a day-off, employees can take the next working day as compensatory day-off.
8.4 Minimum wage
Vietnam’s minimum wages are changed from time to time by the Government. Effective 1 May 2017, the standard minimum monthly wage is VND1.3 million (approx. USD57). The minimum monthly wages for Vietnamese employed by a foreign owned company or an international organisation in Vietnam vary from VND2.4 million (approx. USD110) to VND3.5 million (approx. USD160), depending on the geographical area.
The lowest wage for an employee who has passed the relevant vocational training (including employer-provided internal training) must be at least 7% higher than the relevant area minimum wage mentioned above.
8.5 The 13th-month salary
Although not required by law it is a widely accepted norm that employers pay their employees an additional month of salary in the month before Lunar New Year (around January-February) as a bonus. In practice, the lack of payment of 13th-month bonus could demotivate employees (particularly junior staff) and therefore some companies resolve this issue by agreeing with their employees an annual package to be divided in 13 monthly instalments.
8.6 Statutory insurance contributions
There are three type of statutory insurance contributions namely Social Insurance (“SI”), Health Insurance (“HI”) and Unemployment Insurance (“UI”) which are all compulsory in respect of the employment of Vietnamese employees.
The current rates of contribution are below:
These contributions are based on the total remuneration including salary and cash allowances, as specified in the employment contract, and capped at 20 times of:
- the standard minimum monthly wage of VND1.3 million (approx. USD57), for social insurance and health insurance contributions; and
- the relevant area minimum monthly wage ranging from VND2.58 million (approx. USD110) to VND3.75 million (approx. USD163), for unemployment insurance contributions.
8.7 Statutory severance and redundancy payments
Vietnam’s Labour Codes prescribe that an employer must pay an employee who has completed at least one year of service either one of the following payments:
- Redundancy payment – Where the employee loses his job because the employer unilaterally terminates his employment because of organisational re-structuring, the employer is required to pay the employee an “allowance for loss of work” i.e. redundancy payment, which must be at least two-month salary or one-month salary for each year of service; or
- Severance payment – Where the employment contract has expired and is not renewed, or the employee resigns from his work (without breaching any provisions of the Labour Code, e.g. notice requirements), the employer is required to pay the employee an “allowance for termination of work” i.e. severance payment, which must be at least half-month of salary for each year of service.
Both payments are payable in lump sum within 7 days following the last day of employment and they are exempt from PIT to the extent of the amounts prescribed above. Where such a payment exceeds the prescribed amount, the excess will be taxable.
8.8 Visas and work permits for expatriate personnel
Generally, a foreigner is required to produce a passport and a visa issued by the Vietnamese competent authority upon entry and exit of Vietnam. Vietnam issues single or multiple entry visas which are often valid for no more than 12 months to persons entering Vietnam for business purposes. Expatriate personnel are required to carry a valid work permit or visa to enter Vietnam. A work permit is separate from the visa requirements. Technically, expatriate personnel must obtain a work permit at least 15 business days before commencement of work in Vietnam. However, a work permit may be obtained after arrival in Vietnam with a valid business visa. A work permit is valid for the same duration of the intended period of work in Vietnam and for a maximum period of 2 years, and is renewable.
An expatriate living in Vietnam may apply for a temporary residence card which is often valid for a period of 1 to 2 years. A temporary residence card holder is exempt from the visa requirement upon entry and exit from Vietnam. For further information on Vietnam’s immigration matters for expatriates, please click here to view.
 APPENDIX 1 – Locations eligible to tax corporate tax incentives in Vietnam
(Per Government’s Decree No. 118/2015/ND-CP dated 12 November 2015)
|No.||Province||Areas with extremely difficult socio-economic conditions||Areas with difficult socio-economic conditions|
|1||Bac Kan||All districts, towns, and Bac Kan city|
|2||Cao Bang||All districts and Cao Bang city|
|3||Ha Giang||All districts and Ha Giang city|
|4||Lai Chau||All districts and Lai Chau city|
|5||Son La||All districts and Son La city|
|6||Dien Bien||All districts, towns, and Dien Bien city|
|7||Lao Cai||All districts||Lao Cai city|
|8||Tuyen Quang||Na Hang, Chiem Hoa, Lam Binh districts||Ham Yen, Son Duong, Yen Son districts and Tuyen Quang city|
|9||Bac Giang||Son Dong district||Luc Ngan, Luc Nam, Yen The, Hiep Hoa districts|
|10||Hoa Binh||Da Bac, Mai Chau districts||Kim Boi, Ky Son, Luong Son, Lac Thuy, Tan Lac, Cao Phong, Lac Son, Yen Thuy districts|
|11||Lang Son||Binh Gia, Dinh Lap, Cao Loc, Loc Binh, Trang Dinh, Van Lang, Van Quan, Bac Son districts||Chi Lang, Huu Lung districts|
|12||Phu Tho||Thanh Son, Tan Son, Yen Lap districts||Doan Hung, Ha Hoa, Phu Ninh, Thanh Ba, Tam Nong, Thanh Thuy, Cam Khe districts|
|13||Thai Nguyen||Vo Nhai, Dinh Hoa, Dai Tu, Phu Luong, Dong Hy districts||Pho Yen, Phu Binh districts|
|14||Yen Bai||Luc Yen, Mu Cang Chai, Tram Tau districts||Tran Yen, Van Chan, Van Yen, Yen Binh, and Nghia Lo town|
|15||Quang Ninh||Ba Che, Binh Lieu districts, Co To islands, and other islands in the province||Van Don, Tien Yen, Hai Ha, Dam Ha districts|
|16||Hai Phong||Bach Long Vi, Cat Hai islands|
|17||Ha Nam||Ly Nhan, Thanh Liem, Binh Luc districts|
|18||Nam Dinh||Giao Thuy, Xuan Truong, Hai Hau, Nghia Hung districts|
|19||Thai Binh||Thai Thuy, Tien Hai districts|
|20||Ninh Binh||Nho Quan, Gia Vien, Kim Son, Tam Diep, Yen Mo districts|
|21||Thanh Hoa||Muong Lat, Quan Hoa, Quan Son, Ba Thuoc, Lang Chanh, Thuong Xuan, Cam Thuy, Ngoc Lac, Nhu Thanh, Nhu Xuan districts||Thach Thanh, Nong Cong districts|
|22||Nghe An||Ky Son, Tuong Duong, Con Cuong, Que Phong, Quy Hop, Quy Chau, Anh Son districts||Tan Ky, Nghia Dan, Thanh Chuong districts, and Thai Hoa town|
|23||Ha Tinh||Huong Khe, Huong Son, Vu Quang, Loc Ha, Ky Anh districts||Duc Tho, Nghi Xuan, Thach Ha, Cam Xuyen, Can Loc districts|
|24||Quang Binh||Tuyen Hoa, Minh Hoa, Bo Trach districts||Other districts and Ba Don town|
|25||Quang Tri||Huong Hoa, Da Krong districts, Con Co island and other islands of the province||Other districts|
|26||Thua Thien Hue||A Luoi, Nam Dong districts||Phong Dien, Quang Dien, Phu Loc, Phu Vang districts and Huong Tra town|
|27||Da Nang||Hoang Sa archipelago|
|28||Quang Nam||Dong Giang, Tay Giang, Nam Giang, Phuoc Son, Bac Tra My, Nam Tra My, Hiep Duc, Tien Phuoc, Nui Thanh, Nong Son, Thang Binh districts and Cu Lao Cham island||Dai Loc, Que Son, Phu Ninh, Duy Xuyen districts|
|29||Quang Ngai||Ba To, Tra Dong, Son Tay, Son Ha, Minh Long, Binh Son, Tay Tra, Son Tinh districts and Ly Son island||Nghia Hanh district|
|30||Binh Dinh||An Lao, Vinh Thanh, Van Canh, Phu Cat, Tay Son, Hoai An, Phu My districts||Tuy Phuoc districts|
|31||Phu Yen||Song Hinh, Dong Xuan, Son Hoa, Phu Hoa, Tay Hoa districts||Song Cau town; Dong Hoa, Tuy An districts|
|32||Khanh Hoa||Khanh Vinh, Khanh Son districts, Truong Sa archipelago and other islands of the province||Van Ninh, Dien Khanh, Cam Lam districts, Ninh Hoa town, and Cam Ranh city|
|33||Ninh Thuan||All districts||Phan Rang – Thap Cham city|
|34||Binh Thuan||Phu Quy district||Bac Binh, Tuy Phong, Duc Linh, Tanh Linh, Ham Thuan Bac, Ham Thuan Nam, Ham Tan districts|
|35||Dak Lak||All districts and Buon Ho town||Buon Ma Thuot city|
|36||Gia Lai||All districts and towns||Pleiku city|
|37||Kon Tum||All districts and cities|
|38||Dak Nong||All districts and towns|
|39||Lam Dong||All districts||Bao Loc city|
|40||Ba Ria – Vung Tau||Con Dao district||Huyen Tan Thanh, Chau Duc, Xuyen Moc|
|41||Tay Ninh||Tan Bien, Tan Chau, Chau Thanh, Ben Cau districts||Other districts|
|42||Binh Phuoc||Loc Ninh, Bu Dang, Bu Dop, Bu Gia Map, Phu Rieng districts||Dong Phu, Chon Thanh, Hon Quan districts, Binh Long town, and Phuoc Long town|
|43||Long An||Duc Hue, Moc Hoa, Vinh Hung, Tan Hung districts||Kien Tuong town; Tan Thanh, Duc Hoa, Thanh Hoa districts|
|44||Tien Giang||Tan Phuoc, Tan Phu Dong districts||Go Cong Dong, Go Cong Tay districts|
|45||Ben Tre||Thanh Phu, Ba Tri, Binh Dai districts||Other districts|
|46||Tra Vinh||Chau Thanh, Tra Cu districts||Cau Ngang, Cau Ke, Tieu Can districts, and Tra Vinh city|
|47||Dong Thap||Hong Ngu, Tan Hong, Tam Nong, Thap Muoi districts, and Hong Ngu town||Other districts|
|48||Vinh Long||Tra On, Binh Tan, Vung Liem, Mang Thit, Tam Binh districts|
|49||Soc Trang||All districts, Vinh Chau town, and Nga Nam town||Soc Trang city|
|50||Hau Giang||All districts and Nga Bay town||Vi Thanh city|
|51||An Giang||An Phu, Tri Ton, Thoai Son, Tinh Bien districts, and Tan Chau town||Chau Doc city and other districts|
|52||Bac Lieu||All districts and towns||Bac Lieu city|
|53||Ca Mau||All districts and islands of the province||Ca Mau city|
|54||Kien Giang||All districts, islands of the province, and Ha Tien town||Rach Gia city|
|55||Economic zones, hi-tech zones (including concentrated information technology zones established under regulations of the Government)||Industrial parks, export-processing zones established under regulations of the Government.|
APPENDIX 2 – Comparison of tax rates in the tax treaties with Vietnam
|1||Algeria||15||15||15||3 & 5|
|3||Austria||5/10/15||10||7.5/10||2 & 4|
|7||Belgium||5/7/10/15||10||5/10/15||2, 3 & 4|
|10||Canada||5/10/15||10||7.5/10||2 & 4|
|14||Denmark||5/10/15||10||5/15||2, 3 & 4|
|19||Germany||5/10/15||10||7.5/10||2, 3 & 4|
|20||Hong Kong||10||10||7/10||3 & 4|
|21||Hungary||10||10||10||2 & 3|
|24||Indonesia||15||15||15||2, 3 & 4|
|26||Ireland||5/10||10||5/10/15||2, 3 & 4|
|27||Israel||10||10||5/7.5/10||3, 4, & 5|
|29||Japan||10||10||10||2, 3 & 4|
|32||Korea (South)||10||10||5/15||2, 3 & 4|
|33||Kuwait||10/15||15||20||2 & 3|
|35||Luxembourg||5/10/15||10||10||2, 3 & 4|
|40||Morocco||10||10||10||3 & 5|
|43||Netherlands||5/7/10/15||7/10||5/10/15||2, 3 & 4|
|45||Norway||5/10/15||10||10||2 & 4|
|46||Oman||5/10/15||10||10||2 & 3|
|51||Poland||10/15||10||1/10/15||2 & 4|
|53||Qatar||5/12.5||10||5/10||2, 3 & 4|
|54||Romania||15||10||15||2, 3 & 4|
|60||Singapore||5/7/12.5||10||5/15||2, 3 & 4|
|61||Slovak||5/10||10||5/10/15||2, 3 & 4|
|62||Spain||7/10/15||10||10||2 & 3|
|63||Sri Lanka||10||10||15||1 & 3|
|64||Sweden||5/10/15||10||5/15||2, 3 & 4|
|70||UAE||5/15||10||10||2 & 3|
|74||USA||5/15||10/15||5/10||2 & 4|
 Art 10.2(a), Decree 209 as amended by Art 1.6, Decree 100.
 Section 3, Chapter II, Cir 103.
 Section 2, Chapter II, Cir 103.
 Section 4, Chapter II, Cir 103.
 Art 2, Cir 103.
 Arts 9 & 10, Cir 103.
 Arts 15 & 16, Cir 103.
 Art 3, Cir 103.
 Art 4.7, Cir 219/2013/TT-BTC on VAT dated 31 December 2013 (“Cir 219”).
 Art 9.1(c), Cir 219.
 Art 12.2(b1), Cir 103.
 MoF’s Circular 205/2013/TT-BTC dated 24 December 2013 (“Cir 205”).
 Art 5.1, Cir 205.
 Art 5.2, Cir 205.
 Art 5.3, Cir 205.
 Art 6, Cir 205.
 Art 2(d), Circular 78.
 (Source: GDT’s official website).
 Art 4.2, Cir 78.
 Art 4.2, Cir 78.
 Art 4.2, Cir 78 as amended by Art 2, Cir 96.
 Law No. 48-2010-QH12 dated 17 June 2010.
 Decree No. 45/2014/NĐ-CP dated 15 May 2014.
 Decree 46/2014/NĐ-CP dated 15 May 2014.
 Art 7.2.4, Cir 66/2010/TT-BTC dated 22 April 2012.
 Decree 76/2015/NĐ-CP on real estate businesses.
 Art 6.2.17, Cir 78.
 Art 6.2.18, Cir 78 as amended by Art 4, Cir 96.
 Art 9.2(e), Decree 218 as amended by Decree 12 & Art 6.2.18, Cir 78 as amended by Art 4, Cir 96.
 Cir No.09/2004/TT-NHNN date 21 December 2004 on foreign loan regulation (as amended).
 Art 9.2, Cir 78.
 Art 9.2, Cir 78.
 Art 4.2, Cir 78 as amended by Art 2, Cir 96.
 Art 9.9, Cir 45.
 Art 3, Cir 45.
 Art 4.1(a), Cir 45.
 Art 4.1(a), Cir 45.
 Art 3.2, Cir 45.
 Art 11.1, Cir 45.
 Art 11.2, Cir 45.
 Art 11.3, Cir 45.
 Art 13, Cir 45.
 Art 13.2(a), Cir 45 & Art 6.2.2(d), Cir 78.
 Art 13.2(a), Cir 45.
 Art 13.2(b), Cir 45.
 Art 13.2(c), Cir 45.
 Arts 13.3 & 13.4, Cir 45.
 Art 10.1 & Appendix 1, Cir 45.
 Art 10.2, Cir 45.
 Art 3.3, Cir 45.
 Art 14.2, Cir 45.
 Art 6.2.2(d), Cir 78.
 Circular 186, Art 3 and Art 4.
 Circular 111, Art 10 and Art 2.3.c; Circular 92, Art 11.6 (amending Circular 111).
 Circular 103, Art 7.3 and Art 13.2.7.
 Circular 219, Art 4.8a.
 Circular 103, Art 7.3 and Art13.2.8; Circular 219, Art 4.21.
 Circular 103, Art 12.2.1 and Art 13.2.2.
 Article 16, Labor Code 10/2012/QH13 dated 18 June 2012.
 Article 115, Labor Code10/2012/QH13 dated 18 June 2012.
 Government’s Decree 122/2015/NĐ-CP dated 14 November 2015.
 Art 17, Labour Codes.
 Art 42, Labour Codes.