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11/09/2021

📖How Vietnam taxes expatriates

Vietnam is increasingly becoming a favourite destination for international investors, business visitors, expatriate assignees, frequent holidaymakers and even retirees.  This post provides a summary of how Vietnam taxes expatriates, and tax planning tips.

Key points:

  • Vietnam taxes residents on world-wide income and non-residents on Vietnam-sourced income, regardless of where they get paid[1].
  • Tax rates for tax residents are comparatively high, with 35% top marginal rate and few tax reliefs. The effective tax rate for tax residents is approximately one-third of world-wide employment income.
  • There is no tax-free day-count threshold for business visitors. On becoming a tax resident, overseas business or investment income may become taxable in Vietnam, even if the person is not working in Vietnam.
  • All Vietnam-sourced income is taxable even if a person does not spend any day in the country.
  • Personal tax planning is essential when considering working or doing business in Vietnam.

The tax rules

Vietnam taxes individuals according to residence status, source and type of income, and tax rates. Residence is primarily determined by the 183-day test.  An expatriate becomes a tax resident of Vietnam if the person spends, in aggregate, 183 days or more per year in Vietnam.  Other tests include legal domicile test and accommodation test, under which an expatriate may become a tax resident even if the person spends less than 183 days in Vietnam. 

For example, an expatriate holding a temporary residence card or a resident executive position (i.e., Legal Representative, Chief Representative) in a company in Vietnam, or having a leased accommodation (including a house, apartment, hotel room etc.) for an aggregate period of 183 days or more in a year, may be deemed to be a tax resident.  Non-residents are those who are not caught by the mentioned tests[2].

Residents are taxed on worldwide employment income (including directors’ fees or consulting fees) at the aggressive tax rates from 5% to 35%[3] with little personal relief and dependant’s relief[4].  The effective tax rate for employment income is approximately one-third of the gross employment income.  Non-residents are taxed at the flat rate of 20% on Vietnam-sourced employment income[5].

For both residents and non-residents, non-employment income such as business income and investment income are taxed at a separate flat ate from 0.1% to 20%.  For example, for both residents and non-residents, dividends are taxable at 5%[6]; property rental income is taxable at 5%[7]; income sale of real estate is taxable 2%[8]; income from sale of shares in a listed company or joint-stock company is taxable at 0.1% of the gross proceeds[9]. However, a resident shareholder is taxed at 20% on the net gain from sale of shares in a limited liability company[10].

Tax treaty relief is available where a tax treaty applies, but the relief is not automatic, and it must be claimed through a formal tax treaty claim procedure. Vietnam has entered tax treaties with around 80 countries and territories, and most of them are already effective.  The tax treaties closely resemble to the OECD model tax convention but interpretations of the tax treaties by the Vietnamese tax authorities are sometimes very different.

For example, under the tax treaties, an individual’s residence status is primarily determined by the 183-day test.  However, under current practice in Vietnam, an individual is deemed to be a tax resident of Vietnam if the person’s legal domicile is in Vietnam (even if the person spends less than 183 days in Vietnam in a tax year), or if the person can not prove that he or she is a tax resident of any other country.  The proof for being a tax resident of another country must be the certificate of residence issued by the relevant country.  Where a tax treaty does not stipulate the certificate of residence as proof of residence, the length of residence is based on the person’s length of stay in that country as indicated in the passport.

Tax planning tips

People who have interest in Vietnam including prospective investors, frequent business visitors or holidaymakers, resident expatriates or retirees may consider the following tax planning tips:

  • Non-executive business owners, shareholders, or investors of a company in Vietnam should avoid registration as a resident executive (e.g., Legal Representative or Chief Representative) of a company in Vietnam, unless it is business-essential or they plan to reside in Vietnam, because such registration will automatically trigger tax residence. However, being registered as a business owner, shareholder or investor does not necessarily trigger tax residence.  If an accommodation (e.g., a hotel room, apartment, instance office etc) needs to be maintained beyond six months for frequent business or holiday visits, it should be rented in the name of a company and as a company’s accommodation rather than as personal and private accommodation. Otherwise, tax residence could be triggered even if the person does not spend more than six months in Vietnam.
  • Frequent business visitors should monitor closely the day-count of their physical presence in Vietnam and keep good records of their Vietnam days-in and days-out based on immigration’s stamps in their passport, if they wish to retain non-residence status. Vietnam’s tax law does not provide for a tax-free day-count threshold for business visitors.  So, in theory if a person spends even a single day of work in Vietnam and get paid, the person is liable to tax in Vietnam.  In practice the tax authorities are not really strict to infrequent business visitors, but frequent business visitors must register for taxation and pay tax in Vietnam from the date their relocation, assignment, or employment officially begins.
  • Vietnam offers work permit exemption for a period up to 2 years to foreign investors who invest at least VND3 billion (~USD130K) in a company in Vietnam, business visitors holding the title of director, executive director, technical specialist who enter Vietnam for less than 30 days per visit and not more than 3 visits per year, and persons entering Vietnam to establish commercial presence. A holder of a work permit or work permit exemption may apply for a temporary residence card.  These documents permit frequent business visitors to travel in and out Vietnam without the need to apply for a visa.  However, holding a temporary residence card could automatically trigger tax residence.
  • Frequent holidaymakers or retirees should be mindful of the tax residence triggers as mentioned above, and possible exposure of their overseas business or investment income (such as dividends, property rental income, royalty income etc.) to Vietnam’s taxation in case they might accidentally become a tax resident.
  • Expatriate assignees to Vietnam should receive fringe benefits (e.g., children school tuition, accommodation, home leave air tickets, relocation benefits, etc.) as benefit-in-kind rather than cash benefits to minimise Vietnam’s tax exposures, as almost all cash benefits are taxable. Certain types of employer-provided benefit-in-kind (e.g., cars, drivers, golf membership, entertainment expenses etc.) should be structured as group benefits and business-related (which are non-taxable) rather than as individual benefits (which are taxable). Share options are generally not taxable until they are exercised, but share awards are taxable as part of employment income (at a rate up to 35%). However, gains from the exercise of share options or the sale of shares (whether exercised shares or awarded shares) are taxable as investment income and taxable at a lower rate of 0.1%.  As the tax rates vary significantly, international assignees to Vietnam are advised to seek proper tax planning advice before commencement of their assignment.

While Vietnam offers quite attractive corporate tax incentives eligible companies (for example, a maximum of 4 years of tax holiday, 50% tax reduction for maximum of 9 years, and a reduced tax rate of 10% for a maximum of 15 years, while the standard tax rate is 20%), the personal income tax is quite high in comparison to other countries in the region. Therefore, people who visit Vietnam frequently or plan to relocate to Vietnam are advised to be mindful of their potential Vietnam personal income tax implications.

For more information on Vietnam’s personal income tax, please click here .


[1] Art 2, PIT Law; Art 2, Decree 56; Art 1, Cir 111 as amended by Art 2, Cir 119.
[2] Art 1.1, Circular 111/2013/TT-BTC dated 15 August 2013 (“Cir 111”);
[3] Arts 7.2 & Appendix 1, Cir 111.
[4] Arts 7(1) & 9, Cir 111 (as amended).
[5] Arts 1 & 8.1, Cir 111.
[6] Arts 10.4 & 19, Cir 111.
[7] Art 4.1(b), Cir 92 & Art 17.2(b), Cir 111.
[8] Art 21.1, Cir 111.
[9] Art 20.1, Cir 111.
[10] Arts 11.1(b)&(d), Cir 111.

Disclaimer

Please note that the above information is intended as general guidance only. It does not constitute an advice and it should not be used as an alternative to seeing professional advice. If you have queries on any matter in the context of your circumstance, please contact us.

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