Doing business in Vietnam sounds easy to some foreign businesses, but it’s in contrast dealing with Vietnam's law of accounting or tax system is pretty complicated for them. So, every enterprise needs a trusted tax accountant or tax calculation service for this sensitive matter.
In comparison to many comparably established developing countries, Vietnam's tax and accounting compliance framework is highly structured and unambiguous. Its associated policies are revised on a regular or periodic basis to promote the country's continuing economic and corporate development.
Taxation is a significant component of Vietnam's state finances. Its tax rules include regulations for both businesses and individuals. The tax system requires taxpayers to self-assess their different tax duties and exposure, with the resulting taxpayer filings being reviewed by the tax authorities. A tax accountant is used by Vietnamese tax authorities to enforce tax collection, and associated areas of compliance are expected to be by Vietnamese Accounting Standards and other rules.
1. Corporate income tax
Corporate Income Tax (CIT) in Vietnam is based on the net income that companies earned while operating their businesses, count in one business year cycle.
1.1. How’s the tax rate?
All taxes are levied on a national scale. The standard rate of the corporate income tax system (CIT) is 20%. CIT rates for companies in the oil and gas industry range from 32% to 50%, depending on region and individual project conditions. Prospecting, exploration, and exploitation of mineral resources (e.g., silver, gold, gemstones) are subject to CIT rates of 40% or 50%, depending on the location of the project.
To assist businesses affected by COVID-19, the government enacted Decree 34/2022 on the extension of deadlines for tax and land rental payments in 2022, which took effect from the signing date of 28 May 2022 to 31 December 2022.
For CIT, there is no idea of tax residence. Business organizations constituted under Vietnamese legislation are subject to CIT and are taxed on their worldwide income. Foreign income will be subject to a 20% CIT. There are no provisions for tax system breaks for such earnings.
Foreign organizations that do business in Vietnam without establishing a legal company in Vietnam and/or earning money in Vietnam are deemed foreign contractors, regardless of whether the services are performed inside or outside of Vietnam. Payments to foreign contractors are subject to Foreign Contractor Tax (FCT), which includes both VAT and CIT.
1.2. How does a tax accountant calculate CIT?
The basic tax accountant follows this basic formula:
CIT = CIT rate x Assessable Income
CIT: Corporate Income Tax
Assessable Income = Total Revenue – Deductible Expenses + Other Income – Carried Forward Losses
2. Value-added tax (VAT)
In short, the VAT applies to domestic or imported goods and services that are bought and sold for production, trading, and consumption purposes.
In the Vietnam market, the VAT tax rate is different per category:
0% VAT for exported goods, services, and international transportation.
5% VAT for essential goods, services, and some specific types of them.
10% is the standard rate for goods and services.
And some goods and services are exempted
With exempted goods and services, the Vietnam tax system authority doesn’t tax its sale but allows credit for the VAT paid on inputs. As with the exempt goods and services, the government also doesn’t tax the sale of the goods and services, however, producers cannot claim a credit for the value-added tax they pay on inputs.
There are two ways for a tax accountant to calculate VAT:
Deduction method: applicable to business establishments maintaining accounts, invoices, and documents in accordance.
Direct method: applies to business establishments with annual revenue subject to VAT of less than 1 billion VND, or with individuals, business households, and businesses engaging in gold, silver, and precious stones trading.
3. Property taxes
3.1. Possessing and owning real estate
Foreign companies typically have to pay a rental fee for land use rights. The rates are depending on the location, infrastructure as well as industrial sector.
Also, houses and apartments are listed as non-agriculture land. Therefore, owners have to pay land tax under the law for this typical land use. The property tax system is charged on the specific area based mainly on the price per square meter and a minimum is 0.03%, the maximum tax can be up to 0.15%.
3.2. Acquiring and transferring real estate
The revenue from the sale of real estate in Vietnam must be computed individually to be declared and taxed. Any profits on the sale of real estate are considered taxable non-employment personal income and are taxed at a rate of 2% of the sales proceeds. Losses from the sale of real estate may be adjusted against earnings from other business operations and carried forward by taxpayers for a maximum of five years. All resident individuals, income-paying entities, and non-resident people are subject to personal income tax.
Stamp duties are levied on land and/or property transfers. "Conveyance stamp duty is levied on the value of actual sales that are not less than the standard price provided by the local authorities," according to JLL. The stamp duty on the transfer of a land use right and property is 0.5% of the sales price."
Property papers and transactions are subject to a notarization charge that is determined by the transaction's value. The majority of these documents must be notarized. The highest cost per transaction is VND 10 million (USD 470).
4. Import and export duties
4.1. Object of taxation
Except for merchandise exempt from import and export duty, the following merchandise is taxed:
Cargo and goods are imported and exported across the Vietnamese border;
Domestic goods are introduced into the non-tariff barrier, and items from the non-tariff barrier are brought into the domestic market.s
4.2. Non-object of taxation
Merchandise in these specific cases is not an object of taxation:
Goods are transited through the Vietnamese border and goods in transit by Vietnamese government regulations.
Aiding goods and grant aid goods.
Goods from non-tariff barriers to other countries, goods are imported into the non-tariff area and used only in this area, goods are used from non-tariff area to another non-tariff area.
Goods when exported are oil and gas relating to natural resources consumption tax.
4.3. Tax Payment Applicant
Organizations and individuals that import or export items that are tax-liable under this Law are import tax or export taxpayers.
The tax accountant bases for import and export tax are the unit quantity of each imported or exported goods item recorded in customs declarations, tax accountant prices, and tax rates in percentage (%); for goods subject to absolute tax, the tax calculation bases are the unit volume of each imported or exported goods item recorded in customs declarations, and the absolute tax rate provided for a goods unit.
4.4. Tax rate
The Export Tariff specifies the tax rates for each piece of export merchandise.
Preferential tax rates, special preferential tax rates, and regular tax rates apply to imported goods:
Preferential tax rates apply to import goods originating in countries, groups of countries, or territories that use the most favored nation treatment in their trade relations with Vietnam;
Special preferential tax rates apply to import goods originating in countries, groups of countries, or territories that use special import tax preferences to Vietnam.
Ordinary tax rates apply to imports from countries, groupings of countries, or territories that do not provide the most favored country status or specific import tax benefits to Vietnam. Ordinary tax rates may not be more than 70% higher than preferential tax rates on identical commodities established by the government.
5. Vietnam Personal Income Taxes (PIT)
5.1. Tax Residency
A tax resident is someone who meets one of the following criteria:
Is staying in Vietnam for a total of 183 days or more within one calendar year or a continuous 12-month period from the date of arrival;
Has a registered permanent residence under the Law on Residence; or
Has a rented residence in Vietnam for 183 days or more during the tax assessment year. Hotels, boarding houses, rest houses, accommodations, and working offices are examples of leased dwellings.
If a person stays in Vietnam for more than 90 days but fewer than 183 days in a tax year, or if they can prove that they are a tax resident of another country in the 12 months following their arrival in Vietnam, they will be treated as a non-resident in Vietnam for tax purposes. If they cannot demonstrate that they are a tax resident of another nation, they will be classified as a Vietnamese tax resident.
5.2. Tax rates on employment and unemployment income
For tax residents, PIT applies on a progressive sliding scale from 5% – 35%, which rates increasing following a rising level of employment income. Business income is taxed at varied rates depending on the type of income.
And the non-tax residents are charged a flat rate of 20% on employment basic income, and different rates depending on business income types.
Taxable employment income items include all kinds of remuneration and benefits, except costs for business trips, telephone charges, stationery costs, office clothes, overtime premiums, etc.
And the taxable non-employment income includes: income from doing business, from investment, gain on the sale of shares, and gain on the sale of real estate,…
Important Notice: Tax refund Vietnam is only available to those who have a tax code.
5.3. And how about non-taxable income?
Non-taxable income including but not limited to:
Interest income comes from credit institutions or banks, compensation from life, or non-life insurance policies
Retirement pensions from Social Insurance Law (or equivalent)
Income from direct family members as properties, inheritances, gifts
All the taxes mentioned above are just common things that need to fill up in any tax return, there’re lots of other taxes that foreign organization hasn’t known yet. So, better safe than sorry, hiring a native tax accountant, or taxing agencies should be considered.
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