tax, accounting, and audit in vietnam · tax, accounting, and audit in vietnam 2014-2015 - 11 “...

I. Vietnam’s Business Taxes

II. Other Taxes

III. Individual Income Tax

IV. Accounting, Audit and Compliance

V. International Taxation

TAX, ACCOUNTING, AND AUDIT IN

2014 - 2015VIETNAM

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2 - Tax, Accounting, and Audit in Vietnam 2014-2015

Contributors to and editors of this guide include the staff and consultants at Dezan Shira & Associates Vietnam and Vietnam Briefing. This guide was designed by Jessica Huang. © 2014 Asia Briefing

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Tax, Accounting, and Audit in Vietnam 2014-2015 - 3

Preface Taxation permeates business transactions in Vietnam, and a strong understanding of tax liabilities enables foreign investors to maximize the tax efficiency of their investments while ensuring full compliance with all tax laws and regulations. This guide provides an overview of taxes for businesses and individuals in Vietnam, as well as discussing accounting and audit in the Vietnam business context.

This guide was created in mid-2014 based on the information available at the time. As the tax situation of each enterprise is unique and Vietnam’s regulatory environment is subject to change, it is advisable to seek professional tax advice specific to your business.

Vietnam Briefing’s “The Vietnam Tax Guide” is produced in collaboration with the tax experts at Dezan Shira & Associates, a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

Contact Dezan Shira & [email protected]

Alberto VettorettiManaging PartnerChina, Vietnam & ItalyDezan Shira & Associates

mailto: [email protected]

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An Introduction to Tax and Accounting in VietnamDealing with tax and accounting can be a confusing process even for the most prepared business professional. It is therefore recommended that businesses take a careful look at all relevant regulations and engage a professional where appropriate to ensure proper compliance with all laws.

In Vietnam, most businesses and investors will find themselves subject to some form of tax. Once registered, all companies, whether or not they are operational or profit centers, must file tax declarations.

Companies and individuals are subject to a range of taxes in Vietnam - these include corporate income tax, VAT, and personal income tax. Complicating matters are the range of double taxation agreements (DTA) to which Vietnam subscribes. Careful application of the tax regulations and the relevant DTA can greatly improve the taxpayer’s outcome.

All taxes in Vietnam are imposed at the national level, i.e. there are no local, state or provincial taxes. Enterprises should pay tax in localities where they are headquartered or have duly registered branches.

Most companies and foreign investors in Vietnam are subject to the following major taxes:

a. Business license taxb. Corporate income taxc. Value-added taxd. Special consumption taxe. Foreign contractor taxf. Customs dutiesg. Personal income tax

Additionally, there are a number of important tax incentives that can create a further favorable tax environment to operate in. It should be noted that many of the tax incentives and DTA can be confusing and it can be difficult to discern whether or not a company qualifies. Therefore it is strongly suggested that you engage professional advice before moving ahead with any specific tax plan.

Hoang Thu HuyenCountry ManagerDezan Shira & Associates Vietnam

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Vietnam’s Free Trade AgreementsVietnam has a number of free trade agreements (FTA), but those of particular interest to foreign companies are its FTA with ASEAN and ASEAN’s FTA with India and China. This means that if a company is manufacturing a product in ASEAN that fits into either China or India’s free trade agreements, the product can be exported to either of those markets duty free.

Vietnam is also finalizing negotiations for an FTA with the EU. Furthermore, when the Trans-Pacific Partnership (TPP) is concluded, the country will have tariff free access to some of the largest markets in the world, such as the United States. Additionally, when the Regional Comprehensive Economic Partnership (RCEP) negotiations conclude in 2015, Vietnam and the ASEAN trade bloc will also be able to participate in free trade with China, India, Japan, South Korea, Australia and New Zealand. Because of this, the RCEP is set to be a really exciting opportunity for foreign companies.

The emergence of Vietnam as one of the world’s fastest growing economies is having a significant impact upon shaping the future of foreign investment into Asia. While in the mainstream media the country is often overlooked in favor of China business news, Vietnam is now emerging as a serious alternative to China, and is in fact following roughly the same growth trajectory that China embarked on twenty years ago.


About Dezan Shira & Associates At Dezan Shira & Associates, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. With over 20 years of on-the-ground experience and a large team of professional advisers, we are your reliable partner in Asia. Since its establishment in 1992, Dezan Shira & Associates has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, as well as liaison offices in Italy, Germany and the United States, and partner firms across the ASEAN region.

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Dezan Shira & Associates VietnamDezan Shira & Associates expanded into Vietnam in 2008, and quickly set up offices in Hanoi and Ho Chi Minh City (HCMC). The year 2008 also saw the launch of Vietnam Briefing, which has now become a premier source of business intelligence related to Vietnam.

Our staff includes a growing number of Vietnamese chartered accountants and lawyers, all of whom have multiple years of experience advising foreign companies.

Specifically, our services include pre-investment and entry strategy advisory, business advisory, accounting and reporting, treasury administration, tax and compliance, payroll and human resources, and audit and financial review. Dezan Shira & Associates’ experienced business professionals are committed to improving the understanding and transparency of investing in emerging Asia.

Our business advisors, tax experts and accountants in Hanoi and Ho Chi Minh City can help with any questions related to establishing or conducting your business in Vietnam. To talk to a Hanoi or HCMC accountant or business consultant, please contact us today.

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An Introduction to Doing Business in Vietnam | DEZAN SHIRA & ASSOCIATES - 1

An Introduction to

Doing Business in Vietnam 2014 Second Edition

I. Establishing and Running a Business

III. Human Resources and Payroll

II. Tax and Accounting

Your Partner for Growth in Asia

RELATED READING

An Introduction to Doing Business in Vietnam 2014 (Second Edition)Released April, 2014Please click here


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Contents1. Vietnam’s Business Taxes ..........................................9

1.1 Main Taxes

1.2 Corporate Income Tax

1.3 Value-added Tax

1.4 Business License Tax

1.5 Special Consumption Tax

2. Other Taxes ............................................................322.1 Foreign Contractor Tax

2.2 Natural Resources Tax (NRT)

2.3 Property Taxes

2.4 Environment Protection Tax

2.5 Customs Duties

3. Individual Income Tax .............................................393.1 Personal Income Tax

4. Accounting, Audit and Compliance ........................474.1 What are some of the key compliance requirements?

5. International Taxation .............................................535.1 Transfer Pricing

5.2 Foreign Exchange Control in Vietnam

5.3 Double Taxation Avoidance Agreements

1. Vietnam’s Business Taxes1.1 Main Taxes1.2 Corporate Income Tax1.3 Value-added Tax1.4 Business License Tax1.5 Special Consumption Tax


1.1 Main TaxesEvery business, organization, individual, and foreign investor who carries out business in Vietnam or derives income in Vietnam are subject to taxation. As such, they need to understand their liabilities and whether they are eligible for any relief or exemption.

This guide introduces the main taxes applicable to foreign investors in Vietnam, based on the most up to date taxation regulations at the time of writing. Currently, most companies and foreign investors in Vietnam are subject to the following five major taxes:

• Corporate Income Tax• Value-added Tax• Business License Tax• Special Consumption Tax• Personal Income Tax (discussed later in this guide)

All these taxes are imposed at the national level. There are no local, state or provincial taxes. We discuss each of these taxes in detail below.

“Every business, organization, individual, and foreign investor who carries on business in Vietnam or derives income in Vietnam are subject to taxation. ”


“The current standard CIT rate is 22 percent for both domestic and foreign invested enterprises.”

”1.2 Corporate Income TaxCorporate income tax (CIT) is a direct tax levied on the profits earned by companies or organizations. In general, profits are considered gross revenue minus expenses. The Corporate Income Tax Law was approved by the National Assembly on June 3, 2008 and came into effect on January 1, 2009. On June 19, 2013, law number 32/2013/QH13 Amending and Supplementing a Number of Articles of the Law was approved and came into effect on January 1, 2014.

Taxpayers include business entities in all economic sectors, professional organizations, and foreign corporations with production and trading activities in Vietnam. Individuals and families conducting business are also subject to Personal Income Tax (PIT) (discussed later in the Personal Income Tax section). CIT declaration and payment is required every three months and is compulsory at the end of the fiscal year.

Businesses

Income subject to CIT?

Income arising inside Vietnam Income arising outside Vietnam

Local and foreign businesses established and operating according to Vietnam’s Enterprise Law

Yes Yes

Enterprises established under foreign laws with Vietnam-based permanent establishments (e.g., branches, executive offices and factories)

Yes Yes

Foreign enterprise without any Vietnam-based establishment

Yes No

Tax rates The current standard CIT rate is 22 percent for both domestic and foreign invested enterprises. The CIT rate will be reduced to 20 percent on January 1, 2016. For companies involved in seeking, exploring and exploiting petroleum and gas and other precious natural resources, the CIT rate is between 32 percent and 50 percent depending on the project and business establishment.

For small and medium-sized enterprises (SMEs), defined in Vietnam as a company with a total annual turnover not exceeding VND 20 billion, the CIT rate is 20 percent. Eligibility for this 20 percent tax rate is judged by the turnover of the preceding year.

Taxable incomeTaxable income includes income from production and/or trading of goods and provision of services, as well as other incomes, including: • Income from capital transfer and real estate transfer;• Income from ownership of or rights to use assets;


• Income from assignment, leasing out and liquidation of assets;• Interest on deposits, loans or income from the sale of foreign currency; • Recoveries from contingency reserves; • Recoveries from bad debts which were written-off; • Income from debts payable to unidentifiable creditors; • Income from business unreported in previous years; and • Other income including income from activities of production and/or business outside Vietnam.

An enterprise that conducts various business activities subject to different tax rates should calculate the income for each activity separately, multiplying income from each activity by the corresponding tax rate. In particular, income from real estate transfer must be separately accounted for when declaring and paying CIT and cannot be deducted against incomes or losses from other production and business activities.

ExemptionsCertain incomes are exempt from CIT, such as those earned from scientific research and technological development contracts during the trial production period, and from technical service contracts directly serving agricultural production.

The CIT Law also allows enterprises to set aside a maximum of 10 percent of their annual taxable incomes for research and development if it is spent in the country within five years. If the research and development fund is not used within that time period, is used for incorrect purposes, or less than 70 percent of the fund is used, then the company will have to refund the CIT exemptions on the fund plus interest.

Deductible expensesWhen calculating CIT, foreign invested enterprises (FIE) can deduct any expenses which are actually paid for by production and business activities and which are supported by adequate lawful invoices and documents. However, exceptions apply to the expenses listed below, which are not deductible:

• Salaries and wages of owners of private enterprises or one-member limited liability companies (owned by a single individual); remunerations paid to founders and members of members’ councils or boards of directors who do not personally participate in administering goods production and trading or service provision activities;

• Expenses for advertisement and promotion exceeding 10 percent of total deductible expenses. For a new enterprise granted an investment license on or after January 1, 2009, such expenses are capped at 15 percent of deductible expenses for the first three years from the date of establishment. This cap does not apply for new FIEs established as a result of consolidation, separation, split, merger, and any type or ownership transformation;

• Fines for administrative violations, including violations of traffic law, tax law, business registration, accounting and statistics regulations, and other administrative fines as prescribed by law;

Multimedia: Introduction to Taxes in Vietnam presented by Alberto VettorettiManaging Partner, China, Vietnam & Italy

Mr. Alberto Vettoretti talks about the important taxes that foreign companies and individuals must be aware of when doing business in Vietnam. He discusses these taxes, filing deadlines and methods, as well as the deductions and exemptions that are available to foreign enterprises

www.dezshira.com/multimedia

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• Credited or refunded input value-added tax; corporate income tax; • The portion of business management expenses allocated by a foreign enterprise to its resident

establishment in Vietnam which exceeds the level calculated by the allocation method stipulated by law;

• The portion of expenses which exceeds the level stipulated by law for establishment of contingency reserves;

• The portion of expenses for raw materials, supplies, fuel, power and goods which exceeds the wear and tear levels formulated by the enterprise and notified by it to the tax office and actual ex-warehouse prices;

• The portion of interest payments on loans for production and/or business to an entity which is neither a credit institution nor an economic institution which exceeds 150 percent of the basic interest rate as published by the State Bank of Vietnam at the time of the loan;

• Incorrect depreciation of fixed assets;• Incorrect amounts advanced for expenses; and• Items of financial aid, except that for education and health care to overcome the consequences

of a natural disaster or to build a charitable home for poor people.

Carrying losses forward Business establishments that suffer losses after tax finalization are entitled to carry forward those losses to future taxable income for a maximum period of five years.

Tax payment Enterprises must pay tax in the localities where they are headquartered. For an enterprise that hasa dependent cost-accounting production establishment (including a processing and assembly establishment) operating in a province or city other than where it is headquartered, the tax amountshall be calculated and paid in both the locality where the enterprise is headquartered and the localitywhere its production establishment is based. The amount of CIT payable to the province or city where a dependent cost-accounting production establishment is based is the payable CIT amountin a period multiplied by the ratio between expenses incurred by the production establishment and the total expenses incurred by the enterprise.


Tax incentivesTax incentives apply to investment projects in specific sectors and areas with difficult socio-economic conditions as well as those in high-tech zones and economic zones in order to encourage the development of the economy, technology and education of these regions. The tax incentives are as follows:

Tax Incentives for Government-encouraged Sectors - Category APreferential

CIT RatesAdditional Incentives

Applicable To

20%, applicable for 10 years.

CIT exemption for up to 2 years and 50% CIT reduction for up to 4 subsequent years.

• Enterprises’ incomes from the implementation of new investment projects in areas with difficult socio-economic conditions;

• Enterprises’ incomes from the implementation of new investment projects, including manufacture of high-grade steel; energy-saving products; machines and equipment for agricultural, forest and fishery production and salt making; and irrigation equipment; production and refining of livestock, poultry and aquatic feeds; and development of traditional trades and occupations.

• From January 1, 2016, enterprises’ incomes specified in this clause will enjoy the tax rate of 17% (including micro finance activities).


Tax Incentives for Government-encouraged Sectors - Category B

Preferential CIT Rates

Additional Incentives

Applicable To

10%, applicable for 15 years.

CIT exemption for up to 4 years and 50% CIT reduction for up to 9 subsequent years.

• Newly established companies in regions included on the government-issued list of geographical areas with extremely difficult socio-economic conditions, economic zones, high-tech zones;

• Newly established companies investing in the high-tech sector, producing software, engaging in scientific research and technology development, or investing in the development of infrastructure deemed extremely important by the state; production of composite, light building and rare materials; production of energy; biotechnology development; environmental protection; production;

• Incomes of hi-tech enterprises and hi-tech agricultural enterprises;

• Enterprises’ incomes from the implementation of new investment projects in production sectors (excluding projects to produce commodities subject to excise tax, and mining projects);

• Projects must satisfy one of the following criteria:

» Having investment capital of at least VND six trillion to be disbursed within three years after being granted the investment certificate and having a total annual turnover of at least VND 10 trillion within three years after the year it begins earning turnover;

» Having investment capital of at least VND six trillion to be disbursed within three years after being granted the investment certificate and employing more than three thousand workers.


Tax Incentives for Government-encouraged Sectors - Category C

Preferential CIT Rates

Additional Incentives

Applicable To

10% tax rate. CIT exemption for up to 4 years and 50% CIT reduction for up to 9 subsequent years.

• Newly established, as well as already existing, companies operating in educational training, vocational training, health care, culture, sports and environmental industries.

• Enterprises’ incomes from the implementation of projects on investment in social housing for sale, lease or lease purchase for the entities;

• Press agencies’ incomes from printed newspapers, including advertising on printed newspapers in accordance with the Press Law; publishing agencies’ incomes from publishing activities;

• Enterprises’ incomes from forest planting, tending and protection; agriculture, forestry and aquaculture in areas with difficult socio-economic conditions; production, multiplication and crossbreeding of plant varieties and animal breeds; making, exploitation and refining of salt, except salt making; investment in the preservation of post-harvest agricultural products, aquatic products and food;

• Incomes of cooperatives from agricultural, forest, fishery and salt making activities outside areas with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions, except incomes of cooperatives.

The preferential CIT rates above are applicable from the first year the enterprise has turnover. The additional incentives of CIT exemption or reduction are applied from the first year in which the enterprise has taxable income. If an enterprise does not have taxable income in the first three years from the first year it has turnover, the tax exemption and reduction will apply starting from the fourth year. In addition to tax incentives, tax reductions may be available for enterprises engaging in manufacturing, construction, and transportation activities which employ numerous female or ethnic minority staff members.


Year 1The first year the

enterprise has turnover

Year 1The first year the enterprise has

turnover as well as taxable income

Scenario A: Enterprise does not have taxable income in the first three years from the first year it has turnover

Scenario B: Enterprise receives taxable income the same year that the company has turnover

Year 1 2 3 4 5 6 ... 14 15 16

Year 1 2 3 4 5 6 ... 13 14 15

Year 4Tax exemption and reduction applies

15% CIT Preferential CIT rateCIT exemption 50% CIT reduction


Industrial ParksTax rates and incentives can vary throughout the country. Choosing to locate your business in an industrial park can entitle a company to additional tax incentives. Please see below for an example.

Tax Category VSIP Quang Ngai VSIP Hai PhongVSIP Bac NinhVSIP Binh Duong IPS & location

outside EZ

(CIT)

Incentive rates 10% within 15 first years with interest 22%

Exemption 4 years Zero

Reduction 50% for next 9 years Zero

(PIT) - 50% reduction In accordance with current PIT laws

Source: VSIP (Southern Binh Duong Province, 17 km from Ho Chi Minh City)


Withholding taxDividends - No tax is imposed on dividends remitted overseas unless paid to individuals - who are then subject to a 5 percent withholding tax, unless the rate is reduced under a tax treaty.

Interest – interest paid to a non-resident is subject to a 5 percent withholding tax, unless the rate is reduced under a tax treaty.

Royalties – Royalties paid to a non-resident are subject to a 10 percent withholding tax, unless the rate is reduced under a tax treaty.

Technical service fees – A withholding tax of 5 percent (corporate tax) and 5 percent (VAT) generally applies to technical service fees paid to a non-resident. The corporate tax may be exempt under a tax treaty.

Profit RepatriationIn order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements. The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out.

Companies can expect it to be between the middle to the end of April before they are able to remit their profits out of the country. However, profit repatriation will not be allowed if the financial statements of the company show an accumulated loss.


1.3 Value-added TaxThe Value-added Tax (VAT) law imposes tax on the value added to goods and services arising in the process of production, distribution and consumption in Vietnam, including goods and services purchased from abroad. It is applicable to the majority of goods and services bought and sold for use in the country. All organizations and individuals conducting business and deriving incomes in Vietnam related to goods or services subject to VAT have to pay VAT regardless of whether they have Vietnam-based resident establishments or not. Goods which are sold for export and services which are sold to customers abroad are normally not subject to VAT.

On June 3, 2008, the National Assembly promulgated the Law on Value-added Tax (VAT), the law went into effect on January 1, 2009. On June 28, 2013, the Law Amending and Supplementing a Number of Articles of the Law on Value-added Tax was promulgated and became effective on January 1, 2014.

VAT is imposed on the supply of goods and services at three different rates: 0 percent, 5 percent and 10 percent (the standard rate).

For goods and services purchased from abroad, VAT applies to the duty paid value of imported goods and services. The importer must pay VAT at the same time that they pay import duties to customs. For some categories of goods and services, which are subject to special consumption tax, VAT applies to the selling price plus the special consumption tax.

“VAT is imposed on the supply of goods and services at three different rates: 0 percent, 5 percent and 10 percent (the standard rate). ”


VAT Rate Applicable to

0 % Goods and services for export; international transportation; and goods and services not liable to VAT except in the following cases:

Transfer of technologies or intellectual property rights abroad;Offshore reinsurance services;Credit provision services;Capital transfer;Derivative financial services;Post and telecommunications services;Exported products being mined, resources and minerals that have not been processed into other products

5 % Essential goods and services such as: Clean water for production and daily living; Fertilizers, insecticides and pesticides; animal feed; Feeds for cattle, poultry and other domestic animals;Services of digging, embanking and dredging canals, ditches, ponds and lakes for agricultural production; growing, tending, and preventing pests and insects for, plants; preliminary processing and preservation of agricultural products;Unprocessed cultivation, husbandry and fishery products; natural agro-forestry products; Preliminarily processed rubber latex; preliminarily processed turpentine; nets, main ropes and fibers for making fishing-nets; fresh and live food; unprocessed forest products, except timber, bamboo shoots and products; Sugar; by-products in sugar production, including molasses, bagasse and sludge;Products made of jute, rush, bamboo, leaf, straw, coconut husks and shells and Eichhornia crassipes, and other handicrafts made of agricultural raw materials; preliminarily processed cotton; paper for newspaper printing;Special-purpose machinery and equipment for agricultural production, including plowing machines, harrowing machines, rice-planting machines, seeding machines, rice-plucking machines, reaping machines, combine harvesters, agricultural product harvesters, insecticide or pesticide pumps or sprayers;Medical equipment and instruments; medical cotton and bandage; preventive and curative medicines; pharmacological –chemistry products and pharmaceuticals used as raw materials for the production of curative and preventive medicines;Teaching and learning aids, including models, figures, boards, chalk, rulers, compasses, and equipment and tools exclusively used for teaching, research and scientific experiments;Cultural exhibition, physical training and sports activities; art performances; film production; film import, distribution and screening; Children toys; books of all kinds;Scientific and technological services; andSelling, leasing, and leasing-purchasing social houses in accordance with the Housing Law.

10 % Everything else.

(1)(2)(3)(4)(5)(6)(7)

(1)(2)(3)(4)

(5)(6)

(7)(8)

(9)

(10)

(11)

(12)

(13)(14)(15)


A Guide to Understanding Vietnam’s VATReleased February, 2014Vietnam Briefing magazine Please click here

Exempt goods and servicesGoods and services which are encouraged by the government, such as agricultural products, healthcare services, and scientific activities, are exempt from VAT. In addition, the following are exempted from VAT:

Cultivation and husbandry products, and reared and fished aquatic products which have not yet been processed into other products or have been just preliminarily processed and sold by producing and fishing organizations and individuals, and products at the stage of importation;Products which are animal breeds and plant varieties, including breeding eggs, breeding animals, seedlings, seeds, sperms, embryos and genetic materials;Salt products made of seawater, natural rock salt, refined salt and iodized salt in which sodium chloride (NaCl) is a major component;State-owned residential houses sold by the State to current tenants;Land use rights transfer;Derivative financial and credit services; securities trading; capital transfer;Insurance services such as life insurance, student insurance, insurance on domestic animals, insurance on plants and reinsurance; Education and vocational training; Printing and publishing newspapers and political books, textbooks, curricula;The service of maintenance of zoos, flower gardens, parks, street greeneries and public lighting; and funeral services;Machinery, equipment, parts and supplies which cannot be manufactured at home and need to be imported for direct use in scientific research and technological development; machinery, equipment, spare parts; Transfer of technology and software, except exported software which is entitled to a zero percent rate; Exported unprocessed mineral products; Imported machinery, equipment which are directly for use in technology research and development activities, leased airplanes, ships etc., which cannot be produced in Vietnam; International non–refundable aid; Foreign donations to government bodies and individuals; Production of weapons for defense and security; andGoods and services of business households or individuals with annual turnover of VND 100 million or less.

Companies or individuals providing the goods and services enumerated above do not need to pay any VAT on such goods and services, but they are not allowed to claim refund of the input VAT.

(1)

(2)

(3)

(4)(5)(6)(7)

(8)(9)

(10)

(11)

(12)

(13)(14)

(15)(16)(17)(18)

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VAT Calculation MethodsThe VAT law provides two different methods of calculating the tax amount: credit method (also called “the deduction method”) and direct method, which accordingly determine who has to do tax declaration and finalization and who is eligible for a tax refund. A taxpayer can choose the appropriate calculation method based on the criteria described below.

Credit methodMost businesses are required to use the credit method, which applies to business organizations established under the Law on Enterprises, foreign-invested enterprises (FIEs), and foreign parties to business cooperation contracts (BCC). Such business establishments must fully observe Vietnamese regulations on accounting, invoices, and documents as prescribed by the relevant laws, and register to pay tax according to the credit method.

_Output VAT Amount

Payable VAT Amount

Credit Method

Creditable Input VAT Amount=

The output VAT amount is the total amount of VAT on sold goods and services indicated in the VAT invoices. The creditable input VAT amount is the total VAT amount on goods or services purchased and on imported goods as indicated in VAT invoices and other relevant documents proving VAT payment.

In order to claim the input VAT, the taxpayers must obtain the proper VAT invoices from suppliers. In addition, the following conditions must be met:

• The VAT invoices for the purchase of goods and services are legal; and • There is evidence of payment via a bank for the purchased goods and services, except where the

total value of purchase of goods and services is below VND 20 million.

The invoice must be filled out fully and properly, displaying all surcharges and additional charges (if any). Where the VAT invoice does not indicate the VAT amounts, the output VAT will be determined to be the payment price indicated on the invoice multiplied by the VAT rate.

Under the credit method, payment and declaration of VAT is made on a monthly basis, where the taxpayer adds and subtracts the input and output VAT, and pay or claim the balance to the competent bodies. As the situation is normalized every month, no annual VAT finalization is required at the end of the year.

Companies will be given a grace period of six months to correct errors in the declaration and deduction of input VAT. Where the taxpayer’s input VAT is not credited for three or more consecutive months, it can claim refund from the tax authorities. In certain cases, exporters with excess input VAT credits exceeding VND 200 million may be granted refund on a monthly basis.

“The VAT law provides two different methods of calculating the tax amount: the credit method and the direct method.”

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Direct methodThe direct method applies to the business establishments, foreign organizations or individuals having incomes generated in Vietnam without resident offices and which have not implemented the Vietnamese Accounting System (VAS). The direct method also applies to gold, silver, and gem trading activities.

Added Value of Sold Goods or Services*

Payable VAT Amount

Direct Method

VAT Rate= X

*Added value of sold goods or services = Selling price – Purchasing price of goods or services.

According to this method, VAT depends on total revenues for which the total is not known with certainty until the end of the accounting year. As such, the monthly payments are just provisional, and the total amount of VAT may be different at the end of the year. Therefore, when using the direct method of calculation, tax finalization procedures must be done within three months following the end of the year. Taxpayers adopting the VAT direct method should use sales invoices instead of VAT invoices.

Invoice Requirements The Vietnam Government issued a decree in May 2010, effective January 1, 2011, which regulates invoices for sale of goods and provision of services. Under this decree, enterprises and other business organizations in Vietnam can use invoices printed by themselves, order invoices from a printing house, or use e-invoices instead of purchasing them from the tax department as was done previously. Furthermore, invoices are not required for goods or services with a total payment of under VND200,000 (previously VND100,000) unless the buyer so requests.

Tax Filing and Payment Pursuant to the prevailing regulation on Vietnamese tax management, the taxpayer must submit monthly VAT returns and settle tax payments on or before the 20th day of the following month in localities where they conduct production or business. For companies adopting the direct method, the tax finalization must be made no later than the 90th day from the end of the calendar year. Payment has to be made in Vietnamese dong (VND) directly to the State Treasury in cash or through the taxpayer’s bank account.

Taxpayers that declare and pay VAT using the credit method and have dependent accounting production establishments (including processing and assembling establishments) located in provinces or cities other than the locality where they are headquartered shall pay VAT both in localities where their production establishments are based and where they are headquartered.

Dependent accounting production establishments that conduct cost-accounting activities following the Vietnam Accounting Standard should register for tax payment using the credit method in localities where they conduct production activities. They should use value-added invoices as a basis


for tax declaration and payments in these localities when delivering their semi-finished or finished products to other establishments, including their headquarters.

If dependent accounting production establishments fail to conduct cost-accounting activities, taxpayers at headquarters should pay two percent VAT (for goods subject to the VAT rate of 10 percent) or 1 percent VAT (for goods subject to the VAT rate of five percent), excluding turnover of products they produce in the city or province where they are located. VAT amounts already paid by taxpayers for their dependent accounting production establishments will be deducted against their payable VAT amounts in localities where they are headquartered.

Tax RefundBusiness establishments that pay VAT according to the credit method are entitled to a tax refund in the following situations:

• When business establishments that pay VAT according to the tax credit method have their input VAT amounts not fully credited within a month or a quarter, they may have such tax amounts credited in the following period; in case the VAT amount is not fully credited after at least twelve months from the first month or at least four quarters from the first quarter in which the VAT amount arises, business establishments are entitled to a tax refund;

• A business establishment having registered to pay VAT according to the tax credit method is entitled to a tax refund if it has a new investment project and has an amount of VAT on purchased goods or services used for investment not yet credited and the remaining tax amount is VND 300 million or more;

• Business establishments that export goods or services in a month or a quarter are entitled to a VAT refund on a monthly or quarterly basis if they have an uncredited input VAT amount of VND 300 million or more;

• Business establishments that pay VAT according to the tax credit method are entitled to a VAT refund if upon ownership transformation, enterprise transformation, merger, consolidation, separation, split, dissolution, bankruptcy or operation termination, they have an overpaid VAT amount or have some input VAT amount not yet fully credited;

• Foreigners and overseas Vietnamese holding passports or entry papers granted by competent foreign agencies are entitled to a tax refund for goods purchased in Vietnam and carried along when leaving the country;

• The VAT refund for programs and projects using non-refundable official development assistance (ODA) or non-refundable aid or humanitarian aid is stipulated as follows:

» Owners of programs and projects or principal contractors or organizations designated by foreign donors to manage programs and projects using non-refundable official development assistance are entitled to a refund of VAT already paid on goods and services purchased in Vietnam for such programs and projects; and

» Organizations in Vietnam using non-refundable aid and humanitarian aid of foreign organizations and individuals to buy goods and services used in non-refundable aid and


humanitarian aid programs and projects in Vietnam are entitled to the refund of VAT on such goods and services.

• Subjects enjoying diplomatic preferences and immunities in accordance with the law on diplomatic preferences and immunities are entitled to the refund of VAT amounts indicated on added value invoices or payment documents that indicate payments prices inclusive of VAT; and

• Business establishments possessing a VAT refund decision issued by competent agencies in accordance with the law, and cases eligible for a VAT refund under treaties to which the Socialist Republic of Vietnam is a contracting party.

To obtain a tax refund, business establishments have to submit an application dossier to the tax authority in charge. Taxpayers who have properly observed tax law and have their transactions paid for via commercial banks or other credit institutions are eligible to obtain tax refunds before the authorities examine the application dossier. The tax authorities with jurisdiction over VAT refunds must approve the VAT refund within 15 days from the date of receipt of a complete file. For other taxpayers, dossiers should be examined before a tax refund is made. The time limit for resolution of a tax refund is 60 days from the date of receipt of a complete file.

In practice, the tax authorities tend to insist on offsetting the VAT refundable amount against other tax liabilities that the taxpayer may have in the future, rather than refunding the amount. Otherwise, in most cases, it usually takes two to six months from the date of submitting documents to the date of actually receiving the refund. In addition, a VAT refund often involves a tax audit to review the supporting documentation and invoices.


1.4 Business License TaxBusiness license tax (BLT) is an indirect tax imposed on entities conducting business activities in Vietnam. It is paid by enterprises annually for each calendar year that they do business in Vietnam. All companies, organizations or individuals (including branches, shops and factories), and foreign investors operating businesses in Vietnam are subject to BLT. The BLT rates applicable to economic entities and households/individuals doing business are different.

BLT RatesThe amount of BLT which the business must pay is based on the amount of their registered capital shown on their business registration certificates, as follows:

BLT Rates for Economic EntitiesRegistered capital (billion VND) BLT/year(VND)

Over 10 3,000,000

From 5 to 10 2,000,000

From 2 to under 5 1,500,000

Under 2 1,000,000

For state-owned enterprises, limited liability companies (LLCs), and joint stock companies (JSCs), the registered capital is the charter capital. For foreign–owned enterprises and private enterprises, the registered capital is the investment capital. If the registered capital on the business registration certificate or investment certificate (IC) is in foreign currency, the registered capital is converted into VND according to the average interbank exchange rate published by the Vietnam state bank at the time of tax calculation.

New businesses established after June 30 of the year only need to pay half of the BLT amount listed in the table above. Business establishments must declare any change in the amount of registered capital, be it an increase or a reduction, to the tax offices directly managing them for use as the basis for determining the license tax of the next year.

The BLT applicable to households and individuals doing business is based on their monthly average income as follows:

BLT Rates for Households and IndividualsMonthly income (VND) BLT/year (VND)

Over 1,500,000 1,000,000Over 1,000,000 to 1,500,000 750,000Over 750,000 to 1,000,000 500,000Over 500,000 to 750,000 300,000Over 300,000 to 500,000 100,000300,000 or less 50,000

“Business license tax (BLT) is an indirect tax imposed on entities conducting business activities in Vietnam.”


1.5 Special Consumption TaxSpecial consumption tax is a form of excise tax that applies to the production or importation of specific goods and to certain services.

The current Special Consumption Tax (SCT) Law was promulgated on November 14, 2008 by the National Assembly and came into effect on April 1, 2009 (except that for alcohol and beer, which was applicable from January 1, 2010). According to SCT Law, SCT is levied on the production and importation of 11 categories of products and 6 types of services which are considered to be luxurious or non-essential.Generally, goods and services subject to SCT are also subject to VAT. The basis of VAT calculation is the selling price plus the SCT. For imported products, VAT is imposed on the dutiable value plus import duties plus SCT.

The following goods are exempt from SCT:• Goods manufactured and directly exported or sold to authorized agents for export;• Imported goods including:

» Humanitarian aid, non-refundable aid goods; » Personal belongings of foreign organizations and individuals under diplomatic immunity

or duty-free personal belongings; » Goods which are transshipped, transited or transported through Vietnam’s border; » Goods temporarily imported for re-export, or temporarily exported for re-import during

the tax-free period; and » Goods imported for duty-free sale under the prescribed regulations; personal belongings

within duty-free luggage quotas. • Airplanes and yachts for sale and transport of passengers and goods;• Ambulances, prison vans; hearses, cars designed with both seats and standing places for

transporting 24 or more people; cars running in recreation, entertainment and sports areas which are neither registered for circulation nor move on roads; and

• Goods imported to non-duty areas, domestic goods sold to non-duty areas (exclusive of automobile with less than 24 seats).


No. Goods and services SCT rateI Goods1 Cigar / Cigarette 65%2 Alcohol / Wine (from 01/01/2013, tax rate will be 25-50 percent) 25 –50%3 Beer (from 01/01/2013, tax rate will be 50 percent) 45%4 Automobiles having less than 24 seats 15 – 60%5 Motorcycles with a cylinder capacity above 125cm3 20%6 Airplane 30%7 Boat 30%8 Petrol 10%9 Air-conditioners (not more than 90,000 BTU) 10%10 Playing cards 40%11 Votive paper 70%II Services1 Dancing hall 40%2 Massage, karaoke 30% 3 Casino, jackpot games 30%4 Entertainment involving betting 30%5 Golf 20%6 Lottery 15%

Tax refundSCT is levied on each item of goods only once. SCT refunds are available for exported goods upon request of the taxpayers in the following cases: goods temporarily imported for re-export, raw materials imported for manufacture, or processed goods for export.

In case items subject to SCT are produced from materials for which the SCT was already paid, the SCT already paid for the materials will be deducted when calculating SCT for their productions.

Capital Gains TaxVietnam has no separate capital gains tax. Gains will be taxed at the standard corporate rate of 22 percent, reducing to 20 percent on January 1, 2016.

Capital Assignments Profit Tax (CAPT) Gains will be taxed at the standard corporate rate of 22 percent, reducing to 20 percent on January 1, 2016. The taxable gain is determined as the excess of the sale proceeds over cost (or the initial value of contributed charter capital for the first transfer) less transfer expenses. Whoever assigns the capital shall be the taxpayer for CAPT and also must handle the tax clearance procedures.

Shares Transfer If a Vietnam joint stock company is going to transfer shares, gains derived by a resident entity (or a non-resident entity in respect of a non-public joint stock company) are currently taxed at 22 percent. Transfers of securities by a foreign entity are subject to CIT on a deemed basis at 0.1 percent of the total disposal proceeds.

SCT tax rates for goods and services


Over the years, the skilled tax and accounting departments at Dezan Shira & Associates’ Vietnam offices have helped countless companies and individuals navigate their way through the country’s complex tax system.

What follows is a brief case study concerning one of our recent clients.

The Client and Problem Set

Company X is a medium-sized textile manufacturer who is the main supplier for a luxury bag producer in China. Company X was previously based in southern China, but due to increased costs, in particular growing labor costs, the company needed to move its production activities to a lower cost destination. After visiting multiple destinations and hearing from many experts, Company X decided on relocating its operations to Vietnam. The main reasons behind this move were:

• A better Corporate Income Tax (CIT) rate (25 percent, further reduced to 22 percent at the beginning of 2014);

• A stable political and social situation;• An abundance of low cost manufacturing labor; and• A variety of tax incentives.

However, Vietnam’s tax environment remains a daunting system to navigate for any newcomer, particularly for those who do not speak Vietnamese. Company X had previously tried to handle its tax obligations internally, but had found that it was quickly tied down by time consuming paperwork and complex regulations. As a result, the company made the decision to hire a firm with local knowledge of the tax environment and who also had experience working with multinational companies.

Dezan Shira’s Approach

After meeting with Company X and determining what their needs were, Dezan Shira & Associates provided the following services:

• Preparation and submission of business license tax returns;• Preparation and submission of quarterly CIT returns;• Preparation and submission of CIT finalization at the end of the year;• Provided advice on how and when to transfer tax to the relevant tax authorities; and• Provided immediate assistance either by phone or email for all taxation issues and questions.

Alberto VettorettiManaging Partner, China & Vietnam

Dezan Shira & Associates

Case Study: Assisting a Medium-sized Manufacturer Move from China to Vietnam

http://www.dezshira.com/personnel/alberto-vettoretti.html

Tax, Accounting, and Audit in Vietnam 2014-2015 - 31Dezan Shira & Associates’ Hanoi and Ho Chi Minh City offices provide tax consulting and business advisory services

for companies and investors seeking to enter the Vietnam market or expand existing operations in the country.

For more information, please visit www.dezshira.com/services or email [email protected]

Business Advantages & Results

Dezan Shira provided hassle free tax and accounting services to Company X. In particular, it found a number of favourable tax incentives for the company. Dezan Shira advised Company X to take advantage of the incentives available for companies that qualify for Tax Category A of Vietnam’s CIT law. To do this, Dezan Shira recommended that the company invest in an area classified as having difficult socio-economic conditions and to invest in the machines and equipment needed to develop traditional trades and occupations – this fit nicely with the skills needed to make the company’s bags.

In addition, Dezan Shira advised the company to implement new investment projects in energy-saving products. Company X took this advice and was granted Tax Category A status. A company in this tax category is able to enjoy:

• 20 percent tax rate applicable for 10 years;• CIT exemption for up to 2 years and 50 percent CIT reduction for up to 4 subsequent years; and• From January 1, 2016, a CIT tax rate of 17 percent.

The preferential CIT rates became applicable the first year Company X had turnover. The additional incentives of CIT exemption, or reduction, were applied from the first year in which the company had taxable income.

Finally, Dezan Shira was able to save Company X additional tax payments due to its providing of a clear and correct interpretation of a recently promulgated double taxation agreement between Vietnam and the country where Company X was headquartered. This allowed the company to avoid double taxation during the entry and exit of its goods from Vietnam.

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2. Other Taxes2.1 Foreign Contractor Tax

2.2 Natural Resources Tax 2.3 Property Taxes2.4 Environment Protection Tax

2.5 Customs Duties


2.1 Foreign Contractor TaxForeign businesses are considered foreign contractors if they conduct business or earn income in the country under contract with local organizations and individuals. Usually, foreign contractors are the winners of auctions organized by the Vietnamese government or organizations and may be principal contractors, general contractors, partnership contractors or subcontractors.

Foreign contractors and sub-contractors in Vietnam are liable to pay the same tax rates applicable to local companies, including import-export duties, personal income tax (PIT), and other taxes required by authorities.

The calculation of corporate income tax (CIT) and value-added tax (VAT) for foreign contractors are different depending on the methods of payment. There are two methods available, which are as follows:

• Deduction and declaration method: VAT and CIT payments will be filed in the same manner and tax rates as local companies; foreign contractors will be allowed to follow the ordinary method if they satisfy the following conditions:

» They have a permanent establishment or resident status in Vietnam; » Their duration of conducting business in Vietnam under a contractor or sub-contractor

contract is 183 days or more from the effective date of the contract; and » They apply the Vietnamese accounting system to their business.

• Rate fixing method: this method is applicable when the foreign contractors do not meet one of the conditions mentioned above; the base for calculating VAT and CIT is the taxable revenue.

» VATThe VAT amount payable is the added value of services or services accompanying VAT- liable goods multiplied by the VAT rate: Payable VAT amount = Added value x VAT rate

The added value of services or services accompanying VAT-liable goods is the turnover for VAT calculation multiplied by the percentage (%) of the added value to turnover (see chart below).

No. Business line Percentage of added value

1 Services, machinery and equipment lease, insurance 50%

2 a/ Construction, installation with materials or machinery, equipment attached to construction works

30%

b/ Construction, installation without materials or machinery, equipment attached to construction works

50%

3 Transportation, production, other business 30%


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» CITThe CIT amount payable is the turnover for CIT calculation multiplied by the CIT rate (%) based on turnover for CIT calculation.

Payable CIT amount = Turnover for CIT calculation x CIT rate (%) based on turnover for CIT calculation

The turnover for CIT calculation is the total turnover exclusive of VAT and inclusive of payable taxes (if any) received by a foreign contractor or subcontractor as well as expenses (if any) paid by a Vietnamese party for a foreign contractor or subcontractor.

CIT rate (%) based on turnover for CIT calculation is as follows:

No. Business lineCIT rate based on turnover for

CIT calculation

1 Trade: distribution and supply of goods, raw materials, supplies, machinery and equipment accompanying services in Vietnam

1%

2 Services, machinery and equipment lease, insurance 5%

Construction 2%

4 Other production and business activities, transportation (by sea and air) 2%

5 Lease of aircraft, aircraft engines, spare parts of aircraft, ships 2%

6 Reinsurance 2%

7 Securities transfer 0.1%

8 Loan interests 5%

9 Copyright incomes 10%

Foreign ContractorsA foreign contractor must meet the following conditions:

• Win a project bid in Vietnam;• Commit to employing Vietnamese subcontractors to complete the project;• Demonstrate financial stability in the last three years; and• Have access to stable facilities and manpower.

An application for a contractor license should be submitted to the state authority, which varies depending on the scale and scope of the project. Three sets of the application – one original and two copies – should be submitted, and should include the following documents in Vietnamese language:

• Application letter;• The bidding result, the decision on selection of the contractor, or the lawful contract;

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• Documents related to the contractor’s legal status, including the business registration certificate, incorporation license and company charter;

• Report on experiences related to contracted work and a financial audit report from the last three years;

• The partnership contract with a Vietnamese contractor or the written commitment to employ Vietnamese subcontractors; and

• Authorization letter for persons other than the contractor’s representative at law.

The contractor license will be issued within 20 days from the date of submission of completed documents. Once the contractor license is received, one set of the application file must be submitted to the provincial Department of Construction to register the project office. Required documents include:

• Application letter; and• Certified copy of contractor license;

After filing, the project office license will be issued within five days from the date of submission of the application. After that, the foreign contractors will be allowed to conduct the following activities:

• Lease an office;• Have a project office seal;• Open bank accounts with local banks;• Adopt the Vietnamese accounting system; and• Employ local and foreign laborers according to Vietnamese labor legislation. For expatriates, the

contractor can only register managerial and technical experts and highly skilled employees for working in the country.

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2.2 Natural Resources Tax (NRT)Industries are liable for NRT if they are using or developing Vietnam’s natural resources, such as petroleum minerals, forest products, seafood, and natural water.

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

2.3 Property TaxesThe rental of land use rights by foreign investors (if not contributed as capital) is essentially a form of property tax. It is generally known as land rental and the rates range widely depending upon the location, infrastructure, and industrial sector in which the business is operating.

In addition, owners of houses and apartments have to pay land tax from 2012 onwards under the law on non-agricultural land tax. The tax is charged on a square meter basis with progressive tax rates ranging from 0.03 percent to 0.15 percent.

2.4 Environment Protection TaxEnvironment protection tax (EPT) is a tax imposed on goods which may cause damage to the environment, such as gasoline, oil and grease, coal, and certain chemicals.

EPT is an indirect tax and is applicable to the production and importation of certain types of goods, such as petroleum products.

Tax rates are as follows:

No. Goods Unit Tax range (VND)1 Petrol, oil, grease Liter/kg 300-4,0002 Coal Ton 10,000-50,0003 HCFC Kg 1,000-5,0004 Nylon bags Kg 30,000-50,0005 Limited usage chemicals Kg 500-3,000

In addition to EPT, Vietnam also has an Environment Protection Fee (EPF). The EPF is targeted at businesses that are engaged in mining natural resources, such as crude oil, natural gas, coal gas, and both metallic and non-metallic minerals. Fees vary depending on the type of mineral extracted.


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2.5 Customs DutiesMost goods exported or imported across the borders of Vietnam, or which pass between the domestic market and a non-tariff zone are subject to export or import duties. Exceptions to this include goods in transit, goods exported abroad from a non-tariff zone, goods which are imported from abroad into a non-tariff zone and only used within that non-tariff zone, and goods passing from one non-tariff zone to another.

The payable import tax or export tax amount shall be equal to the unit volume of each actually imported or exported goods item inscribed in the customs declarations multiplied by the tax calculation price and the tax rate of each item stated in the tariff at the time of tax calculation.

Most goods and services being exported are exempt from tax. Export duties (ranging from zero percent to 40 percent and computed on free-on-board (FOB) price) are only charged on a few items, mainly natural resources such as minerals, forest products and scrap metal.

Consumer goods, especially luxury goods, are subject to high import duties, while machinery, equipment, materials and supplies needed for production, especially those items which are not produced domestically, enjoy lower rates of import duties, or even a zero percent tax rate. Duty rates for imported goods shall include preferential rates, special preferential rates and standard rates depending on the origin of the goods.

Import and export duties declaration are required upon registration of customs declarations with the customs offices.

Export duties must be paid within 30 days of registration of customs declarations. For imported goods, import duties must be paid before receipt of consumer goods, specifically: • Within 275 days for imported supplies and raw materials intended for the production of exported

goods; and• Within 15 days for goods temporarily imported and intended for re-export, as from the deadline for

temporary import for re-export or temporary export for re-import, as provided for by competent state agencies.





Company B is a Vietnam-based foreign invested enterprise (FIE) that produces medical lab reagents, its parent company is headquartered in Poland. The company recently obtained a contract from the Vietnamese government to supply medical lab reagents to hospitals in Ho Chi Minh City. Company B needed to know if this new contract meant that they would be considered a foreign contractor operating in Vietnam.


Dezan Shira advised the company that it would indeed be considered a foreign contractor since they would be conducting business and earning income in the country under a contract with a local organization.

Additionally, Dezan Shira also helped the firm to obtain a contractor license so that they would be able to conduct business in Vietnam. In order to ensure timely compliance with all relevant laws, Dezan Shira worked to collect and organize all of the necessary documents and submitted them to the state authorities.

Once the determination was made that Company B was a foreign contractor, the company had further questions relating to how to deal with corporate income tax (CIT) and value-added tax (VAT). After looking at Company B’s financial records, Dezan Shira made the determination that the company could use the ordinary method for filing their CIT and VAT. This determination was made because Company B had a permanent establishment in Vietnam, and, with Dezan Shira’s help, applied the Vietnamese accounting system (VAS) to their business.

Once Company B was granted the contractor license, the company also asked Dezan Shira to provide a variety of other services, such as:

• Keeping the project office seal;• Opening bank accounts at local banks;• Adopting the company’s records to the Vietnamese accounting system; and• Providing visa and payroll services for local and foreign staff.

Business Advantages & Results:

Due to the services provided by Dezan Shira, Company B was able to successfully complete its contract with the Vietnamese government and was able to contribute to the modernization of Vietnam’s hospitals.

Dezan Shira & Associates’ Hanoi and Ho Chi Minh City offices provide tax consulting and business advisory services



Nguyen Thi Thanh ThaoSenior Associate


Case Study: Obtaining Foreign Contractor Status for a Vietnam-based FIE

http://www.dezshira.com/personnel/nguyen-thi-thanh-thao.html


3. Individual Income Tax

3.1 Personal Income Tax


3.1 Personal Income TaxThe National Assembly issued the Law on Personal Income Tax (PIT) on November 21, 2007, which came into effect on January 1, 2009. The law applies to individuals earning income, including individuals doing business who were previously included under the CIT. On November 22, 2012, the National Assembly passed the Law on Amending and Supplementing Some Articles of the Law on Personal Income Tax, this became valid on July 1, 2013.

According to the PIT Law, PIT is levied on the worldwide income of Vietnam residents and on Vietnam-sourced income of non-residents, irrespective of where the income is paid. The tax calculation and finalization procedure for Vietnamese locals and expatriates is the same, but that for residents and non-residents are different.

Employers register and pay insurance contributions monthly on behalf of their employees at the provincial Department of Labor, Invalids and Social Affairs (DoLISA). Contribution amounts are based on the employees’ monthly salary or wage as stated in the labor contract, and are capped at 20 times the legal standard minimum salary.

Social insurance in Vietnam covers compensation for salary lost due to illness, maternity, working accidents, occupational disease, retirement and death. As of 2014, the total minimum employer social security contribution is 22 percent of the employee’s monthly salary.

Tax residentA resident is an individual satisfying one of the following conditions:

• Is staying in Vietnam for an aggregate of 183 days or more within one calendar year or a consecutive 12-month period from the first date of arrival; or

• Has a permanent residence that has been registered pursuant to the Law on Residence; or• Has a leased residence to stay in Vietnam where the lease contract has a term of 90 days or more

within the tax assessment year. Leased residences include hotels, boarding houses, rest houses, lodgings and working offices.

If an individual stays in Vietnam for more than 90 days but fewer than 183 days in a tax year; or he/she can prove that he/she is a tax resident of another country in the 12 consecutive months following the date of arrival in Vietnam, that individual will be treated as a non-resident in Vietnam for tax purposes. If he/she cannot prove that he/she is a tax resident of another country, he/she will be treated as a tax resident in Vietnam.

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Taxable incomeThere are 10 types of earnings which are subjected to PIT as follows:

• Incomes from business activities;• Wages received from employers;• Capital investment;• Capital transfer;• Property transfer;• Prizes;• Royalties;• Commercial franchising;• Inheritances in forms of securities, capital contribution in companies or economic organizations,

real estate and other assets requiring the registration of ownership or use right; and• Gifts in forms of securities, capital contribution in companies or economic organizations, real

estate and other assets requiring the registration of ownership or use rights.

PIT rates for employmentResident taxpayers are subject to PIT on their worldwide employment income, irrespective of where the income is paid or earned, at progressive rates from 5 percent to a maximum of 35 percent. Employment income includes salaries, wages, allowances and subsidies, remuneration in all forms; benefits earned for participation in business associations, boards of directors, control boards, management boards and other organizations; premiums and bonuses in any form except those received from the State.

Tax bracket

Monthly taxable Income (million VND)

Monthly taxable income (USD) Tax rate

1 Up to 5 Up to 238 5%

2 Over 5 to 10 Over 238 to 476 10%

3 Over 10 to 18 Over 476 to 857 15%

4 Over 18 to 32 Over 857 to 1,524 20%

5 Over 32 to 52 Over 1,524 to 2,476 25%

6 Over 52 to 80 Over 2,476 to 3,810 30%

7 Over 80 Over 3,810 35%

Exchange rate: 1 US$ = 21,000 VND

Non-resident taxpayers are subject to PIT at a flat rate of 20 percent on their Vietnam-sourced income.


(1)

(2)

(3)

(4)(5)(6)(7)

(8)

(9)

(10)

(11)

(12)

Other incomes are subject to PIT according to the rates in the following table:

Taxable incomeRate

Residents Non-residents

Capital investment (dividends, interest) 5% 5%

Franchise/ royalties 5% 5%

Winnings or prizes 10% 10%

Inheritances or gifts 10% 10%

Sale of securities:

On the gain 20% 0.1%

On the sale proceeds 0.1% 0.1%

Sale of real estate:

On the gain 25% 2%

On the sale proceeds 2% 2%

Tax exempt incomesIncomes exempted from PIT include:

Incomes from transfer of real estate between husbands and wives, natural/adoptive parents and their children/adopted children;Incomes from transfer of residential houses by individuals who possess only one residential house or land plot; Inheritances or gifts between husbands and wives, natural/adoptive parents and their children/adopted children;Interest earned on deposit from the bank or from life insurance contracts;Overseas remittance; retirement salary; scholarship;Incomes from compensation for insurance contracts or from charity funds;Income from cultivation and husbandry, aquatic and marine products which have not yet been processed into other products or have been preliminarily processed and then sold by producing or fishing organizations or individuals themselves; A resident taxpayer is allowed to deduct from his taxable income VND 9,000,000 every month or VND 108,000,000 every year. The yearly amount can be fully deducted, regardless of whether the taxpayer had income every month;Incomes from the value of land use rights of individuals who are allocated land by the State;Incomes from conversion of agricultural land allocated by the State to households and individuals for production;Wages paid for night shift or overtime work, which are higher than those paid for day shifts or prescribed working hours in accordance with law; andIncomes received from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.

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Employment benefitsForeign individuals can be exempted from taxation for certain benefits such as:

• One-off relocation allowance for foreigners to relocate to Vietnam (based on the amount stipulated in the labor contract or agreement between the employer and the employee);

• Round-trip air fares paid once a year by employers for their foreign employees who are on annual leave. (The air ticket should indicate the country where these employees are nationals or where the foreigner’s family lives); and

• General education school fee or tuition paid by the employer for the expatriates’ children studying in Vietnam (based on the invoice from the school and the labor contract).

Other benefits can be treated as non-taxable incomes if certain conditions are met. These include:

• Employee housing costs up to 15 percent of the total taxable income (excluding housing benefit from employers);

• Expenses for means of transportation for a group of employees to and from work are not taxable. Meanwhile, means of transportation used for transportation of an individual are taxable;

• Membership fees for golf, tennis, cultural, art/sport or physical training clubs; or charges for other services such as healthcare, entertainment, sports, recreation and beauty care are taxable if the membership cards specify the names of cardholders of either individuals or groups of individuals. These are not taxable if they are for common use without specific names of individuals or groups of individuals;

• Training fee for employees relevant to employees’ professions and/or in accordance with the employers’ plan is not taxable;

• Mid-shift meal allowances are not accounted as taxable if the employers directly cater such meals for their employees; and

• Presumptive expenditures for telephone, stationery, per diem, working outfit, etc. are not subject to tax if the amounts are within the levels set out under relevant regulations.

Tax reductionThe tax reduction for each dependent is pegged at VND 3,600,000 per month. Qualified dependents are children aged below 18 years old, or children over 18 years old but earning a low income which does not exceed VND 500,000 per month. In addition, the spouses or the parents of the taxpayers who are unable to work or have low income are also qualified dependents.

The reduction for each dependent can be claimed by only one person. The dependent allowance is not automatically granted and the taxpayer needs to register the qualifying dependent and provide the supporting documents to the tax authority.

“In Vietnam, the declaration and payment of Personal Income Tax (PIT) is carried out on a withholding basis. Employers must withhold the required percentage of their employees’ personal income, and deposit the monthly amount with the State Treasury.”

Rao NguyenManagerHo Chi Minh City Office

http://www.dezshira.com/personnel/rao-nguyen.html


Tax payment FIEs have to conduct PIT finalization on behalf of their employees at the beginning of the year for taxable incomes arising from the previous year. If an employee has more than one source of income and wishes to conduct tax finalization on his/her own, FIEs can issue a certificate of deduction at the request of the employee. If an expatriate’s labor contract in Vietnam expires before the end of a calendar year, he/she should conduct tax finalization before his/her departure.

PIT payment is done in the same way as CIT and paid by the taxpayer to the State Treasury in one of two ways: by cash or bank transfer. The taxpayer can pay cash directly to the State Treasury to receive the voucher from the state officials. Otherwise, they can transfer money to a tax office bank account at the State Treasury accredited operations. The deadline for tax payment is the same as tax finalization, meaning no later than 90 days from the end of calendar year.

Conversion of taxable incomeIf taxable income is received in foreign currency, it must be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign currency market published by the State Bank of Vietnam as of the date when the income arose.


Junyi ZhangInternational Payroll Manager


Case Study: Determining Tax Residency for an Expatriate Working in Vietnam Over the years, the skilled tax and accounting departments at Dezan Shira & Associates’ Vietnam offices have helped companies and individuals navigate their way through the country’s complex tax system.



Mr Smith is a Vietnam-based expatriate who works for Company C in Ho Chi Minh City. Company C sells securities products to expats in Asia.

Mr Smith came to Dezan Shira & Associates with a number of concerns. First, he was unsure if he fell under the classification of being considered a tax resident of Vietnam. Mr Smith knew that he would be treated differently by the tax authorities depending on the outcome of this determination.

Dezan Shira’s ApproachUpon looking at Mr Smith’s records, due to the high level of travel throughout Asia, he was not in the country for more than the 183 days needed to impart tax residency. However, Mr Smith did have a long-term lease contract (longer than 90 days) at a hotel he stayed at while in HCMC – this meant that he did fall under the tax resident determination.

Additionally, Dezan Shira also noted that, as a foreign business, the client’s company is considered a foreign contractor since it conducts business and earns income in the country under contract with local organizations and individuals.

Once his residency status was determined, Mr Smith then requested advice on which of his earnings could be liable for personal income tax (PIT).

After looking at Mr Smith’s financial records, Dezan Shira determined that there were three areas were his earnings would be taxed. The income arising from his business activities carried out in Vietnam, as well as the wages that Mr Smith received from his employers were all liable for PIT. Mr Smith earns an income of over VND 52 million a month (US$2,476), as a result, he is placed into tax bracket number six and is subject to a tax rate of 30 percent. In addition, while participating in a lucky draw at a charity event, Mr Smith had won a large cash prize – this was also liable for PIT.

Furthermore, as a securities seller, Mr Smith is charged with a 20 percent rate on the sale gain and 0.1 percent on the sale proceeds.

http://www.dezshira.com/personnel/junyi-zhang.html


Business Advantages & Results

Dezan Shira noticed that Mr Smith travelled back home to the United States at least once a year. However, he had not been receiving the tax exemption that he was entitled to. This exemption is for round-trip airfares paid once a year by employers for their foreign employees who are on annual leave.

Dezan Shira also made a few suggestions in order to help Mr Smith obtain a lower tax for the future. Due to his high rate of travel, Dezan Shira suggested that Mr Smith look into obtaining a shorter lease at his hotel for his stays in Vietnam and to continue limiting his total duration in Vietnam to less than 183 days. By doing this, Mr Smith would thus qualify as a non-resident and would only be subject to a flat rate of 20 percent PIT on his Vietnam sourced income. Additionally, if Mr Smith no longer qualified as a resident, then he would only have to pay 0.1 percent on the gain arising from the sale of securities and 0.1 percent on the sale proceeds.





4. Accounting, Audit and Compliance4.1 Key Compliance Requirements


4.1 What are some of the key compliance requirements?There are a number of legally mandated requirements with which FIEs in Vietnam must comply, failure of which will jeopardize the ability of the FIE to continue operating in Vietnam. These procedures and requirements may be different from what the FIEs are accustomed to in their home countries. Investors should therefore be sure to familiarize themselves with these requirements as well as to seek professional advice.

In this section, we discuss:

a. Accounting and bookkeepingb. Annual compliance

a. Accounting and BookkeepingLocal and foreign-invested companies doing business in the country are required by law to comply with Vietnam Accounting Standards (VAS) when recording their financial transactions.

Foreign companies may choose to manage two accounting records; one based on the VAS and another compiled specifically for the overseas head office. In practice, many foreign companies maintain an accounting system according to VAS and only convert financial statements into the International Financial Reporting Standards (IFRS) on a quarterly basis for the foreign parent company’s reference.

In a nutshell, the VAS requires that accounting records:

• Are in the Vietnamese language;• Use VND as the accounting currency; • Comply with the Vietnam chart of accounts; and• Include numerous reports specified by VAS regulations, printed on a monthly basis and signed

by the General Director and affixed with the company seal.

Foreign companies wanting to use another currency for their financial records need to submit an application to the local managing tax office. This accounting currency unit must be one that is mainly used for the foreign company’s banking transactions, services and selling price quotations. The same foreign currency can also be used to account for revenues, employee salaries and payment of material costs.

An accounting period in Vietnam is generally determined according to the calendar year,

“Local and foreign-invested companies doing business in the country are required by law to comply with Vietnam Accounting Standards (VAS) when recording their financial transactions.”


i.e. January 1 to December 31. However, 12 month periods beginning the first day of each quarter, e.g. April 1 to March 31 of the following year; July 1 to June 30 of the following year; or October 1 to September 30 of the following year, can also be adopted after registering with the Tax Department.

Companies are advised to double check their accounting system, taking care to spot possible VAS non-compliance issues. There have been recent reports that some provincial tax authorities cite VAS non-compliance as a basis for collecting additional tax and recovering paid VAT refunds. In addition, tax authorities can penalize companies for VAS non-compliance through the disallowance of input VAT credits and withdrawal of CIT incentives.

b. Annual CompliancePrior to transferring profits, foreign companies must fulfill certain annual compliance requirements, involving a statutory audit, audited financial statements and tax finalization filings. These procedures are not only required by law, but are also a good opportunity to conduct an internal financial health check.

Step 1Audit

Step 3Profit Transferring

(if any)

Step 2Audited Financial

Statement and Tax Finalization Filing

All foreign-invested entities are required to have their annual financial statements audited by an independent auditing firm. Statutory audits in Vietnam are performed in accordance with the Vietnam Standards on Auditing.

Audited financial statements and tax finalization filing must be done within 90 days from the end of each financial year. After fulfilling these obligations and giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad.

Annual compliance for Representative Offices (ROs) is different from that for other foreign-invested entities. An RO is required to report on its activities to a local department of trade prior to the last working day of January of the following year. Currently, audits are not required for ROs.


A taxpayer who pays tax later than the deadline is to pay the outstanding tax amount plus a fine equal to 0.07 percent of the tax amount for each day the payment is late. Taxpayers that make incorrect declarations, thereby reducing taxes payable or increasing refundable tax amounts are to pay the full amount of the under-declared tax or return the excess refund, and will also pay a fine equal to 20 percent of the under-declared or excess refunded tax amounts together with a fine for late payment of the tax. A taxpayer that commits acts of tax evasion or tax fraud is liable to pay the full amount of tax and a fine between one to three times the evaded tax amount.

Monthly declaration(20th day after

month end)

Tax Declaration and Finalization Timeline for a Fiscal Year (F/Y)*

Month 1 2 3 4 5 ... 12

Quarterly declaration(30th day after quarter end)

Annual declaration(30th day after

F/Y end)

Annual finalization(90th day after

F/Y end)

*For taxes paid when a liability arises, the deadline is the 10th day from the date the liability arises.


Case Study: Accounting for FIEs in Vietnam




Company Y is a Vietnam-based foreign invested enterprise (FIE) that produces plastic boxes for the dairy industry. When the company contacted Dezan Shira, it had only just begun operations in Vietnam and had not begun keeping financial records in the country.

While still inexperienced with all the tax regulations in Vietnam, Company Y knew that in order to ensure smooth operations they would have to comply with the Vietnam Accounting Standards (VAS) when recording their financial transactions. They also knew that this regulation would mean that the company would have to keep two sets of financial records, one to serve its local needs and the other which would be sent to the company’s head office located in the United States.

Since Company Y did not have any staff capable of complying with the VAS or who were familiar with the country’s tax laws, it took the decision to hire a firm that employed trusted Vietnamese accountants and had the capability to compile financial records according to the VAS.


Specifically, Dezan Shira created an English and Vietnamese version of the company’s accounting records; compiled reports specified by VAS regulations on a monthly basis; and submitted the relevant tax documents to the state authorities.

However, Company Y wanted to use a currency other than VND for the financial records that they would submit to the local tax office. This required Dezan Shira to check whether the currency unit was the same as the one the company used for their banking transactions. Since the two currencies were the same, Dezan Shira was able to submit a special application to the relevant tax authorities and ensure that the currency of Company Y’s choosing was allowed.

Hoang Thu HuyenCountry Manager

Dezan Shira & Associates Vietnam

http://www.dezshira.com/personnel/hoang-thu-huyen.html

52 - Tax, Accounting, and Audit in Vietnam 2014-2015Dezan Shira & Associates’ Hanoi and Ho Chi Minh City offices provide tax consulting and business advisory services



Business Advantages & ResultsCompany Y was eager to begin transferring its profits back to its home country and wanted to ensure that they fulfilled all compliance requirements so that there were no legal difficulties. Dezan Shira advised that Company Y must first perform a statutory audit, obtain an audited financial statement and tax finalization filing before any profits could be transferred.

Before transferring profits out of Vietnam, the company had to meet compliance requirements. Obligations for audited financial statements and tax finalization filing have to be carried out within 90 days from the end of each financial year.

Finally, due to Dezan Shira’s timely filing of Company Y’s tax records, the company was able to avoid a fine of 0.07 percent of the tax amount for each day of late payment. Furthermore, Company Y was also able to avoid paying any fines arising from incorrect tax declarations such as a 20 percent fine on the under-declared or excess refunded tax amounts.


5. International Taxation5.1 Transfer Pricing5.2 Foreign Exchange Control in Vietnam5.3 Double Taxation Avoidance Agreements


5.1 Transfer Pricing The basic framework of Vietnam’s transfer pricing rules was initially provided by Circular 117/2005/TT-BTC, issued in December 2005. This was then replaced by Circular 66/2010/TT-BTC, which came into effect on April 22, 2010. The main difference of Circular 66 was that it required greater information on related party disclosures.

Circular 66 requires the submission of the transfer pricing declaration form (GCN-01/QLT for years 2010-2013 and Form 03-7/TNDN from January 1, 2014 onwards) together with the company’s annual corporate income tax return, within 90 days from the end of the financial year. Taxpayers must also maintain contemporaneous transfer pricing documentation.

According to Circular 66, companies must take proactive steps in order to document their transfer pricing arrangements and documentation requirements. There are harsh penalties for any non-compliance with local transfer pricing regulations. A tax audit may be called for if any transfer pricing adjustments arise.

In general, related transactions must be conducted at “arm’s length” between both foreign and local corporations. Extensive disclosures are generally required for all related parties as well as for the selection and application of the most appropriate transfer pricing method.

Keeping track of all of the related transfer pricing regulations can be very complex and time consuming, therefore it is suggested that companies engage a professional services firm to guide them through the process and avoid unnecessary tax audits and penalties.

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5.2 Foreign Exchange Control in VietnamForeign exchange control is a paramount concern of all foreign investors entering into Vietnam, as regulations on capital inflows and outflows have a great influence on operations and profit.

These transactions include transferring capital into and out of the country, opening and using bank accounts, borrowing foreign loans and paying foreign debts, dealing with currency exchanges, government reporting, and handling violations.

Transferring Capital into VietnamTo transfer capital into Vietnam, foreign investors must first set up a foreign invested enterprise (FIE), and then open a capital bank account in a legally licensed and operating bank.

A capital bank account is a special-use foreign-currency account designed to enable tracking of the movement of capital flows in and out of the country. This type of account is required to transfer money from the capital account to current accounts in order to make in-country payments and other current transactions.

Investment capital contribution schedules are set out in joint venture contracts, FIE charters or articles of association, and/or business cooperation contracts, in addition to the FIE’s investment license. Foreign investors are required to strictly follow the committed contribution schedule to avoid fines.

Transferring Capital and Profit out of VietnamInternational transfers of capital and profit follow the procedure stipulated by the Law on Foreign Exchange Management. Foreign investors can transfer both capital and profit out of Vietnam as follows:

• Capital that can be transferred includes legal capital, reinvestment capital, and capital for performance of business cooperation contracts (upon operation, termination or dissolution of enterprises or reduction in the legal capital amount of enterprises); and

• Profits that can be distributed to foreign investors at the end of the fiscal year after fulfilling financial obligations to the State of Vietnam are calculated as follows:

» Profits described in audited financial reports and corporate income tax declarations plus (+)

other profits earned in the year, minus (-) the amounts used or committed to be used for in-country reinvestment and profit amounts used by foreign investors to cover the expenses for their production and business activities or personal needs in Vietnam.


Transfer ProcedureAt the end of a fiscal year, after giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad after fulfilling financial obligations to the State of Vietnam and submitting audited financial statements and corporate income tax finalization declarations to managing tax offices.

Upon terminating their investment activities in Vietnam, foreign investors can remit both capital and profits abroad after fulfilling financial obligations to the State of Vietnam and submitting tax settlement reports to the tax offices.

FIEs may not transfer profits abroad in the case of accumulated losses in financial reports.

CurrencyTransferring capital and profit out of Vietnam must be done in foreign currency capital accounts in a freely convertible currency, most likely US dollars or euros. Lawful revenue in VND shall be permitted to be converted into foreign currency for remittance abroad via authorized credit institutions.

Tax withholdingAccordingly, after completing their tax obligations to the State of Vietnam, FIEs are free to transfer profit abroad and shall not be subjected to withholding tax. However, individual investors are still subject to tax.

Opening and Using Accounts in Vietnam BanksAn FIE can open four types of banks accounts:

(i) Foreign-currency special-use capital accountsFIEs are required to open a foreign-currency special-use capital account to conduct foreign investors’ capital transfer transactions.

The application dossier includes:

• Bank account opening form;• A written justification (signed by authorized representatives) of the necessity to identify account

holder; • Business Registration License or Investment License;• Company Charter;• Tax Code Certificate;• Seal Registration Certificate;• Joint Venture Contract (in the case of a joint venture); and• Additional documents as required.

“FIEs may not transfer profits abroad in the case of accumulated losses in financial reports.”


Vietnam Briefing Discussion GroupDiscuss income tax rates and other timely topics about doing business in Vietnam

Foreign currency special-use capital accounts can be used to perform the following transactions:

• Deal with foreign investors’ charter capital contributions, investment capital implementations, medium and long-term foreign loans;

• Pay foreign currency into Vietnam-based FIE accounts;• Pay all costs of medium and long term foreign currency loans overseas (principal, interest and

fees and other related costs);• Transfer capital, profit and other legal revenues out of the country;• Sell foreign currency to credit institutions for foreign exchange; and• Other revenue and expenditure transactions related to investment.

(ii) Foreign-currency deposit accountsIn addition to the foreign-currency special-use capital accounts used to bring foreign investor’s capital and profits into and out of the country, FIEs may open and use foreign-currency deposit accounts. Generally, FIEs have to exchange foreign currency for VND by selling it to a bank licensed to take such transactions.

FIEs can use the foreign currency stored in foreign-currency deposit accounts for the following purposes:

• Remittance from overseas;• Revenues from export of goods and services;• Domestic transfers, including those resulting from issuance of commercial papers in foreign

currency and their interests, and buying foreign currency from credit institutions that are allowed to conduct foreign exchange activities;

• Cash deposits, including those for resident organization allowed by the State Bank to collect foreign currency through exporting commodities and services, and cross-bordered (with the certification of border customs);

• Payments, including those for imported commodities and services (including related costs arisen);• Commodities and services to individuals and organizations who are allowed to collect foreign

currency;• Foreign currency loans (principal, interest and fees and other related costs arisen) borrowed from

domestic banks and foreign loans in accordance with the current regulations;• Organization’s staff who are sent abroad, to pay for salary, bonus and other allowances to non-

residents and foreign residents working for the organization;• Fees and interest;• Sale of foreign currency to credit institutions which are allowed to do foreign exchange business;• Investment in securities and commercial papers issued in a foreign currency and principal and

interest payments;• Exchange into other foreign currency payment instruments, including checks, payment cards and

as regulated by the bank who is allowed to do foreign exchange business;• Capital contribution for implementing investment projects as regulated by the Law on Investment; and

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• Other transactions, including those in the form of account transfers or cash deposit having license by the Governor of the State Bank.

Foreign-currency deposit accounts can receive bank interest according to account structure. For demand deposit, specialized or cash-cover accounts, interest is counted on the number of actual deposit days and incorporated into principal monthly or on the balance withdrawal date. For fixed deposit accounts, interest is paid once at maturity. If FIEs do not withdraw at maturity, all the principal and interest will be transferred into a new account with a new period upon the account holder’s request at that moment; or into the current account if the licensed banks receive no notice from account holder about the maintaining fixed deposit account.

(iii) VND AccountsAll transactions relating to investment activities can be done through VND accounts, including:

• Receipt of revenues in VND for transactions in country;• Payment in VND for expenses incurred in country;• Purchase of foreign currency from credit institutions allowed to transfer overseas; and• Other income and expenditure transactions related to investment in country.

The procedures and materials required to open VND accounts are similar to those required for opening foreign-currency capital accounts and foreign-currency deposit accounts.

For newly established FIEs, after obtaining an investment license, normally all capital bank accounts and deposit accounts in both foreign currency and VND can be opened at the same time. The VND deposit account can receive bank interest according to current interest rate structure.

(iv) Overseas foreign-currency accountsFIEs may open foreign-currency accounts at overseas banks to borrow medium-term and long-term foreign loans.

The application dossier includes (submitted to the State Bank of Vietnam, Foreign Exchange Management Department):

• An application to open and use overseas accounts;• Notarized photocopies of documents proving legal status, including Decision of Enterprise

Establishment, and Business License or Investment License;• Loan contracts signed with the foreign lenders and the loan registration approval from the State Bank;• Documents providing the requirement of the foreign lenders of opening accounts at overseas banks;• The plan for monthly foreign-currency revenues and overseas account expenditures; and• Other documents as required.


Additional Resources

For an in-depth look at all of Vietnam’s trade treaties, please click here.

5.3 Double Taxation Avoidance Agreements In international trade, different tax systems put global investors in the unfavorable position of facing redundant taxes on the same income. A company will be subject to taxes in its resident country and in countries where it derives income, e.g. through foreign investments or the provision of goods and services.

Foreign investors in Vietnam should therefore be aware of existing Double Taxation Avoidance Agreements (DTAAs) between Vietnam and foreign countries, as well as how the standards in these agreements are applied in order to achieve maximum tax efficiency.

As of 2014, Vietnam has signed DTAAs with more than 60 countries and territories including France, China and Canada (please refer to chart at the end of this section). These treaties eliminate double taxation through identifying exemptions or reducing tax payable in Vietnam for residents of the signatories of the agreements.

Subjects of DTAAsDTAAs are applied to individuals or corporations who are residents of Vietnam, citizens of DTAA countries or both.

Residents of countries that are signatories to DTAAs are taxable subjects in their native countries under the laws of that country. They are considered residents if they own residential property, have had periods of residence in the signatory country, or satisfy any other criterion of a similar nature.

Organizations are considered residents of Vietnam if they have established a business in Vietnam and operate under Vietnamese law. Examples include state companies, cooperatives, limited liability companies (LLC), joint-stock companies (JSC) or private enterprises.

Principles of application If there is a direct conflict between domestic tax laws and tax provisions in a DTAA, tax provisions of DTAA will apply.

However, domestic tax laws will prevail when tax obligations included in the DTAA do not exist in Vietnam or when tax rates in the agreement are higher than domestic taxes.

For example, if a signatory country is entitled to impose a type of tax which Vietnam does not recognize, then Vietnam’s tax law will apply.

“If there is a direct conflict between domestic tax laws and tax provisions in a DTAA, the tax provisions of the DTAA will apply.”

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Furthermore, the provisions of a DTAA will not affect the rights or immunities of members of diplomatic and consular missions, as per international treaties which Vietnam has signed or to which it has acceded.

Finally, DTAAs typically only apply to income tax, while in Vietnam, DTAAs impact both corporate and personal income tax.

Sources of Income

Corporate Income For foreign enterprises (FE), corporate income is that which is earned from carrying out production and business activities in Vietnam.

The tax obligation of FEs is determined as follows:

• Legal entities (e.g., WFOE or JV)These individuals and corporations will be taxed on incomes arising from business activities, according to the Corporate Income Tax Law. Currently, the flat tax rate is 25 percent.

• Non-legal entitiesFor those who operate without forming legal entities, they will be taxed if they own a permanent establishment in Vietnam to which income can be directly or indirectly attributed. The portion of income attributable to that establishment is taxable.

For investors with permanent establishments who are licensed to conduct business in Vietnam, they are subject to the Corporate Income Tax Law in Vietnam. Investors with permanent establishments who conduct business under contract with Vietnamese organizations or individuals are taxed according to the foreign contractor’s home country’s tax laws.

A permanent establishment is a fixed place of business where operations are wholly or partially carried out. A foreign enterprise has a permanent establishment in Vietnam if it maintains a building, office or equipment (either wholly or in part) that must be set up at a specified place and/or maintained permanently. Foreign enterprises can carry out the entirety, or part of, their business activities through this establishment.

Dividends, interest, royalty and incomes from provision of technical services According to most DTAAs, Vietnam is entitled to tax the dividends, interest, royalty and income from technical services paid by a Vietnamese resident to a resident of a foreign country, if the foreign resident is the beneficial owner. These sources of income are generally taxed at no more than 15 percent for dividend income and 10 percent for interest, royalty and technical service provision income.


Personal incomesUnder DTAAs, residents of signatory countries who earn income in Vietnam are required to pay income tax in Vietnam according to the Personal Income Tax Law. However, these residents may be exempt from taxation if they satisfy all of the following conditions:

• The resident is in Vietnam for less than 183 days in a 12-month period of a taxable year;• The resident’s employer is not a resident of Vietnam, regardless of whether wage is paid directly

by the employer or through the employer’s representative; and• This wage is not paid by the permanent establishment of the employer in Vietnam.

If foreign individuals are residents of the signatory countries, they will be considered business establishments if they are licensed to provide independent professional services and operate through a fixed place of business in Vietnam, and subject to Vietnamese corporate income tax. If they provide independent services without a business license, they will be required to pay personal income tax on the income.

Methods for Avoidance of Double TaxationFor Vietnamese taxes, depending on the specific agreement, one or a combination of the three following double taxation avoidance methods will apply when residents of Vietnam (foreign and domestic) calculate their tax payable:

(i) Direct deduction methodIf the taxpayer is a resident of Vietnam and paid income tax to a DTAA partner country, the amount paid will be deducted from the tax payable in Vietnam. (ii) Deduction of deemed taxDeemed tax is the amount of tax which should have been paid by a resident of Vietnam to a signatory country on income sourced from that country but which is reduced because of favored treatment by the signatory.

With this method, the deemed tax amount will be deducted from tax payable in Vietnam.

(iii) Deduction of indirect taxIf a Vietnamese resident receives income from a source belonging to a signatory of a DTAA and CIT has already been applied by the signatory, the indirect tax amount will be deducted from tax payable in Vietnam.

For joint stock companies, this method is only applicable if the Vietnamese resident controls at least 10 percent of voting rights. Keep in mind that when applying any of the above mentioned methods of eliminating double taxation, the deducted tax amount is not allowed to exceed tax payable in Vietnam.

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Application procedureExemptions under DTAAs are not applied automatically and foreign individuals/organizations are required to submit appropriate documentation to provincial and/or municipal tax authorities in Vietnam. If they fail to do so, income tax payment will be required.

For Residents of Vietnam

Vietnam residency Individuals and organizations need to submit application dossiers to the state authority in order to confirm their residency status for tax purposes.

Within 15 working days from the receipt of the complete application dossier, the city/provincial tax department will consider and grant written certificates of residential status to applicants.

Tax exemption and reductionTo apply for tax exemptions and reductions, individuals and organizations must submit:

• The notice on eligibility for tax exemption or reduction under the appropriate agreement;• The original certificate of residence granted by a tax agency of the residential country for the year

before the exemption is being applied for;• If the signatory countries does not grant certificates of residence, individuals can submit their

passports instead; and• Documents which verify the source and nature of incomes (such as labor contracts, recruitment

decisions, etc.).

Within 30 working days from the receipt of the complete application dossier, the relevant authority will consider and approve application documents.

Tax deductionTo apply for tax deduction, residents of Vietnam (both individuals and organizations) must submit: • The application form for tax exemption or reduction under the appropriate agreement; • For direct deduction;

A copy of the income tax declaration form in the foreign country, a copy of the tax payment receipt in the foreign country and the original certificate of the paid tax amount by the foreign tax authorities.

• For deduction of deemed tax:A copy of the income tax declaration form in the foreign country, a copy of the business registration certificate or legal documents certifying business activities in the foreign country, a letter of certification by the foreign tax authority for the exempted or reduced tax in that foreign country.


“Foreign residents are entitled to tax refunds if the tax paid to the State Treasury is higher than total tax payable.”This tax deduction must also be in accordance with any agreements and laws of the foreign country.

• For indirect deduction:Legal documents proving the relationship and the capital contribution percentage of the applicant, a copy of the income tax declaration form in the foreign country from which the applicant contributes capital, a copy of the declaration form of tax deducted at source on dividends, a certification by foreign tax authorities certifying corporate income tax paid before division of dividends.

Within 30 working days from the date of receipt of the complete application dossier, the tax departments will consider, approve and perform tax deduction according to the agreement.

For Residents of the Signatories of Agreements

Tax exemption and reduction In order to be considered for a tax exemption and/or reduction, foreign residents in Vietnam must prepare and submit an application dossier to the competent body, which includes:

• The notice on eligibility for tax exemption or reduction under the appropriate agreement;• The original certificate of residence granted by a tax agency of the residential country in the

relevant tax year. (For signatory countries that do not grant certificates of residence, individuals can submit their passport instead);

• Passport copy (signed by the individual);• Copy of the tax payment receipt (if tax has already been paid in Vietnam, the resident will need

to also provide a written certificate by the State Treasury in Vietnam for the amount already paid);• Certificate from the Vietnamese partner (individual or organization) which lists the terms of the

contract and actual time operated in Vietnam;• Copy of the business registration certificate and/or the tax registration certificate (from residential

country for businesses) (for organizations) or the professional practice license (for individuals); and• A copy of business contract, labor contract (signed by the individual).

Within 30 working days from the date of receipt of the complete application, the relevant authority will consider, approve and perform tax deductions according to the appropriate agreement.

If a tax exemption or reduction dossier is submitted to the tax department under a DTAA in the previous year, then for all subsequent years foreigners are only required to submit a new labor contract (if any).

Tax refundForeign residents are entitled to tax refunds if the tax paid to the State Treasury is higher than total tax payable. To attain a tax refund, the resident must submit a dossier of documents to the General Department of Taxation. The same documents are required as those for requesting a tax exemption


and reduction (see previous section).

Within 60 working days from the date of receipt of the application, the tax department will consider, approve and perform tax refunds according to the appropriate agreement.

Confirmation of tax paidIf a foreign resident requires confirmation of income tax paid in Vietnam in order to deduct from tax payable in the resident country, then the following documents need to be compiled:

• The application for confirmation of the tax actually paid in Vietnam; • A copy of the tax payment receipt and a written certificate from the State Treasury in Vietnam for

the amount of tax paid; and • The original certificate of residence granted by a tax agency of the residential country in the

relevant tax year.

Within 15 working days from the date of receipt of the complete application, the tax department will issue a written confirmation of tax paid by the applicant.

Additional Procedure RequirementsIn general, when submitting documents to the Vietnamese government, the following compulsory requirements apply:

• Compulsory language for documentation is Vietnamese. Foreign documents must be translated into Vietnamese and then notarized by the appropriate authorities. Signatures and stamps on foreign documents must be legalized/verified by Vietnamese Embassies or Consulates in foreign countries; and

• Copies of documents must be notarized or authenticated by the appropriate authorities.


Vietnam’s Double Tax Avoidance Agreements (2014)No Recipient Interest (%) Royalties (%) Dividend (%)

1 Algeria 15 15 152 Australia 10 10 103 Austria 10 7.5/10 5/10/154 Bangladesh 15 15 155 Belarus 10 15 156 Belgium 10 5/10/15 5/10/157 Brunei Darussalam 10 10 108 Bulgaria 10 15 159 Canada 10 7.5/10 5/10/1510 China 10 10 1011 Cuba 10 10 5/10/1512 Czech Republic 10 10 1013 Denmark 10 5/10/15 5/10/1514 Egypt 15 15 1515 France Nil 10 5/1516 Finland 10 10 5/10/1517 Germany 10 7.5/10 5/10/1518 Hong Kong 10 7/10 1019 Hungary 10 10 1020 Iceland 10 10 10/1521 India 10 10 1022 Indonesia 15 15 1523 Israel 10 5/7.5/15 1024 Italy 10 7.5/10 5/10/1525 Ireland 10 5/10/15 5/1026 Japan 10 10 1027 Kazakhstan 10 10 5/1528 Korea (North) 10 10 1029 Korea (South) 10 5/15 1030 Kuwait 15 20 10/1531 Laos 10 10 1032 Luxembourg 10 10 5/10/1533 Malaysia 10 10 1034 Mongolia 10 10 1035 Morocco 10 10 1036 Mozambique 10 10 1037 Myanmar 10 10 1038 New Zealand 10 10 5/1039 Netherlands 10 5/10/15 5/10/1540 Norway 10 10 5/10/1541 Oman 10 10 5/10/1542 Pakistan 15 15 1543 Palestine 10 10 10/1544 Philippines 15 15 10/1545 Poland 10 10/15 10/1546 Qatar 10 5/10 5/12.547 Romania 10 15 1548 Russia 10 15 10/1549 San Marino 10 10 10/1550 Saudi Arabia 10 7.5/10 5/12.551 Serbia 10 10 10/1552 Seychelles 10 10 1053 Singapore 10 5/15 5/7/12.554 Slovakia 10 5/10/15 5/1055 Spain 10 10 1056 Sri Lanka 10 15 1057 Sweden 10 5/15 5/10/1558 Switzerland 10 10 7/10/1559 Taiwan 10 15 1560 Thailand 10/15 15 1561 Tunesia 10 10 1062 UAE 10 10 5/1563 Ukraine 10 10 1064 United Kingdom 10 10 7/10/1565 Uzbekistan 10 15 1566 Venezuela 10 10 5/10


Richard Cant Director

International Business Advisory


Case Study: Transfer Pricing and Foreign Exchange Control for FIEs inVietnam Over the years, the skilled tax and accounting departments at Dezan Shira & Associates’ Vietnam offices have helped countless companies and individuals navigate their way through the country’s complex tax system. The process of managing taxes across countries can be very confusing and, if not carried out properly, very costly.



Company A is a Vietnam-based foreign invested enterprise (FIE) that produces wooden beds for international clients and has several production sites throughout Asia: China, Vietnam, Korea, and Indonesia.

Due to its multinational nature and the harsh penalties for non-compliance, Company A was eager to learn about transfer pricing regulations in Vietnam. Transfer pricing is the method of profit allocation that is used to attribute a multinational corporation’s net profit (or loss) before tax to countries where it does business. Vietnam’s transfer pricing rules are outlined in Circular 117.


Dezan Shira advised Company A that they are required to submit an annual transfer pricing declaration form (Form GCN-01/TNDN) and their corporate income tax returns within 90 days after the end of the financial year. Dezan Shira also helped Company A to maintain contemporaneous transfer pricing documentation.

Dezan Shira advised Company A that they should ensure that they conduct transactions between themselves and the parent Company, as well as local corporations, at “arm’s length”. Dezan Shira also advised Company A on choosing the most appropriate transfer pricing method.

Additionally, Company A asked Dezan Shira to advise them on the regulations related to foreign exchange control in Vietnam. In particular, they were interested in how to transfer capital and profit out of the country. Due to Company A having suffered a number of financial losses in Vietnam, which were reflected in their financial reports, the company was not able to transfer its profits abroad. However, Dezan Shira advised that, if the company were to terminate their investment activities in Vietnam, they would be able to remit both their capital and profits overseas.

Once Company A qualified for being able to transfer its profits overseas, Dezan Shira advised that this should be done in US dollars (US$) since they are a freely convertible currency.

http://www.dezshira.com/personnel/richard-cant.html


Business Advantages & ResultsDezan Shira found a number of double-taxation agreements and free trade agreements that Company A was not currently taking full advantage of. Once the company had implemented Dezan Shira’s tax advice, it was able to substantially reduce its tax burden throughout Asia.

In total, Dezan Shira & Associates skilled accountants guided Company A through all of the complex tax processes that occur in Vietnam and across Asia, and ensured that the company avoided unnecessary tax audits and penalties.






DisclaimerThe contents of this brochure are for general information only. For advice on your business, please contact a qualified professional advisor. Copyright 2014, Asia Briefing Media. No reproduction, copying or translation of materials without prior permission of the publisher.

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