Calculating corporate taxes for a foreign branch office in Vietnam
Table of contents
A branch office represents a foreign company in Vietnam and can engage in commercial activities without formally setting up a company. The corporate taxes for a branch office in Vietnam are calculated according to Vietnam’s tax regulations.
Taxation of an LLC and a foreign branch office in Vietnam
If you are setting up a business in Vietnam you should know the tax requirements for a branch office and a Limited Liability Company (LLC) are different. An LLC is a 100% foreign-owned company and a separate legal entity from its parent company. It has to pay 2 million VND/year in business license tax. While a branch office is a subsidiary of the parent company and it only needs to pay 1 million VND/year.
After setting up a branch in Vietnam, it has to pay 3 common corporate taxes for a branch office in Vietnam:
- Value-added tax (VAT)
- Business License Tax (BLT)
- Corporate Income Tax (CIT)
This article guides you on how corporate taxes for a foreign branch office in Vietnam are defined and calculated:
1. Calculating Value-Added Tax (VAT) in Vietnam
Services and goods used for consumption or trading within Vietnam have to pay Value-Added Tax (VAT). However, some eligible businesses in the IT sector can avail tax incentives. To calculate VAT in Vietnam two different methods are available, deduction or direct.
Deduction method for VAT calculation
Most businesses use the deduction method to calculate VAT and It applies to businesses that are established on enterprise law in Vietnam. These businesses follow the accounting and invoicing requirements under Vietnam corporate tax rules.
Businesses with a yearly revenue of 1 billion VND or more use the deduction method.
Formula for VAT calculation by Deduction method:
Value-added tax using the deduction method can be calculated by:
VAT = (taxable price of sold goods and services x VAT rate) – Deductible input VAT* amount
*Deductible input VAT, is the total amount of value-added tax on purchased goods and services, or imported goods as indicated in the tax document.
Depending on the object of goods and services, the VAT rates range from 0%, 5%, and 10%.
Direct method for VAT calculation
The direct method applies to businesses having yearly revenue of less than 1 billion VND.
Formula for VAT calculation by Direct method:
VAT = Taxable Revenue* x VAT rate
*Taxable Revenue is the total revenue generated from selling goods and services, which is written on the sale invoice for taxable goods and services, inclusive of the surcharges to which the seller is entitled.
Following are the business activities and their VAT rates:
|Business Activities||VAT rate|
|Distribution and supply of goods||1%|
|Construction services excluding raw materials||5%|
|Transportation, goods production services, construction of raw materials||3%|
|Other business activities||2%|
2. Calculating Business License Tax (BLT) in Vietnam
This is an indirect corporate tax for a branch office and is levied on a business license in Vietnam. The collection of business license tax each year is before the 30th of January. The tax level is based on the registered capital or annual turnover of the enterprise. Vietnam’s government introduced a rule exempting Business License Tax for newly established businesses in the first year.
Business License Tax (BLT) amount
|Registered Capital (Billion VND)||BLT/year (VND)|
|Branches, representative offices, business premises, public service providers, other business entities||1,000,000|
3. Calculating Corporate Income Tax (CIT) in Vietnam
Foreign and local enterprises in Vietnam have to pay Corporate Income Tax (CIT) on the profits earned. All businesses have a standard CIT rate of 20%. It applies to the profits earned by the company which refers to the company’s gross revenue minus its expenses. Certain sectors like healthcare, education, environment protection, renewable energy and software production are eligible for tax incentives on CIT.
Formula for Corporate Income Tax (CIT)
Corporate income tax = (Assessable Income1 – Deductions for science and technology2) x Tax rate
1Assessable income = Taxable income3 – Carry forward losses4 – Tax-free income
3Taxable income = Revenue – deductible reasonable expenses + Other income
1Assessable income: It is the total income of a company before deductions and exemptions.
2Deduction for science and technology: Tax-deductible expense for the research and development of a company. A company deducts these expenses from total profits before calculating CIT.
3Taxable income: Amount of income on which tax applies after deductions and exemptions.
4Carry forward losses: The loss amount after the finalization of CIT of the previous tax years is carried forward for the calculation of subsequent CIT. The loss can be carried forward for consecutive 5 years only.
Apart from the aforementioned taxes, the government also imposes other corporate taxes for branch office in Vietnam depending on the nature of business such as excise tax, customs duties, environment protection tax, land use tax, natural resource tax, and registration duty.
The government of Vietnam has defined laws against tax evasion and incorrect tax filings where the penalty for errors in tax filing ranges from 5 million to 25 million VND.
After you have established the branch of your foreign company Emerhub helps you to stay in compliance with the corporate taxes for your branch office in Vietnam. Our accounting team consists of professional accountants that have experience in handling clients of different company sizes.
Our priority is to let our clients focus on their core business while we make sure that the business complies with all the regulations.
Would you like to discuss your corporate taxes for your foreign branch office in Vietnam with Emerhub’s tax professionals? Just fill out the form below and we’ll set up a meeting or call.
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