Understanding corporate income tax is important for setting up a foreign branch office in Vietnam and staying legally compliant with local tax laws. In this article, we’ll outline the key corporate income tax for foreign branch offices in Vietnam, their tax rates, and calculation formulas.
Key Obligatory Corporate Income Tax for Vietnam Foreign Branch Offices
In Vietnam, there are a few corporate income tax obligations and requirements to keep in mind when establishing a foreign branch office in the country. It is important to abide by these regulations to ensure your business operations run smoothly and to avoid getting heavy penalties:
- Varying CIT Rates: The standard CIT Rate is 20% but higher rates may apply to certain sectors like mining operations or oil and gas depending on their contracts. (ex: corporations involved in mining precious and rare natural resources have a 50% CIT rate)
- Filing and Payment: Foreign branches must register for a tax code and file CIT returns every quarter. You can make tax payments on the General Department of Taxation’s online portal.
- Tax Compliance: Foreign branch offices must maintain proper accounting records and submit audited financial statements if required. All tax filings must be in Vietnamese.
Tax Obligations for Foreign Branch Offices in Vietnam
Value Added Tax (VAT)
Businesses engaging in taxable activities like the sale of goods and services for consumption and trading must register for VAT. According to Decree180/2024/ND-CP, the standard VAT rate in Vietnam has currently been temporarily reduced to 8% from the standard 10%. This applies to all goods and services except those related to:
- Telecommunication
- Financial Activities
- Banking Activities
- Securities
- Insurance
- Trading of Real Estate
- Metal and Precast Metal Products
- Mining Products (excluding coal mining)
- Coke Mining
- Refined Oil
- Chemical Products.
*Note that the standard rate will revert back to 10% after December 31st 2026.
In addition to this, a reduced rate may apply for certain goods and services as follows:
- A 0% rate applies to exported goods and services
- A 5% rate applies to essential goods and services (clean water, medical supplies, etc.)
Foreign branches must file VAT returns monthly, detailing their sales and purchases. Any VAT due must be paid by the 20th of the following month. There are two calculation methods for VAT in Vietnam:
Deduction/Credit Method: This is the most common method with a formula of Payable VAT Amount = Output VAT Amount - Creditable Input VAT Amount
*Output VAT is the total VAT on sold goods and services indicated in the VAT invoices.
*Creditable Input VAT is the total VAT on goods or services purchased as indicated in VAT invoices and other relevant documents.
Direct Method: Usually for micro-enterprises and household businesses with less than VND 1 billion in annual revenue. VAT calculation is based on total revenue and monthly payments are provisional. The final VAT amount is determined at the end of the year during tax finalization procedures.
Corporate Income Tax (CIT)
Foreign branch offices are subject to Corporate Income Tax in Vietnam if they engage in production and business activities that generate taxable income. Additionally, companies must pay quarterly income tax based on estimates. You must make any underpayments by the next annual tax return.
The calculation of CIT in Vietnam is by using this formula: Taxable Income x CIT Rate
*There is a deduction for science and technology which is a deductible research and development expense for your company, but only if it is applicable.
*Taxable Income is calculated as Revenue - Deductible Expenses + Other Income, minus any exempt income and losses carried forward from previous years
Business License Tax (BLT)
This is an annual tax for entities conducting business activities in Vietnam. Hence, foreign branch offices must pay Business License Tax annually, with the rate being VND 1 million per year. This is because they are subsidiaries of the parent company and not separate legal entities.
The amount of BLT payable is based on the registered capital listed on the business registration certificate. For state-owned enterprises, limited liability companies, and joint stock companies, the BLT rates vary depending on the registered capital:
- VND 1 million per year for businesses with registered capital less than VND 10 billion.
- VND 2 million per year for businesses with registered capital from VND 10 billion to VND 100 billion.
- VND 3 million per year for businesses with registered capital exceeding VND 100 billion
The collection of business license tax (BLT) is before the 30th of January each year.
Staying Compliant with Emerhub’s Tax Services
Staying compliant with the local taxation laws in Vietnam can be challenging. Failure to comply may result in heavy fines or suspension of your business operations. As such, our team at Emerhub can make sure you stay compliant and in line with the local law regulations.
Emerhub’s team of local consultants can assist with your business tax needs from registering with the local authorities to calculating and filing the taxes on your behalf. Our tax service includes VAT, audited financial statements, business license tax, and corporate income tax for Vietnam.
Fill out the form below and our local expert will get in touch.