Vietnam Tax Guide: Tax Planning in Vietnam

Tax planning is one of the most important factors when managing a company, especially when in a new market. This article will give you an overview of tax system in Vietnam as well as highlighting the main differences between international reporting system and its local counterparts. Table of contents Overview of tax planning in Vietnam Corporate […]

Tax planning Vietnam

Tax planning is one of the most important factors when managing a company, especially when in a new market. This article will give you an overview of tax system in Vietnam as well as highlighting the main differences between international reporting system and its local counterparts.

Table of contents

    Overview of tax planning in Vietnam

    Corporate Income Tax

    Vietnam imposes a standard flat rate of 20% (previously 22%). Tax rate for corporations that operate in energy sector (oil & gas) ranges from 32% to 50% depending on the geographical position. Industries that operate in the field of mineral resources (e.g. nickel, gold, gemstones,etc.)  are subject to 40% or 50% corporate income tax depending on the location.

    Corporate Income Tax Incentives

    Sectors that are highly encouraged by the Vietnamese government and thus will receive special corporate income tax rate of 10% and 17% for 15 years and 10 years respectively.

    • Education
    • Healthcare
    • Sport/culture
    • High technology
    • Scientific research
    • Infrastructural development
    • Computer software manufacturing
    • Manufacturing projects (> 6 trillion VND (roughly 260 million USD) disbursed within 3 years)
      • Minimum annual revenue of VND 10 Trillion (roughly 439 million USD)  by the fourth year
      • Minimum headcount of 3000 by fourth year

    Sectors such as education and health will receive corporate income tax rate of 10% for the life of the project.

    Personal Income Tax

    Vietnam personal income tax rates are progressive for both local and foreign residents. Non residents are subject to 20% flat personal income tax.

    Monthly Income (VND)Tax Rate (%)To Be Paid (VND)
    Up to 5,000,0005Income x 5%
    5,000,000 up to 10,000,00010income  x 10% – 250,000
    10,000,000 up to 18,000,00015Income x 15% –  750,000
    18,000,000 up to 32,000,00020Income x 20% – 1,650,000
    32,000,000 up to 52,000,00025Income x 25% – 3,250,000
    52,000,000 up to 80,000,00030Income x 30% – 5,850,000
    Over 80,000,00035Income x 35% – 9,850,000

    Resident and nonresident taxpayers in Vietnam

    Resident taxpayer

    Some of the tax rates are different depending on whether the taxpayer is a resident or non-resident. Resident is defined in the requirements below:

    1. Spends 183 days or more in a total of 12 month period in Vietnam since the first arrival date in Vietnam
    2. Holds temporary/permanent resident card
    3. Address is registered with the police for longer than 183 days.

    Non-resident taxpayer

    Individual that does not meet the above requirements is a non-resident.

    Value Added Tax (VAT)

    All companies have to submit outcome VAT when they sell their goods and provide their services. Companies also receive VAT returns when they purchased goods/services.

    VAT Using Deduction Method

    At the end of month or quarter, company will take difference between outcome VAT & income VAT to submit to tax office if outcome VAT is higher than income VAT, the company will receive VAT returns.

    Tax rate depends on kind of business and includes 3 tax rates: 0%, 5%, 10%

    • Standard rate: 10%
    • 0% VAT generally falls into these categories:
      • Exported goods
      • Consumed outside of Vietnam (duty free)
      • Aviation
      • Marine
      • International transport services
    • 5% VAT:
      • Essential goods / services provision
      • Technical / scientific services
      • sugar
      • Books
      • Unprocessed food
      • Medicine / medical equipment
      • Agricultural products / services
      • Sports
      • Social housing
      • Rubber / latex

    VAT using Direct Method

    VAT (that have to calculated to pay tax office) = Tax rate * revenue

    Tax rate depends on the nature of business as described below:

    • Goods distribution:  1%
    • Service not attaching goods & Construction not attaching materials: 5%
    •  Production, transportation, Service attaching goods & Construction attaching materials: 3%
    • Others: 2%

    There are 3 ways to pay taxes to tax office:

    • Cash payments at State Treasury that control company’s tax office
    • Bank transfers by payment order
    • Pay taxes via Internet Banking

     

    How To Report Taxes in Vietnam?

    Tax reports in Vietnam have to follow Vietnamese Accounting System (VAS) standard Vietnamese Accounting System is a modified version of IFRS accounting standards. Tax reports are submitted to the Tax office that manage & control directly company.

    Tax Compliance

    Below are the necessary tax reporting procedures in Vietnam.

    Quarterly tax reports

    Three documents that have to be submitted to the regional tax office:

    • VAT return
    • Personal income tax return
    • Report of using the outcome VAT

    After the report has been submitted the entity has to pay VAT and PIT based on the returns.

    Annual tax report

    Documents that have to be submitted to the regional tax office:

    • Annual financial statement
    • Statement of return PIT
    • Statement of return CIT

    Audit

    Foreign owned entities, financial institutions as well as listed companies must be audited at least once a year. Audit process must be completed within 90 days from the end of commercial year. All auditing activities will follow Vietnam Standards on Auditing. These standards are issued by the Ministry of Finance and International Standards on Auditing.

    Vietnam Accounting Standards v.s. IFRS

    Vietnam Accounting System (VAS) is an IFRS standard with slight modifications that were made by the Vietnamese government. This means that the financial reports don’t follow the same format as IFRS and are unique to Vietnam.

    Key Differences between international and Vietnam accounting standards

    Presentation of Financial Statements

    Under International Accounting Standard (IAS)1 in accordance with International Financial Reporting Standard states that the presentation of financial statements contain the following:

    • Balance Sheet
    • Income Statement
    • Cash Flow Statement
    • Statement of Changes in Equity
    • Notes (including summary of accounting policy and other notes)

    While under VAS 21, Statement of Changes in equity is part of notes rather than a primary component of financial statement.

    Disclosure

    VAS does not require disclosure of key judgements, assumptions and estimating uncertainty while IAS requires disclosure inside the notes.

    Inventories – Cost of Goods Sold

    Under IAS 2 only weighted average and First-in-First Out (FIFO) method is allowed to be used, (Last-In First-Out) LIFO is prohibited to use (IAS 2 revised December 2003) while under VAS it is allowed to use any methods, however, when using LIFO the company should disclose of the effect of using LIFO in comparison to FIFO or weighted average.

    Setting up Accounting Software

    Since Vietnam uses its own accounting standards many of the global accounting softwares cannot be directly used. However, as long as the accounting software can be modified Emerhub will be able to configure it to follow the VAS standards.

     

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