To invest in Vietnam, in addition to the normal steps of conducting market research, different business structures and the licensing requirements, a key step is studying of Vietnam taxation regime so that the investor is able to fully comply with the laws and regulations, to avoid tax penalties as well as to enable good tax planning.
Vietnamese Taxation Regime
After having obtained a Business Registration Certificate (“BRC”) and Investment Registration Certificate (“IRC”) from the Licensing Authority, Newly-Established Enterprises (“NEEs”) need to apply for their tax code and set up their tax compliance system for operation.
Vietnam adopts a self-assessment regime which grants NEE’sthe flexibility in assessment of their tax liability. The Tax Authority (“TA”) will control by review and analysis of these assessments. Where there is any unclear points per their analysis, the tax office will either require NEEs’ explanation or perform tax audit at NEEs’ premises. As a result, any under-declared taxes and non-compliance issues that are found, NEEs will be liable for paying understated amounts, plus administrative penalties and interest on late payment.
There are two types of taxation, i.e. direct taxes including Corporate Income Tax (“CIT”), Personal Income Tax (“PIT”), Land Tax, Business Registration Tax (“BRT”); and indirect taxes including Value Added Tax (“VAT”), Special Consumption Tax, Customs Duty, Environmental Protection Tax, etc. which are applied differently.
Within this Article, we mention the popular types of taxation that NEEs should at least declare when doing business in Vietnam, comprising BRT, CIT, VAT and PIT.
BRT and notable compliance matters
NEEs are subject to BRT based on the registered capital in either BRC or IRC amounting to VND1,000,000 to VND3,000,000 (approximately USD45 to USD135) per year.
The deadline for filing an initial BRT return is within the month of obtaining the tax code. During the operation, NEEs are required to file BRT returns and settle this liability by 30 Jan of the subsequent year.
CIT and notable compliance matters
The standard CIT rate is 20% and competitive compared with ASEAN countries, however, the effective CIT rate might be higher due to non-deductible items, e.g. transactions without legitimate supporting documents or not related to business activities in the TAs’ views.
It is compulsorily required that NEEs shall provisionally pay its CIT liability quarterly based on NEEs’ estimation by 30th day of the next quarter, and finalise at year-end within 90 days of the year end. The accumulated provisional CIT amounts temporarily paid on quarterly basis are compulsorily not less than 80% of the CIT amount at year-end finalisation. Failure to comply with this requirement will incur fines including penalty interest.
CIT incentives granted for encouraged industries or investment locations are the most interesting for NEE’s. However, it is also a big concern in practical application as the TAs’ re-assessment of CIT incentives mostly increase the tax liability which can cause a huge burden to NEEs. Where NEEs identify their tax incentive position clearly and secure relevant supporting documents for such tax position, this would be a benefit for the business during operation.
VAT and notable compliance matters
VAT is applied to goods and services produced or consumed in Vietnam. There are three rates: (i) 0% applicable to goods and services exported to overseas or non-tariff areas, (ii) 5% applicable to some encouraged goods and services, and (iii) 10% applicable to normal goods and services. There are also some goods and services which are especially encouraged for the development being not subject to VAT.
VAT payable is offset between input VAT and output VAT. NEEs are required to file VAT returns and remit VAT payable on a quarterly basis by the 30th day of following quarter (for the first 12 months from incorporation). After a full 12-month-operation, NEEs shall determine and file VAT returns on a monthly basis by 20th day of following month from the subsequent calendar year, if their annual revenues are more than VND50 billion.
Similar to CIT, not all input VAT is creditable due to non-compliance, e.g. transactions not relevant to business activities or not supported by valid invoices; cash payments for transactions with value more than VND20 million (approximately USD900); remittance via the bank account previously unregistered with TAs, etc.
NEEs adopting the VAT deduction method could claim VAT refund if their creditable input VAT is not fully offset provided that certain conditions are met.
PIT and notable compliance matters
TA performs the withholding regimes on PIT, i.e. NEEs, being the income-payer, are required to withhold and pay PIT on employment income.
PIT rates vary depending on the tax resident status, i.e. progressive rates ranging from 5% to 35% on tax resident individual’s worldwide income, and flat rate of 20% on tax non-resident individual’s Vietnam-sourced income.
Non-residents may be exempt from PIT under Tax Treaties between Vietnam and an individual’s home country provided that certain conditions are met. However, it is not automatic and the tax-payer should file with local TA.
PIT returns is filed on monthly or quarterly basis depending on identifying NEEs’ status at the first month of calendar year, and the method will be applicable for the whole year:
Quarterly PIT filing method applies if NEEs declare and pay VAT on a quarterly basis, or no PIT returns results in a payment liability exceeding VND50 million in the first month of calendar year.
Other than the above, monthly declarations are required.
Provisional monthly/ quarterly PIT declarations and payments must be made by 20th day after month-end, and 30th day of following quarter, respectively. Annual PIT final returns and payments shall be made not later than 90th day of following year.
Tax interest fines and associated administrative penalties
Violation of tax procedures/ under declaration and payment shall give rise to fines, including:
Late payment interest of 0.05% per day;
Administration fine of 20% of the underpaid tax amounts due to incorrect declaration;
Administration fine of 1-3 times of the underpaid taxes due to tax evasion or tax fraud.
The statute of limitations for tax penalties shall be: (i) 2 years from the occurring date regarding tax procedure violations, (ii) five years from the occurring date regarding tax evasion or tax fraud not forming a criminal act. According to the statute of limitations, the tax-payer will be no longer subject to administrative penalties but still liable for the unpaid taxes within 10 years from the date occurring the liability of the taxpayer is registered.
To avoid any penalty and to ensure good tax planning, NEEs should have a basic understanding of Vietnamese tax assessments, and pay attention to the following from the beginning of NEEs operation to ensure and secure NEE’s tax compliance status and position:
- Identify NEEs’ business lines for relevant tax implications;
- Engage capable personnel in assisting with Vietnam taxation; and
- Plan taxation for purposes of cash flow efficiencies and savings.