Accounting in Vietnam
Businesses operating in Vietnam face a number of tax obligations, namely corporate income tax, various withholding taxes, capital assignment profit tax, value added tax, business registration tax, personal income tax, and social insurance contributions (for their employees).
Additionally, depending on the nature of one’s business, other taxes may apply, such as, special sales tax, natural resource tax, property tax, import and export duties and environment protection tax. It is important to note that these taxes are imposed at the national level and are thus equal all across the country regardless of the business’s location (with the exception of corporate income tax – preferential rates can be obtained by conducting business in certain geographical areas and fields)
Accounting and Auditing
In general, all businesses are required to keep and maintain their accounts (in compliance with the Vietnam Accounting System – VAS) in VND currency, however, foreign entities may opt out for a foreign currency of their preference (provided they meet specific requirements). As for language, the accounts have to be maintained in Vietnamese but it can be further combined with another commonly-used foreign language.
At the end of the financial year (calendar year), companies are obliged to perform a financial check-up – audit – and a physical count of their fixed assets, cash and inventory (the auditing company has to be independent from the company where it performs the audit). Once the external auditor has completed the process, the financial statements must be submitted to the tax authority within 90 days from the end of the financial year.
The tax authorities carry out audit on companies using a risk-based approach, however, some audits are opened based on random selection. Most companies can expect to be audited about every three to five years.
Corporate Income Tax
The Corporate Income Tax (CIT) law in Vietnam prescribes that all companies operating in the country (both domestic and foreign) are subject to the CIT, the rate of which varies based on revenue and the company’s engagement. In general, most businesses enjoy CIT rate of 20% (as from January 1, 2016), while companies engaged in petroleum prospecting, exploration and exploitation are exposed to a much higher rate, ranging anywhere from 32 to 50%. Similarly, industries concerning mineral resources are taxed at an equally high rate of 50%.
Unlike in other countries, Vietnam does not recognise the concept of tax residency – companies incorporated under Vietnamese laws are subject to CIT and taxed on worldwide income (foreign income is taxed at the rate of 20%).
Starting businesses should enquire about tax incentives as there is a program in place that allows for tax deductions and other benefits.
Taxable Profit & Administration
Calculating taxable profit is very straightforward: taxable profit = total revenue (both domestic and foreign sourced) – deductible expenses + other assessable income.
CIT compliance is based on self-assessment and involves preparing an annual CIT return that must be submitted within 90 days following the end of the fiscal year (the standard tax year is a calendar year). In addition to a yearly tax return, companies are also required to make quarterly CIT payments based on estimates.
Foreign entities may be interested in remitting the earned income abroad. They may do so annually at the end of the financial year or upon termination of their investment. Profit remittance is, however, allowed only if the company has not incurred losses in the previous fiscal year.
Foreign Contractor Tax
Foreign Contractor Tax (FCT) is a form of withholding tax in Vietnam. As the name implies, it applies to transactions between foreign entities (including individuals) and a Vietnamese contracting party.
FCT comprises two elements – CIT and VAT – and the final rate is determined based on a number of factors, such as whether the foreign contractor has a permanent establishment in Vietnam, is registered for Vietnamese Accounting System (VAS), the length of time the services are provided, as well as the nature of supplies.
Foreign contractors can choose between three methods for tax payment – the deduction method, the direct method and the hybrid method.
|Industry||VAT Rate||Deemed CIT Rate|
|Supply of goods in Vietnam or associated with services rendered in Vietnam (including in-country import-export and imports, distribution of goods in Vietnam or delivery of goods under Incoterms where the seller bears risk relating to goods in Vietnam)||1%||1%|
|Services together with supply of machinery and equipment||3%||2%|
|Restaurant, hotel and casino management services||5%||10%|
|Supply of goods and/or services for oil and gas exploration and development||10%||5%|
|Construction, installation without supply of materials, machinery or equipment||5%||2%|
|Construction, installation with supply of materials, machinery or equipment||3%||2%|
|Leasing of machinery and equipment||5%||5%|
|Leasing of aircraft and vessels||Exempt||2%|
|Leasing of aircraft and vessels||Exempt||2%|
|Re-insurance, commission for re-insurance||Exempt||0.1%|
|Transfer of securities||Exempt||0.1%|
Capital Assignment Profits Tax
When a business or a company make profit on transfers of interests (usually a sale of a property), this gain is subject to 20% CIT and as such is referred to as capital assignment profits tax (CAPT). The taxable gain = the excess of the sale proceeds – cost – transfer expenses.
Payment of this tax depends on the nature of the purchaser. If the vendor is a foreign entity and the purchaser is Vietnamese, then the purchaser withholds the tax due from the payment to the vendor and turns it in to the tax authorities. In case of both entities being foreign, the side receiving the interests is responsible for the CAPT administration (both return and payment must be submitted within 10 days from the sale).
Value Added Tax
Value added tax (VAT) is an indirect tax that applies to goods and services used for production, trading and consumption in Vietnam. All domestic businesses must charge VAT on the value of goods or services that they supply.
|0%||This rate applies to exported goods/services including goods/services sold to overseas/non-tariff areas and consumed outside Vietnam/in the non-tariff areas, goods processed for export or in-country export (subject to conditions), goods sold to duty free shops, certain exported services, construction and installation carried out for export processing enterprises, aviation, marine and international transportation services.|
|5%||This rate applies generally to areas of the economy concerned with the provision of essential goods and services. These include: clean water; fertiliser production; teaching aids; books; unprocessed foodstuffs; medicine and medical equipment; husbandry feed; various agricultural products and services; technical/scientific services; rubber latex; sugar and its by-products; certain cultural, artistic, sport services/products and social housing.|
|10%||This “standard” rate applies to activities not specified as not-subject to VAT, exempt or subject to 0% or 5%.|
Reduced Rates and Exemptions
In addition to above tax brackets, some goods and services are fully exempt from VAT. The categories where VAT declaration and payment are not required include, but are not limited to, certain agricultural products; salt products; transfer of land use rights; life insurance, financial, medical, public postal, telecommunications; construction work related to cultural work; education and vocational training; radio and television broadcasting; publication; and public transportation; temporary imported goods for re-export and technology transfer.
VAT Calculation Methods
Payment and calculation of VAT largely depends on the company’s revenue. Businesses with taxable revenue exceeding 1B VND pay VAT using a deduction method (also known as tax credit method). In this case, VAT payable is calculated as the total VAT charged to customers less VAT suffered on domestic purchases of goods and services (for input VAT to be creditable, the taxpayer must obtain a proper VAT invoice from the supplier). This method applies to business establishments which fully observe regulations on accounting, invoices and documents as prescribed by the law on accounting, invoices and documents, and register to pay tax according to the tax credit method.
On the other hand, businesses with taxable base of less than 1B VND, individuals and business households without Vietnam-based resident establishments but having incomes generated in Vietnam that fail to fully observe regulations on accounting, invoices and documents calculate their VAT using a direct method. VAT payable is determined as value added of goods and services sold multiplied by the applicable VAT rate.
As mentioned above, all organisations and individuals producing or trading VATable goods and services in Vietnam must register for VAT. In general, there are two ways to file a VAT return – monthly (by the 20th day of the following month) or quarterly (by the 30th day of the subsequent quarter).
Social, Health and Unemployment Insurance Contributions
While social, health and unemployment insurance contributions are compulsory in respect to Vietnamese employees, health insurance can be also applicable to foreign labour employed under labour contracts. Overall, these contributions entitle employees to a number of benefits in time of sickness, maternity or unemployment.
The contribution rates are as follows:
Employees are allowed to deduct social, health and unemployment contributions from their total taxable income, however, this only applies to employee contributions. The required employer contributions do not constitute a taxable benefit to employees.
Special Sales Tax
Special sales tax (SST) is a form of excise tax that applies to the production or import of certain goods and the provision of certain services. The rates range anywhere from 7–70%, depending on the particular product/service.
Examples of commodities: cigarettes, liquor, beer, automobiles (with less than 24 seats), motorcycles, airplanes, boats, petrol, air-conditioners, playing cards and votive papers.
Examples of services: discotheques, massage, karaoke, casinos, gambling, lotteries, golf clubs and entertainment with betting.
Natural Resource Tax
As the name implies, natural resource tax (NRT) applies to industries making use of the country’s natural resources, such as oil, gas, minerals, forest products, seafood and natural water.
The rate of NRT hugely depends on the type of the resource and the volume of production output.
Property tax, or land tax, is the tax that owners of houses and apartments have to pay for their properties (referred to as non-agricultural land-use tax). The progressive rate is usually rather small – ranges from 0.03–0.15% – and is based on the prescribed price per meter square of each property.
Another instance of property tax is the rental of land use rights by foreign investors. Here, the rate, likewise, depends on the location, infrastructure and the type of industry that the businesses operates in.
Import and Export Duties
Import duty is a tax imposed on import of certain goods. Vietnam has currently three types of import duty rates – ordinary, preferential and special preferential. In order to qualify for the special preferential rate, the importer must import goods from countries that have a special preferential trade agreement with Vietnam. Next, preferential rates are granted to goods imported from countries that have Most Favoured Nation status with Vietnam. If the goods are sourced from a country that does not appear in neither list, they will be taxed at the ordinary rate. Currently, there are 20 categories of goods that are eligible for exemption.
On the other hand, export duty is charged only on natural resources leaving the country, for example, sand, chalk, marble, crude oil and others. This duty is calculated from the selling price at the port of departure from the country and its rate ranges from 0–40%.
Environment Protection Tax
Environment protection tax is tax levied upon production and import of certain goods that contribute to the detriment of environment, such as petroleum and coal.