The legal framework of Vietnamese taxation policies is shaped mainly by the Law on Corporate Income Tax 2008 (last amended in 2020), Law on Personal Income Tax 2007 (last amended in 2014), the Law on Value Added Tax (last amended in 2016), the Law on Tax Administration 2019 and many other tax laws and guidelines issued by the Ministry of Finance, General Department of Taxation, and by local tax authorities. 

On February 9, 2022, Vietnam became a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which, upon entering into force for Vietnam, will amend several of Vietnam’s tax treaties to be consistent with the scope of implementation of the MLI. At the time of writing, Vietnam has not deposited its instrument of ratification, acceptance or approval.

In this chapter

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes
• Other relevant taxes

Legal system

Vietnam operates under a civil law system. The Vietnamese legal system is often considered to be a continental European legal system, with written law or legal normative documents being the main sources of law. In Vietnam, the laws of the National Assembly, decrees of the government, and Minister circulars are the most important normative legal documents.

Taxation authorities

Tax policies of Vietnam are implemented by the Ministry of Finance and its affiliated authorities nationwide, with the most important authority being the General Department of Taxation. Vietnam’s local tax authority system includes the Provincial Tax Departments and District-level Tax Departments. Most tax administration matters are managed by the Provincial Tax Departments or District-level Tax Departments, which are the managing tax authorities of taxpayers. Since Vietnam currently has 63 provinces and central cities, with different tax authorities for each province and central city, there may be, in practice, inconsistencies in the interpretation, guidance and implementation of tax laws and regulations among different tax offices.

Taxpayers can seek private tax rulings (i.e. tax official letters) from tax authorities regarding their tax liabilities. In principle, the private tax rulings are not applicable or bound to all taxpayers as they are not statutory legal documents. However, these official letters play an important role in guiding and clarifying tax obligations of particular taxpayers which help them to avoid the risks of arrears, administrative fines, and late payment interest. Under the prevailing tax administration law, taxpayers will not be subject to penalties and overdue interest in cases where they assess and declare their tax obligations in accordance with the tax rulings issued to them.

Business vehicles

Foreign investors can choose from various options to conduct business in Vietnam, including establishing a commercial presence (i.e., a company, a representative office, or a branch), and/or investing through contractual arrangement in the form of a Business Cooperation Contract or Public and Private Partnership Contracts.

Companies

There are three types of companies for foreign invested enterprises:

Limited Liability Company (LLC)

An LLC can be established by one member (being an individual or organization), which is known as a single-member LLC (SMLLC); or it can be established by two or more members, but not exceeding fifty, which is known as a multi-member LLC (MMLLC). For LLCs, the liabilities of its members are limited to the charter capital (for SMLLCs) or their portion of contributed capital (for MMLLCs). Under the Vietnam Law on Enterprises 2020, SMLLCs and MMLLCs cannot issue shares, but can issue bonds.

Joint Stock Company (JSC)

A JSC, which is also known as a shareholding company, is established by having at least three shareholders (who may be individuals and/or organizations). There is no restriction on the maximum number of shareholders a JSC may have. JSCs are similar to LLCs in terms of limited liability as shareholders of a JSC are only responsible for the debts and liabilities of the JSC to the extent of their portion of shares. In accordance with Vietnamese Law on Enterprises 2020, JSCs are permitted to issue shares, bonds and other kinds of securities.

Partnership Company

A partnership is a company set up by at least two individual partners who assume unlimited liability for the partnership’s debts and liabilities (these partners are called “unlimited liability members”). In addition to unlimited liability members, investors can also join as “limited liability members” who are only responsible for the partnership’s debts and liabilities to the extent of their contributions to the company’s charter capital. Compared to LLCs and JSCs above, partnerships are a less common type of business vehicle for foreign investors.

Representative office

Representative offices set up by foreign entities are only allowed to conduct market research, act as a liaison office and undertake promotion activities for the business of its parent company. Under Vietnamese laws, representative offices of foreign investors are not allowed to engage in activities that generate revenue or enter into contracts. Foreign investors may choose to establish a representative office in Vietnam as an initial step to gain a better understanding of the Vietnamese market before committing to a more substantial business presence in Vietnam.

Branch

For foreign investors, establishing a branch in Vietnam is less common than establishing a representative office and, in accordance with Vietnam’s World Trade Organization commitments, is only permitted in a few sectors. Branches of foreign companies are different from representative offices in that branches are permitted to conduct commercial activities and generate revenue in Vietnam from the provision of services.

Contractual arrangements

Business Cooperation Contract (BCC)

If foreign investors wish to implement an investment project in Vietnam without establishing a new legal entity, they can choose to enter into a BCC with at least one Vietnamese partner. During the implementation of the BCC, parties to the BCC can mutually agree on the allocation of liabilities incurred and the sharing of revenue, products or after-tax profits arising from such BCC. As a common practice in Vietnam, investment under a BCC is usually applied in the fields of telecommunications, oil and gas and real estate.

Public-Private Partnership (PPP)

A PPP is a form of investment on the basis of a contract between an investor and a Vietnamese competent State authority to execute, operate and manage an infrastructure development project or to provide public services to the extent required by law. Types of PPP contracts include Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO), Build-Own-Operate (BOO), Build-Transfer-Lease (BTL), Build -Lease-Transfer (BLT) and Operate-Manage (O&M) Contracts.

Financing a corporate subsidiary

Debt financing

Under Vietnamese tax laws, interest on debt is generally a deductible expense for corporate income tax (CIT) purposes.

However, Vietnamese tax regulations also provide certain restrictions on the deductibility of interest expense for CIT purposes, such as in the case of related party debt transactions. Specifically, Vietnam tax regulations provide that, in respect of a related party debt transaction, the amount of interest expense (after being offset with deposit interest and loan interest incurred in the relevant tax period) that is deductible for CIT purposes shall not exceed 30% of EBITDA. Moreover, as a matter of practice and for loan transactions with related parties, relevant interest expenses can also be challenged by tax authorities and treated as non-deductible for CIT purposes if such tax authorities deem that the relevant interest rate is not within the arm’s length range, when compared to the interest rates of commercial banks announced by the State Bank of Vietnam. Current regulations do not provide restrictions regarding debt-to-equity ratio.

Interest expenses incurred that correspond to the portion of charter capital that has not been contributed in accordance with the relevant registered schedule, are treated as non-deductible. Moreover, offshore loans that are subject to the requirement of registration with the State Bank of Vietnam must be properly registered/notified to the State Bank of Vietnam in order for interest expenses related to those offshore loans to be deductible for CIT purposes.

Notwithstanding the above, interest is not deductible for CIT purposes if the rate of interest exceeds 150% of the prime lending rate quoted by the State Bank of Vietnam as at the borrowing date.

Equity financing

Equity of a corporate vehicle in Vietnam may be financed by investors by way of contributing capital to establish a new enterprise or by injecting capital or buying capital portions/shares in an existing enterprise. In the case of a capital increase through the issuance of additional shares and acceptance of new investors/contributors, surplus equity may result from new contributors who acquire their equity portion by paying a higher price than the par value of the shares (for JSCs) or a higher price than the price paid by existing investors (for LLCs). In such a case, such surplus equity shall not be seen as taxable income for CIT or VAT calculation purposes; however, there is one uncommon exception in respect of LLCs, based on one official guidance from the General Department of Taxation, where investors must declare and pay income tax on any equity surplus that arises in respect of the raising of equity and acceptance of new contributors where all investors agree that such equity surplus belongs to such investors.

Stamp tax

Corporate income tax

Corporate Income Tax (CIT) computation

Enterprises established under the laws of Vietnam are subject to CIT imposed on their worldwide income. CIT payable is determined based on taxable income and the CIT rate. Taxable income is equivalent to turnover minus deductible expenses, exempted income and loss carried-forward from previous periods plus other taxable income (including income derived overseas).

The standard CIT rate is 20%. Preferential CIT rates may apply to enterprises entitled to certain CIT incentives.

Expenses are deductible for CIT calculation purposes if those expenses are: (i) actually incurred and related to the business activities of the enterprises; (ii) supported by legitimate invoices and supporting documents in accordance with regulations; (iii) supported by the non-cash payment voucher if the amount is VND20 million or above; and (iv) not prescribed on the list of non-deductible expenses under current tax regulations (e.g., staff welfare expenses exceeding statutory cap; depreciation expenses not in accordance with tax regulations; and expenses that are not matched with taxable income).

Losses incurred in a financial year may be carried forward for a maximum of five years. However, losses are not allowed to be carried back to be offset against profits in earlier tax years. Moreover, Vietnam provides no tax grouping regime; losses cannot be offset between companies within the same group of companies.

Capital Assignment Tax (CAT)

Pursuant to current Vietnamese CIT regulations, gains derived by a foreign entity from the assignment or transfer of capital or shares in a Vietnamese LLC or JSC shall be subjected to CAT at the rate of 20%.

The gain (or the taxable income) from capital assignment is determined as follows:

^{Taxable income = Assignment/transfer price – Purchase price of the transferred capital – Assignment/transfer expenses}

Where both the transferor and transferee are foreign residents, the Vietnamese company that has capital to be transferred shall be responsible for declaring and paying the CAT to the local tax authority on behalf of the foreign transferor.

The statutory deadline for the CAT declaration and CAT payment are both within ten days from the date the tax liability arose.

Although current Vietnam tax regulations provide no clear guidance on the CAT implications related to indirect capital transfers (i.e., capital transfer related to a multi-tiered holding structure where offshore holding companies directly or indirectly assign their capital or shares, which may affect its indirect ownership of capital or shares and/or assets in Vietnamese subsidiaries), the General Department of Taxation and some local tax authorities are of the view that CAT shall be imposed on such offshore indirect transfers by applying the same tax mechanism as a direct capital transfer to determine CAT liabilities and declaration obligations.

Cross-border payments

Transfer pricing

Transfer pricing (TP) rules have been implemented in Vietnam for over 15 years and have become a sector of high tax risk in Vietnam recently. Vietnamese TP rules are broadly based on the OECD Transfer Pricing Guidelines which require contemporaneous documentation for transactions between related parties.

Transfer Pricing rules apply to both domestic and cross-border transactions. A related party relationship is deemed to exist where:

1. One party is directly or indirectly involved in the administration, control, capital contribution or investment in any form of the other party; or
2. Both parties are directly or indirectly managed or controlled by a third party or both parties make capital contributions or invest in any form in a third party.

Local corporate taxpayers that have transactions with related parties are required to comply with TP compliance and TP documents. TP compliance includes preparation of TP forms for submitting to the tax authorities on an annual basis. The documents generally include standard forms and local files, master files and country–by-country reports.

A TP audit may be conducted separately or along with a general tax audit by the tax authorities. Any TP reassessments made by the tax authorities after the audit will subject relevant taxpayers to tax reassessment and penalties.

Withholding tax (Foreign Contractor Tax)

Withholding tax is levied in the form of the Foreign Contractor Tax (FCT), which includes a CIT element and a VAT element that might be imposed on foreign organizations’ income arising in Vietnam with or without a permanent establishment in Vietnam (Foreign Contractors).

In terms of tax computation, there are three methods, including: (i) the direct method; (ii) the deduction method; and (iii) the hybrid method. The direct method is the most common method and provides that the Vietnamese contracting party shall withhold, declare and pay FCT (which is determined based on CIT and VAT taxable revenues and the respective deemed CIT and VAT ratios) where such Vietnamese contracting party makes a payment to a Foreign Contractor. Depending on the nature of goods and services provided by the Foreign Contractors, deemed CIT and VAT ratios for FCT purposes vary, ranging from 0.1% to 10% for CIT purposes and from 2% to 5% for VAT purposes. On the other hand, if a Foreign Contractor satisfies certain requirements, it is allowed to use the deduction method and declare and pay the CIT and VAT elements in a similar manner as a Vietnamese taxpayer. Under the hybrid method, a Foreign Contractor that meets the requirements for the hybrid method to apply declares and pays the CIT element based on the direct method and the VAT element based on the deduction method.

Multilateral Instrument

On February 9, 2022, Vietnam became a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which, upon entering into force for Vietnam, will amend several of Vietnam’s tax treaties to be consistent with the scope of implementation of the MLI. At the time of writing, Vietnam has not deposited its instrument of ratification, acceptance or approval.

International tax reform

As of December 16, 2022, Vietnam, along with 137 other countries, committed to a two-pillar plan for international corporate tax reform that supports the OECD Inclusive Framework’s “Tax Challenges Arising from Digitalization” project. As a part of this plan, Pillar Two introduces rules that establish a global minimum effective corporate tax rate of 15% for large multinational enterprises whereas Pillar One covers the allocation of taxing rights over large multinationals to jurisdictions where profits are generated.

To date, Vietnam has not yet officially enacted any laws or adopted any amendment to its domestic legislation for the implementation of such measures. However, recently, the National Assembly and the Government of Vietnam made steps toward the rollout a global corporate minimum tax rate under Pillar Two.

Specifically, in 2022, pursuant to Decision No. 55/QĐ-TTg, the Prime Minister established the Prime Minister’s Special Working Group on research and proposals for solutions legislation relating to the OECD's global minimum tax rate; and on April 14, 2023, Vice Prime Minister Le Minh Khai signed Decision No.22/QĐ-TCTĐB on the issuance of the establishment and operation of such Special Working Group.

Additionally, on April 17, 2023, the Standing Finance Committee of the National Assembly had a meeting with the Ministry of Finance on the progress of the enactment of laws on taxation. Following such meeting, in Document No. 2186/TB-TTKQH, the Secretary-General of the National Assembly announced the conclusion of the Standing Committee of the National Assembly on the tentative agenda of law enactment in 2024 in which the Government was urgently requested to focus on researching and addressing the content related to the application of the global minimum tax to propose amendments and supplements to the Law on Corporate Income Tax, ensuring timely implementation for the corporate income tax period in 2024.

Payroll taxes

Personal Income Tax (PIT)

According to the withholding mechanism that Vietnam applies, enterprises are required to withhold, declare and pay PIT liabilities on the wages and salaries that they pay to their employees or non-employee individuals.

PIT is imposed based on tax residency status. For employment income, Vietnam tax residents are subject to PIT on their worldwide income at progressive tax rates ranging from 5% to 35%; whereas, non-residents are subject to a flat rate of 20% on their Vietnam-sourced income.

IFor tax residents, employment income assessable for PIT purposes can be reduced by way of certain tax relief measures and deductions, such as personal and dependent relief, compulsory insurance contribution, voluntary pension fund, and contributions to certain charitable, humanitarian, and educational promotion funds.

For non-residents, employment income received in respect of work performed in Vietnam, regardless of the source of the income, is assessable for PIT purposes without any reduction for tax relief measures or deductions.

Indirect taxes

Value-added tax (VAT)

VAT is imposed on goods and services used for the purpose of manufacturing, trading or consumption within Vietnam, except where a VAT exemption applies.

There are applicable VAT rates that apply depending on the nature of the goods and services:

1. 0% VAT rate applies to export goods and services, international transportation and goods and services exempted from VAT when being exported, except for (i) technology transfers, transfer of intellectual property abroad; (ii) reinsurance abroad; (iii) credit services abroad; (iv) capital transfer abroad; (v) derivative financial services; (vi) telecommunications and postal services; (vii) products being resources or minerals that are not processed into other products; (viii) products, which are processed from resources and minerals, in which the total value of resources, minerals and energy cost account for 51% or more of such products.
2. 5% VAT rate applies to essential goods and services for public welfare and other industries such as education, health, agriculture, science and technology;
3. 10% VAT rate applies to all goods and services not subject to the tax rate of 0% or 5%.

Land use tax

Land use tax or real estate tax applies to the land value of non-agricultural land used for residential or business purposes. Tax rates range from 0.03% to 0.15%.

Business license fee (BLF)

BLF is a tax that ranges from VND1 million to VND3 million per year and is calculated on the registered charter capital of an enterprise. If the total charter or investment capital of an enterprise is more than VND10 billion, then the highest BLF level of VND3 million per year shall be applied.

Other relevant taxes

Customs duties

Customs duties refers to import duty and export duty which are levied on exported and imported goods.

Import duty is assessed on an ad valorem (on value) basis. Import duties fall into three categories: ordinary rates, preferential rates, and special preferential rates.

Preferential rates are applicable to imported goods from countries that have the "Most Favored Nation" (MFN) status with Vietnam. As Vietnam is a member of the WTO, the MFN rates are in accordance with WTO rules and are applicable to goods imported from other WTO members.

Special preferential tariffs apply to goods imported from countries that have a special preferential agreement with Vietnam, such as the ASEAN Trade in Goods Agreement (ATIGA), ASEAN Free Trade Agreement (AFTA) and agreements between ASEAN and South Korea, Japan, Australia, New Zealand and China.

Export duties are imposed on only a few items which consist mainly of natural resources such as minerals, forestry products and scrap metal. Export duty rates range from 0% to 40%

Excise tax

Excise tax applies to the production, import and trading of certain luxury goods and services or goods and services that are discouraged for consumption in Vietnam. Products subject to excise tax include tobacco and cigarettes, wine, beer, automobiles having less than 24 seats, motorcycles with a cylinder capacity above 125cm³, airplanes, boats, petrol of all kinds, air-conditioners (having not more than 90,000 BTU), playing cards, and votive paper. Services that are subject to excise tax include discotheques, massages, karaoke, casinos, video games with prizes including jackpot games, slots and the like, entertainment with betting, golf (including membership card sales), golf tickets, and lotteries.

The aforementioned goods shall not be subject to excise tax if such goods fall into one of the exceptions prescribed by law.

Tax rates range from 10% to 150% for goods and from 15% to 40% for services.