The legal framework of Vietnamese taxation policies is shaped mainly by the Law on Corporate Income Tax 2008 (last amended in 2023), the Law on Personal Income Tax 2007 (last amended in 2014), the Law on Value Added Tax 2008 (last amended in 2016), the Law on Tax Administration 2019 and other tax laws and guidelines issued by the Ministry of Finance, General Department of Taxation, and 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. On November 29, 2023, the National Assembly issued Resolution No. 107/2023/QH15 regarding the imposition of additional corporate income tax under the global anti-base erosion rules (Resolution 107/2023). Resolution 107/2023 takes effect from January 1, 2024 and applies from fiscal year 2024.

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 important authority being the General Department of Taxation.  Vietnam’s local tax authority system includes the Provincial 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 or implications.  In principle, the private tax rulings are not applicable or binding on all taxpayers as they are not statutory legal documents.  However, these official letters play an important role in guiding and clarifying the tax treatment of taxpayers which helps them to avoid the tax risk exposures. Under the prevailing tax administration law, taxpayers will not be subject to tax reassessment and penalties in cases where they assess and declare their tax obligations following the private tax rulings addressed 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), or investing through contractual arrangements 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, up to 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 can issue bonds, but cannot issue shares.

Joint Stock Company (JSC)

A JSC which is a shareholding company is established by having at least three shareholders (who may be individuals or organizations).  There is no limit on the number of JSC’s shareholders. JSCs are similar to LLCs in terms of limited liability as shareholders of a JSC are solely responsible for the debts and liabilities of the JSC to the extent of their portion of shares. Under the Vietnamese Law on Enterprises 2020, JSCs are permitted to issue shares, bonds, and other kinds of securities.

Partnership

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 responsible for the partnership’s debts and liabilities to the extent of their contributions to the company’s charter capital.  Partnerships are less common than LLC and JSC for foreign investors.

Representative office

Representative offices set up by foreign entities are solely allowed to conduct market research, act as liaison offices, and undertake promotional 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 commercial 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. Furthermore, under Vietnam’s World Trade Organization commitments, a foreign investor is only permitted to establish a local branch in a few sectors. Unlike representative offices, 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 legal entity, they can choose to enter 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 based on 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 provide certain restrictions on the deductibility of interest such as in the case of related party transactions.  Specifically, if a corporation has related party transactions, 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, inter-company loan interest expenses may be disallowed for CIT deduction if tax authorities deem that the interest rate is not at arm’s length. Current regulations do not provide restrictions regarding debt-to-equity ratio.

Interest expenses incurred corresponding to the portion of unpaid registered charter capital are treated as non-deductible.  Moreover, offshore loans must be registered with the State Bank of Vietnam, except the cases that are not subject to registration, for interest expenses related to those offshore loans to be deductible for CIT purposes.

For onshore loans, 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 of 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 generally not be treated as capital gains and not subject to income tax.

Stamp tax

Corporate income tax

Corporate Income Tax (CIT) computation

Enterprises established under the laws of Vietnam are subject to CIT on their worldwide income.  CIT payable is determined based on taxable income and the CIT rate.  Taxable income is computed as the turnover minus deductible expenses, exempted income, and loss carried forward from previous tax years 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) substantiated by legitimate invoices and supporting documents required by regulations; (iii) supported by the non-cash payment voucher if the amount is at least VND 20 million; and (iv) not prescribed in the list of non-deductible expenses under current tax regulations (e.g., staff welfare expenses exceeding statutory cap; depreciation expenses not following tax regulations; and expenses that mismatch 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 backward 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 Gains Tax (CGT) 

Under current Vietnamese CIT regulations, gains derived by a foreign entity from the assignment or transfer of capital or shares in a Vietnamese LLC or a non-public JSC, including indirect transfer of offshore holding companies that indirectly hold Vietnamese subsidiaries or assets in Vietnam shall be subjected to CGT 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 the capital to be transferred shall be responsible for declaring and paying the CGT to the local tax authority on behalf of the foreign transferor.

The statutory deadline for the CGT declaration and CGT payment is ten days from the date the tax liability arose.

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.  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 under the management, control, capital contribution, or investment of 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 the preparation of TP forms for submission 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 alongside a general tax audit by the tax authorities.  Any TP reassessments made by the tax authorities following 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).

There are three methods for tax filing, including (i) the direct method; (ii) the deduction method; and (iii) the hybrid method. The direct method is the most common one under which the Vietnamese contracting party shall withhold, declare, and pay FCT on the payment to a Foreign Contractor.  Depending on the nature of goods and services provided by the Foreign Contractors deemed FCT rates vary, ranging from 0.1% to 10% for CIT and from 2% to 5% for VAT.  If a Foreign Contractor satisfies certain requirements, it is allowed to file the tax using the deduction or hybrid 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. 

Vietnam has listed 75 DTAs (among over 80 existing treaties) with other contracting jurisdictions to be covered under the MLI and reserves the right not to apply the MLI to certain articles contained in Vietnam DTAs. However, as discussed above, Vietnam’s CTAs will solely be modified by MLI if they are matched with the list of Vietnam’s contracting jurisdictions.

In applying MLI, Vietnam will expand its taxing rights on capital gains tax and income tax on cross-border supplies based on MLI’s provisions on anti-treaty shopping, anti-artificial PE, or anti-mismatch arrangements which are more broadly than these provisions under existing bilateral DTAs.

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.

On November 29, 2023, the National Assembly issued Resolution No. 107/2023/QH15 regarding the imposition of additional corporate income tax under the global anti-base erosion rules (Resolution 107/2023). Resolution 107/2023 officially takes effect from January 1, 2024 and applies from fiscal year 2024.

According to Resolution No. 107/2023, taxpayers subject to additional corporate income tax include the constituent entities of multinational enterprise groups that have revenue in the consolidated financial statements of the ultimate parent entity of at least 750 million euros (EUR) for at least 2 years out of 4 consecutive years preceding the fiscal year of tax implementation. The minimum tax rate is 15%.

Resolution 107/2023 acknowledges two principles under the global anti-base erosion rules (GloBE) that Vietnam will apply for the additional corporate income tax, which is (i) the Qualified Domestic Minimum Top-up Tax (QDMTT Rule); and (ii) the Income Inclusion Rule (IIR Rule). Additional income tax is not applicable (or nil) if certain conditions are met.

QDMTT applies to a constituent entity or a group of constituent entities of multinational enterprise groups that generate income from business activities in Vietnam during the fiscal year subject to a corporate income tax rate lower than 15%. 

IIR will apply to the parent entity, including the ultimate parent entity, a partially-owned parent entity, or an intermediate parent entity, which is a tax resident in Vietnam, holds direct or indirect ownership in a constituent entity abroad with a corporate income tax rate lower than 15% in that country. 

Tax declarations are specified as follows:

1. Tax declaration includes an information declaration according to the GloBE, a declaration of additional corporate income tax accompanied by an explanatory statement explaining differences due to the dissimilarity between the financial accounting standards (“Tax Declaration”)
2. The deadline for submitting the Tax Declaration and paying the additional corporate income tax:
   1. For QDMTT Rule: no later than 12 months after the end of the fiscal year
   2. For IIR Rule: no later than 18 months after the end of the first fiscal year; for subsequent years, no later than 15 months after the end of the fiscal year.

Additional income tax in the transitional period will be exempted/reduced from fiscal years from December 31, 2026 backward, (excluding fiscal years ending after June 30, 2028 (Transitional Period), the amount of additional income tax in a country for a financial year will be zero (nil) if one of the following criteria is met:

1. In the fiscal year, multinational enterprise groups (MNE Groups) with a standardized inter-country profit report with total revenue under 10 million EUR and pre-tax profit under 1 million EUR or losses in that country
2. In the fiscal year, MNE Groups apply a simple actual tax rate in that country of at least 15% for 2023 and 2024; 16% for 2025, and 17% for 2026
3. The pre-tax profit (or loss) of the MNE Groups in that country is equal to or lower than the substance-based income exclusion based on payroll and tangible assets calculated according to the GloBE for the constituent entity with operation in that country according to the Inter-country Profit Report.

In addition, during this Transitional Period, violations of the declaration and submission of the Tax Declaration as specified above will not be subject to administrative tax penalties.

Payroll taxes

Personal Income Tax (PIT)

Enterprises or employers 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 employment income.

For 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.

Non-residents are subject to PIT on their Vietnam-sourced employment income without any deductions.

Indirect taxes

Value-added tax (VAT)

VAT is imposed on goods and services used for 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; (iv) capital transfer; (v) derivative financial services; (vi) telecommunications and postal services; (vii) exported products being resources or minerals that are not processed into other products; (viii) exported 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’ cost
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 VND 1 million to VND 3 million per year and is calculated on the registered charter capital of an enterprise or the registered investment capital in case of the absence of charter capital. If the total charter or investment capital of an enterprise is more than VND 10 billion, then the highest BLF level of VND 3 million per year shall be applied.

Other relevant taxes

Customs duties

Customs duties refer to import duty and export duties 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 apply 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 following WTO rules and apply 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

The 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. Tax exemptions are available for certain circumstances.

Tax rates range from 1% to 150% for goods and from 15% to 40% for services.