Vietnam has embarked on a process to harmonize taxation for both domestic and foreign companies and individuals. It has also initiated a number of institutional and administrative reforms in order to improve the administration of taxation. Below is the list of taxes and duties that foreign companies or individuals are generally subject to in Vietnam.

Corporate Income Tax 

Vietnam-based companies and foreign companies which have a permanent establishment in Vietnam are required to pay corporate income tax (“CIT”). Foreign companies which do not have a permanent establishment in Vietnam only have to pay CIT on the income derived from Vietnam. A permanent establishment means a branch, representative, construction works or an agent, etc. in Vietnam of a foreign company.

Currently, the standard CIT is 20%. The CIT rates applicable to acts of prospecting, exploring and mining of petroleum and gas and other rare and precious natural resources in Vietnam are from 32% to 50% depending on a specific project.

Vietnamese tax laws also provide for CIT incentives (i.e., preferential tax rates and duration of tax exemption and reduction). The incentives are applicable to certain sectors (such as high tech, etc.) and difficult (or special difficult) socio-economic regions. If a company is given the preferential tax rate then the rate of 10% or 17% for a certain period of time will be applied.

Value Added Tax

Vietnam introduced value-added tax (“VAT”) in 1999 to replace its previous turnover tax. All business establishments are subject to VAT, regardless of size or sales of taxable goods. Although the real VAT payer is the purchaser of the goods and services, it is the sellers responsibility to include VAT when they charge for the goods or services they supply. For imported goods, an importer must pay VAT to the customs office at the same time with the payment of import duties.

The rate of VAT payable will depend on the goods and services in question.

• VAT rate of 0% is applied to exported goods or services, including goods or services sold to enterprises without a permanent establishment in Vietnam, goods processed for export, goods sold to duty free shops, exported services and construction and installation carried out abroad or for export processing enterprises.
• VAT rate of 5% is applied generally to enterprises which provide essential goods and services, such as clean water, fertilizer production, teaching aids, books, foodstuffs, medicine and medical equipment, husbandry feed, various agricultural products and services, technical/scientific services, rubber latex, sugar and its by-products.
• Standard VAT rate of 10% applies to activities not specified as exempt or subject to the 0% or 5% rates above.

Import and Export Duties

Import and export duties rates are subject to frequent changes (usually at the end of a calendar year). If not exempted, goods imported to Vietnam are subject to import duty, which is calculated by multiplying the imported good’s dutiable value with the relevant rate. The import duty rates are classified into three categories: ordinary rates, preferential rates and special preferential rates.

Preferential rates are applicable to imported goods from countries that have the Most Favoured Nation status with Vietnam. For example, with the accession to the WTO, the Most Favoured Nation rates are in accordance with the WTO Commitments and are applicable to goods imported from other member countries of the WTO.

Special preferential rates are applicable to imported goods from countries that have a special preferential trade agreement with Vietnam. Vietnam has entered into trade agreements with ASEAN member states, US, Japan, China, Korea, Australia, New Zealand, India, Chile, Hong Kong, Cuba and others.

Foreign Contractor Tax

While not a separate tax, foreign contractor tax (“FCT”) is the tax scheme under which earnings of foreign companies or individuals (foreign contractors) from providing services to Vietnamese tax residents are taxed. FCT is a combination of VAT and CIT (applicable to companies) or PIT (applicable to individuals). There are three methods by which a foreign contractor may choose to be taxed under the FCT regime. First is called “deduction method” which requires a foreign contractor to register and apply this tax method with the Ministry of Finance, conduct Vietnamese accounting, and pay taxes as if he/she/it is a Vietnamese tax resident. Second is called “direct method” which allows the Vietnamese purchaser of the goods or services to withhold the relevant taxes from its payment to the foreign contractor. The third one is called “hybrid” which allows the foreign contractor to act as a Vietnamese tax resident for the purposes of VAT but to have their CIT or PIT withheld by the Vietnamese purchaser. The applicable tax rates are published separately by the Ministry of Finance and vary depending on the nature of the goods or services sold in Vietnam.