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Income Tax in Vietnam



Personal Income Tax:

The new Law on PIT took effect on 1 January 2009. This replaced the previous ordinance and regulations covering Income Tax of High Income Earners in Vietnam.

Individuals liable to PIT and tax resident status:

Individuals are subject to Vietnamese PIT upon their tax resident status, i.e. PIT on their worldwide incomes for tax resident or PIT on Vietnam sourced income for tax non-resident. 

Any foreign individual shall be considered a PIT resident if he/ she meets one of the following conditions:

·   being present in Vietnam for a period of 183 days or more within either a western calendar year or for 12 consecutive months counting from the first arriving date;
·  having a permanent residence in Vietnam (including a registered residence which is recorded on the permanent/temporary residence card in case of foreigners);
·        having a leased house in Vietnam with a term of 183 days or more in a tax year and unable to prove tax residence in another country

A non-resident is any individual who does not satisfy the above conditions.

Taxable income:

Taxable income generally comprises 10 main types of income: employment income, business income, income from capital investments, income from capital transfers, income from real property transfers, winnings or prizes, royalties, income from franchises, income from inheritances and receipts of gifts.

Income not subject to tax generally includes:

Employment

·        one-off regional transfer allowances for: (i) foreigners moving to reside in Vietnam, (ii) Vietnamese holding other country nationality working in Vietnam, and (iii)Vietnamese working overseas;
·        Once per year home leave round trip airfare for expatriates and Vietnamese working overseas;
·        employee training fees paid to training centers;
·        school fees up to high school in Vietnam/overseas for children of expatriates/Vietnamese working overseas;
·        mid-shift meals (subject to a cap if the meals are paid in cash);
·    taxable housing benefit including utilities: being the lower of the actual rental paid and 15 per cent  of the employee’s gross taxable income (excluding taxable housing);
·        that part of night shift or overtime salary payable that is higher than the day shift or normal working hours salary stipulated by the Labour Code;
·        compensation for labour accidents; and
·        income of Vietnamese vessel crew members working for foreign shipping companies or Vietnamese international transportation companies

To apply the PIT exemption on the above, there are a range of conditions and restrictions.

Non-Employment

·        interest earned on deposits with credit institutions/banks and on life insurance policies;
·        retirement pensions paid under the Social Insurance law (or the foreign equivalent);
·        income from transfer of properties between various direct family members;
·        inheritances/gifts between various direct family members;
·        monthly retirement pensions paid under voluntary insurance schemes;
·        income from life insurance policies;
·        foreign currency remitted by overseas Vietnamese
·        scholarships
·        compensation payments from life and non-life insurance contracts

PIT deductions:

Tax deductions include:

·        contributions to mandatory social, health and unemployment insurance schemes;
·        contributions to local voluntary pension schemes;Personal and family relief:
·    personal relief of VND9 million/month, and family relief of VND3.6 million/month/dependent. The dependent allowance is not automatically granted, and the taxpayer needs to register qualifying dependents and provide supporting documents to the tax authority; and
·        contributions to certain approved charities.

PIT administration

Individual tax code:

Any individual present in Vietnam who has taxable income must obtain an individual tax code. Those who have taxable employment income must submit the tax registration file to their employer; the employer will subsequently submit this to the local tax office. For individuals with taxable non-employment income, they must submit their tax registration file directly to the district tax office.

PIT declaration and payment:

For employment income, Employers must deduct and withhold employees' PIT and submit/ pay it to the tax authority, alongside the relevant social security contributions on monthly basis with the timeline no later than the 20th of following month or on a quarterly basis by the 30th day following the reporting quarter. The total income withheld must be finalized no later than 90 days after the end of the western calendar year.

Expatriate employees are also required to carry out a PIT finalization on termination of their Vietnamese assignments before exiting Vietnam. Tax refunds due to excess tax payments are only available to those who have a tax code.

For non-employment income, the individual is required to declare and pay PIT in relation to each type of taxable non employment income. The PIT regulations require income to be declared and tax paid on a regular basis, often each time income is received.

PIT credit:

For tax residents who have overseas income, any PIT paid in a foreign country is creditable against tax paid in Vietnam subject to certain tax administration procedures.

PIT year:

The Vietnamese tax year is the calendar year. However, in the calendar year of first arrival, his/her first tax year is the 12 month period from the date of arrival. Subsequently, the tax year is the calendar year.

Progressive PIT rates on employment income:

Annual Income for resident
PIT Rate(%)
From(VND)
To(VND)
0
60
5



60
120
10
120
216
15
216
384
20
384
624
25
624
960
30
More than 960
-
35


Taxes on corporate income:

Standard rates:

All taxes are imposed at the national level. The standard corporate income tax (CIT) rate is 20%. Enterprises operating in the oil and gas industry are subject to CIT rates ranging from 32% to 50%, depending on the location and specific project conditions. Enterprises engaging in prospecting, exploration, and exploitation of mineral resources (e.g. silver, gold, gemstones) are subject to CIT rates of 40% or 50%, depending on the project’s location.

There is no concept of tax residency for CIT. Business organisations established under the laws of Vietnam are subject to CIT and taxed on worldwide income. 20% CIT shall be applicable to foreign income. There are no provisions for tax incentives for such income.

Foreign organisations carrying out business in Vietnam without setting up a legal entity in Vietnam and/or having Vietnam-sourced income are considered foreign contractors, irrespective of whether the services are performed inside or outside Vietnam. Payments to foreign contractors are subject to Foreign Contractor Tax (FCT), which consists of VAT and CIT elements.

Preferential rates:

Preferential CIT rates of 10%, 15%, and 17% are available where certain criteria are met.

Calculation of taxable profits:

Taxable profit is the difference between total revenue, whether domestic or foreign sourced, and deductible expenses (see the Deductions section), plus other assessable income.

Taxpayers are required to prepare an annual CIT return that includes a section for making adjustments between accounting profits and taxable profits.

Income determination

Inventory valuation:

At present, there are no provisions for valuing inventories or determining inventory flows. The tax treatment follows the accounting treatment.

Asset revaluation:

Gains from the revaluation of assets for the purposes of capital contribution or transfer upon division, demerger, consolidation, merger, or conversion of business are subject to the standard CIT rate.

Capital gains:

Gains made by a foreign investor on the transfer of an interest (as opposed to shares) in a limited liability company are subject to the standard CIT rate. The assignee is required to withhold the tax due from the payment to the assignor and account for this to the tax authorities. Where both the assignor and the assignee are foreign entities, the Vietnamese company in which the capital interest is transferred is responsible for the above administration.

Gains earned by a foreign investor from selling securities (i.e. bonds, shares of public joint-stock companies, irrespective of whether they are listed or non-listed) are subject to CIT at a deemed rate of 0.1% of the sales proceeds. The standard CIT rate will apply to any gains earned by a foreign company (not incorporated in Vietnam) upon a sale of shares in a non-public joint-stock company.

There is a draft law proposed to tax on sales proceedings (e.g. 1 or 2%) as opposed to the current 20% on net gain effective from 1 January 2019. The new rule may apply to both direct and indirect transfer of capital/share. The draft law is still under discussion and revision.




Dividend income:

Dividends received from investments in other companies in Vietnam are from after tax profits and are not subject to CIT.

Interest income:

Certain types of interest income are entitled to tax incentives granted to the investment project, depending on the conditions on which tax incentives are granted.

Other significant items:

Tax incentives that are available for investment in encouraged sectors do not apply to other income (except for income that directly relates to the incentivised activities, such as disposal of scrap), which is broadly defined.

The following income items are subject to the standard CIT rate and are not entitled to tax incentives (including preferential tax rate and exemption/reduction):

·    Income from transfer of the right to make capital contribution; income from transfer of immovable property (except for income from investment in social houses); income from transfer of investment projects, transfer of the right to take part in investment projects, and transfer of the right to exploration and exploitation of minerals.
·        Income from activities of prospecting for, exploration of, and exploitation of oil, gas, and other rare and precious resources; income from activities of exploiting minerals.
·        Income from providing services subject to SST in accordance with the provisions of the law on SST.

Foreign income:

Foreign income, under the domestic tax law, is subject to the standard CIT rate with tax credits available.

Foreign income shall be taxed when earned. There are no provisions for tax deferral or preferential tax rates for foreign income.

Corporate residence

Permanent establishment (PE):

In Vietnam, a PE is defined as “a fixed place of business through which a foreign enterprise carries out part or the whole of its business or production activities in Vietnam”. The PE of a foreign enterprise shall include:

·      A branch, an operating office, a factory, a workshop, means of transportation, a mine, an oil and gas field, or any place relating to the exploitation of natural resources in Vietnam.
·        A building site; a construction, installation, or assembly project.
·        An establishment providing services, including consultancy services, through its employees or other persons.
·        An agent for a foreign enterprise.
·        A representative in Vietnam where one has authority to sign contracts under the name of the foreign enterprise, or where one does not have authority to sign contracts under the name of the foreign enterprise but regularly delivers goods or provides services in Vietnam.

Foreign enterprises with their PEs in Vietnam shall pay tax on the taxable income earned in Vietnam (irrespective of whether it relates to the PE) and on the taxable income generated out of Vietnam and related to operations of the PEs.

Where a treaty on avoidance of double taxation to which Vietnam is a signatory contains different provisions relating to PE, such treaty shall apply.



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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.