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Taxation
Vietnam has a relatively onerous tax regime with various heads of taxes levied on foreign investors and their investment projects. The common types of taxes are outlined below.

Import/export duty
Import
Import duty rates are classified into three categories subject to the origin of the imported goods:
  • ordinary rates
  • preferential rates
  • special preferential rates.
Preferential rates are applicable to imported goods from countries that have a “Most Favored Nation” (now known as Normal Trade Relations) status with Vietnam. Special preferential rates are applicable to imported goods from countries that have special preferential agreements with Vietnam and ordinary rates are applicable to goods from countries without special preferential agreements with Vietnam.

To be eligible for preferential or special preferential rates, the imported goods must be accompanied with an appropriate Certificate of Origin (C/O). Without a C/O or when goods are sourced from non-preferential treatment countries, the ordinary Rate (being the preferential rate with a 150 percent surcharge) is imposed.

The dutiable value of imported goods is based on the commercial contract. However, a list of product prices is introduced and updated by the General Department of Customs for reference. Generally, dutiable price for imported goods will be determined by using one of the following six methods:
  • determined by transaction price
  • price of the same goods
  • price of similar goods
  • deductible price
  • valuation calculation
  • the reasoning method.
There are 18 categories of import duty exemption, which include goods temporarily imported for export, materials for processing and export, and goods and materials used to create the fixed assets of investment projects.

Export
At present, the Vietnamese Government particularly encourages the production and exportation of labor-intensive products, including agricultural produce, seafood, textiles and garments, leather goods and footwear, and handicrafts. Most of the country’s export goods now enjoy an export duty rate of zero percent.

Value Added Tax (VAT)
VAT applies to goods and services used for production, trading and consumption in Vietnam (including goods and services purchased from abroad). In each case businesses must charge VAT on the value of goods or services supplied. In addition, VAT applies on the duty paid value of imported goods. The importer must pay VAT to customs at the same time they pay import duties.

The standard VAT rate is ten percent. Exports are subject to 0 percent VAT, while essential goods and services are subject to five percent VAT (e.g., fertilizers, medicine).

Corporate income tax (CIT)
Recently, the Vietnamese government adopted a new taxation system for all economic sectors.
The standard CIT rate is 25 percent. There is an exception for companies involved in the exploration and mining of petroleum and gas and other important natural resources. The CIT rates applicable to these sectors vary between 32 percent to 50 percent.

There are CIT incentives for investments in certain specified fields and/or locations. There are also incentives for investments which employ a large workforce or a certain number of minority ethnic people. Preferential rates of 20 percent and ten per cent are available where certain criteria are met. These incentive rates are available for a period of ten years and 15 years respectively, starting from the first year in which the enterprise has turnover. Certain exemptions and reductions are also available together with these preferential rates.

Enterprises undertaking large scale and high-tech projects particularly in areas which need to attract investment may enjoy preferential tax rates for a duration of up to 15 years. There are incentives for enterprises engaged in production, construction or transportation which employ a certain number of female employees or ethnic minorities.

An existing foreign invested enterprise (FIE) which establishes a new production line, expanding its business scale, renewing its technology, improving ecological environment or enhancing its production capacity will also be entitled to certain CIT incentives for that part of its increased profit resulting from such additional investment.

Business establishments are entitled to exemption from CIT payable on a portion of income in the following circumstances:
  • Income earned from products of cultivation, husbandry and aquaculture by organizations established pursuant to the Law on Co-operatives.
  • Income earned from performance of technical services directly serving agricultural production.
  • Income earned from performance of contracts for scientific research and technological development, from products during the period of trial production, and from products made from new technology applied for the first time in Vietnam.
  • Income earned from activities of production and/or business in goods and services by enterprises specially reserved for employees being disabled persons, reformed addicts and people infected with HIV.
  • Income earned from occupational training activities specially reserved for ethnic minority people, disabled persons, children living in particularly difficult conditions and reformed offenders.
  • Income distributed from activities being capital contribution, joint venture and/or association with a domestic enterprise after payment of corporate income tax in accordance with the law.
  • Aid funds receivable for use in educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam.
Foreign contractor’s tax
Vietnamese tax regulations divide the tax obligations of foreign contractors into two groups. The first group comprises foreign contractors that do not comply with the Vietnamese accounting system. The second group comprises foreign contractors that do comply with the Vietnamese accounting system. The distinction is relevant to the way taxes are calculated.

In most cases, foreign contractors fall into the first group. This group of contractors is liable to pay VAT and corporate income tax calculated as follows:
  • VAT: calculated based on the value added by the foreign contractor.
  • The amount of VAT payable = added value x VAT tax rate.
The added value in respect of each business activity is determined as a certain percentage of the taxable turnover as follows:

Types of activities                                                                                              Income as % of turnover
Commercial (including distribution or supply of goods, material,
 machinery and equipment)                                                                                10

Services, machinery and equipment leasing business, and insurance                      50

Construction and assembly and installation without supply of materials
 and/or machines and equipment in the construction work                                    30

Transportation and other business and production                                                25

Corporate income tax
The amount of CIT payable is determined by reference to a certain percentage of the taxable turnover of each business activity, specifically:

Types of activities                                                                                              Income as % of turnover

Commercial (including distribution or supply of goods, raw materials,
 supplies, machinery and equipment associated with services in Vietnam)              1

Services, leasing of machinery and equipment, Insurance                                     5

Construction, other production or business activities and transportation
 (including sea and air transportation), lease of aircraft, aircraft engines,
 aircraft spare parts and sea going vessels, and reinsurance                                  2

Assignment/transfer of securities                                                                        0.1

Loan interests, income from royalties                                                                 10

The amount of taxable turnover is calculated in accordance with the following formula:
  • Taxable turnover = turnover actually received/1 – (added value as a % of turnover x VAT rate + income as a % of turnover)
  • For the second group (which complies with the Vietnamese accounting system), the taxation obligation is calculated similar to those applied to local enterprises, or may be calculated according to a hybrid method: VAT payment according to the credit method and CIT payment according to a percentage of taxable turnover.
Capital gains tax from disposal of interest in FIEs
If a foreign party makes a profit from the disposal of its interest in an FIE, the foreign party is required to pay a capital gains tax (CIT at the rate of 25 percent for organizations or PIT at the rate of 20 percent for individuals) of the profits derived. The taxable gain is determined as the excess of the sales proceeds less the cost (or the initial value of contributed legal capital for the first transfer) less transfer expenses. The purchaser is required to withhold the tax due from the payment to the vendor, and account for this to the competent tax authority.
The transfer of a foreign investor’s capital in a local enterprise is not subject to VAT.

Personal income tax (PIT).
The Law on Personal Income Tax 2007 (PIT Law) imposes a progressive tax regime set out in the schedule below for income from businesses, wages and salaries of individuals. A deduction of VND1.6 million is allowed for each dependent.

Tax bracket         Yearly
taxable
income Monthly
taxable
income Tax rate (%)
                (million (million
                VND)     VND)    
1              Up to 60               Up to 5  5
2              Over 60 to           Over 5 to 10        10
                120                        
3              Over 120 to        Over 10 to 18     15
                216                        
4              Over 216 to        Over 18 to 32     20
                384                        
5              Over 384 to        Over 32 to 52     25
                624                        
6              Over 624 to        Over 52 to 80     30
                960                        
7              Over 960              Over 80 35

All individuals with taxable incomes must apply for individual tax codes.

Income tax is deducted by employers before paying wages. Individual tax payers must lodge their tax returns directly with the tax authorities by 31 March each year.

Business registration tax
Foreign invested enterprises must pay business registration tax based on their registered capital as follows:

Level                         Registered capital                                            Registration tax rate

1                              Over VND10 billion                                           VND3,000,000
2                              VND5 billion to 10 billion                                   VND2,000,000
3                              VND2 billion to less than 5 billion                       VND1,500,000
4                              Less than VND2 billion                                      VND1,000,000