Are you thinking of establishing a new venture in Vietnam? It is a great decision as there are numerous benefits of starting a business in Vietnam. But have you understood the tax framework yet? Failing to comply with taxation in Vietnam can invite penalties and fines. If you are an entrepreneur boggled by the intricate web of taxes, this guide is for you. Let’s dive deeper and learn about the tax system in Vietnam.
Tax System in Vietnam
Taxation in Vietnam is comprehensive. There are 34 provinces, and each province has a local tax authority that governs the collection and administration of taxes in its locality.
The tax rates in Vietnam are based on laws passed by the National Assembly of the Socialist Republic. Aside from this, numerous decrees, circulars, and official letters issued by the Ministry of Finance, the General Department of Taxation, and local or provincial authorities notify the general public and businesses about the Vietnam tax rates and any amendments.
Taxpayers are generally required to register, file, and pay taxes in the location where their business is registered. Additionally, taxpayers with multiple registered locations are subject to administration by the local authorities of those locations.
Different Types of Vietnam Taxes
There are numerous taxes in Vietnam. Having a working knowledge of the same is vital to sidestep penalties and fines. Let’s take a quick glance at the structure of taxation in Vietnam.
Corporate Tax
It refers to the tax a company pays on its earnings. The corporate tax rate in Vietnam is 20%, but it differs by sector. Every company has to pay this regardless of its source of income. There are no tax residency rules, so foreign branches are also subject to this tax under the Foreign Contractors Tax (FCT). Additionally, certain sectors, such as education, have only a 10% corporate tax rate in Vietnam. Furthermore, the mining and energy sectors must pay corporate taxes ranging from 32% to 50%.
There are specific Vietnam tax incentives, particularly for companies located in special economic zones. Sectors such as technology, infrastructure, environmental protection, and healthcare enjoy tax benefits.
Value Added Tax (VAT)
VAT is primarily applicable to goods and services used for production, selling, and consumption in Vietnam. The country utilizes the traditional VAT system, dividing it into two categories: input VAT and output VAT.
Tax collection by businesses through exporting activities is output VAT. Whereas input tax refers to the payment of taxes by firms.
Exported goods are exempt from paying Vietnam taxes; however, imported goods and services are subject to taxation. Essential goods, such as water, food, pharmaceuticals, and educational services, are taxed at 5%. Meanwhile, the standard VAT for other products is 10%.
Custom Duties
Custom duties in Vietnam primarily consist of import duties; however, other taxes such as import VAT, special sales tax on imports, anti-dumping, anti-subsidy tax, and safeguard tax may also apply at the time of import.
Special Sales Tax (SST)
SST is paid in addition to VAT, and it is a multi-stage Vietnam tax, applied only to certain products and services. SST is applicable to products such as tobacco, alcoholic beverages, motorcycles, cars, air conditioners, and other similar items. Aside from this, services such as karaoke, casinos, and discos are subject to special sales tax laws in Vietnam. The standard Vietnam tax rates for SST range from 7% for fuels to 150% for passenger vehicles.
Property Tax
All land in Vietnam is state-owned; therefore, there is no taxation in Vietnam on property based on land value. Thus, citizens and foreign investors must pay for land usage, which is similar to a lease. Property tax in Vietnam depends on the location, infrastructure, and industry in which a business operates. Moreover, owners of houses and apartments have to pay taxes under the law for non-agricultural land use.
Natural Resource Tax
Natural resources, including petroleum, natural gas, minerals, forest products, and water, are taxed in Vietnam. However, water used for agriculture and fisheries is exempt from taxes. Tax rates can range from 1% to 40%. For example, the Vietnam tax rate on crude oil varies between 6% and 40%. On the other hand, natural gas is subject to a tax range of 1% to 10%.
Environmental Protection Tax
The country imposes taxes on products that are harmful to the environment. For example, to discourage the use of plastic bags, the authorities have introduced higher tax rates in Vietnam. Moreover, taxes are levied on the extraction of coal; however, they vary depending on the type of coal.
Foreign Contractor Tax (FCT)
Foreign Contractor Tax (FCT) is a type of withholding tax. It is imposed on foreign entities that provide goods or services in Vietnam without setting up a permanent establishment. A foreign contractor is primarily a foreign business entity that agrees with a local company to conduct business in Vietnam. FCT consists of two types of Vietnam taxes: Corporate Income Tax and Value Added Tax. However, these taxes exempt services that are performed or consumed outside of Vietnam. This foreign contractor taxation in Vietnam ensures that cross-border payments remain within Vietnam's tax system regardless of the nationality of the firm.
Capital Gains Tax
Capital gains tax is levied when you gain from the sale of capital assets. In Vietnam, capital gains tax applies when shares of a tax resident company are sold. Thus, a non-tax resident. The standard Vietnam tax for capital gains is 20%.
Conclusion
Having a thorough knowledge of taxation in Vietnam is essential while operating a business in the country. There are various types of taxes in Vietnam, which makes it complex for entrepreneurs. Appointing tax compliance services through a trusted provider such as Business Setup Worldwide ensures you stay on top of your Vietnam taxes. Reach out to us and begin your journey.
