Understanding Vietnamese Tax System: A Guide for Foreign Investors

The Vietnamese tax system consists of different types of taxes for both individuals and businesses. In Vietnam, taxes are collected at the national level with no local taxation, which makes it easier to understand the tax system. It is essential to understand the Vietnamese tax system as a foreign investor or someone who wants to start a business in Vietnam. Since you have to calculate your taxes in Vietnam, ensuring that all your liabilities are accounted for is essential.

Managing all the different types of taxes by yourself as a foreign investor in Vietnam can be challenging. Outsourcing tax and accounting to our experts at Zora Consulting is one option to simplify taxation. With that said, if you are interested in knowing more about the Vietnamese tax system, keep reading to learn about different types of taxes.

Overview of the Vietnamese Tax System

Before we explain the types of taxes you may have to pay, it is essential to understand a few critical facts about Vietnam taxes.

The income earned from business and employment in Vietnam is taxed differently for residents and non-residents.

For example, the tax rate on residents' personal income earned from employment is taxed progressively through 7 income slabs. However, non-residents' income from employment in Vietnam is taxed at a flat 20%. Similarly, the business income is taxed at different rates for locals and foreigners.

With that said, there are some conditions where the tax rate can be the same for Vietnam's residents and foreigners. For example, the tax rate on the sale of property is 2% of the proceeds for foreigners and locals in Vietnam.

Types of taxes in Vietnam for individuals and companies

Five major types of taxes may apply to businesses and individuals in Vietnam. Here are the basics of each of the tax types you may be subjected to as a foreigner or resident in Vietnam:

Personal Income Tax: Any individual who holds a permanent or temporary residence card of Vietnam or stays in Vietnam for 183 days or more is liable to personal income tax. However, unlike non-residents, Vietnam's residents have to pay PIT on their international income.

Personal tax applies to annual income, including wages, salaries, dividends, interest and other types of income.

Here are the different slabs for PIT in Vietnam:

Corporate Income Tax: This tax in Vietnam applies to profits a company earns, similar to most other countries. The corporate income tax rate in Vietnam is fixed at 20% of the profits made by an organization.

However, if an organization has a revenue of less than 20 billion VND, its corporate income tax rate goes down to 17%. With that said some sectors may have a corporate tax rate as high as 50%.

The 20% standard corporate income tax rate applies to companies based in Vietnam and foreign companies operating in the country.

Value Added Tax: Value-added tax applies to the supply of goods and services and is set at a standard rate of 10%. Any company or individual who generates income through goods and services must pay this tax.

This tax is applied nationwide in all areas and provinces of Vietnam on goods or services bought and sold for consumption. However, any goods or services originating in Vietnam but are meant for export usually get an exemption from the VAT. In addition, the value-added tax rate is as low as 5% for certain goods and services.

Special Consumption Tax (Excise tax): Special consumption tax, also referred to as excise tax in Vietnam, applies to speciality items. These items usually belong to the luxury goods and non-essential goods categories.

Eleven categories of goods may be subjected to the special consumption tax. Alcohol and tobacco-based products are two of the most common items subjected to Vietnam's excise tax. Suppose the products you produce or import belong to a particular category. In that case, you should consult our taxation experts in Vietnam to discuss whether a special consumption tax applies to you.

The good news is that this tax only applies to each special or luxury item once. Not to mention, special consumption tax may be refundable, and you can consult an expert to help you find out how to get a refund for SCT.

Foreign contractor tax: Foreign contractor tax is payable by contractors who do business in Vietnam through a contract with a local entity. It is not uncommon for foreign contractors to bid on projects offered by Vietnamese companies or the government.

However, when a foreign contractor works in Vietnam under a contract with a local entity, they are still liable to pay the CIT, PIT, and VAT if applicable.

The foreign contractor tax can be declared in the following different ways:

• Direct method: When using the direct method, the Vietnamese entity the foreign contractor works with will handle the filing and paying the foreign contractor tax.
• Self-declaration method: This method involves the foreign contractor calculating their CIT at a 20% tax rate on their profit from the contract. Then, the contractor declares this information to the Vietnamese tax authorities.

Benefits of paying tax Vietnam has to offer

As a foreigner, if you pay your taxes in Vietnam, you can perform your operations legally without any hurdles. You get a compliance status, which improves your business's goodwill and helps you avoid any legal issues while running your operations.

While paying taxes may seem challenging at first, with some help from our experts, Vietnam taxes can be quickly filled.

 Conclusion

Foreign investors and individuals often need help calculating and declaring taxes in Vietnam. A significant reason for this difficulty is that all accounting records are to be maintained in Vietnamese when operating in Vietnam. Not to mention, all transactions must be recorded in Vietnam Dong, making taxes and accounting challenging.

At Zora Consulting, we have been offering tax and accounting services to foreign investors interested in doing business in Vietnam. We allow foreign investors and individuals to outsource their tax and accounting to us altogether. Our team of experts can maintain all your accounting records professionally and assist you with the correct tax declaration process. We can also help you get exceptions on Vietname taxes where applicable, resulting in significant tax savings for your company. Contact Zora Consulting now to outsource all your tax and accounting functions.