Vietnam has become a major investment hub the past decades due to its strategic location in Asia, its and its dynamic economic growth. Boasting a population exceeding 96 million and a progressively educated workforce, Vietnam holds immense market potential. As of May 20th 2024, the total newly registered capital of Foreign Direct Investments was over US$11.7 billion, marking a 2 percent increase over the previous year. The total implemented capital was estimated US$8.25 billion from January to May 2024, marking the highest level in the past five years.
This article will provide you a brief guideline of running business in Vietnam by providing an overview of:
- Choosing a business location in Vietnam
- Accounting requirements in Vietnam
- Business taxation in Vietnam
CHOOSING A BUSINESS LOCATION
Special Economic Zones and Industrial Parks play a key role in a business choice of location. In addition to providing infrastructures in an integrated ecosystem, corporate income tax can be reduced for investments made in regions with difficult socio-economic conditions and in certain qualified industrial parks. Tax incentives (e.g. corporate income tax reduction, corporate income tax holidays) and their availability depends on the region of incorporation and the business activities. Company losses may be carried forward for up to 5 years to offset against taxable income.
There is a plurality of industrial parks around Vietnam, each with their own unique benefits and advantages: among others, the Vietnam Singapore Industrial Parks (“VSIP”) that have served a role model for many developing countries. VSIP are high standard industrial parks initiated by the government of Singapore and Vietnam on the basis of infrastructure and industrial cooperation. The first VSIP was established in 1996 in the Binh Duong province in South Vietnam. Since then, the following VSIP have been established with the concept remodeled from a traditional industrial park to an integrated township and industrial park. As of today, the number of VSIP has reached 14, spanning 10 provinces and cities, boasting a combined investment of US$18.7 billion and generating employment for more than 300,000 individuals.
RBA has the experience and expertise to project-managing your Vietnamese company setup in the best location. Should you require any further information or have any inquiries, please do not hesitate to contact us.
ANNUAL ACCOUNTING REQUIREMENTS IN VIETNAM
All enterprises operating in Vietnam are required to apply the Vietnamese Accounting Standards and Systems (“VAS”). The VAS applies to all private Vietnamese companies as well as state-owned companies. The basic set of financial statements prepared under VAS is comprised of (i) balance sheet, (ii) income statement, (iii) cash flow statement and (iv) notes to the financial statements.
Company financial statements must be prepared and audited annually. After that, the audited financial statements are required to be filed with the Provincial Tax Office, Ministry of Planning and Investment and General Statistics Office. Audited financial statements must be filed within 90 days after the financial year end. For a newly registered company, if the period from the incorporation date to the nearest financial year end is less than 90 days, such period will be included in the following reporting year. Companies need to engage a licensed independent audit firm (no later than 30 days before the financial year end) to sign off audit engagement contracts.
The Ministry of Finance announced in 2020 a plan to adopt International Financial Reporting Standards (“IFRS”) in Vietnam, replacing VAS. The new system aims to align with international practices and enhance the comparability and transparency of corporate financial statements. The transition will be made in two phases: voluntary (from now to 2025) and compulsory (from 2025 onwards). To meet this deadline, companies are expected to make adjustments in not just accounting and reporting but also in systems – processes, business and human resources in order to realize the goal of publishing their first IFRS financial statements for the year ended December 31, 2025.
BUSINESS TAXATION IN VIETNAM
Corporate Income Tax in Vietnam
Vietnam Corporate Income Tax (“CIT”) is applicable to Limited Liability Companies, Joint Stock Companies and Commercial Branches that generate profits. The standard CIT is 20% as of 2024. Companies operating in the oil and gas industry are subject to CIT rates ranging from 25% to 50%, depending on each contract. In the meanwhile, businesses engaging in prospecting, exploration, and exploitation of mineral resources are subject to CIT rates ranging from 32% to 50%, depending on each project. Preferential CIT rates of 10%, 15% and 17% are provided for research, development and large investment projects specified in the 2020 Law on Investment.
Withholding tax in Vietnam
For Corporate Income Tax in Vietnam, the following non-treaty rates will apply:
- Dividends paid by a company in Vietnam to its corporate shareholder are not subject to tax, this includes dividends remitted overseas. However, a 5% withholding tax is imposed on dividends paid to individuals.
- Royalties and license fees paid to a non-resident are subject to a 10% withholding tax.
- Interest paid (e.g. loan from foreign entities) to a non-resident is subject to a 5% withholding tax.
- Payments for most services are subject to 5% withholding tax.
It is important to note that a further deduction at source, for Value-Added Tax, can be applied to some payments from overseas contractors. For instance, the supply of most of the services to an overseas contractor will be subject to a VAT rate of 5% which will be deducted at source by the Vietnamese party.
Value Added Tax in Vietnam
Value Added Tax (“VAT”) is levied on the sale of goods and the provision of services in Vietnam. From January 2024 to 30 June 2024, the VAT rate of goods and services currently subject to the VAT rate of 10% will be reduced to VAT rate of 8%. However, following goods and services are still subject to a 10% rate: Telecommunications, financial activities, banking, securities, insurance, real estate business, metals and prefabricated products, mining products (excluding coal mining), coke coal, refined petroleum, chemical products, goods and services subject to special consumption tax, information technology under the information technology laws.
A reduced rate of 5% VAT is levied on certain goods and services in the farming, healthcare, media, technical and scientific categories. Goods and services provided directly to foreign companies are subject to 0% VAT if they are consumed outside Vietnam or in non-tariff areas. Also, certain agricultural products, medical services, printing and publishing and foreign currency trading are exempt from VAT.
Companies in Vietnam are expected to register for VAT immediately upon receiving a business license. Currently, there is no VAT registration threshold. Monthly filing and payment of VAT must be made by the 20th day of the following month or on a quarterly basis by the 30th day of the following quarter in localities where the taxpayer conducts production or business. For companies adopting the direct method calculation for VAT, the tax finalization must be made no later than the 90th day from the end of the calendar year.
Personal Income tax in Vietnam
Generally, Vietnamese residents are taxed on their worldwide income, while non-residents are taxed only on Vietnamese sourced income. Employment income of residents is taxed progressively, at rates ranging from 5% to 35%. For non-residents, a flat rate of 20 % is applied. Non-employment income (e.g. dividends and capital gains from securities trading) is taxed at rates, ranging from 0.1% to 20%, which apply to both residents and non-residents.
Vietnam Double Tax treaty network
Vietnam has concluded a significant number of Double Tax Avoidance Agreements (“DTAA”). These treaties effectively eliminate double taxation through identifying exemptions or reducing the amount of taxes payable in Vietnam.
As of March 2024, Vietnam has signed Double Taxation Agreements with more than 80 countries :
Algeria – Australia – Austria – Azerbaijan – Bangladesh – Belarus – Belgium – Brunei Darussalam – Bulgaria – Cambodia – Canada – Croatia – China – Cuba- Czech Republic – Denmark – Egypt – Estonia – Finland – France – Germany – Hong Kong – Hungary – Iceland – India – Indonesia – Ireland – Israel – Italy – Japan – Kazakhstan – North Korea – South Korea – Kuwait – Laos – Latvia – Luxembourg – Macau – Macedonia – Malaysia – Malta – Mongolia – Morocco – Mozambique – Myanmar – Netherlands – New Zealand – Norway – Oman – Pakistan – Palestine – Panama – Philippines – Poland – Qatar – Romania – Russia – San Marino – Saudi Arabia – Seychelles – Singapore – Slovakia – Spain – Sri Lanka – Sweden – Switzerland – Taiwan – Thailand – Tunisia – Turkey – Ukraine – UAE – UK – USA – Uruguay – Uzbekistan – Venezuela.
By partnering with RBA’s experienced professionals to navigate the legal and tax system, your company can ensure to fulfill all the requirements and unlock its full potential for sustainable growth.
