Vietnam tax law: an attractive policy for foreigners
The recent reforms of Vietnam’s tax law are part of the policy of liberalisation and internationalisation of the country. Vietnam is opening up to foreign investment and attempts to adopt a competitive and attractive tax policy for foreigners.
Income Tax: from 5 to 35% withheld at source
Residence is the element that determines which tax rules will apply to individuals:
- A foreigner is considered a resident from the time they have spent 183 days minimum in Vietnam over a period of 12 months from their first entry into the country.
- Conversely, a foreigner living on Vietnamese territory less than 183 days will be considered non-resident.
Vietnam tax law provides that the tax rate applicable to foreigners residing in Vietnam are progressive from 5 to 35%. For non-residents, a fixed rate of 20% applies to wages from a job in Vietnam. The income tax is deducted at source by the employer on behalf of the employee.
Corporation tax: 20% on incomes from activities in Vietnam
A company will be subject to corporation tax from the time when the company is investing in Vietnam. Companies set up under Vietnamese law as well as those created under foreign law doing business in Vietnam are concerned. A company established under Vietnamese law will have to pay tax on all its income. A foreign company with an establishment in Vietnam shall pay tax on the activities that generated income in Vietnam or income related to the establishment.
Tax policy in Vietnam has changed dramatically, seeking to make Vietnam a competitive region. The nominal tax rate in respect of corporation tax has been greatly reduced. Furthermore, Vietnam has adopted tax incentives by establishing total or partial exemptions.
The standard rate of income tax was reduced to 20% in January 2016, except for certain activities, particularly those operating in the oil and gas industry and those related to the export of rare natural resources. Some investments have a tax incentive policy based on geographic and / or set sectoral criteria.
Value added tax: 10%, with exceptions
Generally, the VAT applied to goods and services is 10% in Vietnam. A 5% rate applies to certain goods and products. There is also a special sales tax that applies to goods and services considered luxurious. The rate may then be 10 to 70%. Exports of goods and services are exempt from VAT and a preferential rate applies to certain specific and essential goods. VAT is calculated on product sales prices.
Customs tariffs: general decline since accession to WTO
Vietnamese customs legislation has evolved considerably since Vietnam’s accession to the WTO in 2007, resulting in significant reductions and eliminations of customs tariffs. Vietnam applies the Harmonised Customs System. Tariffs are determined with rates ranging from 0 to 135% depending on the tariff species and origin of the goods.
The free trade agreement planned between the EU and Vietnam and with ASEAN countries will have very strong impacts on trade, since it provides tax exemptions for more than 99 products. As soon as the agreement enters into force, the tariff will be reduced to 0. For example, the tax will be eliminated for wine, beef or dairy.
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