Income Tax in Vietnam: Navigating The Path to Compliance

As a vital component of any modern society, taxation plays a crucial role in the economic development and stability of a nation. In Vietnam, the process of filing income tax has become increasingly important as the country experiences rapid economic growth and strives to strengthen its financial infrastructure. Understanding and complying with income tax regulations is essential for both individuals and businesses operating within Vietnam's borders.

Vietnam's taxation landscape has evolved significantly in recent years, reflecting the country's transition to a market-oriented economy. With its accession to the World Trade Organization (WTO) in 2007 and the implementation of various tax reforms, Vietnam has aimed to create a favorable business environment, attract foreign investment, and ensure sustainable economic growth. This transformation has necessitated a clear understanding of tax regulations and a commitment to fulfilling tax obligations.

The Importance of Filing an Income Tax Return

A tax return is a form which is filed with the taxation authority of a given country or territory. The filing of a tax return enables a taxpayer to provide tax authorities with information on their income, expenses, and other related and pertinent tax details. The filing of tax returns also helps taxpayers to calculate their tax liability because it permits them to make plans for tax payments as well as request refunds for the overpayments of taxes which they might have made.

Most tax returns can be divided into three sections. One of these is the income section in which all of the taxpayer’s income sources are listed. Among the sources of income to be listed in this section are dividends, wages, income which is accumulated through self-employment, and income which is derived from capital gains. Another section of a tax return relates to deductions. Deductions bring about a decrease in one’s tax liabilities. The value of the deductions will depend on the tax jurisdiction in which the taxes are imposed. Many deductions related to personal income tax are related to retirement contributions, loans, and interest. Business and companies may also claim deductions which resulted from business operations. The last section of a typical tax return is typically used for tax credits. Tax credits also serve to offset a taxpayer’s tax liabilities. Deductions and tax credits are subtracted from the usual amount of income tax to be paid to arrive at the exact amount which is to be paid by a taxpayer.

How Income Tax is Filed in Vietnam?

All tax returns in Vietnam, including the corporate and personal income tax returns, are due every 90th day of the following year. In July 2020, however, a modification to the laws on tax administration in Vietnam will take effect.

In Vietnam, there are two ways of filing tax. One may do so by either paying taxes in cash or through a bank transfer. A taxpayer may choose to directly pay the cash to the treasury office. Those who do so will receive a tax voucher which proves that one has filed and paid the taxes before the deadline. One might also decide to pay the taxes via a bank transfer which would allow for a transfer of money to the treasury’s bank account.

Can foreigners who pay taxes in Vietnam benefit from the effects of double tax treaties? A foreigner can benefit from the effects of double taxation treaties if they follow the legal procedure to do so. Those who would like to benefit from the effects of double taxation treaties must present their certificate of compliance when entering the country. After doing so, it will be possible for a foreigner to claim tax benefits if their home countries have signed a double taxation treaty with Vietnam and if they are able to present their certificate of compliance. Foreigners who pay tax in Vietnam could be able to benefit from tax relief derived from tax treaties which their countries might have signed with Vietnam. However, before doing so, they must first file a tax in their home country, then present a compliance certificate or income tax return.

Are there many available tax exemptions in Vietnam? There are not many tax exemptions in Vietnam, however, not all of one’s earnings are necessarily subject to taxation because of the effects of tax exemptions. One of the tax exemptions in Vietnam is that on income generated from the transfer of real estate from a relative. Such transfers are never taxed. Foreigners are also usually exempted from taxation related to relocation allowances. Therefore, all foreigners who have recently moved to Vietnam will find that allowances provided by their company for relocation are not subject to any taxation. Another tax exemption from which foreigners in Vietnam may benefit is that of fees for their own or their children’s education in Vietnam. Training fees are also not to be taxed as long as the training being offered is relevant to the work that the taxpayer has been hired to perform. Food allowances from a company as well as pay for overtime work hours are also not subject to taxation. These exemptions may be claimed by local and foreign workers alike.

Filing of Personal and Corporate Income Tax in Vietnam

All individual taxpayers in Vietnam are expected to file personal income tax returns. The current laws related to the filing of personal income tax in Vietnam allow for the correction of returns which might have been filed by mistake for a period of up to 10 years. The upcoming changes to Vietnam’s personal income tax laws will delay the due date for personal income tax returns to the 120th day of the following year. All individual taxpayers in Vietnam are expected to have a tax code and an identity card so that they will be able to file their annual tax returns.

All companies in Vietnam are expected to pay several types of taxes. These include the value added tax, corporate income tax, and the business license tax. The general corporate income tax rate in Vietnam is 20%. However, companies involved in the trading of precious natural resources or exploitation of minerals will be taxed at a rate between 32% and 50% depending on the project being undertaken.

Another form of corporate taxation in the Vietnam is business license tax. This tax is imposed on the capital spent when establishing a business. The tax payment deadline for the business license tax is at the end of the first month of business operations. Value added tax is also to be paid in Vietnam. The general tax rate for value added tax is 10%; however, certain goods and services are taxed at a reduced rate of 5%. It is vital to note that all monthly filing and payment of any outstanding value added tax must be done before or on the 20th of the following month.

Taxable Income

Taxation is to be imposed on all profits which have been realized. The taxable income of a company in Vietnam includes income obtained from the sale of products, leasing of properties, sale of assets, or transfer of shares. However, any dividends which a company pays to its shareholders are not subject to taxation. Capital gains are taxed at a standard rate of 25%. The value of a transfer is based on the actual price as defined by the transfer contract. However, if there is no contract which defines the value of the transfer, a price deemed to be a fair market price will be used to determine the value of the transfer.

Losses may be carried forward to a future filing date. Should a company make a loss, the filing process may be brought forward by up to five years. Should a company’s financial year differ from the Vietnam tax year, the company is expected to communicate such differences to the tax authorities.

Tax Incentives in Vietnam

The preferential tax rates of 10% and 20% for the periods of 15 and 10 years respectively apply to any taxpayer who is engaged in approved investment projects as well as those who reside in economically-challenged areas. There are also special taxes which are designated as special sales taxes imposed on goods which are considered as luxuries. The basis of such taxation is the quantity of taxable goods sold. Such products and services include cigars and cigarettes (taxed at 75%); spirits, wines, and beer (65%), automobiles with fewer than 24 seats (10-150%); motorcycles, airplanes, and boats (30%); and casinos and entertainment with gambling stands (30-35%).

Taxation in Vietnam is collected by the General Department of Taxation of Vietnam, while the General Department of Vietnam Customs is responsible for ensuring that nothing is smuggled into the country untaxed. Issuance of the licenses by licensing authorities of Vietnam also serve to ensure that the taxation process is followed and that all businesses and companies in Vietnam work in accordance with the tax requirements and according to the laws of Vietnam. All authorities involved with taxation in Vietnam work together to ensure that the tax system of Vietnam works in a way which is just and suitable for all of the country’s taxpayers.

What are the most common tax crimes in Vietnam? The most common tax crime in Vietnam is tax avoidance. Just as is the case anywhere else in the world, tax evasion is a serious criminal offense in Vietnam. Those who are found guilty will suffer harsh punishments from the tax authorities of Vietnam.

Common violations of Vietnamese income tax laws include failure to file tax returns, late filing of taxes, and fraudulent filing of taxes. It is also a violation of Vietnam’s tax laws for one who plans to permanently leave the country to do so without paying all unpaid taxes. Anyone who commits any of these offenses will suffer severe punishments which are to be enforced by Vietnam’s tax authorities.

Conclusion

The process of filing taxes in Vietnam is not complicated. Any taxpayer who has all of the necessary information for the filing of taxes will not experience any problems with the filing of tax returns in the country. In any instances which involve language barriers, it might be challenging to file taxes correctly. However, by taking all necessary steps to avoid such problems, all of a Vietnamese taxpayer’s tax obligations will be properly fulfilled.

References 

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