An introduction to CIT in Vietnam
The standard CIT rate for enterprises in Vietnam, whether for a local or foreign enterprises is 20 percent.
- The tax rate of 15 percent applies to enterprises with total annual revenue not exceeding 3 billion VND.
- The tax rate of 17 percent applies to enterprises with total annual revenue from over 3 billion VND to no more than 50 billion VND
The revenue used as the basis for determining whether an enterprise is eligible for the 15 percent and 17 percent tax rates is the total revenue of the previous corporate income tax period. The determination of total revenue used as the basis for the application shall be implemented in accordance with Government regulations.
Companies in the oil and gas sector are taxed at rates ranging from 25 percent to 50 percent, depending on the terms of each contract.
Companies involved in the prospecting, exploration, and extraction of certain minerals are subject to CIT rates from 40 percent to 70 percent, depending on the specifics of the project.
There is no tax residency concept for CIT purposes. All business entities established under Vietnamese law are subject to CIT on worldwide income, including foreign income, which is taxed at 20 percent. No special tax incentives apply to foreign-sourced income.
Preferential CIT rates
Reduced CIT rates of 10 percent, 15 percent, and 17 percent are available for businesses meeting specific criteria. However, global minimum tax rules may affect the availability of such incentives.
Which types of enterprises are subject to CIT?
The types of enterprises that are subject to CIT in Vietnam include local and foreign businesses that are established under Vietnam’s Law on Enterprises, Law on Investment, Law on Credit Institutions, Law on Securities, and Commercial Law, including:
- Foreign companies, with or without a permanent establishment in Vietnam;
- Cooperatives and cooperative unions;
- Public service units; and,
- Other income-generating organizations.
These enterprises will pay tax on taxable incomes generated in and outside Vietnam.
- Foreign companies with a permanent establishment in Vietnam: pay tax on income earned in Vietnam and income related to their Vietnam operations.
- Foreign companies without a permanent establishment: pay tax only on income earned in Vietnam, including from e-commerce and digital services.
What is considered as a permanent establishment?
Enterprises without Vietnam-based permanent establishments only need to pay tax on tax incomes directly generated in Vietnam. However, Enterprises with Vietnam-based permanent establishments must pay tax on taxable incomes generated both in Vietnam, as well as on taxable incomes generated outside Vietnam but which are related to the business operations of the establishment.
Types and natures of permanent establishments
Below are the forms of Vietnam-based permanent establishments through which foreign enterprises carry out some or all business operations and manufacture:
- Branches, representative offices, factories, workshops, means of transportation, oil fields, or other natural resources extraction sites in Vietnam;
- Construction sites;
- Service-providing centers, including consulting services delivered by employees or organizations, are covered provided that these services are related to a Vietnam-based project (or projects) and the work lasts for more than 183 days within any 12-month period.;
- Agents of foreign enterprises; and
- Representatives in Vietnam who have the authority to sign contracts under the name of foreign companies or representatives who are responsible for providing goods and services regularly in Vietnam.
In case the Double Taxation Avoidance Agreement (DTAA) signed by Vietnam has different provisions on PEs, the provisions of that agreement shall prevail.
Corporate Income Tax rates
Standard Corporate Income Tax (CIT) rates under new CIT Law
|
Tax Rate |
Eligibility |
|
15% |
Enterprises with total annual revenue not exceeding VND 3 billion |
|
17% |
Enterprises with total annual revenue from over VND 3 billion to VND 50 billion |
|
20% (standard rate) |
All other enterprises not eligible for preferential rates |
Preferential tax rates and incentives
|
Preferential Tax Rate |
Incentive Duration |
Tax Exemption/Reduction |
Eligible Projects / Conditions |
|
10% |
15 years |
4 years exemption + 50% reduction for the next 9 years |
|
|
15 years |
4 years exemption + 50% reduction for the next 9 years |
Investment ≥ VND 12,000 billion, disbursement ≥ VND 10,000 billion within 5 years |
|
|
Throughout the certification period |
Full duration of incentive |
High-tech or science & technology enterprises (with valid certification) |
|
|
Up to 15 years (as decided by the Prime Minister) |
4 years exemption + 50% reduction up to 9 years |
Special projects: ≥ VND 6,000 billion & ≥ 6,000 employees, or revenue ≥ VND 20,000 billion |
|
|
15% |
Project-specific |
4 years exemption + 50% reduction for the next 9 years |
Certain sectors like publishing, printing, etc., as per Investment Law |
|
17% |
10 years |
2 years exemption + 50% reduction for the next 4 years |
Projects in areas with difficult socio-economic conditions or located in industrial parks (excluding favorable zones such as downtown districts in major cities) |
|
No preferential rate |
2 years from taxable income generation |
100% tax exemption |
Newly converted household businesses to enterprises (not large-scale) |
Special incentives
- Up to 4 years of tax exemption and 50 percent reduction for up to 9 subsequent years for high-tech, software, renewable energy, and other prioritized sectors.
- Up to 2 years of exemption and 50 percent reduction for up to 4 subsequent years for new investment projects in certain preferential industries or difficult areas.
- For projects with large investment capital (e.g., ≥ VND 12,000 billion), globally competitive products, or significant employment, the preferential period can be extended up to 15 years or 1.5 times the standard period
Tax incentives for expansion investment projects
If a business expands its current project (e.g. increases size, upgrades technology, reduces pollution) in a sector eligible for CIT incentives, the additional income from the expansion will enjoy the same tax incentives as the original project for the remaining period, without needing to separate the records.
If the original project's tax incentive period has ended, the income from qualifying expansion will still receive tax exemption or reduction (not preferential tax rates). The exemption/reduction period will match that of a new investment in the same field and starts when the registered capital is fully used.
To apply these incentives, the enterprise must separately track income from the expansion. If not possible, income is calculated based on the ratio of new fixed asset cost to total fixed asset cost.
These incentives do not apply to expansions from mergers, acquisitions, or ongoing projects bought from others.
Determining taxable corporate income
‘Taxable Income’ is defined to include income from common sources such as production, trading of goods, and provision of services. Taxable income also includes other income sources, including:
- Income from capital transfer and real estate transfer;
- Income from ownership of or rights to use assets;
- Income from assignment, leasing out, and liquidation of assets;
- Interest on deposits, loans, or income from the sale of foreign currency;
- Recoveries from contingency reserves;
- Recoveries from bad debts, which were written off;
- Income from debts payable to unidentifiable creditors;
- Income from business unreported in previous years; and
- Other incomes include income from activities of production and/or business outside Vietnam.
CIT exemptions
Certain incomes are exempt from CIT, such as:
- Manufacturing, construction, and transport companies that hire many female workers can reduce their corporate income tax (CIT) by the extra costs spent on these workers.
- Companies hiring many ethnic minority workers can also reduce CIT by the extra costs related to these employees.
- Companies transferring technology in priority sectors to people or public units in disadvantaged areas can get a 50 percent CIT reduction on income from technology transfer or public services in those areas.
- Newly established companies converted from household businesses (as per Article 10, clauses 2 & 3) will get 2 years of CIT exemption from the time they first earn taxable income.
- Non-profit public science and higher education institutions are tax-exempt as per government regulations.
Carrying over net losses
Business establishments that do not profit within the fiscal year after tax finalization, are entitled to carry forward those losses against their future years’ taxable incomes. Losses may be carried over for a maximum period of five years.
Losses cannot be carried backward to previous tax years under any circumstances.
Jurisdiction of tax payments
Enterprises must pay taxes in the localities where they are headquartered. For an enterprise that has a dependent cost-accounting production establishment (including a processing and assembly establishment) operating in a province or city other than where it is headquartered, the tax amount shall be calculated and paid in both the locality where the enterprise is headquartered and the locality where its production establishment is based.
The amount of CIT payable to the province or city where a dependent cost-accounting production establishment is based is the payable CIT amount in a period multiplied by the ratio between expenses incurred by the production establishment and the total expenses incurred by the enterprise.
FAQ: Corporate Income Tax in Vietnam
What is the corporate income tax rate in Vietnam?
The standard CIT rate for all enterprises in Vietnam, both local and foreign, is 20 percent.
- A tax rate of 15 percent shall apply to enterprises whose total annual revenue does not exceed 3 billion VND.
- A tax rate of 17 percent shall apply to enterprises whose total annual revenue is from over 3 billion VND to 50 billion VND.
The revenue used as the basis for identifying enterprises eligible for the tax rates of 15 percent and 17 percent specified in clause 2 and clause 3 of this Article is the total revenue for the preceding corporate income tax period. The determination of total revenue serving as the basis for implementation shall comply with the regulations of the Government.
The corporate income tax rate applicable to some of other cases shall be as follows:
- For oil and gas exploration and exploitation, the tax rate shall be from 25 percent to 50 percent. Based on the location, exploitation conditions, and mineral reserves of the mine, the Prime Minister shall decide the specific tax rate applicable to each petroleum contract.
- For exploration and exploitation of rare resources (including platinum, gold, silver, tin, tungsten, antimony, gemstones, rare earths, and other rare resources as stipulated by law), the tax rate shall be 50 percent. In cases where 70 percent or more of the allocated area belongs to extremely disadvantaged areas, the tax rate shall be 40 percent.
Who is subject to corporate income tax in Vietnam?
Organizations earning income from producing or selling goods and services (called “enterprises”), including:
- Vietnamese enterprises
- Foreign enerprises, with or without a presence in Vietnam
- Cooperatives and unions
- Publix service units
- Other organizations doing business
How often does an enterprise need to pay CIT?
Enterprises are also required to make provisional CIT remittances on a quarterly basis (the 30th day of the following quarter at the latest) based on the estimated quarterly business results. Annual CIT returns are required to be filed not later than the last day of the third month after the financial year end. The outstanding tax liability also needs to be paid at the same time. However, it is recommended that enterprises should have a clear financial forecast so that the CIT liability for the whole financial year can be explicitly estimated.
According to the new law on tax administration, if the total amount of provisional quarterly CIT paid in the four quarters of a financial year accounts for less than 80 percent of the final CIT liability for the entire year, the shortfall will be subject to late payment interest penalty, which is counted from the payment due date of the entire year provisional CIT liability.
What incomes are exempt from corporate income tax in Vietnam?
Certain incomes are exempt from CIT, such as:
- Manufacturing, construction, and transport companies that hire many female workers can reduce their corporate income tax (CIT) by the extra costs spent on these workers.
- Companies hiring many ethnic minority workers can also reduce CIT by the extra costs related to these employees.
- Companies transferring technology in priority sectors to people or public units in disadvantaged areas can get a 50 percent CIT reduction on income from technology transfer or public services in those areas.
- Newly established companies converted from household businesses (as per Article 10, clauses 2 & 3) will get 2 years of CIT exemption from the time they first earn taxable income.
- Non-profit public science and higher education institutions are tax-exempt as per government regulations.
The CIT Law also allows enterprises to set aside a maximum of 10 percent of their annual taxable incomes for research and development. Enterprises with 50 percent of charter capital held by the State must ensure the minimum rate of deduction of funds prescribed by the Law on Science and Technology. Within five years, if the research and development fund is not used, is used for incorrect purposes, or less than 70 percent of the fund is used, then the company will have to refund the CIT exemptions on the fund plus interest.
Does CIT affect profit repatriation?
Yes. Article 69 of the Enterprises Law 2020 mandates a company’s profit shall only be distributed to its members if:
- The company’s tax liabilities and other financial obligations have been fulfilled as prescribed by law; and
- The company is able to fully pay its due debts and other liabilities after profit is distributed.
Moreover, Circular 186 prohibits foreign investors from repatriating profits gained from direct investments in Vietnam if the enterprise in which they invest has accumulated losses, even if the company reports profits in the current financial year and the losses have been carried forward according to corporate income tax regulations.
Companies must fully pay tax liabilities and financial obligations before distributing profits while ensuring they have the ability to settle their outstanding debts and other liabilities afterward.
We also encourage companies to liaise with their bank prior to seeking to make any dividend payments, to ensure that their DICA (or respective IICA) is in order and that the process is clear for all for dividends payments.
Ultimately, foreign dividend remittance for most compliant and profitable companies in Vietnam is not a complicated process, but this does rely on companies being compliant and having clear awareness of their obligations in Vietnam.
