Vietnam Tax Codes: What Are They and Why They Matter
- Vietnamese tax codes are a 10 or 13-digit code assigned to individuals and firms to determine the scope of their tax liability.
- Tax codes allow businesses to navigate Vietnam’s accounting and financial regulations.
- While applications for registration could take between five to 10 days to process, recent reforms have attempted to reduce processing time to three days.
Vietnam’s tax system is a significant determinant of its investment attractiveness. Recent reforms have been aimed at ensuring that tax incidence is lower, investment incentives are strong, and tax compliance is efficient.
In order to comply with tax regulations in Vietnam, businesses are required to register for tax codes, which are used to identify tax liability and comply with relevant regulations.
These codes are issued through tax code registration certificates, applications to which are inspected by tax and customs authorities. The process to register for codes include an application comprised of the following documents:
- Tax registration declaration;
- A list of business locations, submitted through form No. BK03-ĐK-TCT;
- Notarized copy of business registration certificate; or
- License for foreign investment;
- A list of capital contributions of organizations and individuals through form No. 06-DK-TCT;
- Establishment decision, if applicable.
An application that includes the above documents is required to be submitted within 10 working days of the business registration, operating license or investment certificate being granted. Once all documents have been received, the processing time for the tax code certificates ranges between five and 10 working days, although recent reforms have attempted to reduce this time period to three days.
The tax code itself is a series of 10 to 13 numbers used to identify taxpayers and define tax liability. The 10-digit code is assigned to businesses and organizations with or without legal status whereas the 13-digit code is assigned to dependent units. In addition to identification, tax codes are critical in ensuring that foreign firms successfully monitor their compliance with new accounting and financial regulations.
Tax code usage
Tax codes also determine how foreign contractors, joint-ventures, subsidiaries, and representative offices are treated under the Vietnamese tax system. For instance, foreign contractors, foreign suppliers, Vietnamese firms, and payment intermediaries may use tax codes to deduct, invoice and pay tax on behalf of parties in accordance with the law. Therefore, in considering how various forms of market entry impact tax incidence, Vietnamese tax codes contain vital information.
When firms shift locations or expand into additional locations their tax code registration information needs to be amended through an application to the local tax office. This application amends details of registration while retaining the tax code that had been initially assigned.
When businesses dissolve, enter bankruptcy proceedings or cease to exist, the assigned tax codes are invalidated by the tax authorities. The same applies if commercial contracts between foreign contractors and Vietnamese firms expire. This list of invalidated tax codes is then made public.
Vietnam’s tax structure
Vietnam’s tax system is federally controlled. This means that there are no state or local taxes across the country. Based on the tax codes, incidence can be categorized into corporate or personal income tax.
- Corporate Income Tax (CIT)
The CIT applies to firms incorporated in Vietnam and foreign firms with or without a permanent presence in the country. In the case of foreign enterprises branches, agents, construction sites, and service establishments all qualify as ‘presence’ of a foreign firm in the country.
The CIT is calculated on the basis of the ‘assessable income’ of the firm. This refers to total revenue in addition to ‘other income’ from which deductible expenses and carried loss have been subtracted.
- Personal Income Tax (PIT)
PIT is based on the legal definition of tax residency. To be labeled a ‘resident’ the individual must satisfy one or more of the following conditions:
- Residing in Vietnam for more than 183 days;
- Has a registered residence in Vietnam as indicated in temporary or permanent residence cards; and
- Has, within a tax year, rented an accommodation for more than 183 days.
The Law on Personal Income Tax recognizes ten categories of income, based on which deductions, rates, and exceptions are defined. For instance, incomes exempt from tax include overseas remittance, interest earned on bank deposits, and income from insurance compensations.
For foreign workers based in Vietnam, determining PIT liability depends on establishing residency definitions, identifying income categories, and considering any applicable deductions.