What kind of taxes do branches of foreign companies in Vietnam have to pay?

NguyenThiThuTrang July 22, 2022

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Paying taxes is the duty and responsibility of people as well as businesses. However, many foreign enterprises with branches in Vietnam are currently facing the problem of not knowing what taxes to pay. To better understand the problem, let’s answer the above question with Lawyer X through the article “What taxes do branches of foreign companies in Vietnam have to pay?” The following.

Legal grounds

Law on Value Added Tax 2008
Circular 78/2014/TT-BTC
Circular 219/2013/TT-BTC
Decree 139/2016/ND-CP
Circular 111/2013/TT-BTC
Decree 07/2016/ND-CP

Conditions for foreign companies to establish branches in Vietnam

According to Article 8 of Decree 07/2016/ND-CP, a foreign trader is granted a license to establish a branch in Vietnam when fully meeting the following conditions:

– Foreign traders may establish and register their business by national laws; territories participating in international treaties to which Vietnam is a signatory, or recognized by the laws of these countries and territories;

– Foreign traders have operated for at least 05 years from the date of establishment or registration;

– In the case of a Business Registration Certificate; or papers of equivalent validity of foreign traders with specified operation terms, such time limit must be at least a year from the date of application submission;

– The operation content of the Branch must be consistent with Vietnam’s commitment to open the market in international treaties to which Vietnam is a member; and suitable to the business lines of foreign traders;

– In case the branch’s operation contents are not consistent with Vietnam’s commitments, or non-national foreign traders; or territories participating in international treaties to which Vietnam is a signatory; The establishment of a branch must be approved by the Minister of specialized management.

What kind of taxes do branches of foreign companies in Vietnam have to pay? We invite you to read the next part.

What taxes must the branch of a foreign company in Vietnam pay?

Branches of foreign companies in Vietnam must pay corporate income tax

Clause 1, Article 2 of Circular 78/2014/TT-BTC stipulates:

“1. Corporate income taxpayers are organizations engaged in the production and trading of goods; services with taxable income (hereinafter referred to as enterprises), including:

▪ Enterprises established by foreign laws (hereinafter referred to as foreign enterprises) have a permanent establishment in Vietnam.

The permanent establishment of a foreign enterprise is a production establishment; business through which the foreign enterprise partially conducts; or all production and business activities in Vietnam, including:

▪ Branches, executive offices, factories, workshops, means of transport; mines, oil, gas fields or other natural resource extraction sites in Vietnam;”

Thus, a branch of a foreign company in Vietnam is a corporate income taxpayer according to regulations. The CIT rate is 20%.

Clause 3, Article 3 of Circular 219/2013/TT-BTC stipulates:

“Foreign-invested enterprises and foreign parties participating in business cooperation under the Law on Foreign Investment in Vietnam; foreign organizations and individuals doing business in Vietnam; but does not establish a legal entity in Vietnam;”

Thus, a branch of a foreign company represents a foreign enterprise conducting business in Vietnam in the case where a foreign organization does business in Vietnam but does not establish a legal entity in Vietnam. So the branch is the VAT payer.

Branches of foreign companies in Vietnam must pay the Personal Income Tax of Employees

According to Circular 111/2013/TT-BTC and Circular 156/2013/TT-BTC; the income paying organization when paying income to the employee must deduct the personal income tax of the employee (if any), and declare and pay such tax according to the provisions of law.

If the branch operates in Vietnam, there is a direct employer; and pay income to employees, they will be responsible for declaring; withholding, and paying PIT on behalf of employees.

Branches of foreign companies in Vietnam must pay personal income tax rates

▪ If the employee signs a labor contract for less than 3 months or does not sign a labor contract; then the personal income tax deduction is 10%.

▪ Besides, if the employee signs a labor contract for full 03 months or more, the deduction will be according to the progressive tax schedule

▪ If the employee is a non-resident individual of Vietnam, the PIT deduction is 20%.

Branches of foreign companies in Vietnam must pay license fees

Article 2 of Decree 139/2016/ND-CP regulating license fee payers include:

▪ “Branches, representative offices, and business locations of organizations specified in Clauses 1, 2, 3, 4, and 5 of this Article (if any).”

▪ License fee for branches is 1,000,000 VND.

In addition, for other specific activities such as import and export; When exploiting resources, and producing goods subject to special consumption tax, companies in Vietnam will have to pay taxes corresponding to each type by Vietnamese law.

Hopefully, with our answer, you already know what taxes the branch of a foreign company must pay and the general or branch is the taxpayer. If you still have unclear questions or need other legal assistance, please contact our consulting department for answers.

Frequently asked questions

What is license tax?

The license tax is a direct tax and is usually a quota levied on a business’s business license. The license tax is collected annually, the level of collection is based on the registered capital of the business or the annual turnover of the enterprise. From January 1, 2017, “license tax” was replaced by “license fee” according to Official Letter 5633/TCT-CS issued on December 29, 2015.

What is Value Added Tax?

Article 2 of the Law on Value-Added Tax 2008 stipulates: “Value-added tax is a tax calculated on the added value of goods and services arising in the process from production, circulation to consumption.”
Thus, the value-added tax is a tax applied only on the added value but not on the entire value of goods and services.

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