Vietnam is in the process of integration; Many foreign individuals/organizations invest in production/business. However, in the investment process of individuals/organizations, there is one problem that foreign investors pay attention to. So how does Vietnamese law regulate this issue? Refer to this article by LSX Law firm to know what should foreign investors pay attention to about taxes in Vietnam!
Investment Law 2020
Corporate income tax Law 2008 amended and supplemented in 2013
Personal income tax Law 2007 amended and supplemented 2012
Value Added Tax Law 2008 amended and supplemented in 2013
What are foreign investors, rights and obligations of foreign investors?
What is a foreign investor?
Accordingly the law, foreign investors are understood as follows: “Foreign investor means an individual with foreign nationality; or an organization established under foreign law that conducts business investment activities in Vietnam.”
Rights of foreign investors
Firstly, carry out investment activities; doing business in industries; occupations that are not prohibited by law;
Secondly, aving autonomy to decide on investment; and business activities accordingly the law is allowed to access; use credit capital sources, support funds; use land and other resources accordingly the law;
Thirdly, select the form of investment in accordance with the law: establishment of an economic organization; capital contribution, share purchase; buy capital contribution, sign BCC contract; types of PPP contracts;
Fourthly, transfer of investment projects, adjustment of investment contents (objectives, scale, location, investment capital, investors…
Lastly, termination of investment projects; proposing investment incentives accordingly the law.
Obligations of foreign investors
Carrying out procedures for registration for the grant of user accounts on the National Foreign Investment Information System;
Fully declare and pay taxes accordingly the provisions of law;
Comply with legal regulations during the implementation of investment projects in Vietnam such as: labor law, environmental law, tax law, construct, land, social insurance; Intellectual Property…
Deposit for project implementation (if any);
Comply with the investment reporting regime;
Meet the conditions for industries; investment profession; conditional business and maintained throughout the course of production activities; business.
What should foreign investors pay attention to about taxes in Vietnam?
Corporate income tax
Corporate income tax portion of all foreign investment projects will be basically the same as enterprises in Vietnam if they are not eligible for incentives: Corporate income tax = (Total revenue + Total valid expenses) x 20%.
However, there will be businesses with tax incentives, based on project registration location: Specify the location of the project in which industrial park to determine CIT incentives for enterprises in the industrial park.
Besides, Tax exemption for 2 years, 50% reduction for the next 4 years for enterprises in industrial parks that are not located in areas with favorable conditions.
Decree 218 also has the following provisions: Tax exemption for 2 years and reduction of 50% of payable tax for the next 4 years for incomes from the implementation of new investment projects specified in Clause 3, Article 15 of this Decree and incomes of enterprises from project implementation new investment in industrial areas.
For commercial enterprises
Areas eligible for investment incentives
Industrial parks (except for industrial parks located in areas with favorable economic conditions):
Tax exemption for 2 years, 50% reduction of payable tax for the next 4 years
Economically difficult areas: Tax exemption for 4 years, 50% reduction of payable tax for the next 9 years, tax rate of 17% for 10 years.
Extremely difficult economic areas: Tax exemption for 4 years, 50% reduction of payable tax for the next 9 years, 10% tax rate for 15 years.
In case not eligible for incentives => CIT rate: 20% CIT = (Total revenue – Total valid expenses) x20%
Total revenue: Total revenue based on invoices and commercial invoices when exporting
Eligible expenses: are expenses with full invoices and vouchers as prescribed by tax law, serving business and production activities of enterprises.
Personal income tax (PIT)
Personal income tax on income from wages of foreigners:
In Vietnam under 183 days => Non-resident individuals => PIT rate: 20%
In Vietnam from full 183 days => Personal residence => PIT rate: 10%
Share the profit: Divide only when the business is profitable; PIT from capital investment (Distributed profit): 5%
Value Added Tax (VAT)
If a foreign investor opens a business in Vietnam with the goal of: Exporting goods to foreign countries (mainly exporting to the investing country), it will need to pay attention to some of the following information:
Check whether the investment certificate has the information section stating “The enterprise is eligible to apply the policy for the export processing enterprise if it meets all the conditions prescribed for the export processing enterprise” or not?
Case 1: The policy is applied to export processing enterprises
Enterprises are not subject to Value add tax declaration;
Goods purchased from the seller will be cleared for customs; on the spot with the VAT rate of 0%, in this case, due to the input tax incentives, there will be no VAT refund.
Case 2: Not subject to policy application for export processing enterprises
Input: Refund of input tax;
Tax refund conditions:
The input VAT amount that has not yet been deducted is 300 million; or more for tax refund procedures;
Each tax refund period, the tax authority will check before or after the tax refund.
– Foreign investor means an individual with foreign nationality or an organization established under foreign law that conducts business investment activities in Vietnam.
– Foreign investors in English are called foreign investors.
Accordingly the provisions of Clause 23, Article 3 of the Law on Investment, the following provisions are made: “Investment capital is money and other assets in accordance with the provisions of civil law and international treaties to which the Socialist Republic of Vietnam is a member to conduct business investment activities”.
Accordingly the above regulations, foreign investors are allowed to contribute capital with assets, the assets carrying the capital contribution must be legal accordingly the provisions of Vietnamese law.