Corporate income tax in Vietnam

Corporate income tax is a basic tax, mandatory for businesses operating with business registration. In Vietnam, corporate income tax is mandatory and there are clear regulations for each type of business. FDI enterprises are a type of foreign-invested organization that is increasingly developing in Vietnam. So how does tax apply to foreign companies? In the article below, Viet An Law Firm will provide detailed information to help you better understand about Corporate income tax in Vietnam, especially for foreign company.

Legal basis

• Law on Investment 2020;
• Law on Corporate Income Tax 2008, as amended and supplemented in 2013, 2014, 2020;
• Circular 78/2014/TT-BTC guiding the implementation of Decree 218/2013/ND-CP guiding the Law on Corporate Income Tax, amended and supplemented by Circular 96/2015/TT-BTC, Circular 130/ 2016/TT-BTC and Circular 25/2018/TT-BTC.

What is an FDI enterprise?

FDI (Foreign Direct Investment) means an enterprise with foreign investment capital. In international business, this term is commonly used. However, in reality, Vietnamese law still does not have clear regulations for this type of business.

Pursuant to Clause 22, Article 3 of the Investment Law 2020, there is a general explanation about economic organizations with foreign investment capital, accordingly, economic organizations with foreign investment capital are economic organizations with foreign investors as members or shareholders.

Therefore, based on the provisions in Clause 22, Article 3 of the Investment Law 2020, FDI enterprises are considered economic organizations with foreign investment capital.

What is corporate income tax?

According to Article 3 of the Law on Corporate Income Tax, regulations on taxable income are as follows: “Taxable income includes income from production and trading of goods and services and other income specified in Clause 2 of this Article.” In particular, corporate income tax is a tax that the state directly collects into the state budget calculated on the taxable income of enterprises and organizations engaged in the production and trading of goods and services.

Corporate income tax in Vietnam for foreign company

Are foreign enterprises subject to corporate income tax?

Pursuant to Article 2 of the Law on Corporate Income Tax 2008, taxpayers are regulated as follows:

Corporate income taxpayers are organizations engaged in the production and trading of goods and services with taxable income according to the provisions of this Law, including:

• Enterprises established under foreign laws with or without permanent establishments in Vietnam;
• The organization is established under the Cooperative Law;
• The public service unit is established according to the provisions of Vietnamese law;

Enterprises with taxable income specified in Article 3 of this Law must pay corporate income tax as follows: for taxable income arising in Vietnam and taxable income arising outside Vietnam;

• Enterprises established under the provisions of Vietnamese law pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam;
• Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam related to the operations of that permanent establishment;
• Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam that is not related to the operations of the permanent establishment;
• Foreign enterprises that do not have a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam.

In particular, FDI enterprises are established and operate according to the provisions of the Investment Law 2020. Therefore, FDI enterprises are subject to corporate income tax according to the provisions of Vietnamese law.

How to calculate corporate income tax for FDI enterprises

FDI corporate income tax is calculated as follows:

Corporate income tax payable = (Taxable income – Scientific and technological fund appropriation) x Corporate income tax rate

If the enterprise does not set up a science and technology development fund, the tax calculation formula is as follows:

Corporate income tax payable (A) = Taxable income (B) x Corporate income tax rate (C)

In which, income subject to corporate income tax is determined as follows:

Taxable income (A) = Taxable income (a) – Tax-free income (b) + Losses carried forward (c).

In particular, taxable income includes income from production and trading of goods and services and other income determined as follows:

Taxable income (a) = Revenue (a1) – Deductible expenses (a2) + Other income (a3)

For enterprises with many production and business activities applying many different tax rates, the enterprise will have to separately calculate the income of each activity multiplied by the corresponding tax rate.

For corporate income tax rate, it is determined according to the provisions of Circular 96/2015/TT-BTC. The tax rate of corporate income tax also depends on tax incentives for businesses.

Tax incentives for FDI enterprises

FDI enterprises enjoy foreign corporate tax incentives when implementing investment projects in industries or areas with investment incentives according to the provisions of the law.

In Article 19, Circular 96/2015/TT-BTC stipulates preferential tax rates as follows:

• Newly established businesses that meet preferential conditions are entitled to a tax rate of 10% throughout their operating period.
• The income of enterprises growing crops, raising livestock, and processing in the field of agriculture and aquaculture in areas other than areas with difficult or extremely difficult socio-economic conditions is entitled to a tax rate of 15%.
• Enterprise income from implementing new investment projects in areas with difficult socio-economic conditions will be subject to a tax rate of 17% within 10 years.
• The tax rate of 17% throughout the operating period is applied to businesses such as People’s Credit Funds, Cooperative Banks, and Microfinance Institutions.

Regarding tax exemption from corporate income tax for FDI enterprises, based on Article 20 of Circular 78/2014/TT-BTC of the Ministry of Finance amended in Circular 96/2015/TT-BTC:

1. Tax exemption for 04 years, 50% reduction of tax payable for the next 9 years

• Enterprise income from implementing new investment projects is entitled to a 10% tax incentive for 15 years.
• Income of enterprises from implementing new investment projects in the field of socialization in areas with difficult or especially difficult socio-economic conditions.

2. Tax exemption for 4 years, 50% tax reduction for the next 5 years:

Income tax of enterprises from implementing new investment projects in the field of socialization in areas that are not on the list of areas with difficult or especially difficult socio-economic conditions.

3. Tax exemption for 02 years and 50% tax reduction for the next 04 years:

• Income from implementing new investment projects will enjoy preferential tax rates of 17% for 10 years.
• Enterprise income from implementing new investment projects in Industrial Parks (except for Industrial Parks in the inner city of special-class urban areas, class I urban areas directly under the Central Government, and class I urban areas directly under the province).

Above is information to note about the corporate income tax in Vietnam. If you have any questions or need answers, please contact Viet An Law Firm to receive the best support. Best regards!