TAX MANAGEMENT IN VIETNAM

RISK ASSESSMENT AND PREVENTION BEFORE INSPECTION

The tax authority will apply appropriate tax management measures to assess the taxpayer’s compliance with the law and classify the level of risk in tax administration. The assessment of the taxpayer’s compliance with the law is carried out based on a system of criteria, including the taxpayer’s operational history, compliance track record and cooperation with the tax authority, as well as risk indicators and signs of violations… combined with the application of an information technology system to automatically integrate and process data serving the application of risk management in tax administration.

After every 03 years of operation or when falling under risk assessment criteria, enterprises will have to undergo strict procedures of inspection, audit, and tax finalization, which often result in tax arrears and tax penalties.

We are pleased to introduce the risk assessment and prevention program in accordance with regulations and practical experience with the following scope:

COMMON TAXES APPLICABLE TO ENTERPRISES

Value-Added Tax (VAT)

1. Value-added tax is a tax calculated on the added value of goods and services arising in the process from production, circulation to consumption. This is an indirect tax imposed on the final consumer, although it is remitted to the authority by enterprises.
2. Goods and services used for production, business, and consumption in Vietnam are subject to VAT, except for a number of goods and services in the non-taxable group.
3. Taxpayers of VAT are organizations/individuals producing and trading goods, services subject to VAT, organizations/individuals importing goods subject to VAT.
4. VAT rates include: 0%, 5%, 10%.

Corporate Income Tax (CIT)

1. Corporate income tax is a direct tax imposed on enterprises/economic organizations with taxable income, including from business, production, the provision of goods, services, and other income of the enterprise as prescribed.
2. Taxable income in the tax period is determined by taxable income minus tax-exempt income and losses carried forward from previous years. 
3. Taxable income equals revenue minus deductible expenses of business and production activities plus other income, including income received outside Vietnam. 
4. The CIT rate is 20% from January 01, 2016. Where tax incentives apply, a 10% rate may be applicable, together with reductions or exemptions for certain years.

Foreign Contractor Tax (FCT)

1. Foreign Contractor Tax (FCT) is imposed on foreign organizations and individuals without a permanent establishment in Vietnam but generating income in Vietnam from providing goods and services.
2. Contractor tax includes VAT and CIT, based on taxable revenue and applicable tax rates depending on the type of business activity.
3. If VAT is declared under the deduction method, CIT is paid based on declaration of revenue and expenses to determine taxable income. If VAT is calculated directly on added value, CIT is paid based on a percentage of taxable revenue.
4. The percentage (%) for calculating VAT on revenue in business ranges from 2% to 5%; the percentage (%) for calculating CIT on taxable revenue ranges from 1% to 10% depending on the industry.

Capital Transfer Tax

1. Capital transfer tax is imposed on income from capital transfer including income from transferring part or all of the capital invested in an enterprise, including in cases of selling the enterprise, transferring securities, transferring contributed capital rights, and other forms of capital transfer as prescribed by law.
2. The transfer price is determined as the total actual value received by the transferor under the transfer contract. If the transfer contract does not stipulate the payment price or the tax authority has grounds to determine that the payment price is not in accordance with the market price, the tax authority has the right to inspect and fix the transfer price.
3. If an enterprise transfers part of its contributed capital at a transfer price not in line with the market price, the tax authority is entitled to re-determine the entire value of the enterprise at the transfer time to recalculate the transfer price corresponding to the transferred capital portion.
4. CIT rate is 20% calculated on taxable net profit. Taxable net profit = Transfer price – Original transfer value – Transfer expenses.

Tax on Investment Capital

1. Tax on investment capital is imposed on income from the following forms: interest from lending to organizations, enterprises under contracts or agreements; dividends received from purchasing shares; profit received from contributing capital into limited liability companies; incremental value of contributed capital received upon dissolution, transformation, division, separation, merger, consolidation, or withdrawal of capital; income received from bonds, treasury bills, and other valuable papers issued by domestic organizations; other forms of income from capital investment, including contribution by assets, reputation, land use rights, inventions, patents. Income from dividends paid in shares, profit recorded as capital increase.
2. The tax rate on investment capital is 5%.

Special Consumption Tax (SCT)

1. Special consumption tax is an indirect tax imposed on certain special goods produced and imported by enterprises. This tax is paid by the producer or importer, but the consumer bears it as it is included in the selling price.
2. Goods subject to SCT: Tobacco; alcohol; beer; cars under 24 seats; motorcycles with cylinder capacity over 125 cm³; aircraft, yachts; all kinds of gasoline; air conditioners up to 90,000 BTU; playing cards; joss paper and votive items.
3. Services subject to SCT: nightclubs; massage, karaoke; casino business; prize-winning electronic games; betting business; golf business; lottery business.
4. SCT rates for goods and services range from 15% to 65%.

Personal Income Tax (PIT)

1. Personal income tax is a direct tax imposed on income earned by individuals and has become an increasingly important component of Vietnam’s state budget revenue.
2. Taxpayers of PIT include resident individuals with taxable income arising inside and outside the territory of Vietnam and non-resident individuals with taxable income arising within Vietnam.
3. Taxable income includes: business income, income from salaries/wages, income from capital investment, income from capital transfer, income from real estate transfer, income from winnings, income from royalties, income from franchising, income from inheritance of securities, income from gifts of securities…
4. PIT rates follow the progressive tax schedule from 5% to 35% depending on taxable income.

IDENTIFICATION AND COMPLETION OF COMPLIANCE CRITERIA

Enterprises need to identify the basic compliance criteria according to the assessment criteria of the tax authority:

1. Compliance with registered business sectors and transaction designation on invoices.
2. Filing and submitting tax returns fully and on time.
3. Paying taxes fully and on time.
4. Reasonableness of data structure in tax reports and financial statements.
5. Abnormal transactions in reports.

PROACTIVE REVIEW AND REMEDIATION

Every 06 months or annually, internal tax audit procedures should be carried out to identify risks and apply proactive management measures:

1. Control compliance: Number, form, and content of original vouchers, accounting books, and reports.
2. Reassess all business activities by transaction. Structure relationships among transactions in a lawful and optimized manner. Advise on completing valid documentation for each transaction. Advise on optimizing payable taxes, remedying, and preventing risks. Review all system data: verify accuracy of each transaction and accounting data, their consistency, and compliance with current accounting standards.
3. Establish a compliance documentation system in business according to current regulations: License dossiers – personnel dossiers – payroll/labor dossiers – tax declaration dossiers – payment/receipt dossiers – invoice/voucher dossiers… Set compliance standards for each dossier. Arrange and organize systematic storage of documents.
4. Prepare a comprehensive report on risks and exposures. Propose remediation and improvement solutions to minimize internal and tax risks, and build preventive procedures and tools.
5. Reconcile payables with tax and social insurance authorities (tax position/status certificate). Assist in arranging procedures with authorities until certification of full tax obligations at optimized cost.
6. Reconcile and manage receivables, payables, inventory of assets and stock.

TAX PLANNING

Tax planning is the optimization of taxes payable within the framework of the law. Optimization, not minimization or evasion.

1. Analyze industry sectors, tax exemptions, or incentives.
2. Analyze business results based on investment, revenue, and actual expenses.
3. Analyze revenue structure, expenses, legality and validity of invoice systems.
4. Analyze corporate finance, cash flow, cost of capital use…
5. Determine tax expenses by tax type, relationship among tax types.
6. Develop short-term and long-term tax payment plans.

MANAGEMENT OF TAX INSPECTION

The manner of working and explaining with the tax authority sometimes determines 50% of the final result.

1. Anticipate the timing of tax inspection and proactively prepare documentation and plans.
2. Receive tax inspection notices.
3. Identify the context, reasons, and objectives of the tax inspection.
4. Develop an information provision plan.
5. Control explanations.
6. Control budget of payable amounts and corporate tax creditability.
7. Collect and store tax inspection dossiers, update – adjust data according to tax inspection results.
8. Pay tax according to inspection decisions.

VIVA Business Consulting’s tax risk assessment and prevention program will be implemented free of charge for clients using comprehensive compliance management service packages, especially enterprises that have not been inspected in the last 03 years.

Please kindly contact our specialists to arrange a working schedule and proactively manage tax procedures in 2024 as required by the tax authority.

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Read more

• Tax management – tax planning in Vietnam – properly comply to optimize your long term business
• One-stop service – tax management in Vietnam
• Investment in Vietnam – Foreign contractor tax (FCT)
• Investment in Vietnam – Value-added tax (VAT) 0%
• Investment in Vietnam – incentives on corporate income tax (CIT)
• Investment in Vietnam – Personal income tax (PIT)
• Rules and direction for the tax on incomes from capital transfer
• Rules on opening and using the direct investment capital account (DICA)
• Corporate financial management