Corporate Income Tax in Vietnam – An Overview

Business activities and investments in Vietnam will be commonly imposed by the following taxes:

  • Corporate income tax;
  • Various withholding taxes;
  • Capital assignment profits tax;
  • Value added tax;
  • Import duties;
  • Personal income tax on Vietnamese and expatriate employees;
  • Social insurance, unemployment insurance and health insurance contributions.

In this article, an overview of Corporate income tax (“CIT”) in Vietnam will be drawn up to support the decision-making process for both domestic and oversea investors before investing in Vietnam.

Tax rate

  • Standard rate is 20%;
  • Preferential rate is 10%, 15% or 17%;
  • Tax rate of 32% – 50% is applicable for companies operating in the oil and gas industry, depending on the location and specific project conditions;
  • Tax rate of 40% – 50% is applicable for companies engaging in prospecting, exploration and exploitation of certain mineral resources, depending on the location and specific project conditions.

Calculation of Taxable Income

Taxable income is the difference between total revenue, whether domestic or foreign sourced, and deductible expenses, plus other assessable income. Taxpayers are required to prepare an annual CIT return which includes a section for making adjustments to accounting profit to arrive at taxable income.

Non-deductible Expenses

Enterprises may deduct all expenses that fully satisfy the following conditions (except for 37 specifically identified non-deductible expenses):

  • Actual expenses arising in relation to production and business activities of enterprises;
  • Expenses with adequate lawful invoices and documents as required by law;
  • For expenses for purchase of goods or services with invoices valued at VND 20million or more (VAT-inclusive prices) each, there must be non-cash payment documents.

Tax Incentives

Tax incentives are granted to new investment projects based on regulated encouraged sectors, encouraged locations and the size of the project. Business expansion projects which meet certain conditions are also entitled to CIT incentives (regulations vary several times from 2009 to 2015). New investment projects and business expansion projects do not include projects established as a result of certain acquisitions or reorganisations.

  • The sectors which are encouraged by the Vietnamese Government include education, health care, sport and culture, high technology, environmental protection, scientific research and technology development, infrastructural development, processing of agricultural and aquatic products, software production and renewable energy. 
  • New investment or expansion projects engaged in manufacturing industrial products prioritized for development are entitled to CIT incentives if they meet one of the following conditions:

  • the products support the high technology sector; or
  • certain products which support the garment, textile, footwear, electronic spare parts, automobile assembly, or mechanical sectors.

  • Locations which are encouraged include qualifying economic and high-tech zones, certain industrial zones and difficult socio-economic areas.
  • Large manufacturing projects (excluding those related to the manufacture of products subject to special sales tax or those exploiting mineral resources). 

The two common preferential rates of 10% and 17% are available for 15 years and 10 years respectively commencing from the first revenue-making year. When these preferential rates expire, the standard CIT rate shall be reverted. Beside, the preferential rate of 15% will apply for the entire project life in certain cases. Certain socialised sectors (e.g. education, health) enjoy the 10% rate for the entire life of the project.

Tax exemption and reductions could be eligible for encouraged taxpayers. Tax exemption commences from the first profit-making year for the incentivised activities and followed by a period where tax reduction is 50% of tax payables at applicable tax rate. If an enterprise has no taxable income for the first three years, counting from the first year it has turnover from a new investment project, the tax exemption or reduction duration shall be counted from the fourth year.

Tax losses

Enterprises that suffer a loss after making tax finalization may carry-forward continuously the whole loss to subsequent years’ taxable incomes (taxable income exclusive of tax-exempt incomes). The maximum duration for loss carry-forward is 5 consecutive years, counting from the year following the year the losses arise. Carry-back of losses is not permitted.

Losses from incentive activities and taxable income from non-incentive activities can be offset and vice versa. Losses from the transfer of real estate and the transfer of investment projects can be offset against profits from other business activities. However, losses from other business activities are not permitted to offset income from the transfer of real estate and the transfer of investment projects.

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