Vietnam corporate income tax rate of 20 percent

Vietnam corporate income tax rate is 20 percent for most companies since 1 January 2016. Until the end of 2015 the standard rate was 22 percent. The cut was written into Law No. 32/2013/QH13, which also set the 22 percent rate. This guide shows who gets the lower rate, what can stay different, and how to plan for the rest of this year.

Source: KPMG, Vietnam country profile, October 2015 (assets.kpmg.com), and Vietnam Briefing, 27 June 2013.

The rate in short

The standard rate has dropped in steps. It was 25 percent for years. From 1 January 2014 it fell to 22 percent under Law No. 32/2013/QH13. The same law then lowers it to 20 percent from 1 January 2016.

The rate applies to taxable profit, not to sales. Taxable profit is your revenue, less the costs the law lets you deduct, plus or minus a few adjustments. If your company makes a loss, no tax is due for that year.

For a company with taxable profit of VND 10 billion, the change is easy to see. At 22 percent the tax was VND 2.2 billion. At 20 percent it is VND 2 billion. That is VND 200 million less.

Source: Law No. 14/2008/QH12 on corporate income tax, as amended by Law No. 32/2013/QH13.

Who may pay a different rate

The 20 percent rate is the standard one. Some businesses pay more or less.

Companies that search for, explore and produce oil, gas and certain rare minerals pay higher rates. These are set by the type of project and the licence. Check your licence terms if you work in these fields.

Some companies get a lower incentive rate for a set number of years. Incentives depend on the sector, the location and the size of the project. Examples include high technology, large new investments and projects in areas with hard social and economic conditions. Many also get a few years of full exemption and then a few years at half the rate.

If you already hold an investment licence with an incentive, read the incentive terms in it. Ask your tax adviser how the standard rate and your incentive fit together in 2016.

Source: Law No. 14/2008/QH12 on corporate income tax, the provisions on tax rates and tax incentives; KPMG, Vietnam country profile, October 2015.

What counts as taxable profit

The rate is only half of the bill. The other half is what the law lets you subtract. A cost is deductible when it is real, linked to your business and backed by proper invoices and documents. A cost that fails these tests is added back to your profit, so you pay tax on it.

Ministry of Finance Circular No. 78/2014/TT-BTC explains the rules in detail. It covers deductible costs, items that are not deductible and how to treat income from other sources.

Keep invoices and contracts for every large expense.

Source: Ministry of Finance Circular No. 78/2014/TT-BTC.

Paying and filing

Companies pay corporate income tax in two ways during the year. You make provisional payments each quarter. Then you file an annual return that settles the final amount.

The quarterly payment is based on your own estimate of profit. If your quarterly payments add up to less than 80 percent of the final bill, late payment interest can apply to the shortfall. So it is wise to review your estimate each quarter.

Your tax year normally follows the calendar year. The annual return is due within 90 days after the year ends.

Losses can be carried forward. The law allows you to set a loss against later profit for up to five years. Keep track of each year's loss so you can use it in time.

Source: KPMG, Vietnam country profile, October 2015, the parts on quarterly payments, the annual return and carry forward of losses.

What to do in the second half of 2016

The lower rate is welcome, but it does not run itself. A short plan helps.

First, update your budgets and your quarterly estimates to use 20 percent for this year's profit. Second, check your incentives and licences, as described above. Third, review your deductible costs, so that the rate applies to the right profit. Fourth, set aside the saving with care. Tax rules in Vietnam change often, so avoid committing the whole saving until you see any new guidance.

Finally, check your own company's position with a Vietnam-licensed tax adviser before relying on any rate here. This is general information about corporate income tax, not advice for your filing.

Source: editorial summary of Law No. 32/2013/QH13 and Circular No. 78/2014/TT-BTC.

Sources

Law No. 14/2008/QH12 on corporate income tax. Law No. 32/2013/QH13 amending the Law on corporate income tax. KPMG, Vietnam country profile, October 2015. Vietnam Briefing, 27 June 2013. Ministry of Finance Circular No. 78/2014/TT-BTC. Each text appears in the official gazette (congbao.chinhphu.vn).