GUIDE FOR FOREIGN INVESTMENT IN VIETNAM HOCHIMINH SAIGON VIETNAM

MECHANISM, POLICIES ENCOURAGING AND SUPPORTING INVESTMENT INTO EXPORT PROCESSING ZONES (EPZs), INDUSTRIAL ZONES (IZs)

INCENTIVES OF THE EPZS AND IZS ENTERPRISES IN HCM CITY

(According to the Decree 24/2000/NN-CP dated July 31, 2000)

TAX-GENERAL INFORMATION IN HCM CITY, VIETNAM

Business Income Tax:
Enterprises with foreign owned capital and foreign business co-operation parties shall pay business income tax at the rate of twenty five ( 25) percent on their profit earned, except the cases provided in Article 46.

Preferential treatments of business income tax (BIT) rates The BIT rates applicable to cases where investment is encouraged shall be as follows:
 

1. IZ enterprises operating in the service sector.

a. 20 % rate shall apply to investment projects which satisfy one of the following criteria:

b. Manufacturing projects not on the list of encouraged projects stated at Article 45 and clause 2 and 3 of this Article.

2. 15% shall apply to investment projects which satisfy one of the following criteria:

a. Investment projects which are on the list of encouraged projects.

b. Investing in regions with difficult socio-economic conditions.

c. Export processing enterprises operating in the service sector.

d. IZ enterprises exporting more than fifty (50%) percent of products.

e. Enterprises subject to transfer the Vietnamese government without compensation upon termination of operation.

3. 10% shall apply to investment project qualifying one the following:

a. Meeting 2 criteria set out at clause 2 of this Article.

b. Being on the list of specially encouraged investment projects.

c. Being investment projects in regions with difficult socio ? economic conditions which is on the list of encouraged regions.

d. Being enterprises developing infra-structure facilities of IZ, EPZ, HTZ; export processing enterprises.

e. Being enterprises investing in medical care, education and training, scientific research.

4. Regulations on period entitled to incentive BIT rates are as follows:

a. Incentive rates stated in this Article shall be carried out for the whole duration of the project with respect to projects meeting one of the following criteria:

• being in the list of specially encouraged projects;
• being in the list of regions where socio-economic conditions are specially difficult, where investments are encouraged
• being infra-structure development projects in IZ, EPZ and HTZ;
• being projects in IZ, EPZ, HTZ;
• being project in the fields of medical care, education and training, scientific research.

b. 10% BIT rate shall apply for 15 years from the day of commercial operation, except for projects mentioned at paragraph a.

c. 15% BIT rate shall apply for 12 years from the day of commercial operation, except for projects mentioned at paragraph a.

d. 20% BIT rate shall apply for 10 years from the day of commercial operation, except for projects mentioned at paragraph a.

e. After a period of enjoying BIT incentive rates as stated at paragraph b,c,d. 25% standard rate shall apply to projects.

f. Overseas Vietnamese who invest in Vietnam in accordance with the provisions of the FIL in Vietnam shall be entitled to a twenty (20) per cent reduction of BIT as compared to those who invest in the projects of the same type, except for cases where they are entitled to a tax rate of ten (10) per cent.

Withholding tax:
a. 3% of profits transferred abroad in respect of foreign investors contributing no less than 10 million USD to the legal capital or capital of a business co-operation;

b. 5% of profits transferred abroad in respect of foreign investors contributing from 5 million USD to less than 10 millions USD to the legal capital or capital of a business co-operation;

c. 7% of profits transferred abroad in respect of foreign investors contributing less than 5 million USD to the legal capital or capital of a business co-operation;

Withholding tax shall be collected each time profits are transferred
 

Import Export Tariffs
All the commodities that the enterprise with foreign owned capital and foreign parties to business co-operation contracts are permitted to export, import through the frontier of Vietnam shall be subject to export and import duties in accordance with Law on import and export duties. At present, Goods for export from Vietnam is subject to 0% tax rate of export duty.

Tax Incentives
Enterprise with foreign owned capital and foreign parties to business co-operation contracts shall be exempted from import duty on goods imported to form fixed assets, comprising:
 

- Equipment and machinery;
- Specialized means of transportation being part of a technological line and means
  of transportation used to transport workers;
- Components, details, parts, spare parts, fittings, moulds and accessories accompanying
  the machinery and equipment and specialized means of transportation referred to in
  sub-clause (b);
- Raw materials and materials used to manufacture equipment and machinery
  in technological lines or to manufacture components, details, parts, spare parts, fittings,
  patterns and accessories accompanying the machinery and equipment
- Construction materials which are not yet domestically produced.

Raw materials, materials, components imported for production of projects in sectors where investment is specially encouraged or in region with specially difficult socio-economic conditions shall be exempted from import duty for a duration of five years from the commencement of production.

V.A.T (Value Added Tax):
General overview

The VAT replaced the existing turnover tax from 1 January 1999. Although a number of Circulars and other guiding documents have been released, a large number of areas remain uncertain. These areas will become clearer through further guidance issued on the VAT by the tax authorities and practical experience. It is rumor that the current VAT system will be replaced in the future by a simpler one rate system.

Under a VAT system, "output tax" is collected from a customer by adding VAT to the amount charged. However a business also pays "input tax" to its suppliers on purchases that it makes. The business must pay the output tax to the State after deducting the input tax paid to its suppliers. In theory, the business therefore pays tax on the value that it adds in the supply chain. The tax is ultimately borne by the end consumer or a business that is exempt from tax, as these entities cannot recover input tax paid.

Scope of application

VAT applies to business activities in Vietnam including production, trading and the provision of services. In each case the business must charge VAT on the value of goods or services supplied.

In addition, VAT applies on the duty paid value imported goods. The importer must pay VAT to Customs at the same time they pay import duties.
 

Exempt goods and services

There are many categories of VAT exemptions, including:

• Certain agricultural production.
• Cross border leases of drilling rigs, aeroplanes, and ships, of a type which cannot be produced in Vietnam.
• Production and import of goods and services subject to Special Sales Tax.
• Transfer of land use rights.
• Credit services.
• Certain insurance services (including life and non-commercial insurance).
• Medical services.
• Teaching and training.
• Printing and publishing of newspaper, magazines, and certain types of books.
• Transport by buses
• Goods in transit via Vietnam.
• Transfer of technology (but withholding taxes would open apply).
• Import of machinery, equipment and special means of transport which are for use as fixed assets of the importer. In addition, the exemption applies to construction materials of a type not made in Vietnam, for use in constructing the fixed assets of the importer.
• Goods, and services of business with income below a minimum threshold.
• Agents commission when selling on consignment (in certain circumstances).
• Services provided to export processing enterprises, and exported services not for use in Vietnam.

   

It should be noted that if a business sells exempt goods or services, it cannot recover any input tax paid on its purchases. This contrast with "zero rating", where the sales are within the VAT system (albeit at a VAT rate of zero), and hence input tax can be recovered. Where a business generates both taxable and exempt sales, it can only claim a deduction of input tax for the portion of inputs uses in the taxable activity.

In addition to the above supplies that are specifically exempted from VAT, exported services re also exempt. There is no explicit definition of exported services but from the limited interpretations given, it appears that the definition will be very narrow, applying to services that are performed overseas.

Rates of tax - There are four rates as follows:

When taxable turnover cannot be readily classified based on the tax tariff, VAT must be calculated based on the highest rate applicable for the particular industry, or range of goods, in which the business is involved.

VAT Calculation Methods- The law specifies two different methods for calculating VAT payable:

a. Tax deduction method
This is the conventional VAT used in most other VAT jurisdictions. VAT payable is calculated as the output VAT charge to customers less the input tax suffered on purchases of goods and services. For input tax to be deductible, the taxpayer must obtain a proper VAT invoice from the supplier.

b. Direct application on value added method
Under this method, the business must firstly calculated the "value added " in the period. The value added equals the sales price of the goods/services purchased. The appropriate VAT rate is then applied to this "value added " figure to arrive at the VAT liability for the period. For businesses with little or no accounting records, tax payable is estimated. Taxpayers using this method are not permitted to issue VAT invoices on their sales.

Method 1 applies to State-owned enterprises, foreign invested enterprises, and Vietnamese enterprises (e.g., limited companies, join stock companies).

Method 2 applies to Vietnamese household enterprises, and foreign contractors not licensed under the law on Foreign investment, which do not have in place the necessary accounting and invoicing procedures to implement method 1.

Registration

All organizations and individuals carrying on production or trading of taxable goods and services in Vietnam must register for the VAT. Each branch or outlet of an enterprise must register separately and declare tax on its own activities. It is important to note that the transfers of goods between branches may be subject to VAT.

Filing and payment of taxes

Taxpayers must file VAT returns monthly, by the 10 of the following month. The tax authorities process the tax return and issue a tax assessment notice to the taxpayer. The taxpayer must remit the VAT payable 25 of the month. At the end of the year, the taxpayer must complete an annual tax finalization.

Refunds

Generally, where the taxpayer?s input VAT for the period exceeds its output VAT, it will have to carry the excess forward for three months. It can then claim a refund from the tax authorities. In certain cases (e.g. BOT projects during construction phase, oil and gas projects during exploration and development phase), a refund may be granted on a monthly basis. Start up entities may be required to wait until the end of the year for refunds.

VAT reduction at year end

Businesses engaged in manufacturing, construction, transportation, trading, services, tourism or food and beverage services can apply for a reduction of VAT if they suffer from losses during the first three years of VAT. A reduction will only be considered where the amount of VAT paid is larger than the amount of Turnover Tax which would have been payable under the previous tax system. The maximum amount of VAT reduction shall not exceed the VAT amount payable for the year of the reduction. These VAT reductions can reduce monthly VAT payments through the year, subject to the annual finalization at year end.

Production Royalties:

Every foreign or Vietnamese organization and individual that utilizes natural resources have to pay royalty to the State. Royalty rate depends on the quantity of resources, conditions of resource exploitation, transportation taking references of international general rules and policies on consuming market.

Table of Royalty Rate

Special Sales Tax (excise tax):

Special Sales Tax is the tax calculated for (on) the value of commodities produced, imported that are subject to Special Sales Tax. Goods that are subject to Special Sales Tax: all kinds of alcohol, beer; imported automobiles; all kinds of petrol, naphtha, substances for mixing and other substances for mixing of making petrol.

Table of Special Sales Tax Rate

Personal income tax
Vietnamese citizens residing in Vietnam, Vietnamese citizens residing overseas, individuals residing in Vietnam and expatriates working in Vietnam; four categories of persons are governed by this tax. Regular income subject to the tax is the total income of each individual on the average per month of a year over 2,000,000 VND for Vietnamese citizens and over 8,000,000 VND for the Foreigners residing in Vietnam included the Vietnamese citizens working in overseas. While a non-resident Foreigner considered in Vietnam, the regular income tax is the total income on his Vietnam income. A foreigner considered to be a resident in Vietnam if he stays in Vietnam more than 183 days within one year since he comes in Vietnam, and considered to be a non-resident in Vietnam if he stays in Vietnam less than 183 days.

Calculation of income tax to the Foreigners residing in Vietnam and Vietnamese citizens residing overseas.

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Source: Department of Ministry of Investment and Planning, HCM city, Vietnam