Shall an agent for a foreign enterprise pay corporate income tax in Vietnam?

Shall an agent for a foreign enterprise pay corporate income tax in Vietnam?

Based on Clause 1, Article 2 of the 2008 Law on Corporate Income Tax which stipulates as follows:

Taxpayers

1. Corporate income tax payers are organizations engaged in production and business activities of goods and services, which have taxable income (hereinafter referred to as enterprises), including:

a) Enterprises established and operating under the laws on enterprises, investment, credit institutions, insurance business, securities, petroleum, commerce, and other legal normative documents under the following forms: Joint-stock companies; Limited liability companies; Partnerships; Private enterprises; Law offices, private notary offices; Parties to business cooperation contracts; Parties to oil and gas product sharing contracts, joint venture enterprises in oil and gas, general operating companies.

b) Public and private service units engaged in the production and business of goods and services with taxable income in all fields.

c) Organizations established and operating under the Law on Cooperatives.

d) Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) with a permanent establishment in Vietnam.

A permanent establishment of a foreign enterprise is a production or business establishment through which the foreign enterprise carries out part or all of its production or business activities in Vietnam, including:

- Branches, executive offices, factories, workshops, transportation means, mines, oil fields, gas or other natural resources exploitation locations in Vietnam;

- Construction sites, construction, installation, or assembly projects;

- Service provision establishments, including consulting services through employees or other organizations or individuals;

- Agents for foreign enterprises;

- Representative in Vietnam, in the case of a representative authorized to sign contracts on behalf of the foreign enterprise or a representative without such authorization who regularly performs the delivery of goods or provision of services in Vietnam.

In cases where a double taxation agreement signed by the Socialist Republic of Vietnam provides otherwise concerning permanent establishments, the provisions of such agreement shall prevail.

e) Other organizations outside the organizations mentioned in Points a, b, c, and d, Clause 1 of this Article, engaged in the production and business of goods or services with taxable income.

2. Foreign organizations engaged in production and business in Vietnam not under the Law on Investment or the Law on Enterprises or earning income arising in Vietnam shall pay corporate income tax as guided by the Ministry of Finance. These organizations, if involved in capital transfer activities, shall pay corporate income tax following the instructions in Article 14, Chapter IV of this Circular.

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Thus, according to the above regulation, an agent for a foreign enterprise is also considered a corporate income taxpayer.

What are 2 types of investment projects eligible for corporate income tax incentives in disadvantaged areas in Vietnam?

Based on Clause 4, Article 19 of Circular 78/2014/TT-BTC which stipulates as follows:

Preferential Tax Rates

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4. A preferential tax rate of 20% for ten years (10 years) applies to:

a) Income of enterprises from implementing new investment projects in areas with difficult socio-economic conditions as specified in the Appendix issued with Decree No. 218/2013/ND-CP of the Government of Vietnam.

b) Income of enterprises from implementing new investment projects: high-grade steel production; production of energy-saving products; manufacturing machinery and equipment for agricultural, forestry, fishery, and salt production; manufacturing irrigation equipment; production, refining of livestock, poultry, and aquatic feed; development of traditional occupations (including construction and development of traditional occupations in the production of handicrafts, processing agricultural and food products, cultural products).

Enterprises implementing new investment projects in the sectors and areas eligible for tax incentives as specified in this clause since January 1, 2016, apply a tax rate of 17%.

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At the same time, based on Clause 3, Article 20 of Circular 78/2014/TT-BTC amended by Article 6 of Circular 151/2014/TT-BTC as follows:

Tax Incentives on Exemption and Reduction Periods

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“3. Tax exemption for 2 years and 50% reduction of payable tax amount for the next 4 years for income from implementing new investment projects specified in Clause 4, Article 19 of Circular 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance and income of enterprises from implementing new investment projects in industrial zones (except industrial zones in areas with favorable socio-economic conditions).

Areas with favorable socio-economic conditions specified in this clause are inner city districts of special-type cities, first-type cities under central authority, and first-type cities under provincial authority, excluding inner city districts of newly established first-type cities from districts since January 1, 2009; in cases where an industrial zone lies in both favorable and unfavorable areas, the determination of tax incentives for the industrial zone shall be based on the actual location of the investment project on the ground.

The determination of special-type and type I cities specified in this clause is implemented according to the regulations in Decree 42/2009/ND-CP dated May 7, 2009, of the Government of Vietnam regulating urban classification and amended documents of this Decree (if any).

Thus, according to the above regulation, the two investment projects eligible for corporate income tax incentives in difficult areas include:

[1] Investment projects in difficult areas will enjoy a preferential tax rate of 20% for ten years (10 years).

[2] Investment projects in difficult areas will be exempt from tax for 2 years and receive a 50% reduction in payable tax for the next 4 years.

How to determine income for corporate income tax in Vietnam?

The income determining corporate income tax is stipulated in Article 7 of the 2008 Law on Corporate Income Tax, where the income for calculating corporate income tax is determined as follows:

- Taxable income during the tax period is determined by subtracting exempted income and losses carried forward from previous years from taxable income.

- Taxable income equals revenue minus deductible expenses from production, business activities plus other income, including income received abroad.