What is the corporate income tax formula in Vietnam? What is the corporate income tax rate?

What is corporate income tax in Vietnam?

Pursuant to Article 3 of the Law on Corporate Income Tax 2008, amended by Clause 1, Article 1 of the Law on Amending Tax Laws 2014, taxable income is stipulated as follows:

Taxable Income

1. Taxable income includes income from production and business activities of goods and services and other income specified in Clause 2 of this Article.

2. Other income includes: income from capital transfer, transfer of the right to contribute capital; income from real estate transfer, transfer of investment projects, transfer of the right to participate in investment projects, transfer of the right to explore, exploit, and process minerals; income from the rights to use assets, ownership of assets, including income from intellectual property rights under the legal provisions; income from transfers, leasing, liquidation of assets, including valuable papers; income from deposit interest, loans, sale of foreign currency; collection from previously written-off bad debts now recovered; collection from unidentified payables; omitted business income from previous years and other income.

Vietnamese enterprises investing abroad that transfer income after paying corporate income tax abroad back to Vietnam will apply the agreements in place if Vietnam has signed agreements for avoidance of double taxation with those countries. If no such agreement exists, the corporate income tax difference will be collected if the foreign tax rate is lower than the rate calculated under Vietnam’s Corporate Income Tax Law.

Thus, corporate income tax is a tax that the state collects directly into the state budget based on the taxable income of enterprises (organizations engaged in the production and business of goods and services).

What is the corporate income tax formula in Vietnam?

According to Article 6 of the Law on Corporate Income Tax 2008 and Article 5 of Decree 218/2013/ND-CP, corporate income tax is calculated as follows:

Where:

(1) Taxable Income:

Taxable corporate income is determined as follows:

Taxable Income = Revenue - Deductible Expenses + Other Income

(2) Corporate Income Tax Rate

According to Article 10, Article 13, and Article 14 of the Law on Corporate Income Tax 2008 and Article 10 of Decree 218/2013/ND-CP, the corporate income tax rate is 20%.

Note: Some cases apply a higher tax rate such as operations in exploring oil, gas, and other precious resources in Vietnam, or apply preferential tax rates, resulting in a lower amount payable.

See detailed corporate income tax rates at Law on Corporate Income Tax 2008 and Decree 218/2013/ND-CP.

Which entities are corporate income taxpayers in Vietnam?

Based on Article 2 of the Law on Corporate Income Tax 2008, amended and supplemented by Clause 1, Article 1 of the Amended Law on Corporate Income Tax 2013, taxpayers are defined as follows:

- Corporate income taxpayers are organizations engaged in the production and business of goods and services with taxable income as specified by this Law (hereinafter referred to as enterprises), including:

+ Enterprises established under the laws of Vietnam;

+ Enterprises established under the laws of foreign countries (hereinafter referred to as foreign enterprises) with or without a permanent establishment in Vietnam;

+ Organizations established under the Law on Cooperatives;

+ Public service units established under Vietnamese law;

+ Other organizations engaged in production and business activities with income.

- Enterprises having taxable income as defined in Article 3 of the Law on Corporate Income Tax 2008 must pay corporate income tax as follows:

+ Enterprises established under Vietnamese law pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam;

+ Foreign enterprises with a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam related to the activities of that permanent establishment;

+ Foreign enterprises with a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam where the income is not related to the activities of the permanent establishment;

+ Foreign enterprises without a permanent establishment in Vietnam pay tax on taxable income arising in Vietnam.

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

+ Branches, executive offices, factories, workshops, means of transportation, oilfields, gas fields, mines, or locations for exploiting other natural resources in Vietnam;

+ Construction sites, construction, installation, and assembly works;

+ Service provision establishments, including consultancy services through employees or other organizations and individuals;

+ Agents for foreign enterprises;

+ Representatives in Vietnam in cases where the representative is authorized to sign contracts in the name of the foreign enterprise, or representatives without such authorization who regularly deliver goods or provide services in Vietnam.