What is the proposed reduction of corporate income tax rates for small and micro enterprises according to the Draft Law on Corporate Income Tax of Vietnam?

What is the proposed reduction of corporate income tax rates for small and micro enterprises according to the Draft Law on Corporate Income Tax of Vietnam?

The Ministry of Finance is drafting the revised Law on Corporate Income Tax, which will consist of 4 chapters and 30 articles.

Draft Law on Corporate Income Tax...Download

The draft revised Law on Corporate Income Tax proposes to reduce tax rates lower than the current regulations for small and micro enterprises.

Specifically, in Clause 2, Article 10 of the Draft Law on Corporate Income Tax, a tax rate of 15% applies to enterprises with annual total revenue not exceeding 3 billion VND, and 17% for enterprises with total revenue over 3 billion VND up to 50 billion VND.

Revenue used to determine whether an enterprise qualifies for the 15% or 17% tax rate is the total revenue from the previous contiguous year. For newly established enterprises, the Government of Vietnam will detail the methodology for determining total revenue to align with management requirements and actual situations. This tax rate does not apply to subsidiaries or affiliated companies whereby the affiliated enterprise does not meet the conditions for the tax rate application.

What is the proposed reduction of corporate income tax rates for small and micro enterprises in Vietnam? (Image from Internet)

What is the current corporate income tax rate in Vietnam?

According to Article 10 of the 2008 Law on Corporate Income Tax, amended and supplemented by Clause 6, Article 1 of the Amended 2013 Law on Corporate Income Tax, the corporate income tax rate is stipulated as follows:

- Starting from January 1, 2016, the corporate income tax rate is 20%, except in cases such as:

+ Enterprises with annual total revenue not exceeding twenty billion VND.

+ Enterprises engaged in the search, exploration, and extraction of oil, gas, and other precious resources in Vietnam.

+ Entities entitled to preferential tax rates as provided in Article 13 of the 2008 Law on Corporate Income Tax.

- Enterprises with annual total revenue not exceeding twenty billion VND apply a tax rate of 20%.

- The corporate income tax rate for activities related to the search, exploration, and extraction of oil, gas, and other precious resources in Vietnam is from 32% to 50%, depending on each project and business base.

Which entity is a corporate income taxpayer in Vietnam?

According to Article 2 of the 2008 Law on Corporate Income Tax, amended and supplemented by Clause 1, Article 1 of the Amended 2013 Law on Corporate Income Tax, the definition of a corporate income taxpayer is as follows:

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

+ Enterprises established under the laws of Vietnam;

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

+ Organizations established under the Cooperative Law;

+ Non-business units established under the laws of Vietnam;

+ Other organizations with production and business activities generating income.

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

+ Enterprises established under the laws of Vietnam pay taxes on taxable income arising in Vietnam and abroad;

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

+ Foreign enterprises with a permanent establishment in Vietnam pay taxes on taxable income arising in Vietnam, unrelated to the activities of the establishment;

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

- A permanent establishment of a foreign enterprise is a production and business base through which the foreign enterprise partially or wholly conducts production and business activities in Vietnam, including:

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

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

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

+ Agents for foreign enterprises;

+ Representatives in Vietnam with authority to sign contracts on behalf of the foreign enterprise or those without signing authority but regularly deliver goods or provide services in Vietnam.