What type of tax is imposed directly upon incomes or assets of taxpayers in Vietnam?

What type of tax is imposed directly upon incomes or assets of taxpayers in Vietnam?

Currently, the terms regarding direct taxes and indirect taxes have not been specified in any legislative document, nor is there a detailed explanation of the term “tax on consumption.” However, based on tax laws such as the Law on Personal Income Tax 2007; Law on Corporate Income Tax 2008; Law on Special Consumption Tax 2008; Law on Value Added Tax 2008, etc., it can be understood that indirect taxes and direct taxes are:

- Indirect tax is a tax collected from consumers through tax submissions from production and business establishments. Indirect tax is the type of tax where the person with the obligation to pay the tax is different from the person who bears the tax.

- Direct tax is a type of tax where the State directly collects a portion of the taxpayer's income for the state budget. Direct tax is a tax where the person obligated to pay the tax is also the person who bears the tax.

Thus, the type of tax that is imposed directly upon incomes or assets of the taxpayer is a direct tax.

Note: This information is for reference purposes only!

What types of taxes are direct taxes in Vietnam?

Direct tax includes types of taxes directly levied based on the taxpayer's income, such as:

(1) Personal Income Tax:

Pursuant to Article 2 of the Law on Personal Income Tax 2007, on taxpayers liable for personal income tax as follows:

Taxpayers

1. Taxpayers liable for personal income tax are resident individuals with taxable income stipulated in Article 3 of this Law arising inside and outside the territory of Vietnam and non-resident individuals with taxable income stipulated in Article 3 of this Law arising within Vietnam.

2. A resident individual is one who satisfies one of the following conditions:

a) Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months from the first day of presence in Vietnam;

b) Having a regular residence in Vietnam, including having a registered permanent residence or a hired house to stay at in Vietnam under a lease contract of a term.

3. A non-resident individual is one who does not satisfy the conditions stipulated in Clause 2 of this Article.

(2) Corporate Income Tax:

Pursuant to Article 2 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 1, Article 1 of the Law amending the Law on Corporate Income Tax 2013) regarding corporate income taxpayers as follows:

Taxpayers

1. Corporate income taxpayers are organizations engaged in production, business activities of goods and services generating taxable income in accordance with this Law (hereinafter referred to as enterprises), including:

a) Enterprises established under Vietnamese law;

b) Enterprises established under foreign law (hereinafter referred to as foreign enterprises) having a permanent establishment or not in Vietnam;

c) Organizations established under the Law on Cooperatives;

d) Public service units established under Vietnamese law;

đ) Other organizations engaged in production and business activities generating income.

2. Enterprises having taxable income stipulated in Article 3 of this Law must pay corporate income tax as follows:

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

b) 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;

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

3. A permanent establishment of a foreign enterprise is a production and business establishment through which the foreign enterprise undertakes some or all of its production or business activities in Vietnam, including:

a) Branch, executive office, factory, workshop, means of transport, oil field, gas field, mine or any other place of extraction of natural resources in Vietnam;

b) Construction site, construction, installation, assembly project;

c) Service provision facility, including consultancy services through employees or other individuals;

d) Agency for a foreign enterprise;

đ) Representative in Vietnam in cases where there is authority to sign contracts in the name of a foreign enterprise or acts regularly representing the delivery of goods or provision of services in Vietnam.

These two types of taxes mentioned above are both direct taxes based on the taxpayer's income. Moreover, direct tax is the type of tax that the State directly collects for the state budget a portion of the income from the taxpayer.

Thus, personal income tax and corporate income tax are considered direct taxes.

What types of income are exempt from direct tax as personal income tax in Vietnam?

According to Article 4 of the Law on Personal Income Tax 2007 (supplemented by Clause 3, Article 2 of the Law amending various Laws on Tax 2014; amended by Clause 2, Article 1 of the Law on Personal Income Tax Amendment 2012), the following types of income are exempt from direct tax as personal income tax:

- Income from the transfer of real estate between husband and wife; biological father, mother and biological child; adoptive father, mother and adopted child; father-in-law, mother-in-law and daughter-in-law; father-in-law, mother-in-law and son-in-law; paternal grandparents and grandchildren; maternal grandparents and grandchildren; siblings with each other.

- Income from the transfer of residential houses, ownership or use of homestead land and assets attached to such homestead land of individuals in cases where the individual owns only one residential house, homestead land.

- Income from the value of land use rights bestowed by the State on individuals.

- Income from inheritances or gifts in the form of real estate between husband and wife; biological father, mother and biological child; adoptive father, mother and adopted child; father-in-law, mother-in-law and daughter-in-law; father-in-law, mother-in-law and son-in-law; paternal grandparents and grandchildren; maternal grandparents and grandchildren; siblings with each other.

- Income of households and individuals directly involved in agricultural production, forestry, salt making, rearing, and catching aquatic and marine products not processed into other products or just through rudimentary processing.

- Income from the exchange of agricultural land plots of households and individuals given by the State for production.

- Income from interest on deposits at credit institutions or from life insurance contracts.

- Income from remittances.

- Night shift, overtime wage paid higher than day shift, regular time wage as stipulated by law.

- Pensions paid by the Social Insurance Fund, pensions paid monthly by the voluntary pension fund.

- Income from scholarships, including:

+ Scholarships provided from the state budget;

+ Scholarships provided by domestic and foreign organizations under their study promotion support programs.

- Income from compensation for life and non-life insurance contracts, compensation for occupational accidents, state compensation, and other compensations as prescribed by law.

- Income received from charitable funds permitted to be established or recognized by competent state agencies, operating for charitable, humanitarian purposes, not for profit.

- Income received from foreign aid for charitable, humanitarian purposes in the form of government and non-governmental aid approved by competent state agencies.

- Income from wages or remuneration of Vietnamese seafarers working on foreign ships or Vietnamese ships in international transportation.

- Income of individuals who are shipowners, individuals with rights to use ships and individuals working on ships from activities providing goods and services directly serving off-shore fishing operations.