The Payable Fees And Taxes By Foreign-Invested Companies in Vietnam

The payable fees and taxes are among the top criteria to consider when a foreign investor decides to invest and establish a foreign-invested company in Vietnam. With the advantage of being a potential emerging market, rapidly developing and having a stable political and legal system, Vietnam is currently one of the most “promising” destinations attracting great interest from foreign investors.

In principle, when implementing investment and business activities in Vietnam through the establishment of a foreign-invested company, investors often have to pay taxes, in addition to other financial obligations, including: corporate income tax, value-added tax, import and export tax, land use tax and other taxes related to the specific business field of the enterprise. In addition, companies must also pay fees such as license fees, infrastructure use fees, land use fees, land rental fees and public service fees when carrying out relevant administrative procedures. Understanding the benefits of attracting foreign direct investment (FDI), the Vietnamese government has also considered and issued various tax and fee incentives to facilitate and enhance Vietnam’s competitiveness compared to other emerging markets.

Understanding these regulations not only allows businesses to operate in compliance with the law but also optimises costs, thereby enhancing business efficiency. In this article, we will explore in detail the types of taxes and fees that foreign-invested companies must disburse when operating in Vietnam.

1. License fee

Article 4 of Decree No. 139/2016/ND-CP (amended and supplemented by Decree 22/2020/ND-CP) details the collection of the license fee for organisations and individuals engaged in the production and trading of goods and services in Vietnam. Accordingly, the license fee is determined based on the charter capital or investment capital of the organisation and the revenue of individuals and households, specifically as follows:

1.1. For organisations:

• Organisations with charter capital or investment capital of over VND10 billion must pay a business license fee of VND3,000,000/year.
• Organisations with charter capital or investment capital of VND10 billion or less shall pay VND2,000,000/year.

1.2. Branches, representative offices, business locations, non-business units and other economic organisations shall pay VND1,000,000/year.

1.3. For small and medium-sized enterprises converted from business households, after the license fee exemption period (the fourth year from the year of establishment of the enterprise), if it ends in the first 6 months of the year, the whole year license fee will be paid, if it ends in the last 6 months of the year, 50% of the whole year license fee will be paid. For households, individuals and groups of production and business individuals who have been dissolved but resumed operation, they will pay the license fee under the same principle.

Additionally, if an organisation with charter capital or investment capital exceeding VND10 billion or under VND10 billion changes charter capital or investment capital, the license fee rate will be determined based on the capital of the previous year.

Finally, if the fee payer submitted an official dispatch of suspension of business activities to the tax authority before the deadline of the license fee payment and has not paid the license fee for that year, they will be exempt from paying such fee for the year of business suspension. If fail to meet the prescribed condition, they are still obligated to pay the license fee for the whole year under Article 1.2. (c) Decree No. 139/2016/ND-CP (amended and supplemented by Decree 22/2020/ND-CP).

2. Corporate income tax

According to Article 2 of Decree No. 218/2013/ND-CP, companies established and operating under the Law on Enterprises 2020 and the Law on Investment 2020 under forms such as joint-stock companies, limited liability companies, partnerships, private enterprises, etc. are subject to the corporate income tax. Therefore, foreign-invested companies are responsible for paying taxes on income generated within and outside of Vietnam. The general corporate income tax rate applicable to enterprises subject to tax is 20% from 1 January 2016, except in some cases where higher tax rates are applied or tax incentives are granted, such as enterprises operating in the petroleum and mineral extraction sectors, which may be subject to higher tax rates ranging from 32% to 50%, depending on the specific project and business establishment

To encourage enterprises to invest in priority areas and industries in order to create drivers for economic growth; encourage regional development; encourage job creation; promote exports, etc. thereby contributing to the overall development orientation of the country, the Government also offers many preferential tax policies to reduce and exempt corporate income tax rates. Some notable levels of reduction and exemption of corporate income tax applicable to foreign-invested companies that meet the conditions specified in Article 1.7 of the amended Law on Corporate Income Tax 2013 include:

• A tax rate of 10% for fifteen years;
• A tax rate of 10% (no time limit);
• A tax rate of 20% for ten years.

In addition to the above-mentioned time limit, for projects that need to attract large-scale and high-tech investment, the period of application of preferential tax rates may be extended, but the additional period shall not exceed fifteen years[2].

3. Value added tax

The value-added tax applies to activities of buying and selling goods and providing services in the territory of Vietnam, including the import of goods.

Article 8 of the Law on Value-added tax 2008 amended in 2016 stipulates the tax rates for goods and services as follows:

3.1. 0% tax rate:

• Applicable to exported goods and services, international transport, and goods and services not subject to value-added tax upon export.
• Excludes services such as technology transfer, reinsurance, credit granting, capital transfer, derivative financial services, postal, telecommunications, and certain export products.

3.2. Tax rate of 5%: applicable to essential goods and services such as clean water, ore for fertiliser production, agricultural services, unprocessed crop and livestock products, fresh food, some handicraft products, medical equipment, educational aids, cultural activities, etc. and social housing.

3.3. Tax rate of 10%: applies to goods and services not falling under the above two tax rates.

The purpose of applying different tax rates is to support the development of key industries and sectors encourage exports, and at the same time ensure revenue for the state budget from domestic production and business activities.

4. Import and export taxes

When exporting and importing goods from and into Vietnam, foreign-invested companies shall have to pay export and import tax in accordance with the Law on Export and Import tax 2016. This tax is calculated based on the real value of the goods and different tax rates apply depending on the type of goods.

Export and import duties shall be applied to goods imported into Vietnam from abroad and goods exported abroad from Vietnam. The purpose of collecting this tax is to regulate the export of goods, and at the same time is an important source of budget revenue of the State.

5. Land use fees, land rental fees, land use tax

Land use fees/land rental fees are the amounts that land users must pay to the State when being allocated land with land use fees/leased land, allowed to change the land use purpose, or allowed to change the land use purpose to lease land, or in other cases where land use fees/land rental fees must be paid according to legal regulations. Meanwhile, land use tax is understood as a mandatory payment to the state budget that organisations, individuals, and households must pay when using land, except for cases of exemption or non-payment.

Cases of exemption or reduction of land use fees, land rental fees, land use tax:

• Exemption and reduction of land use fees: according to Article 5 of Decree No. 57/2018 on mechanisms and policies to encourage enterprises to invest in agriculture and rural areas, enterprises with agricultural projects (especially preferential investments, preferential investments, and encouraged investments) that are allocated land by the State or allowed to change land use purposes for housing construction for workers as stipulated in Article 55 of the Land Law are exempt from land use fees for the area of land changed for building houses for workers at the project. Subsequently, they are exempt from land use fees for the converted area.
• Exemption or reduction of land rental fees, water surface fees: according to Article 6 of Decree No. 57/2018.
• Exemption or reduction of non-agricultural land use tax: according to Articles 10 and 11 of Circular No. 153/2011/TT-BTC, exemption from agricultural land use tax for:

1. Land of investment projects in areas particularly encouraged for investment (especially preferential investment); investment projects in areas with extremely difficult socio-economic conditions; investment projects encouraged for investment (preferential investment) in areas with difficult socio-economic conditions; land of enterprises employing more than 50% of their labour force as war invalids and sick soldiers;
2. Land of socialisation establishments for activities in the fields of education, vocational training, healthcare, culture, sports, and environment.

Additionally, for special business activities, foreign-invested companies may also be subject to special consumption tax, environmental protection tax, etc.

The above is an overview of  The Fees And Taxes Payable By Foreign-Invested Companies In Vietnam that Phuoc and Associates share with readers. If you encounter any difficulties related to the legal field, please contact us. Phuoc & Associates is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc & Associates is also considered one of the law firms with a leading team of staff in the legal field in Vietnam. practice fields are rated as the top in the legal market such as Labor and Employment, Tax, Mergers and Acquisitions, Litigation. We are confident to be one of the law firms providing the best legal services to our clients.

[1] Article 1.6 of the Law on Corporate income tax amended in 2013

[2] Article 1.7 of the Law on corporate income tax amended in 2013