Tax Incentives in Vietnam: A Comprehensive Guide for Foreign Companies

As Vietnam presents a more and more open economy in order to attract foreign investment, the government has created some interesting tax incentives. These include paying no taxes for a certain period of the initial establishment in the country, involving tech-based industries, and investing in underdeveloped geographical areas of the country. Understanding and applying for these tax incentives is no easy feat. This guide will provide details for foreign businesses looking to expand their business to Vietnam, that fit the government

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When compared to other countries in Southeast Asia, Vietnam’s tax incentives stand out and create a more favorable condition for foreigners to expand their business operations or invest in new projects.

Through reading this article, you will have a bigger picture of tax incentives in Vietnam, which will help you take advantage of the tax incentives offered for your business expansion and investment in Vietnam.

Taxation in Vietnam

In general, there are three common taxes in Vietnam:

• Corporate Income Tax
• Personal Income Tax
• Value-added Tax

The biggest incentives are regarding Corporate Tax incentives for high-priority tech-based industries.

Overview of Corporate Income Tax (CIT)

Foreigners continue to pour in and start businesses in Vietnam because they are aware of the continuous decrease in the corporate income tax rate in the country. The Vietnamese CIT rate decreased from 32% to 20% between 2000 and 2018. Except for Singapore, the CIT rate in Vietnam is lower than most countries in the region, including Malaysia, Thailand, Indonesia, the Philippines, and Japan. The following shows the CIT rates in Vietnam compared to ot’s neighboring countries:

• Vietnam – 20%
• Malaysia – 24%
• Indonesia – 22%
• Philippines – 30%

CIT is payable annually according to the tax law in Vietnam.

Related Reading: The Most Common Tax Infringements in Vietnam and How to Avoid Them

Value Added Tax (VAT)

Value-added tax is considered the most prevalent and indirect tax in Vietnam. Consumers purchasing goods and services in Vietnam will be imposed a VAT of 0%, 5%, or 10%, depending on the types of goods and services.

In most cases, a uniform VAT rate of 10% is applicable to the majority of products. Items and services falling under the state’s emphasized and incentivized policies are subject to a reduced VAT rate of 5%. Moreover, a VAT rate of 0% is in place for goods and services that are exported along with their delivery.

2023 Update: As per Decree 44/2023/ND-CP from the National Assembly of Vietnam, there has been a reduction in the VAT rate for eligible goods and services from 10% to 8%, effective from July 1st to December 31st, 2023. This policy aims to enhance economic revival and growth following the pandemic. Nevertheless, there exist three sets (Appendix I, II, and III) of taxable products in the decree above that are excluded from this tax reduction. These items pertain to various categories such as information technology and financial services.

In Vietnam, a clear differentiation exists between products that are VAT-exempt and those that are subject to a 0% VAT rate, as outlined in Circular 219/2013/TT-BTC. Precisely, exports and their accompanying delivery are categorized with a 0% VAT rate, and businesses engaged in this industry still need to fulfill the VAT registration and reporting procedures.

Read Related: Complete Guide to Corporate Taxes and Compliance Obligations in Vietnam Made by Experts

Tax Incentives in Vietnam

If your business qualifies for corporate tax incentives, it becomes eligible for a tax exemption during the initial 4 years of operation.

You can achieve tax exemption through two methods:

Incomes of enterprises from the execution of new public sector-related projects in a disadvantaged area (geographic area) or extremely disadvantaged geographical area specified in the Appendix of Decree No. 218/2013/ND-CP.

or

High-tech enterprises and agricultural enterprises utilizing high technologies receive tax exemption or reduction for a designated period. These incentives commence from the year in which they acquire the High-tech Enterprise Certificate or the Agriculture Enterprise Applying High Technologies Certificate.

When are these Tax Incentives Applied?

If your business meets the criteria for corporate tax incentives, it gains eligibility for tax exemption throughout its initial 4 years of operation.

You can attain tax exemption through two approaches:

How to Apply for Tax Incentives in Vietnam

In order to qualify for tax incentives in Vietnam you must apply for two certifications:

• Certificate of High-tech Enterprise
• Certificate of Agriculture Enterprise Applying Technologies

The application procedures for these certificates are quite stringent and take a considerable amount of time.

Corporate Tax Incentives for Software Production or ICT Companies

The Vietnamese government has prioritized software and IT industries as part of its economic development and offers attractive tax incentives for IT companies. These CIT incentives are as follows:

CIT incentives for the first 15 years, in Detail:

• First 4 years: exempt from CIT completely
• Next 9 years: 50% tax reduction of the 10% rate
• Next 2 years: 10% CIT

From 16th years of operation and onward: Standard 20% CIT

Example:

First 15 years

• From 2030 to 2033: No CIT paid
• From 2034 to 2042: 5% CIT (in regulations it’s stated as 50% of the 10% CIT)
• From 2043 to 2044: 10% CIT is paid

From 2045 onward: 20% CIT

The Process to apply for a Certificate of High-tech Enterprise in Vietnam

The process to get the certificate of High-enterprise for an ICT firm in Vietnam involves the following 7 stages:

7 Stages to qualify as a software production process for CIT incentives

1. Requirements determination encompasses the following tasks: analyzing; gathering and developing requirements; providing consultation on process adjustment; and consolidating and approving requirements.

2. Analysis and design responsibilities include describing requirements, creating development algorithms, modeling data, modeling functionality, modeling information flow, choosing software solutions, designing software systems, and designing software modules and units.

3. Programming and coding jobs include those related to software, software units and modules, software adjustments, and modifications, software integration of software systems, and software coding.

4. Software testing includes the following tasks: creating test scenarios for software modules and units; software testing; software system testing; software function testing; software quality assurance; estimating the likelihood of mistakes; gauging client satisfaction; and software transfer.

5. Software completion and packaging responsibilities include the creation of software description documentation, installation and use instructions, software packaging, design registration, and intellectual property rights registration.

6. Software maintenance includes the following tasks: offering instructions on program installation, installing the software, instructing users, testing the software after transfer, fixing the software after transfer, and providing support and warranty after transfer.

7. Marketing, advertising, selling, and distribution of software products are all included in the publishing and distribution of software products, as well as their publication.

What next?

To go through the incorporation process and apply for these special incentives foreign firms must employ experienced tax specialists in the country with a long track record in the field. If you think your company fits the requirement laid out above, get in touch by filling out the form below.