Doing Business in Vietnam
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
www.pwc.com/vn
Doing Business
in Vietnam
A reference guide for
investors entering the
Vietnam market for the
first time or growing their
existing business
2015
PwC Vietnam | 1
Disclaimer
This Guide includes information
obtained or derived from a variety of
publicly available sources. PwC has
Doing
not sought to establish the reliability
of these sources or verified such
information.
The information contained in this
document is of a general nature only.
Business
It is not meant to be comprehensive
and does not constitute financial,
legal, tax or other professional
advice. You should not act upon
the information contained in this
in
publication without obtaining
specific professional advice.
Whilst every care has been taken
in preparing this document, PwC
makes no guarantee, representation
Vietnam
or warranty (expressed or implied)
as to its accuracy or completeness,
and under no circumstances will
PwC be liable for any loss caused by
reliance on any opinion or statement
made in this document. Except as
2015
specifically indicated, the expressions
or opinion are those of PwC only and
are subject to change without notice.
This document shall not be copied,
reproduced, transmitted or further
distributed by any recipient.
The materials contained in this
document were assembled in May 4th Edition, July 2015
2015 and were based on the law
enforceable and information available
at the time.
2 | Doing Business in Vietnam
Contents
Foreword 05
Executive Summary
06
An Overview of Vietnam
08
Setting up a Business in Vietnam
12
Taxation 16
Audit and Accountancy 32
Human Resources and Employment Law 34
Trade 36
Banking & Foreign Exchange Controls 38
PwC Vietnam 40
Country Overview
43
Contacts 44
PwC Vietnam | 3
4 | Doing Business in Vietnam
Foreword
This publication has been written for investors I hope that you find this publication useful
planning to enter or expand their presence in in your endeavours to establish a profitable
Vietnam. venture in Vietnam. Should you have more
specific questions, please do not hesitate
In 2014 we celebrated our first 20 years in to contact the professional advisors at our
country. We established offices in Hanoi & Ho offices.
Chi Minh City in 1994, offering a full range
of services including Assurance, Advisory,
Legal and Tax consulting. PwC Vietnam has Dinh Thi Quynh Van
long been advising companies and individuals General Director
on how to establish businesses in Vietnam.
We have close to 800 people with expert
knowledge and practical experience ready to
advise across all industries.
In recent times, Vietnam has faced its fair
share of challenges, not helped by global
and rapidly changing economic conditions.
However, Vietnam remains a strong growth
story. When other markets were foundering
during the economic downturn, Vietnam
posted strong growth. I am confident that
Vietnam will continue to offer tremendous
opportunities to investors.
This guide has been developed by our industry
professionals, lawyers and specialists shaped
by their real on-the-ground experience in
Vietnam. It is meant to provide some insights
into the key aspects of undertaking business
and investing, from the initial establishment
of an entity, implementation of appropriate
legal and tax structures to ongoing compliance
issues. It is a good starting point for anyone
looking to conduct business in Vietnam.
PwC Vietnam | 5
Executive Summary
Welcome to our guide to doing business make sure that you are fully prepared and
in Vietnam. In this publication, we hope committed before investing. The key to success
to provide you with an insight into the key is to have fully assessed your markets and
aspects of undertaking business and investing risks and ensure that you take time to invest
in Vietnam and answer many of the questions in knowing your customers and partners, your
foreign businesses and entrepreneurs have government touch points and stakeholders.
when making their first venture into the
Vietnamese market. This document contains references to some
common issues that investors should be aware
Starting from a low economic base in the of when operating in Vietnam, but each case
early 1990s, Vietnam’s move to a more is different and specific advice should always
market oriented economy from a centrally be sought.
planned one brought rapid growth which, like
elsewhere, slowed during the global financial
crisis.
Whilst Vietnam’s macro-economic troubles
took some shine off its appeal, broad based
growth, low wages and a strong economic
outlook continue to make it an attractive place
for investment and a favourite solution to
rising manufacturing costs elsewhere.
Vietnam’s dynamic environment, reflected
in a young population, growing wealth,
changing consumer attitudes, greater mobility
and urbanisation – are pushing the country
through a period of great change.
For many, the benefits of locating key parts of
the supply chain in Vietnam are compelling
but market forces such as a rising middle
class and the further opening up the economy
also bring access to exciting new sectors and
opportunities outside of manufacturing.
Regardless of the reasons for entry, identifying
the right path in to the market can be
challenging. Success in other markets cannot
necessarily be easily replicated in Vietnam.
The message for those entering the market or
expanding their presence in Vietnam is clear:
6 | Doing Business in Vietnam
PwC Vietnam | 7
An Overview of Vietnam 8 | Doing Business in Vietnam
This guide, Doing Business in Vietnam, meet its large infrastructure needs, and Korea (36%), Hong Kong (15%),
provides a high level overview of the consumer goods to satisfy its rapidly Singapore (14%), and Japan (10%).
practical aspects of doing business in expanding consumer market.
Vietnam, including the common types Vietnam is expected to enter into a
of business entities used by foreign Ranked as the 13th most populous number of Free Trade Agreements over
investors to enter the Vietnam market, country in the world, with a population the coming months, both across ASEAN
and the taxation and regulatory of over 90 million people with a median and globally.
environment. age of 29, Vietnam represents a huge
pool of potential customers for many With negotiations on the Trans Pacific
The guide also covers some practical investors. Partnership (‘TPP’) currently also
issues faced by investors when entering on-going, it is widely considered that
Vietnam. Key Sectors and Trading Vietnam has much to gain from this
Partners agreement, due to its potential for a
Whilst the guide focuses on corporate greater share of the global apparel and
entities, an overview of the taxation Vietnam continues to diversify away footwear market, particularly in the
obligations of individuals and its from agriculture. The industrial sector, US and Japan. The TPP would allow
administration is also presented. now led by services, accounts for Vietnam to export apparel to the US at
approximately 44% of GDP followed by a 0% tariff, making Vietnam’s exports
Geography manufacturing at 38%. The agricultural even more competitive.
sector made up 18% of GDP in 2014.
Vietnam is located in the centre of South
East Asia and is bordered by China to The growth in exports has been driven
the north, Laos and Cambodia to the by the fast growing manufacturing,
west. telecommunications, clothing and
apparel sectors with major exports to
The total area of Vietnam is over ASEAN (19%), EU (19%), US (18%),
331,600 square kilometres and consists Japan (12%) and China (11%).
of mountains and tropical forests as well
as more densely populated plains in Foreign Investment
both the north and south of the country.
With improvements in the stability of
Hanoi in the north is the capital of the the exchange rate and reductions in
country and Ho Chi Minh City in the the level of inflation (which fell from
south is the largest commercial city. Da a peak of 23% in 2011 to 4% in 2014),
Nang, in central Vietnam, is the third the macroeconomic environment has
largest city and an important seaport. stabilised in recent years.
Economic Environment Vietnam remains one of the most
attractive locations for foreign investors
GDP growth was 6% in 2014 up from in South East Asia on account of its low
5.4% in 2013 and is forecast to hit a wages, favourable demographics, a
similar level in 2015. Over the last 20 growing middle class, political stability
years, GDP growth has averaged over and its location. It received $15.6bn in
7%. As well as enjoying strong export foreign direct investment in 2014, a 9%
growth, which grew at more than increase on the previous year.
14% year-on-year in 2014, Vietnam In 2014, much of the foreign direct
is becoming an increasingly large investment into Vietnam came from
importer of capital goods necessary to
PwC Vietnam | 9
Legal and Regulatory Regime will significantly change the business
environment.
Vietnam’s legal powers are centralised
in one supreme body, and then Workforce and Cost of Living
delegated to lower bodies. The National
Assembly is the only body with the The number of people of working age
power to amend the Constitution and in employment in Vietnam totaled
pass laws. 54 million in 2014 with an official
unemployment rate of 2%.
The Vietnamese government has issued
various policies to encourage enterprise Wages and salaries in Vietnam
and foreign investment in recent years. vary widely across occupations and
However, certain industries such as geographic locations. In 2014, the
financial services, telecommunications, average annual income per person was
mining and utilities continue to be approximately $2,000.
subject to restrictions on foreign
ownership. In comparison with other countries
in Asia, the cost of living in Vietnam
Vietnam joined the World Trade remains relatively low.
Organisation (‘WTO’) in 2007. Under
its accession commitments, Vietnam Business Etiquette and Culture
opened up various business sectors to
foreign investment, in some cases under Many Vietnamese are more comfortable
a phased approach. These commitments using their native language rather
are generally referred to when assessing than English. However many English
whether foreign investment in a speakers can be found in Vietnam,
particular sector is allowed. especially in the larger cities.
There is a hierarchy of regulations Presenting business cards is an
in Vietnam, with laws being passed important ritual in the Vietnamese
by the National Assembly, and their business world. Cards are exchanged at
implementing decrees and circulars the beginning of a meeting using both
issued by the government and its hands. Translating written materials
ministries, respectively. A plethora of into Vietnamese shows high regard for
other legal instruments/ guidelines are Vietnamese colleagues.
also issued by various other authorities.
Face to face business meetings are
New Laws on Investment and important in Vietnam and an
Enterprise appropriate level of respect must be
shown according to rank and seniority.
In late 2014, the National Assembly
passed a new Law on Investment
and a new Law on Enterprise, both
of which come into effect on 1 July
2015. As at the date of publication,
the implementing regulations had
not been issued. However, these two
new laws constitute a major change to
the existing laws passed in 2005, and
10 | Doing Business in VietnamThe Future
The Socialist Republic of Vietnam is
a single-party state. As the only party
in the political arena, the role and
influence of the Communist Party is
unique.
As a member of the WTO, Vietnam must
continue to improve its business and
investment environment and bolster its
legal system to meet WTO requirements.
Vietnam has made significant efforts
to ensure that foreign investors are
not disadvantaged compared with
their local counterparts, including an
overhaul of the legal framework
governing investments and protection
of intellectual property. Furthermore,
the government has taken measures to
simplify administrative procedures in
areas such as import and export,
company establishment and making tax
payments.
Despite these measures, there remain
various regulatory issues and obstacles
that must be considered by foreign
investors coming into Vietnam. In
a recent report by the World Bank,
Vietnam was ranked 99th in the world
for the ease of doing business.
However, foreign investment in
Vietnam continues to grow, and the
Government shows its commitment to
market-oriented reforms through its
ongoing efforts to attract foreign direct
investment.
PwC Vietnam | 11Setting up a Business
in Vietnam
12 | Doing Business in VietnamNew Laws on Investment and of either: 4. Branches
Enterprise • A 100% foreign-owned enterprise
This is not a common form of
(where all members are foreign
These come into effect on 1 July 2015 foreign direct investment and is only
investors); or
and may lead to changes to certain of permitted in a few sectors. Branches of
the issues dealt with below. • A foreign-invested joint-venture foreign companies are different from
enterprise between foreign investors representative offices in that a branch
and at least one domestic investor. is permitted to conduct commercial
Forms of Business activities in Vietnam.
A foreign entity may establish its 2. Joint-stock Company
presence in Vietnam as a limited-liability 5. Representative Offices
company with one or more members, A joint-stock company is a limited
a joint-stock company, a partnership, a liability legal entity established through Foreign companies with business
branch, a business cooperation contract a subscription for shares in the company. relations or investment projects
or a representative office. in Vietnam may apply to open
Under Vietnamese law, this is the only representative offices in Vietnam.
Foreign investors may also buy an type of company that can issue shares.
interest in an existing domestic The charter capital of a joint-stock A representative office is not an
enterprise, subject in some cases to company is divided into shares and independent legal entity and may not
ownership limitations which vary each founding shareholder holds shares conduct direct commercial or revenue-
depending on the industry sector. corresponding to the amount of capital generating activities (i.e., the execution
the shareholder has contributed to the of contracts, receipt of funds, sale or
The choice of investment vehicle will company. purchase of goods, or provision of
depend on factors such as the number of services).
investors, industry, size of the project A joint-stock company is required to
and whether there is any intention to have at least three shareholders. There However, a representative office is
list. is no limit on the maximum number of permitted to:
shareholders in such companies.
• Act as a liaison office to observe the
1. Limited-liability Company The governance of a joint-stock
business environment;
company includes a general • Search for trade and/or investment
A limited-liability company is a legal
meeting of shareholders, the board of opportunities and partners;
entity established by its members
management, the chairman of the board
through capital contributions to the • Supervise and assist with the
of management, the general director
company. The capital contribution implementation of contracts entered
and a board of supervisors (where the
of each member is treated as equity into between its head office and
joint stock company has more than
(charter capital). The members of a Vietnamese partners;
11 individual shareholders, or if a
limited-liability company are liable for
corporate shareholder holds more than • Act on behalf of its head office
the financial obligations of the
50% of the shares of the joint-stock to supervise and direct the
limited-liability company to the extent
company). implementation of projects in
of their capital contributions.
Vietnam.
A joint-stock company may either be
The management structure of a limited-
100% foreign-owned or may take the Thus representative offices can provide
liability company would normally
form of a joint venture between both a wide range of ancillary support to
consist of the members’ council, the
foreign and domestic investors. their head offices overseas. This is a very
chairman of the members’ council, the
general director and a controller (or common form of presence in Vietnam
board of supervisors where the limited- 3. Partnership for foreign companies, particularly
liability company has more than 11 those in the first stage of a market entry
members). A partnership may be established strategy.
between two individual general
A limited-liability company established partners. The general partner has
by foreign investors may take the form unlimited liability for the operations of
the partnership.
PwC Vietnam | 136. Business Cooperation Transfer (‘BOT’), Build-Transfer (‘BT’), sport and relevant services, offices for
Contracts (‘BCC’) Build-Transfer-Operate (‘BTO’), Build- government authorities;
Own-Operate (‘BOO’), Build-Transfer- • Infrastructure for commerce, science
A BCC is a cooperation agreement Lease (‘BTL’), Build -Lease-Transfer and technology, hydrometeorology,
between foreign investors and at least (‘BLT’) and Operate-Manage (O&M) economic zone, industrial zone, high-
one Vietnamese partner in order to Contracts. tech zone, centralised information
carry out specific business activities. technology zone, information
Both public and private investors technology application;
This form of investment does not are encouraged to participate in PPP • Infrastructure for agriculture
constitute the creation of a new legal Contracts. The rights and obligations and rural development, services
entity. The investors in a BCC generally of the foreign investor will be regulated for enhancing the correlation
share the revenues and/or products by the signed PPP contracts and the of agricultural production with
arising from a BCC and have unlimited applicable regulations governing such processing and consumption of
liability for the debts of the BCC. contracts. Investment sectors include: agricultural products; and
• Other sectors according to the Prime
• Transportation infrastructures and Minister’s decisions.
7. Public and Private relevant services;
Partnership Contracts • Lighting systems, clean water supply Setting up a Business
systems, water drainage systems,
A Public and Private Partnership (‘PPP’) water/waste collection and treatment In order to set up a limited liability
contract is an investment form carried systems, social/resettlement houses, company, a joint stock company, a
out based on a contract between the cemeteries; partnership or enter into a business
government authorities and project • Power plants and power transmission cooperation contract with one or
companies for infrastructure projects lines; more Vietnamese partners, the foreign
and public services. • Infrastructures for healthcare, investors must obtain an
educational and training, cultural,
PPP Contracts includes Build-Operate-
14 | Doing Business in Vietnaminvestment registration certificate from registration) procedures. These require, Liquidation and Bankruptcy
the licensing authorities, which may inter alia, the licence application to be
be either (i) the provincial people’s reviewed also at the central government A company can only be voluntarily
committee (for projects located outside ministry level in Hanoi. liquidated if it is solvent and all creditors
of industrial zones, export processing can be paid. The process generally takes
zones, high- tech zones and economic Approval for the establishment of 6 - 12 months and requires a final tax
zones), or (ii) the provincial industrial a representative office of a foreign audit.
zone management authority or company is granted in the form of a
economic zone management authority licence issued by the provincial people’s For insolvent companies, a new
(for projects located in industrial zones, committee. Procedures for setting Bankruptcy Law came into effect 1
export processing zones, high-tech up a representative office are quite January 2015. The new law sets out,
zones and economic zones). simple in comparison with those for inter alia, which parties can instigate
a company and it normally takes 2 - 4 bankruptcy proceeding, procedures
After the issuance of the investment weeks to obtain a representative office for the appointment of a liquidator,
registration certificate, the foreign licence from the date of submission of a organisation of creditors meetings and
investors must conduct procedures with complete application dossier. priority of creditor payments.
the licensing authorities to obtain a
business registration certificate. Under For PPP projects, foreign investors must
the regulations, the licensing process sign PPP contracts with an authorised
should take around 18 working days. In State body, and then establish a project
practice it usually takes longer. company in the form of a limited
liability company or a joint stock
Investment in “conditional” sector company.
activities is subject to the more
cumbersome appraisal (as opposed to
PwC Vietnam | 15Taxation 16 | Doing Business in Vietnam
General Overview exploitation of mineral resources (e.g. From 2015, large manufacturing
silver, gold, gemstones etc.) are subject projects are defined to include projects
Most business activities and investments to CIT rates of 40% or 50%, depending with investment capital of VND12,000
in Vietnam will be affected by the on the project’s location. billion or more, disbursed within 5
following taxes: years of being licensed (excluding those
Tax Incentives related to the manufacture of products
• Corporate income tax; subject to special sales tax or those
• Various withholding taxes; Tax incentives are granted to new exploiting mineral resources) and using
• Capital assignment profits tax; investment projects based on regulated technologies appraised in accordance
• Value added tax; encouraged sectors, encouraged with relevant laws.
• Import duties; locations and the size of the project.
• Personal income tax of Vietnamese Business expansion projects which meet Further, new investment projects
and expatriate employees; and certain conditions are also entitled engaged in the manufacture of
• Social insurance, unemployment to CIT incentives. New investment industrial products prioritized for
insurance and health insurance projects and business expansion projects development will be entitled to CIT
contributions. do not include projects established incentives if they meet one of the
as a result of certain acquisitions or following conditions:
There are various other taxes that reorganisations.
may affect certain specific activities, • The products support the high-
including: The sectors which are encouraged by technology sector; or
the Vietnamese Government include • The products support the garment,
• Special sales tax; education, health care, sport/culture, textile and footwear, IT, automobiles
• Natural resources tax; high technology, environmental assembly or mechanics sector and
• Property taxes; protection, scientific research, are not produced domestically as
• Export duties; and infrastructure, software production and at 1 January 2015, or if produced
• Environment protection tax. renewable energy. domestically, they do not meet
the quality standards of the EU or
All these taxes are imposed at the Locations which are encouraged include equivalent.
national level. There are no local, state qualifying economic and high-tech
or provincial taxes. zones, certain industrial zones and The two common rates of 10% and
difficult socio-economic areas. 20% are available for 15 years and 10
years respectively, starting from the
Corporate Income Tax (‘CIT’) commencement of operating activities.
Large manufacturing projects with
investment (i.e. total) capital of From 1 January 2015, the preferential
Tax Rates VND6,000 billion or more disbursed rate of 15% will apply in certain cases.
within 3 years of being licensed The duration of the application of the
Enterprises (generally companies) (excluding those related to the preferential tax rate can be extended
are subject to the tax rates imposed manufacture of products subject to in certain cases. From 1 January 2016,
under the CIT Law. The standard CIT special sales tax or those exploiting enterprises with projects entitled to
rate is currently 22% and is expected mineral resources) can also qualify for the preferential CIT rate of 20% will
to fall to 20% from 2016. A 20% rate CIT incentives if the projects meet either enjoy the rate of 17% instead. When the
applies for enterprises with revenue of the following criteria: preferential rate expires, the CIT rate
of no more than VND20 billion in the reverts to the standard rate. Certain
preceding year. Companies operating • Minimum revenue of VND10,000 socialised sectors (e.g. education,
in the oil and gas industry are subject billion/annum for at least 3 years health) enjoy a 10% rate for the life of
to CIT rates ranging from 32% to 50% after the first year of operations; or the project.
depending on the location and specific • Headcount of more than 3,000 at
project conditions. Companies engaging least 3 years after the first year of
in prospecting, exploration and operations.
PwC Vietnam | 17Taxpayers may be eligible for tax VND20 million or above, and are not for education, health care, natural
holidays and reductions. The holidays specifically identified as being non- disaster or building charitable homes
take the form of a complete exemption deductible. Examples of non-deductible for the poor;
from CIT for a certain period beginning expenses include: • Administrative penalties, fines, late
immediately after the enterprise first payment interest;
makes profits, followed by a period • Depreciation of fixed assets which is • Contributions to voluntary pension
where tax is charged at 50% of the not in accordance with the prevailing funds and the purchase of voluntary
applicable rate. However, where the regulations; pension and life insurance for
enterprise has not derived profits • Employee remuneration expenses employees exceeding VND 1 million
within 3 years of the commencement which are not actually paid, or are per month per person;
of operations, the tax holiday/tax not stated in a labour contract or • Certain expenses directly related
reduction will start from the fourth year collective labour agreement; to the issuance, purchase or sale of
of operation. Criteria for eligibility for • Staff welfare (including certain shares;
these holidays and reductions are set benefits provided to family members • Creditable input value added tax,
out in the CIT regulations. of staff) exceeding a cap of one corporate income tax and personal
month’s average salary; income tax.
Additional tax reductions may be • Reserves for research and
available for companies engaging development not in accordance with From 2015 the cap on the tax
in manufacturing, construction and the prevailing regulations; deductibility of advertising and
transportation activities which employ • Provisions for severance allowance promotion expenses has been abolished.
many female staff or employ ethnic (except for companies not subject to
minorities. mandatory unemployment insurance For certain businesses such as insurance
contributions) and payments of companies, securities trading and
Tax incentives which are available for severance allowance in excess of the lotteries the Ministry of Finance
investment encouraged sectors do not prescribed amount per the Labour provides specific guidance on deductible
apply to other income, which is broadly Code; expenses for CIT purposes.
defined. • Overhead expenses allocated to a
permanent establishment (“PE”) in Business entities in Vietnam are allowed
Calculation of Taxable Profits Vietnam by the foreign company’s to set up a tax deductible Research and
head office exceeding the amount Development fund to which they can
Taxable profit is the difference between under a prescribed revenue-based appropriate up to 10% of annual profits
total revenue, whether domestic allocation formula; before tax. Various conditions apply.
or foreign sourced, and deductible • Interest on loans corresponding to
expenses, plus other assessable income. the portion of charter capital not yet Losses
contributed;
Taxpayers are required to prepare an • Interest on loans from non-economic Taxpayers may carry forward tax losses
annual CIT return which includes a and non-credit organisations fully and consecutively for a maximum
section for making adjustments to exceeding 1.5 times the interest rate of five years.
accounting profit to arrive at taxable set by the State Bank of Vietnam;
profit. • Provisions for stock devaluation, bad Losses arising from incentivised
debts, financial investment losses, activities can be offset against profits
Non-deductible Expenses product warranties or construction from non-incentivised activities, and
work which are not in accordance vice versa. Losses from the transfer
Expenses are tax deductible if they with the prevailing regulations; of real estate and the transfer of
relate to the generation of revenue, • Unrealised foreign exchange losses investment projects can be offset against
are properly supported by suitable due to the year-end revaluation of profits from other business activities.
documentation including bank transfer foreign currency items other than
vouchers where the invoice value is account payables; Carry-back of losses is not permitted.
• Donations except certain donations
18 | Doing Business in VietnamThere is no provision for any form Profit Remittance
of consolidated filing or group loss
relief. Foreign investors are permitted to
remit their profits annually at the
Administration end of the financial year or upon
termination of the investment in
Provisional quarterly CIT returns are Vietnam. Foreign investors are not
no longer required. Enterprises are permitted to remit profits if the
instead required to make quarterly investee company has accumulated
provisional CIT payments based on losses.
estimates. If the provisional quarterly
CIT payments account for less than The foreign investor or the investee
80% of the final CIT liability, the company are required to notify the tax
shortfall in excess of 20% is subject authorities of the plan to remit profits
to late payment interest (currently at least 7 working days prior to the
as high as 18% per annum), from the scheduled remittance.
deadline for payment of the fourth
quarterly CIT liability.
Final CIT returns are filed annually.
The annual CIT return must be filed
and submitted not later than 90
days from the fiscal year end. The
outstanding tax payable must be paid
at the same time.
Where a taxpayer has a dependent
accounting unit (e.g. branch) in a
different province, a single CIT return
is required. However, manufacturing
companies are required to allocate
tax payments to the various
provincial tax authorities in the
locations where they have dependent
manufacturing establishments. The
basis for allocation is the proportion
of expenditure incurred by each
manufacturing establishment over the
total expenditure of the company.
The standard tax year is the calendar
year. Companies are required to notify
the tax authorities in cases where
they use a tax year (i.e. fiscal year)
other than the calendar year.
PwC Vietnam | 19Transfer Pricing
Vietnam’s transfer pricing regulations
outline various situations where
transactions will be considered as
being between related parties and the
mechanisms for determining the market
“arm’s length” transaction value.
Under the wide ranging definition of
related parties, the control threshold
is lower than in many other countries
(20%) and the definition also extends
to certain significant supplier, customer
and funding relationships between
otherwise unrelated parties. Vietnam’s
transfer pricing rules also extend to
domestic related party transactions.
The acceptable methodologies for
determining arm’s length pricing are
analogous to the principles espoused
by the Organisation for Economic
Cooperation and Development (OECD),
i.e. comparable uncontrolled price,
resale price, cost plus, profit split and
comparable profits methods.
Compliance requirements include an
annual declaration of related party
transactions and transfer pricing
methodologies used, which is required
to be filed together with the annual
CIT return. For tax years commencing
on or after 1 January 2014, a revised
declaration form is required to be
completed. This form contains
enhanced declaration requirements,
specifically requiring companies to
declare and self-assess the arm’s
length value of their transactions
or alternatively, make a voluntary
adjustment.
Companies which have related party
transactions must also prepare and
maintain contemporaneous transfer
pricing documentation, which is
required to be submitted to the tax
20 | Doing Business in Vietnamauthorities within 30 working days of a bonds and certificates of deposits are services in Vietnam.
request, in Vietnamese. subject to deemed tax of 0.1% of the
gross sales proceeds. Foreign contractors can choose between
An advance pricing agreement (“APA”) three methods for tax payment - the
mechanism was introduced in 2014. Royalties and Licence Fees deduction method, the direct method
The GDT is working through the initial and the hybrid method.
‘pilot’ APA applications which allow FCT at 10% applies to payments to a
taxpayers and the tax authorities foreign entity for the right to use or Method One – Deduction Method
to agree in advance the pricing transfer intellectual property or for
methodology and outcomes. transfers of technology or software This entails the foreign contractor
licenses. registering for VAT purposes and filing
Foreign Contractor CIT and VAT returns in the same way as
Withholding Tax (‘FCT’) Payments to Foreign a local entity. Foreign contractors can
Contractors apply the deduction method if they meet
FCT applies to certain payments to all of the requirements below:
foreign parties including interest, A withholding tax on payments to
royalties, service fees, lease rentals, • They have a PE or are tax resident in
foreign contractors applies where a Vietnam;
insurance, transportation, transfers of Vietnamese party (including foreign
securities and goods supplied within • The duration of the project in Vietnam
owned companies) contracts with a is more than 182 days; and
Vietnam or associated with services foreign entity that does not have a
rendered in Vietnam, and certain • They adopt the full Vietnam
licensed presence in Vietnam. Accounting System (“VAS”), complete
distribution arrangements. It normally
comprises a combination of CIT and VAT a tax registration and are granted a
This FCT generally applies to payments tax code.
at varying rates but can also include PIT derived from Vietnam, except for the
for payments to foreign individuals. pure supply of goods (i.e. where the The Vietnamese customer is required
responsibility, cost and risk relating to notify the tax office that the foreign
Dividends to the goods passes at or before the contractor will pay tax under the
border gate of Vietnam and there are deduction method within 20 working
No withholding or remittance tax is no associated services performed in
imposed on profits paid to foreign days from the date of signing the
Vietnam), services performed and contract.
corporate shareholders. consumed outside Vietnam and various
other services performed wholly outside If the foreign contractor carries out
Interest Vietnam (e.g. certain repairs, training, many projects in Vietnam and qualifies
advertising, promotion, etc.) for application of the deduction method
Withholding tax of 5% applies to for one project, the contractor is
interest paid on loans from foreign In addition, certain distribution required to apply the deduction method
entities. Offshore loans provided arrangements where foreign entities for its other projects as well.
by certain Government or semi- are directly or indirectly involved in
government institutions may obtain an the distribution of goods or services The foreign contractor will pay CIT at
exemption from interest withholding in Vietnam are subject to FCT – e.g. 22% on its net profits.
tax where a relevant double taxation where the foreign entity retains
agreement or inter-governmental ownership of the goods, bears
agreement applies. distribution, advertising or marketing Method Two – Direct Method
costs, is responsible for the quality
Interest paid on bonds (except for of goods or services, makes pricing Foreign contractors adopting the direct
tax exempt bonds) and certificates of decisions or authorises/hires other (or withholding) method do not register
deposit issued to foreign entities are Vietnamese entities to carry out part of for VAT purposes nor file CIT or VAT
subject to 5% withholding tax. Sales of the distribution of goods/provision of returns. Instead CIT and VAT will be
withheld by the Vietnamese customer
PwC Vietnam | 21at prescribed rates from the payments the 5% CIT withholding on services Capital Assignment Profits Tax
made to the foreign contractor. Various supplied by a foreign contractor may (‘CAPT’)
rates are specified according to the be eliminated under a DTA if the
nature of the activities performed. foreign contractor does not have a PE in Gains derived by an entity on transfers
The VAT withheld by the Vietnamese Vietnam. of interests (as opposed to shares) in a
customer is generally an allowable input Vietnam limited liability company or
credit in its VAT return. Vietnam has signed more than 65 DTAs other enterprises are subject to 22%
and there are a number of others at CIT. This is generally referred to as
Separate requirements for FCT various stages of negotiation. Notably capital assignment profits tax (CAPT)
declarations under this method are absent is a DTA with the United States of although it is not a separate tax as such.
provided for foreign contractors America. The taxable gain is determined as the
providing goods and services for excess of the sale proceeds less cost (or
exploration, development and Additional guidance has been the initial value of contributed charter
production of oil and gas. introduced on the application of DTAs capital for the first transfer) less transfer
and became effective in 2014. The expenses.
Method Three – Hybrid Method most notable and interesting changes
relate to beneficial ownership and Where the vendor is a foreign entity,
The hybrid method allows foreign general anti-avoidance provisions. DTA a Vietnamese purchaser is required to
contractors to register for VAT and entitlements will be denied where the withhold the tax due from the payment
accordingly pay VAT based on the main purpose of the arrangements is to the vendor and account for this to the
deduction method (i.e. output VAT less to obtain beneficial treatment under tax authorities. Where the purchaser
input VAT), but with CIT being paid the terms of the DTA (treaty shopping) is also a foreign entity, the Vietnamese
under the direct method rates on gross or where the recipient of the income is enterprise in which the interest is
turnover. not the beneficial owner. The guidance transferred is responsible for the CAPT
dictates that a substance over form administration. The return and payment
Foreign contractors wishing to adopt the analysis is required for the beneficial is required within 10 days from the date
hybrid method must: ownership and outlines the factors that of official approval of the sale.
may be indicative of a lack of beneficial
• Have a PE in Vietnam or be tax ownership: Capital assignment with a value of
resident in Vietnam; VND 20m or more must be supported
• Operate in Vietnam under a contract • Where the recipient is obligated to by documents evidencing non-cash
with a term of more than 182 days; distribute more than 50% of the payment. The tax authorities have
and income to an entity in a third country the right to deem the transfer price for
• Maintain accounting records in within 12 months; CAPT purposes.
accordance with the accounting • Where the recipient has little or no
regulations and guidance of the substantive business activities; Transfers of securities (bonds, shares
Ministry of Finance. • Where the recipient has little or no of public joint sto ck companies, etc.)
control over or risk in relation to the by a foreign entity are subject to CIT
The FCT rates including VAT and CIT income received; on a deemed basis at 0.1% of the total
rates are summarised in Table 1 (page • Back to back arrangements; disposal proceeds. Gains derived by
23). • Where the recipient is resident in a a resident entity from the transfer of
country with a low tax rate; securities are however taxed at 22%.
• The recipient is an intermediary or
Double Tax Agreements agent.
(‘DTAs’)
The CIT withholding taxes may be
affected by a relevant DTA. For example,
22 | Doing Business in VietnamTable 1: FCT Rates, including VAT and CIT Rates
Industry Deemed VAT Deemed CIT
Rate (%) Rate (%)
Supply of goods in Vietnam or associated with services
rendered in Vietnam (including in-country import-export
and imports, distribution of goods in Vietnam or delivery of 1 (*) 1
goods under Incoterms where the seller bears risk relating to
goods in Vietnam).
Services 5 5
Services together with supply of machinery and equipment
3 2
(**)
Restaurant, hotel and casino management services 5 10
Construction, installation without supply of materials or
5 2
machinery, equipment
Construction, installation with supply of materials or machi-
3 2
nery, equipment
Leasing of machinery and equipment 5 5
Leasing of aircraft, vessels (including components) Exempt 2
Transportation (***) 3*** 2
Interest Exempt 5
Royalties Exempt 10
Exempt/5
Insurance 5
****
Re-insurance, commission for re-insurance Exempt 0.1
Transfer of securities Exempt 0.1
Financial derivatives Exempt 2
* VAT will not be payable where goods are exempt from VAT or where import VAT is paid
** Where the contract does not separate the value of goods and services
*** International transportation is subject to 0% VAT
**** Certain types of insurance are exempt from VAT (see ‘Exempt Goods and Services’ in VAT section).
PwC Vietnam | 23Value Added Tax (‘VAT’) products or which have just been the lender’s authorisation in order to
through preliminary processing; settle a guaranteed loan and provision
Scope of Application • Capital contributions in kind; of credit information;
• Certain asset transfers between a • Various securities activities including
VAT applies to goods and services parent company and its subsidiaries fund management;
used for production, trading and or between subsidiaries of the same • Capital assignment;
consumption in Vietnam (including parent company; • Foreign currency trading;
goods and services purchased from non- • Collections of compensation/ • Debt factoring;
residents). A domestic business must indemnities by insurance companies • Certain insurance services (including
charge VAT on the value of goods or from third parties; life insurance, health insurance,
services supplied. • Collections on behalf of other agricultural insurance and
parties which are not involved in the reinsurance);
In addition, VAT applies on the duty provision of goods/services (e.g. if • Medical services;
paid value of imported goods. The company A purchases goods/services • Teaching and training;
importer must pay VAT to customs from company B, but pays to company • Printing and publishing of
authorities at the same time they pay C and subsequently company C pays newspapers, magazines and certain
import duties. For imported services, to company B, then the payment types of books;
VAT is levied via the FCT mechanism. from company C to company B is not • Passenger transport by public buses;
subject to VAT); • Transfer of technology, software and
VAT payable is calculated as the output • Commissions earned by (i) agents software services except exported
VAT charged to customers less the input selling services including postal, software which is entitled to the 0%
VAT suffered on purchases of goods and telecommunications, lottery, rate;
services. For input VAT to be creditable, airlines/bus/ship/train tickets, at • Gold imported in pieces which have
the taxpayer must obtain a proper VAT prices determined by principals; not been processed into jewellery;
invoice from the supplier. For VAT paid and (ii) agents for international • Exported unprocessed mineral
on imports the supporting document transportation, airlines and shipping products such as crude oil, rock, sand,
is the tax payment voucher and for services entitled to 0% VAT; and (iii) rare soil, rare stones, etc.;
VAT collected via the FCT mechanism, insurance agents; • Imports of machinery, equipment and
the supporting document is the FCT • Commissions from the sale of exempt materials which cannot be produced
payment voucher. goods/services. in Vietnam for direct use in science
research and technology development
Exempt Goods and Services activities;
Goods or Services where VAT • Equipment, machinery, spare parts,
declaration and payment are There are stipulated categories of VAT specialised means of transport and
not required exemption, including inter alia: necessary materials which cannot be
produced in Vietnam for prospecting,
For these supplies, no output VAT has • Certain agricultural products; exploration and development of oil
to be charged but input VAT paid on • Goods/services provided by and gas fields;
related purchases may be credited. individuals having annual revenue of • Goods imported in the following
These supplies include: VND100 million or less; cases: international non-refundable
• Imported or leased drilling rigs, aid, including from Official
• Compensation, bonuses and aeroplanes and ships of a type which Development Aid, foreign donations
subsidies, except those provided in cannot be produced in Vietnam; to government bodies and to
exchange for marketing/promotional • Transfer of land use rights (subject to individuals (subject to limitations).
services; limitations);
• Transfers of emission rights and other • Financial derivatives and credit
financial revenues; services (including credit card
• Transfer of investment projects; issuance, finance leasing and
• Sale of agricultural products that factoring); sale of VATable assets
have not been processed into other mortgaged by the borrower under
24 | Doing Business in VietnamTax Rates exported goods and services (except for VAT is calculated on the import dutiable
international transportation services): price plus import duty plus special sales
There are three VAT rates as follows: e.g. contracts, evidence of non-cash tax (if applicable) plus environment
payment and customs declarations (for protection tax (if applicable). For goods
0%: This rate applies to exported exported goods). sold on an instalment basis (except for
goods/services including goods/services real estate), VAT is calculated on the
sold to overseas/non-tariff areas and There are a number of services specified total price without interest, rather than
consumed outside Vietnam/in the in the VAT regulations which do not the instalments actually received.
non-tariff areas, goods processed for qualify for 0% VAT, in particular
export or in-country export (subject advertising, hotel services, training, • Input VAT
to conditions), goods sold to duty entertainment, tourism provided in
free shops, certain exported services, Vietnam to foreign customers; and For domestic purchases, input VAT is
construction and installation carried various services provided to non-tariff based on VAT invoices. For imports,
out for export processing enterprises, areas (including leasing of houses, as there is no VAT invoice, input VAT
aviation, marine and international transport services for employees to credits are based on the tax payment
transportation services. and from their work place and certain voucher. VAT invoices can be declared
catering services). and claimed any time before the
5%: This rate applies generally to company receives notice of a tax audit
areas of the economy concerned VAT Calculation Methods by the tax authorities. Input VAT credits
with the provision of essential goods on payments of VND20 million or more
and services. These include: clean There are two VAT calculation methods, can only be claimed where evidence
water; fertiliser production; teaching the tax deduction method and the direct of non-cash payment is available.
aids; books; unprocessed foodstuffs; calculation method. Input VAT withheld from payments
medicine and medical equipment; to overseas suppliers (i.e. under the
husbandry feed; various agricultural Method One - Deduction Method foreign contractor tax system) can also
products and services; technical/ be claimed where the taxpayer makes
scientific services; rubber latex; sugar This method applies to business VATable supplies.
and its by-products; certain cultural, establishments maintaining full books
artistic, sport services/products and of accounts, invoices and documents If a business sells exempt goods or
social housing. in accordance with the relevant services it cannot recover any input VAT
regulations, including: paid on its purchases. This contrasts
10%: This “standard” rate applies to with supplies entitled to 0% VAT or not
activities not specified as not-subject to - Business establishments with annual subject to VAT, where the input VAT
VAT, exempt or subject to 0% or 5%. revenue subject to VAT of VND1 billion can be recovered. Where a business
or more; generates both VATable and VAT exempt
When a supply cannot be readily - Certain cases voluntarily registering sales, it can only claim an input VAT
classified based on the tax tariff, VAT for VAT declaration under the deduction credit for the portion of inputs used in
must be calculated based on the highest method. the VATable activity.
rate applicable for the particular range
of goods which the business supplies. • Determination of VAT payable
Exported Goods and Services VAT payable = Output VAT – Input VAT
Services rendered directly and goods
sold to foreign companies, including • Calculation of output VAT
companies in non-tariff areas, are
subject to 0% VAT if they are consumed The output VAT to be charged is
outside Vietnam or in non-tariff areas. calculated by multiplying the taxable
price (net of tax) by the applicable VAT
Various supporting documents are rate. With respect to imported goods,
required in order to apply 0% VAT to
PwC Vietnam | 25Method Two - Direct Method provided that they relate to the business items and be registered with the local
of the company. tax authorities. For exported goods a
This method applies to: commercial invoice can be used instead
Administration of domestic invoices.
- Business establishments with annual
revenue subject to VAT of less than All organisations and individuals Special Sales Tax (‘SST’)
VND1 billion; producing or trading VATable goods
- Individuals and business households; and services in Vietnam must register SST is a form of excise tax that applies
- Business establishments which do not for VAT. In certain cases, branches of an to the production or import of certain
maintain proper books of account and enterprise must register separately and goods and the provision of certain
foreign organisations or individuals declare VAT on their own activities. services.
carrying out business activities in forms
not regulated in the Law on Investment; Taxpayers must file VAT returns on a Taxable Price
- Business establishments engaging monthly basis, by the 20th day of the
in trading in gold, silver and precious subsequent month, or on a quarterly There are various anti-avoidance rules
stones. basis by the 30th day of the subsequent which specify minimum prices for
quarter (for companies with prior year SST purposes. For example where a
• Determination of VAT payable annual revenue of VND 50 billion or manufacturer produces goods subject
less). to SST and sells such goods through
VAT payable = value added of goods or an agent, the minimum price for
services sold x VAT rate Refunds calculation of SST is 90% of the average
selling price of the agent.
Where there is a negative value added Where the taxpayer’s input VAT for a
from the trading in gold, silver or period exceeds its output VAT, it will Tax Credits
precious stones in a period, it can be have to carry the excess forward for a
offset against any positive value added period of twelve months. It can then Taxpayers producing SST liable
of those activities in the same period. claim a refund from the tax authorities. goods from SST liable raw materials
Any remaining negative balance can be In certain cases (e.g. exporters where are entitled to claim a credit for the
carried forward to a subsequent period excess input VAT credits exceed SST amount paid on raw materials
in the same calendar year but cannot be VND300 million), a refund may be imported or purchased from domestic
carried over to the next year. granted on a monthly/ quarterly basis. manufacturers.
Newly established entities in the pre-
Once selected, the VAT declaration operation investment phase may claim
method must be maintained for 2 Tax Rates
VAT refunds on a yearly basis or where
consecutive years. the accumulated VAT credits exceed The Law on SST classifies objects subject
VND300 million. to SST into two groups:
Discounts and Promotions
Newly established entities and certain 1. Commodities - cigarettes, liquor, beer,
Price discounts generally reduce the investment projects which are in the automobiles having less than 24 seats,
value on which VAT applies. However, pre-operation stage may be entitled to motorcycles, airplanes, boats, petrol, air-
certain types of discounts may not be refunds for VAT paid on imported fixed conditioners up to 90,000 BTU, playing
permitted as a reduction before the assets based on shorter timelines than cards, votive papers; and
calculation of VAT and various rules and normal, subject to certain conditions.
conditions apply.
2. Service activities - discotheques,
Tax Invoices massage, karaoke, casinos, gambling,
Goods and Services for Internal lotteries, golf clubs and entertainment
Consumption Entities in Vietnam can use pre-printed with betting.
invoices, self-printed invoices or
Goods and services for internal use electronic invoices. The tax invoice See Table 2 for the SST rates (page 27)
are no longer subject to output VAT template must contain stipulated
26 | Doing Business in VietnamTable 2: SST Rates
Natural Resources Tax
Products / Services Tax Rate (%)
Natural resources tax is payable by
Cigar/Cigarettes industries exploiting Vietnam’s natural
• Up to 31 December 2015 65
• From 1 January 2016 to 31 December 2018 70
resources such as petroleum, minerals,
• From 1 January 2019 75 forest products, seafood and natural
water.
Spirit/Wine
• Up to 31 December 2015 25 -– 50
• From 1 January 2016 to 31 December 2016 30 – 55 The tax rates vary depending on the
• From 1 January 2017 to 31 December 2017 30 – 60 natural resource being exploited and
• From 1 January 2018 35 - 65 are applied to the production output
Beer at a specified taxable value per unit.
• Up to 31 December 2015 50 Various methods are available for the
• From 1 January 2016 to 31 December 2016 55 calculation of the taxable value of the
• From 1 January 2017 to 31 December 2017 60 resources, including cases where the
• From 1 January 2018 65
commercial value of the resources
cannot be determined.
Automobiles having less than 24 seats 10 - 60
Motorcycles of cylinder capacity above 125cm 3
20 Petroleum, natural gas and coal gas are
taxed at progressive tax rates depending
Airplanes 30
on the daily average production output.
Boats 30
Petrol 7 - 10 Property Taxes
Air-conditioner (not more than 90,000 BTU) 10 The rental of land use rights by foreign
Playing cards 40 investors (if not contributed as capital)
is in effect a form of property tax. It is
Votive papers 70
usually known as land rental and the
Discotheques 40 range of rates is wide depending upon
the location, infrastructure and the
Massage, karaoke 30
industrial sector in which the business is
Casinos, jackpot games operating.
• Up to 31 December 2015 30
• From 1 January 2016 35
In addition, owners of houses and
Entertainment with betting 30 apartments have to pay land tax under
Golf 20
the law on non-agricultural land use
tax. The tax is charged on the specific
Lotteries 15 land area used based on the prescribed
price per square meter and progressive
tax rates ranging from 0.03% to 0.15%.
Table 3: Environment Protection Tax Rates
No. Goods Unit Tax Rate (VND) Environment Protection Tax
1 Petrol, diesel, grease, etc. litre/kg 300-1,000 Environment protection tax is an
indirect tax which is applicable to the
2 Coal ton 10,000-20,000
production and importation of certain
3 HCFCs kg 4,000 goods deemed detrimental to the
environment, the most significant of
4 Plastic bags (*) kg 40,000
which are petroleum and coal. The tax
5 Restricted use chemicals kg 500-1,000 rates are listed in Table 3.
* Excludes plastic bags used for packaging or which are ‘environmentally friendly’
PwC Vietnam | 27You can also read
