Corporate income tax laws and compliance in Vietnam are often complex and time-consuming, and the regulations change quite frequently due to the fact that Vietnam is still developing its economy. Several lodgments may be required on an annual or quarterly basis based on your company’s condition.
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Corporate tax filing is not something you should do on your own and using a tax professional is extremely critical. Even if you engage a tax expert, as a business owner yourself, you will also need to know your corporate tax obligations in Vietnam and how they can affect your company’s bottom line.
Here are the steps you absolutely have to know when managing your corporate income tax processes in Vietnam.
Steps to Manage Your Corporate Income Tax (CIT) in Vietnam:
1. Identify the effective corporate income tax rates and deadlines.
In Vietnam, assessable income is used to calculate corporate income tax. The formula goes like this:
CIT Payable = Assessable Income x CIT Rate
And the assessable income is calculated with this formula:
Total Corporate Revenue – Deductible Corporate Expenses + Other Incomes – Carried Forward Losses
You can carry forward your corporate tax losses for a maximum of 5 years, starting after the year of loss. The CIT rate is different depending on the type of business: 20% for standard CIT (the most prevalent CIT for most industries) and a protected 32%-50% for oil and gas sectors, and other extractive industries.
Filing deadline: 31st of March of the following year
2. Know the corporate tax incentives and take advantage of them.
There are different corporate tax incentives in Vietnam and the government decides if your company can take advantage of them based on the encouraged sectors, type of investment projects, locations, and project scales. Good news for SME businesses, the Vietnamese government will release tax incentives to SMEs that decrease SMEs’ primary tax rates. The tax incentives usually are 5%, 10%, or 15% according to the industries.
Encouraged sectors for tax incentives include software development, information technology, high-tech companies, education, environmental protection, healthcare, aquatic and agricultural products processing, scientific research, infrastructure development, and renewable energy. To know what locations, project scales, preferential tax rates, and tax holidays and exemptions are applicable for corporate tax incentives, get in touch with a market entry consulting company whose tax consultants can help you navigate the country’s taxes.
3. Ensure continuous compliance with corporate income tax regulations with annual and quarterly tax planning.
Businesses have to calculate their provisional corporate income tax and submit it within 30 days after every quarter. As for the annual final corporate income tax return, known as tax finalization, companies need to calculate and remit any CIT payable balance within 90 days after each financial year.
Keep in mind that the total provisional corporate income tax paid during the first three quarters of the year must equal at least 75% of the terminal tax for the tax year 2021. If not, late payment interest will be assessed on the arrears from the third-quarter corporate income tax payment deadline until the date of settlement of the arrears.
In Vietnam, January 1 to December 31 is the standard financial year. However, given the special conditions, companies in Vietnam are allowed to adopt their own financial year which must be reported to the government.
NOTE: the deadline to file your corporate tax finalization is the 31st of March of the following calendar year.
4. Maximise tax-deductible expenses to manage corporate tax liability efficiently.
In general, necessary expenses for operating a business in Vietnam are basically all tax-deductible. These expenses are salaries, supplies and equipment, office and building rent, accounting and tax services, legal services, utility costs, etc. However, the expenses incurred must meet certain criteria to be eligible for deduction.
Outsource your Corporate Tax Processes
If you are a foreign company setting up in, or expanding to, Vietnam navigating the country’s tax rules, rates and deadlines are complicated. When you outsource your corporate tax needs to a third party with a long track record of specifically assisting foreign companies setup and pay their corporate taxes you can avoid the usual bureaucratic nightmare of such a young market like you will experience in a country like Vietnam.