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Vietnam Law On Corporate Income Tax
Vietnam Law On Corporate Income Tax
Vietnam Law On Corporate Income Tax
RESEARCH ESSAY
Subject: Taxation
Class: K57CLC3
CONTENT
ABSTRACT.............................................................................................................1
BODY....................................................................................................................... 1
I. OVERVIEW...................................................................................................1
3. Tax rates...................................................................................................3
4. Tax incentives...........................................................................................4
CONCLUSION......................................................................................................18
REFERENCES .....................................................................................................18
2
ABSTRACT
This paper is a review of Law applied for Corporate Income Tax in Vietnam,
stating some outstanding points of this Law as well as its application in reality,
starting with Vietnam's Taxes on Business in general. This paper also pays attention
to the analysis of Foreign Contractors Tax, concentrating in the form of it subjecting
to the Corporate Income Tax. For a more objective perspective, this also consists of
the comparison between the law of Foreign Contractors Tax subjecting to Corporate
Income Tax in Vietnam and the country of China. The results show that Law
applied exerts significantly beneficial impacts on the Vietnamese economy in
general. However, this Law still faces several problems and limitations in
comparison with this law applied in other countries in the world, so that measures
should be taken to make progress. Furthermore, a case study is also included in this
paper for a better understanding about the way this law has been working.
BODY
I. OVERVIEW
1. Vietnam’s Taxes on Business
Tax is a compulsory monetary contribution to the state’s budget imposed by the
government, paid by individuals or organizations for public goods and services. In
other words, it is a compulsory transfer of money from the private sector to the
public sector (government) to finance public goods and services. Tax may have 3
distinct characteristics. It is compulsory and stated by law. It is highly legislative,
which means that it is issued by the highest authority or law making organization as
The Parliament in Vietnam. Finally, it is different from other forms of money
transfer to the budget such as notary fees, charges, highway tolls, traffic fines...
Tax has three main functions. Tax creates a major and regular source of revenue
to the government’s budget to finance the government’s expenditure or spending.
Tax policy can be used as a tool to regulate the economy or generate impacts on
other countries, by which the government regulates the behaviour of enterprises and
individuals, thereby orienting production and consumption. Economic growth will
be promoted by a fair tax policy, whereas an unfair tax system will limit companies
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and distort the consumption behavior of society. Thirdly, Tax is aimed to moderate
and redistribute the society’s income in the purpose of equity.
Taxation system is commonly classified into two segments based on the
transfer of tax burden namely direct tax and indirect tax. A direct tax is a form of
tax which is imposed directly on taxpayers who bear the tax burden. Tax burden
cannot be shifted to other persons. On the other hand, an indirect tax is when the
government collects tax from intermediaries. Tax payer is not an ultimate bearer of
economic burden due to the fact that the taxpayer would transfer tax burden to the
others. Differences in the methods of collection, the revenue base and the transition
of the economic tax burden are triggered by differences in the impact on the
economy of indirect and direct taxes. The right mix of direct and indirect taxes
would optimize the beneficial effect of taxes on the economy.
To keep pace with the economic growth of each time, Vietnam's tax system has
been constantly reformed. The regulations on different kinds of tax have been step-
by-step issued, amended to govern many revenue sources. Up to now, the tax
system of Vietnam includes: corporate income tax (CIT), personal income tax
(PIT), agricultural land-use tax, land and housing tax, value added tax (VAT),
excise tax, import-export duties, tax on natural resources, tax on environmental
protection and registration tax. The tax has been the largest source of revenue for
Vietnam's state budget. Tax has contributed for more than 4/5 of state budget
revenue, timely meeting the requirements on financial resources to maintain the
operation of the state apparatus and capital accumulation for the development
investment.
This research paper focuses on the concept of corporate income tax and foreign
contractor tax (FCT), which are the usually seen tax applied on businesses and the
impact of them on Vietnam’s whole economy.
company income tax law, corporate income tax law, corporate tax law, profit tax,
etc., but their nature is similar. The country regulates this tax in a separate law, or
some other countries combined corporate income tax and personal income tax in a
law, because they argue that the two types of income taxes are closely related to
each other, so regulates them in a tax law will more accessible.
Currently, there is no specific concept of corporate income tax (CIT). However,
based on regulations such as corporate income tax law, decrees, and implementing
circulars, we can understand CIT as follows: CIT is a direct tax on taxable income
of an enterprise including income from production and trading of goods and
services and other income as prescribed by law. Corporate income taxes are
imposed by governments on business profits, earnings or taxable income.
Corporates use everything in the tax code to lower the cost of payable taxes by
reducing their taxable incomes.
3. Tax rates
As we know, the role of businesses in the economy is very important. On the
one hand, the macro-economic indicators are mainly contributed by businesses, on
the other hand businesses contribute to create jobs, raise incomes for workers, and
enhance residential life. Derived from the important role of businesses in the
economy, to create favorable conditions for businesses and create a healthy
competitive environment, the countries always have policies to support businesses,
including the tax policy. The recent trend of the countries is decreasing the general
tax rate of corporate income tax to create the appeal and competitiveness for
businesses, in order to stimulate expansion investment of businesses.
In most sectors, the normal CIT rate is 25 percent for both domestic and
foreign-invested companies (FIEs). In an effort to attract more foreign direct
investments, boost investment in Vietnamese businesses and to support struggling
local enterprises, Vietnamese lawmakers have recently approved the government’s
proposal to reduce the existing CIT levels from 25% to 22% (the new rate is
expected to take effect starting January 1, 2014).
5
The National Assembly would also slash CIT rates by 5 percent (to 20 percent)
and 15 percent (to 10 percent) for small and medium-sized businesses and
developers of low-cost housing.
This new tax rate will give Vietnam an edge over other neighboring countries
like China (25%), Indonesia (25%) and Myanmar, the new rising star (30 percent).
However, other countries such as Thailand do offer a lower 20 percent CIT
threshold and even more lucrative benefits and tax cuts for newcomers, having said
that.
4. Tax incentives
New investment projects will earn tax incentives based on regulated incentive
markets, incentive positions and the scale of the project. Company expansion
projects (including expansion projects approved or initiated since the 2009-2013
period that have not historically been entitled to any CIT incentives) that satisfy
such requirements are now entitled to the 2015 CIT incentives. Projects formed as a
result of such acquisitions or reorganisations do not include new construction
projects and company expansion projects:
− Education, health care, sport/culture, high-technology, environmental
conservation, scientific research and technology development,
infrastructural development, manufacturing of agricultural and aquatic
goods, software production and renewable energy are sectors that are
promoted by the Vietnamese Government
− New development-prioritized investment or growth programs involved in
the manufacture of agricultural goods are entitled to CIT incentives
− Locations which are encouraged include qualifying economic and high-tech
zones, certain industrial zones and difficult socio-economic areas
− Large-scale industrial ventures (excluding those related to the manufacture
of goods subject to special sales tax or exploiting mineral resources) are
eligible for CIT incentives.
The two common preferential rates of 10% and 20% are valid for a term of 15
years and 10 years, respectively, beginning from the launch of incentive-generating
operations. It is possible to expand the length of the implementation of the
6
Incomes from some special production fields for the development purposes of
some key sectors of Vietnam, those generated in regions with extremely difficult
socio-economic conditions,...
Grants received to be used for educational activities, scientific research, culture
and arts, charity, humanitarian and other social activities in Vietnam.
Tax assessment period and Basis for tax assessment
Tax period:
− The assessment period is determined according to the calendar year or
fiscal year, unless the income is generated many times with a foreign
enterprise
− The assessment period for each time the income is generated is applicable
to foreign enterprises.
Tax bases:
− Based on taxed income and tax rate.
Determination of taxable income
Taxable income in a tax period is determined by taxable income minus exempt
income and losses carried forward from previous years.
Taxable income equivalent to turnover minus deductible expenditure on
manufacturing and business operations plus other income, including income earned
outside Vietnam.
The loss of income generated from transfer of real property is offset against the
profit of production and business activities in the assessment period if the loss is
made.
Turnover
The turnover for calculating taxable income is the total amount of goods,
processing fees or service charges, irrespective of the collection or not.
The way taxable turnover is determined in a number of cases, ranging from
whether the tax payment method is according to the direct method or not to the
goods sold at the right price to receive commission.
Deductible expenses and non-deductible expenses when determining
taxable income
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Deductible expenses:
− Actual expenses for a number of special political or social purposes
− Expenses for a number of special products in some particular situations.
Non-deductible:
− Expenses of business management allocated by foreign enterprises to the
Vietnamese establishment in excess of the rate according to CT
− Expenses in excess as prescribed by law on provisioning
− Depreciation in some particular cases, ranging from the expenses which are
not in accordance with regulations and law to those of fixed assets not used
for production and business purposes
− Cars with particular features and prices
− Foreign exchange differences due to reassessment of liabilities payable in
the monetary item denominated in foreign currencies
− Expenditure for salaries and wages of some regulated business entities,
with a minimum amount in some cases, and business activities
− The excess of the social insurance and health insurance premium Tax late
payment interest
− Reward for initiatives and improvements in the absence of an acceptance
test board.
Tax rate
The corporate income tax rate is 20%.
This tax rate could be higher when being applied in corporations trading in
some special fields, such as:
− 32% to 50% for oil and gas and other rare and precious resources exploited
− 50% for platinum, gold, tin, wolfram, antimony, precious stones, and rare
earth mines
− 40% for mines with 70% or more of the allocated area in areas with
extremely difficult socio-economic condition.
Method of assessing tax
The payable enterprise income tax amount in an assessment period is taxable
income multiplied by the tax rate.
10
In case an enterprise has paid income tax on income generated abroad, the paid
income tax amount may be subtracted but must not exceed the payable corporate
income tax amount according to the provisions of the Law on Corporate Income
Tax.
For enterprises specified in the Law on Enterprise Income Tax, the payable
enterprise income tax amount is calculated as a percentage of the turnover from the
sale of goods and services in Vietnam.
Corporate Income Tax Incentives
Preferential tax rates:
− A preferential tax of 10% for a period of 15 years or forever, which is
applied to some specific cases with particular conditions.
Tax exemption and reduction:
− Tax exemption for 4 years, 50% tax reduction for the next 9 years for
income from new investment projects in difficult or extremely difficult
socio-economic areas and CIT from new investment projects to produce
supportive technology products with development priority
− Tax exemption for 4 years, 50% reduction in the next 5 years for income
from investment projects in the field of socialization
− Tax exemption for 2 years, reduction of 50% in the next 4 years for income
from new projects from industrial zones; Except for industrial zones with
favorable socio-economic areas.
− Tax exemption or reduction period is counted from the first year of taxable
income from new investment projects eligible for tax incentives
− Tax for Enterprises are enjoying tax incentives if they want to expand
production scale; Capacity enhancement and technological innovation with
some requirements must be satisfied
− Tax reduction with other special cases.
Implementing Provisions
It include the regulation about conditions for applicability of tax incentives, the
effectiveness and implementing guidelines.
11
This was an epochal change from the previous law, which presented foreign-
invested businesses with preferential advantages. Under the CIT Statute of 2008,
corporate income tax is now the same, regardless of the venue, the extent of the
transaction, or whether the investment is spent domestically or abroad.
The normal tax rate is 25% according to Article 10 of the 2008 Income Tax
Act, with the exception of operations relating to the prospecting, discovery and
extraction of oil and gas and other valuable and rare natural resources, which can
range between 32% and 50%. However, the situations that come under tax rate
bonuses, deductions and reductions in the tax rate incentives, exemptions and
reductions are what stands out in the 2008 legislation. However, the situations
protected by tax rate bonuses, deductions and reductions are those referred to in
Articles 13, 14 and 15, respectively (which somehow bear similarities to incentives
offered in China over the last few decades).
The benefits for the tax rate provided for in Article 13 are comparatively
smaller than the regular one and are applicable to:
− Investment schemes in metropolitan areas with significant socio-economic
challenges, economic zones or hi-tech parks, newly developed enterprises:
10% tax rate for 15 years
− Newly developed companies in the form of high-technology investment
ventures, scientific research and technical advancement, the development
of state-owned infrastructure projects of specific significance, or the
manufacture of digital products: a tax rate of 10% for 15 years
− Companies working in the fields of education, vocational training,
healthcare, culture, Sports and environmental areas: 10 percent tax rate
− Investment schemes for newly developed companies in metropolitan areas
with socio-economic difficulties: a tax rate of 20 per cent for 10 years
− Agricultural support cooperatives and individuals' loan funds: 20% tax limit
− Large-scale and high-tech investment programs of special interest: 10
percent tax rate over 15 years.
The beginning dates for the period of the tax rate benefits stated in Article 13
shall be counted from the first year of turnover of the invested company.
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III. CASE STUDY: The Effect and Result of a CIT cut to Vietnam’s economy
services, trade in food and fertilizers,...). Small and medium enterprises are granted
a 30% reduction in CIT for the fourth quarter of 2008 and 2009. This policy was
part of the stimulus package during the Financial Crisis. When Vietnam’s
government first enacted the policy at the end of 2008, it was planned to stop by the
end of 2009 so the policy would not be effective in 2010. However, this policy has
to be carried out once again in 2011 and 2012. SMEs are granted a temporary 30%
cut in CIT as the Government of Vietnam considers them incapable of finance and
critical for job creation. In fact, Vietnam has had many policies to support SMEs
over the years, such as the April 2017 Law of June 2017 which regulates access to
loans or technical assistance, and technology for these businesses. As a result, the
Vietnamese government seems to want to support small and medium enterprises.
However, the incomplete adoption of the tax reduction strategy leads to an
imperfect result than intended. The total value of the government's economic
stimulus package from changes in tax policy stacked up to about 27,000 billion.
In this age and days, The Covid-19 pandemic is spreading globally. There’s
been many financial solutions introduced by governments to stabilize the economy
such as using trillions of billions of dollars in bailout, tax cuts, increasing public
spending and accelerating disbursement of public investment, supporting businesses
to borrow low-interest loans ... Each country applies these solutions on a different
scale and degree, depending on the magnitude of the losses caused by the disease to
them.
On June 19, at the ninth session of the 14th National Assembly, the National
Assembly passed a policy aimed at reducing corporate income tax payable by 2020
for enterprises, cooperatives, public service providers and organizations, ...
According to the policy, enterprises whose total revenue in 2020 does not exceed
VND 200 billion enjoy a 30% reduction of corporate income tax payable by 2020.
This Resolution takes effect 45 days from the date of its signing and applies to the
tax year 2020.
CONCLUSION
The paper gave a general status of the Vietnam's Taxes on Business in general,
before going into specific analysis of the law of Corporation Income Tax, with a
total of 20 articles which are summarized into several noticeable points.
Subsequently, an analysis of Foreign Contractor Tax which is subject to the CIT is
also shown in this paper, before a comparison between the content and application
of this law in Vietnam and China is illustrated for a better understanding about its
pros and cons in the country of Vietnam. In summary, we can see that Government
dynamic cycles in Vietnam are much slower than in China, and this disadvantage is
normally identified with less evolved zones or potentially specific areas in Vietnam.
Furthermore, being special to every activity, there could be a few clarifications why
a speculator may lean toward China rather than Vietnam and the other way around.
Fortunately, as of late, financial specialists keen on looking for an improvement
base to sell back home, or to different plants they have across Asia, have seen an
expanding interest in Vietnam. Finally, this research finishes with a case study
about the effects that a CIT reduction could exert on the Vietnam economy,
including supporting small and medium enterprises to overcome difficulties caused
by the Covid-19 epidemic, creating conditions for enterprises to accumulate capital
to develop production and business, and improve their competitiveness. There are
also others impacts on the certain industries as well as household consumption
between rich and poor group, however, they are mostly positive impacts in general
and can out-weight the negative effects that a CIT cut might bring.
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