Thinking beyond borders
Tax residents of Vietnam are taxed on worldwide income, whereas tax non-residents are taxed on Vietnam-sourced income only. Foreigners will be subject to Vietnamese personal income tax (PIT) based on their physical presence/permanent residential place in Vietnam and/or the source of income derived by the individual.
Employees who are present in Vietnam, independent of the length of stay, are taxed on both their employment income and their non-employment income, based on their tax residence status.
A foreign person’s liability to Vietnamese tax is determined by tax residence status. If a foreigner is present in Vietnam for more than 182 days in a tax year, or the individual has a rented house or similar residence in Vietnam with a term of 183 days or more in a tax year, and cannot prove that the individual is a tax resident under another jurisdiction during the same period, then the individual is treated as a tax resident of Vietnam and is taxed on the individual’s worldwide income. A tax non-resident of Vietnam is an individual who does not meet the above criteria for a tax resident and is subject to tax on Vietnam-sourced income only.
Vietnamese nationals with a regular residential location are deemed to be tax residents of Vietnam.
Foreign individuals from countries/jurisdictions without a Double Tax Agreement with Vietnam who stay in Vietnam for 183 days or more in the first calendar are required to report their pre-arrival income from the beginning of the year of arrival for Vietnamese tax purposes. For individuals from countries/jurisdictions with a Double tax agreement who stay in Vietnam for 183 days or more in the first calendar year, only income from arrival month is required to be reported. For individuals who stay in Vietnam for less than 183 days in the first calendar year, their first date of arrival is the start date of their first tax year, ending 12 months from such start date.
Vietnam-sourced income is income earned or received in relation to the employment of that foreign individual in or for Vietnam, regardless of origin or country/jurisdiction where the remuneration is paid. Worldwide income and working time in and/or for Vietnam can be used to determine Vietnam sourced-income in cases where no specific Vietnam-sourced income is provided.
Technically, there is no specific rule regarding when an assignee is treated as entering the country/jurisdiction before the individual’s assignment. Where the assignee is a tax resident, personal income tax shall be calculated from the month the individual arrives in Vietnam.
In practice, the tax authority issued some guidance whereby they accept that the official assignment date is the first day the assignee earns income in Vietnam provided that their pre-assignment arrival was not for business purposes. However, the guidance is issued to specific cases and therefore not automatically applicable in general.
For employees with an extended presence, the types of income that are generally taxed include employment income, income from the operation of a household business, income from capital investments, income from capital transfers, income from real estate transfers, income from winnings or prizes, income from royalties, income from franchises, income from inheritance, and income from gifts.
The above types of income are assessed at different tax rates and subject to different tax compliance procedures.
For employment income, the progressive rates are applied, and the top marginal rate of tax is 35 percent for employment income.
The tax rates and tax thresholds for employment income vary depending upon whether the individual is a resident of Vietnam or non-resident for tax purposes. Tax residents of Vietnam are taxed at progressive tax rates ranging from 5 percent to 35 percent. The top marginal rate is 35 percent on monthly income earned over 80 million Vietnamese dong (VND) for tax residents of Vietnam (including both Vietnamese nationals and expatriates). Tax non-residents of Vietnam are subject to tax at a flat rate of 20 percent on their Vietnam-sourced income.
Vietnamese employees are subject to compulsory social insurance (SI), health insurance (HI), and unemployment insurance (UI). Foreign individuals, on the other hand, have to date only been subject only to HI and SI depending on their working status in Vietnam (i.e. internal transfer or not, with or without labor contract, etc.).
On 20 November 2014, the National Assembly issued Law 58/2014/QH13, broadening the applicable “objects” of compulsory SI. The Vietnamese SI scheme provides coverage for illness, maternity, occupational diseases and accidents, retirement, and death. The objects include expatriate employees working in Vietnam under labor contracts with Vietnamese entities and having work permits/practicing licenses/certificates issued by Vietnamese competent authorities. The SI is, however, not applicable to those who are international assignees (i.e. transferred from head office in overseas to a subsidiary in Vietnam).
The SI law is applicable to expatriate employees from December 2018 with a schedule for increased contribution rate for both employers and employees. In particular, the current rate for employers and employees are 3.5 percent and 0 percent, respectively from December 2018 to December 2021. The maximum applicable rates are 8 percent for employees and 17.5 for employers, applicable from January 2022.
From 1 October 2009, a foreign individual who signs a Vietnam employment contract for 3 months or more with an entity in Vietnam is subject to the statutory health insurance payment. The applicable rates from 1 January 2017 are 1.5 percent for employees and 3 percent for employers. In addition, SI contributions are required as detailed above.
The base level used for calculation of the compulsory social and health insurances above is capped at 20 times the base salary, VND29,800,000 at present. The base level for calculation of unemployment insurance varies from VND61,400,000 to VND88,400,000 depending on regional location.
Each employee is required to obtain an individual tax number and to declare the individual’s dependents qualifying for tax relief. In addition, an employee must complete a quarterly tax returns if they receive income from overseas and a tax finalization return where the tax liability of an individual at year-end is greater (or less) than the sum of tax paid during the year.
Quarterly income tax returns are due within 30 days from the quarter-end and annual income tax returns are due within 120 days from the tax year-end for individual returns form and within 90 days for corporate returns form.
Tax non-residents are required to declare the number of days they were present in Vietnam on a quarterly basis. Annual income tax returns are not required.
The employer must withhold the relevant percentage from income paid to its employees and remit such tax withheld to the State Treasury no later than the 20th of the following month or within the end of the first month of the following quarter for the cases of filing directly by individual tax payers or stipulated by regulations.
The employer finalizes PIT on behalf of its employees, provided that the employees either:
and authorize the employer to finalize tax on their behalf.
A visa must be applied for before the individual enters Vietnam. The type of visa required will depend on the purpose of the individual’s entry into Vietnam.
Foreigners working in Vietnam are required to apply for a work permit in Vietnam, unless they are otherwise exempted under the relevant regulations. For cases of work permit exemptions, obtaining a confirmation of the exemption is required.
After obtaining a work permit, the assignee can apply for a temporary resident card, which exempts the assignee from having to obtain a visa when entering or exiting Vietnam for the validity of the resident card. Please note that the Vietnamese Immigration Department has recently ceased to grant business visas for longer than 3 months to foreigners without work permits, except in specific cases.
Also please note current restrictions due to COVID - 19.
In addition to Vietnam’s domestic arrangements that provide relief from international double taxation, Vietnam has entered into double taxation treaties with more than 70 countries/jurisdictions to prevent double taxation and allow cooperation between Vietnam and overseas tax authorities in enforcing their respective tax laws. This is not an automatic process.
A notification of the application for a tax exemption under a double tax treaty must be filed with the Vietnamese tax authority at the beginning of the assignment to Vietnam and in each calendar year.
Documentation, including a certificate of tax residence in the home country/jurisdiction, is required in order to claim a tax exemption.
Tax paid overseas for foreign-sourced income which has been included in the worldwide income declared in Vietnam can be credited under the Vietnamese regulations.
There is the potential that a permanent establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
Where a PE is considered as having been constituted, the foreign entity would be subject to Vietnamese Foreign Withholding Contractor Tax (FWCT) on their income derived in Vietnam.
Value-added tax (VAT) is applicable at 10 percent on taxable supplies. Lower rates of 0 percent or 5 percent may be applied to some goods or services. A VAT rate of 0 percent is applicable for good and services sold or provided to organizations and individuals overseas and consumed outside Vietnam or in non-tariff zones. A legal establishment in Vietnam that applies the Vietnamese accounting system is required to have a VAT registration.
Transfer pricing, which applies to assessments from the 2006 tax year, gives the tax authority extensive powers to make transfer pricing adjustments to non-arm’s length related-party transactions, or where a taxpayer fails to comply with disclosure requirements. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.
Vietnam has no specific data privacy law. Instead, data privacy is generally regulated under Civil Law.
Foreign currencies remitted out of the country/jurisdiction are strictly controlled, and permits must be obtained from the State Bank of Vietnam. Foreigners can take out up to 5,000 US dollars (USD) (or the equivalent in a foreign currency) without having to declare the amount to customs. Amounts in excess of this must be declared. Generally, foreign currency can be remitted out of the country/jurisdiction with proof of payment of applicable taxes.
Non-deductible costs for both an employee and an employer include social security contributions that are not mandatory according to the regulations of the employee’s home country/jurisdiction, and certain benefits for specific employees. Voluntary contributions to a pension fund established in accordance with Vietnamese regulations within the regulatory cap are deductible for tax purposes.
All information contained in this publication is summarized by KPMG Tax and Advisory Limited, the Vietnamese member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Vietnamese Personal Income Tax Law of 21 November 2007 and subsequent amendments; the Decree 65/2013/ND-CP of 27 June 2013 and subsequent amendments; the Circular 111/2013/TT-BTC of 15 August 2013 and subsequent amendments; the Web site of the General Department of Taxation; the Vietnamese Social Security Law of 20 November 2014; the Vietnamese Health Insurance Law of 14 November 2008 and its subsequent amendments; the Vietnamese Labour Code of 18 June 2012; the Vietnamese Law on entry, exit, transit and residence of foreigners in Vietnam of 16 June 2014.