Thinking beyond borders
Employees who are present on an extended basis in Vietnam are taxed on both their employment income and their non-employment income, based on their residence status.
A foreign person’s liability to Vietnamese tax is determined by 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 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 without a Double Tax Agreement with Vietnam who stay in Vietnam for 183 days or more in the 1st calendar are required to report their pre-arrival income from the beginning of such a year for Vietnamese tax purposes. For individuals who stay in Vietnam for less than 183 days in the 1st calendar year, their first date of arrival is the start date of their 1st 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 Vietnam, regardless of origin or country where the remuneration is paid. Worldwide income and working time in and/or for Vietnam could 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 before the individual’s assignment. In practice, the tax authority accepts that the official assignment date is the 1st day the assignee earns income in Vietnam, and the assignee must declare income from that day provided that they did not earn any Vietnam-sourced income before the official assignment date. The arrival date, however, is the 1st date of the 1st tax year in which residence status is determined.
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.
Under current regulations, Vietnamese employees are subject to compulsory social insurance (SI), health insurance (HI), and unemployment insurance (UI). Expatriate employees, on the other hand, are generally subject only to HI. 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 aforementioned “objects” include expatriate employees working in Vietnam under work permits, practicing licences, or certificates issued by Vietnamese competent authorities. Further, a draft decree was issued providing guidance on the compulsory nature of the insurance scheme for expatriates. However, this is still under discussion and yet to be approved. As of this date of writing, there is still no official guidance on the mandatory requirement for non-Vietnamese citizens to participate in SI scheme effective 1 January 2018.
Currently, the SI contribution rates are 17.5 percent for employers and 8 percent for employees; HI rates are 3 percent for employers and 1.5 percent for employees, while UI rate is 1 percent each for employers and employees. The SIHIUI contribution base includes base salary, allowances, and other “regular” payments.
The monthly employment income subject to HI for expatriate employees will be capped at 20 times the base salary set by the Vietnamese government. At present, this cap is VND 26 million per month (which will increase to VND 27.8 million from July 2018).
Each employee is required to obtain an individual tax number and to declare the individual’s dependent qualifying for tax relief. In addition, an employee must complete 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.
Personal income tax returns are due within 90 days from the tax year-end.
Tax non-residents are required to declare the number of days they were present in Vietnam.
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 have income only from the employer 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 residents 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.
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 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, 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.
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 organisations 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 data privacy laws.
Foreign currencies remitted out of the country 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 with proof of payment of applicable taxes.
Non-deductible costs for both an employee and an employer include contributions that are not mandatory, according to the regulations of the employee’s home country, and certain benefits for specific employeesVoluntary contributions to a pension within the regulatory cap are deductible for tax purposes.