New Guidelines on The Law on Corporate Income Tax - Tax - Vietnam

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Johnson Stokes & Master

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Vietnam: New Guidelines on The Law on Corporate Income Tax

Finance and Banking

10 February 2004
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Written by Dao Nguyen (Partner) and John Hickin (Solicitor)

Tax
Corporate Tax
Income Tax

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Summary

Foreign Contractor Tax In

Vietnam

In an effort to provide for a uniform tax system applicable to both Vietnamese and foreign-invested
enterprises, thereby, to abolish the differences between the two types of businesses in Vietnam, at
its XI Session from 3 May to 17 June 2003, the National Assembly passed Law No. 09/2003/QH11
On Corporate Income Tax (the "2003 Law") which took effect from 1 January 2004. To implement the
2003 Law, on 22 December 2003, the Government issued Decree No. 164/2003/ND-CP Guiding in
Detail The Implementation of the 2003 Law ("Decree 164"). Foreign-invested enterprises that are
licensed from 1 January 2004 will be subjected to the 2003 Law and Decree 164.

Vietnam Issues New Regulation

on Remittance of Profits
Overseas

Full article

Decree 50 Making Detailed

Provisions for Implementation
of the Law on Royalties

The following summarises major features of Decree 164.

Scope Of Application
Corporate income tax ("CIT") rates provided for by Decree 164 will apply to all business
establishments including foreign-invested enterprises (joint venture companies, business-co-operation
contracts and wholly foreign-owned enterprises), foreign companies and organisations operating in
Vietnam other than under the umbrella of the Foreign Investment Law, foreign individuals carrying out
business and having income generated in Vietnam and foreign companies operating in Vietnam via
their resident establishments.
Taxable Income
Decree 164 provides details on how to calculate the income for tax purposes for all businesses in
general and also in special cases, such as those businesses which carry out the leasing of assets
and credit extension, etc.

Resolution 928 of the Standing

Committee of the National
Assembly Issuing Royalties
Tariff

Onshore Or Offshore: Which

Cross - Border Services Are
(Not) Subject To The Foreign
Contractor Tax?
Legal Update July/August 2003
Amendments & Supplements To
The Labor Code
Vietnam Current Industrial
Property Law - New Changes
To The Prior Industrial Property
Legislation
Related Functions
Ask the firm/author a question

Reasonable Expenses Deducted From Taxable Income

Decree 164 provides for 13 types of reasonable expenses that may be deducted from taxable
income. One of the most positive provisions introduced by the 2003 Law and Decree 164 is the
previous maximum permitted expenses spent by a business on advertising, marketing and trade
promotion is increased from 7% of the total expenses to 10%.
CIT Rate
The 2003 Law and Decree 164 abolish the various tax rates provided for by the 1997 Law and
introduce one uniform tax rate of 28% which will apply to all businesses including foreign-invested
enterprises except for projects engaging in exploration and exploitation of oil and gas (on which a tax
rate from 28% to 50% will be imposed depending on each project). In respect of lottery businesses,
the CIT rate will be 28%.

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Translation

CIT Applicable To Transfer/Sale Of Land Use Rights

Another the significant changes brought about by the 2003 Law and Decree 164 is CIT is imposed on the transfer/sale of Land Use
Rights ("LURs"). Transfers/sales of LURs that are subject to CIT include transfer/sales of LURs with and without infrastructure facilities
and architectural works. The taxpayers are those having income generated from the assignment/sale of LURs (i.e. the LURs assignor).
Decree 164 also provides for cases of transfer/sale of LURs in which the CIT is not imposed including when LURs are used by a
business to contribute to a joint venture company with local and foreign organisations and individuals or when LURs are transferred upon
a split, division, merger or bankruptcy of a business, etc. In respect of income generated from the transfer of LURs by households and
individuals, personal income tax will be payable instead of CIT. The CIT rate applicable to the transfer/sale of LURs is 28%. In addition,
after the tax rate of 28% has been paid, the taxpayer will also have to pay additional progressive tax rates ranging from 10% to 25% for
the remaining income.

3/26/2013 2:26 PM

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CIT Incentives

Decree 164 contains a long list of circumstances in which CIT incentives may be granted. To enjoy these preferential rates, businesses
must invest in sectors and industries listed in Appendix A issued in conjunction of Decree 164 or invest in sectors that are not prohibited
by law and use a certain number of employees. The preferential tax rates are: 20%, 15% and 10%. In certain circumstances, tax
holidays and tax reductions may also be available for newly- established businesses and businesses that move their locations. Investors
contributing equity in the form of patents, technical know-how, technological processes and technical services are exempted from CIT. A
tax reduction of 50% will be made in respect of income generated from the transfer by a foreign investor of his/her equity to Vietnamese
enterprises established in accordance with the law of Vietnam, etc. It is worth noting that tax incentives are available the transfer/sale of
LURs.
Transitional Provisions Applicable To Foreign-Invested Enterprises
According to Decree 164, foreign-invested enterprises and parties to business-cooperation contracts that have been licensed under the
Foreign Investment Law will enjoy the CIT incentives as stated in their investment license. If the tax incentives stated in the investment
license are less favourable than those provided for in Decree 164, the respective business will enjoy the tax incentives provided for in
Decree 164. Businesses paying the CIT rate of 25% shall continue to pay this tax rate until the expiry of their investment license.
Validity

Avoid the UK

Decree ARPT
164 will be valid 15 days from the date its publication in the Official Gazette (which has not yet been made at the time of this
Legal
Update) and
will replace Decree No. 30/1998/ND-CP dated 13 May 1998 and Decree No. 26/2001/ND-CP dated 4 June 2001.
www.private-clie
The provisions
regarding the CIT refund for enterprises, which have paid the CIT for income generated from reinvestment, the profit
Tax on UK
remittance
tax andby
the provisions on tax incentives applicable to foreign-invested enterprises, are abolished.
property owned
company Take
Theaction
content
of this
before
1 article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought
about your
specific circumstances.
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