Doing Business in Vietnam

Establishing an entity

The legal structures available for foreign investors wishing to establish an enterprise in Vietnam generally include Limited Liability Company (LLC) and Joint Stock Company (JSC).

The business establishment and investment project to be implemented shall be governed by the Law on Investment and Law on Enterprises. In order to officially operate in Vietnam, a foreign invested enterprise will need to obtain 2 kinds of certificates issued by the licensing authorities (additional licenses may be required depending on the business, e.g. trading license is required for trading activities):

• Investment Registration Certificate for the project being implemented
• Enterprise Registration Certificate for the enterprise being established

Alternatively, foreign investors may consider establishing a representative office in Vietnam as an initial stage of their market entry strategy. A representative office is established when the foreign company logs a registration dossier and obtains a license from the provincial Department of Industry and Trade in the city or province where the representative office is to be set up. Representative offices are only allowed to carry out liaison and market development functions and cannot perform business activities in Vietnam.

Foreign business restrictions

Foreign investors may invest in all sectors and in all industries that are not prohibited. Generally, prohibited sectors/industries are those which are detrimental to the people, environment, defense or history and culture of Vietnam. The conditions imposed on projects in conditional sectors/industries will be stipulated in the relevant laws, ordinances, decrees and international treaties.

Investment incentives

Subject to the type of business and/or location of the investment, foreign investors may enjoy the following investment and tax incentives:

• An exemption of corporate income tax for up to four years, subject to the type of business and location of the investment.
• A 50% reduction of corporate income tax payable for up to 9 years, depending on certain conditions.
• Preferential corporate income tax rate of 10%or 17% for specific years, depending on certain conditions.
• Exemption of import duty for imported fixed assets, materials, etc. for specific cases.
• Exemption from, or reduction of, land rent, land use fees and land use tax.

Work permits and visas

Foreigners working in Vietnam must obtain a work permit, unless they qualify under an exemption case (such as foreigners working in Vietnam for less than 3 months offering services or handling complicated technical issues that affect production or business, which cannot be handled by Vietnamese or foreign experts in Vietnam). Work permits are also required for foreign employees being dispatched to Vietnam for the implementation of projects in Vietnam(except for ODA-funded projects where exemption of work permit may be granted to foreign experts subject to certain conditions).

The term of the work permit shall be the employment contractual term, but it should not exceed 2 years before renewal.

In addition to work permits and normal visas, foreigners working in Vietnam might need to obtain business visas and temporary resident cards, where required. Temporary resident cards, which enable longer term stays, are available for up to 2 years and are subject to renewal. The cards also permit multiple entries and exits.

Taxation

Value-Added Tax (VAT) 

VAT is charged on most goods and services in Vietnam. Generally, goods and services are subject to the standard VAT rate of 10%. In a number of special cases, VAT is exempted or charged at the rate of 5% (for fundamental items) or 0% (for exported goods and services). Companies are required to register with the tax offices in order to obtain a VAT code.

Corporate Income Tax (CIT) 

CIT is charged on profits of companies in Vietnam. The current standard CIT rate is 20%. Tax incentives are also offered to investment projects which meet certain conditions, primarily in relation to encouraged business lines and geographical areas. CIT is provisionally calculated and paid on a quarterly basis (quarterly CIT declaration is no longer required), before being finalised for the fiscal year, within 90 days of the financial year end. Tax losses incurred are allowed to be offset against different business activities of the same company (following stipulated order) and continuously for 5 consecutive years. Tax losses of a quarter can also be carried forward to the following quarter of the same fiscal year. Carry back of tax losses is not allowed.

Withholding Tax (WT) 

Withholding Tax, which is a combination of VAT and CIT (or Personal Income Tax), is charged on payments made by companies in Vietnam for certain purchases of goods and services from overseas suppliers (corporate or individual). The WT declaration is categorised into 3 types:

• Withholding Method (or also referred to as Direct Method by law)
• Hybrid Method
• Vietnamese Accounting System (VAS) Method (or also referred to as Declaration Method by law)

Personal Income Tax (PIT) 

PIT is applied to taxable income received by individuals, with the most common being employment income.

As a general rule, PIT is a liability of the employee but the obligation to temporarily  withhold or pay the PIT may initially rest with the employer (if the employer is a Vietnam-based organisation; otherwise, the employee shall be responsible for his/ her tax filing). Where employees are remunerated on a gross basis, the employer is liable to withhold PIT payable before making the income payment to the employees, and remit the tax withheld to the State. If the employer remunerates the employees on a net basis, the employer is liable to gross up the net income, calculate the applicable PIT and pay such PIT to the tax office.

The PIT obligation is determined on a number of factors but mainly on the taxpayer’s residence status in Vietnam for the relevant tax year.

Audit and accounting

The VAS is compulsory for all enterprises in Vietnam.

There is no requirement to register the application of VAS with the local authority. However, the enterprise is required to obtain written approval from the Ministry of Finance (MOF) for any permissible departure from the VAS.

The fiscal year normally commences on 1 January and ends on 31 December, or a fiscal year may also end on 31 March, 30 June or 30 September. The first fiscal year is generally from the date of the investment certificate to the end of the same fiscal year. If the first fiscal year is shorter than 90 days, it may be aggregated with the following year.

Companies are required to employ a Chief Accountant who holds either a relevant certificate or diploma. Many businesses coming to Vietnam outsource their accounting to qualified firms who can take on the responsibility of the Chief Accountant role. Foreign-invested companies must appoint an independent auditing firm to audit their annual financial statements.

Companies must submit their annual financial statements (audited, if required) to the tax authority, licensing authority and several other relevant authorities for reporting purposes within 90 days after the end of the fiscal year.

Country quirks

• Companies are required to employ a Chief Accountant.
• Nominee share holdings are not legally recognised.
• The registered office address must be the actual office address. PO boxes and lawyer addresses are not permitted.
• Law and regulations are frequently changed or amended. Private rulings are not legally binding in some cases.
• Copyright law is very weak in Vietnam.

Visit Mazars Vietnam for more information on the services available to help you set up your business.