© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd TAXATION IN VIETNAM Ken Atkinson Managing Partner Eleanor L. Roque Tax Director

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd OUTLINE Corporate income tax Personal income tax Value added tax Withholding tax on foreign contractors Import and export tax Other taxes Repatriation Accounting and auditing

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Corporate Income Tax -Generally - 28% on net taxable income -Taxable net income = taxable turnover less reasonable expenses plus other taxable income in the tax period. -Pending amendment on CIT law will lower the CIT rate to 25%.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Tax incentives Preferred areas of investments (such as those involving high technology, labor intensive, education and training, construction and development and projects implemented in remote areas) Reduced tax rate: –20% for ten years –15% for 12 years or –10% for 15 years Pending amendment seeks to remove the 15% rate

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Tax incentives (cont.) Income tax holiday 50% reduction of CIT for a certain number of years during the incentive period. Newly established business may also be entitled to two years tax holiday and 50% reduction of tax payable in the next two succeeding years.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Allowable deduction Business expense will not be deductible if: - Unsupported by invoices and vouchers in accordance with regulations, or supported by unlawful invoices and voucher; - Unrelated to the creation of revenue and taxable income within any one tax period; or - Paid by some other funding source

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Losses Allowed to carry forward net operating losses for a maximum period of five years. No carry back is allowed

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Tax declaration and payment Taxpayers subject to CIT shall file and pay taxes on quarterly and annual basis. The quarterly income tax return - 30th day of the following quarter. The annual CIT finalization return - 90 days from the end of the fiscal or calendar year.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Capital assignment tax Subject 28% corporate income tax on the gains. Taxes on transfer by foreigners shall be withheld and paid by the assignee. Taxes on transfer by Vietnamese individuals or organizations shall be declared and paid by the transferor. Tax planning of investments to address the capital assignment tax

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Transfer of land use rights 28% corporate income tax on the gains. After calculation of the 28% tax, additional income tax shall be paid on the residual income at the rate of 05% to 25%. Pending amendment seeks to remove the tax on residual income.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Dividends Dividends received by corporate shareholders are generally not subject to CIT. Dividends received by individuals are currently exempt and shall be subject to 5% tax starting No profit remittance tax is imposed.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Transfer pricing -Related party transactions must be conducted at arm’s length and must comply with the transfer pricing rules and documentation requirements. -Parties are related if: -they hold directly or indirectly at least 20% of the equity or the total property of the other business establishment. -significant suppliers, customer and funding relationships, e.g., controls 50% of the turnover of sales (calculated on the basic of each type of products) of the other business establishment.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Personal Income Tax Taxable income includes: regular income such as salaries, wages, overtime pay, allowances, bonuses; and irregular income such as income from technology transfer and winnings from lotteries.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Tax rates For 2008, the tax rates are from 0% – 40% for Vietnamese and resident foreigners. Non-resident foreigners are subject to tax at 25%. Starting tax rates shall be 0% to 35% for Vietnamese and resident foreigners. Non-resident foreigners shall be subject to 20% tax.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Residency -Resident – if present for 183 days or more within twelve (12) months from the date of entry into Vietnam -Resident foreigner - subject to tax on his worldwide income while non-resident foreigner is subject to tax only on income earned in Vietnam even if paid abroad

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd New PIT Law Other types of income shall be subject to the following tax rates: Tax rate (%) for residentsTax rate (%) for non- residents (a) Income from capital gains including dividends and interest 55 (b) Income from royalties and franchises 55 (c) Income from winnings or prizes10 (d) Income from inheritances and gifts 10 (e) Income from transfers of capital or securities 20 (on net income) or 0.1 (on gross income) 0.1 (on capital transfer) (f) Income from real property transfers 25 (on net income) or 2 (on gross income) 2 (on gross income)

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd VALUE ADDED TAX VAT RATES- Exempt 0% on exported goods and services 5% on essential goods and services 10% - Standard rate

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd VAT calculation methods: 1. Tax Credit Method: VAT payable=output VAT – creditable input VAT 2. Basis of added value VAT Payable amount = added value of taxable GS x VAT rate

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Refund of VAT Taxpayers who maybe considered for refund include:  Organizations following tax credit method -having input tax amounts not fully credited for 3 or more consecutives months -Exporters with input VAT of more than VND200M for the month  Newly invested business establishments -paying VAT by tax credit method -No operation- no output tax -Investment duration for 1 year or more -Refund every year or every quarter if more than VND200M

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Withholding Tax on Foreign Contractors If not adopting VAS a. VAT- directly on the basis of added value b. Corporate income tax- at a rate as a percentage of turnover

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Value Added Tax Directly on Basis of Added Value Amount of VAT payable = Added value x VAT rate 1.Trading, distribution and supply of goods, raw materials, supplies, machinery and equipment in Vietnam 10% 2. Services50% 3. Construction and installation with supply of materials and/or machinery and equipment attached to construction works 30% Construction and installation without supply of materials and/or machinery and equipment attached to construction works 50% 4. Other production or business activities; transportation 25%

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd CIT Rates as a percentage of taxable turnover Business linesCIT rates as % of taxable turnover Trading: distribution and supply of goods, raw materials, supplies, machinery and equipment in Vietnam 1 Services5 Construction2 Other production or business activities; transportation 2 Loan interest10 Income from royalties10

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd IMPORT and EXPORT TAXES Import and Export duties Export: Export is encouraged and thus, almost goods and services being exported are exempt from tax. Export duties are only charged on a few items, basically natural resources such as minerals, forest products and scrap metal. Rates range from 0% - 45%. The price for the computation of export duties is the Free-On-Board (FOB) price of the invoice. Import Duties Generally, all goods crossing Vietnamese borders are subject to import duties.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Import taxes Importation of raw materials from other countries MFN rate AFTA-CEPT rate Ordinary rates (150%)

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Other taxes Stamp duty The regulated fees are divided into groups such as fee applicable in the area of commerce; fee applicable in the area of agriculture, forest and aquaculture; fee applicable in the area of manufacturing and construction etc. Property taxes The rental of land use rights by foreign investors is the only form of property tax. The rates vary depending upon a number of criteria.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Other taxes (cont.) Special Sales Tax (cont.) Special sales tax rates range from 10% to 75%. Goods and services subject to the special sales tax are also subject to the VAT with a rate of 10%. Special sales tax on imports is calculated on the basis of price of taxable import plus import duties plus VAT Natural resources tax Industries exploiting Vietnam’s natural resources including petroleum, forests, minerals, fisheries and natural water are subject to natural resources tax.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd REPATRIATION Enterprises with foreign owned capital and foreign business co- operation parties shall be required to open a specialized foreign currency deposit account at a bank authorized to deal in foreign currency: Direct investment capital foreign currency account Indirect investment capital VND account Loan capital account

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Special foreign currency deposit accounts (a)Transfers into and out of Vietnam of legal capital or capital for implementation of a business co-operation contract by foreign investors (b)Transfers into and out of Vietnam of medium- and long-term foreign loan principal; (c)Transfers out of Vietnam of interest and fees on medium- and long-term foreign loans for the purpose of repayment of foreign loans;

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Special foreign currency deposit accounts (d) Remittance out of Vietnam of legal profit and other income of foreign investors; (e) Withdrawals of capital for the purpose of transfer into the foreign currency deposit account of an enterprise with foreign owned capital or a foreign business co-operation party; (f) Deposits of capital from foreign currency accounts of enterprises with foreign owned capital or foreign business co-operation parties.

© 2008 Grant Thornton (Vietnam) Ltd. All rights reserved. Member of Grant Thornton International Ltd Accounting and Auditing Must follow Vietnamese Accounting System (VAS) Must be in Vietnamese language and in Vietnamese Dong Statutory audit is required for foreign invested enterprises