TAX COMPARISON BETWEEN INDONESIA AND VIETNAM

INTERNATIONAL TAXATION

CREATED BY:

FELICIA HOMAN (170020016)

THALIA TEOHARDI (170020043)

LECTURER :

MS. STEVY CHANDRA, SE, SH, BBA, MM

SUBMISSION DATE : APRIL 3RD 2020

HAINES WATTS

INSTITUT BISNIS INFORMASI TEKNOLOGI & BISNIS

Table of Contents
I. Introduction.................................................................................................................................1

i. History.......................................................................................................................................1

ii. Current Economy Development.................................................................................................2

II. Body..........................................................................................................................................5

i. General Tax Procedures.............................................................................................................5

ii. Types of Tax..............................................................................................................................8

iii. Income Tax..............................................................................................................................10

iv. VAT (Value Added Tax).........................................................................................................19

v. Comparison..............................................................................................................................21

vi. Illustrations of the Tax Compared............................................................................................22

III. Conclusion..............................................................................................................................24

IV. Reference................................................................................................................................25
I. Introduction

i. History

Vietnam has a history of tribes uniting to form strong dynasties. The first dynasty

that many consider to be the start of the Vietnamese state was the Hong Bang Dynasty

which was ruled by the legendary Hung kings.

Ho

Chi

Minh

City

In 111 BC, the Han Dynasty from China absorbed Vietnam into their empire.

Vietnam would remain a part of the Chinese empire for over 1000 years. It was in 938

AD that Ngo Quyen defeated the Chinese and gained independence for Vietnam.

Vietnam was then ruled by a succession of dynasties including the Ly, Tran, and the

Le dynasty. Under the Le dynasty the kingdom of Vietnam reached its peak,

expanding to the south and conquering a portion of the Khmer Empire.

In 1858 the French came to Vietnam. In 1893 the French incorporated

Vietnam into French Indochina. France continued to rule until it was defeated by

communist forces led by Ho Chi Minh in 1954. The country became divided into

Communist North Vietnam and the anti-Communist South. The Vietnam War raged

for years between the two countries with the US supporting the South and communist

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 countries supporting the north. The North eventually won uniting the country under

communist rule in 1975.

After reunification in 1975, the newly reunified Vietnam faced many

difficulties including internal repression and isolation from the international

community due to the Cold War, Vietnamese invasion of Cambodia and an American

economic embargo. In 1986, the Communist Party of Vietnam changed its economic

policy and began a series of reforms to the private sector and to the economy through

what is known as Đổi Mới, a political movement primarily led by Prime Minister Võ

Văn Kiệt. During the 6th National Congress of the Communist Party of Vietnam, the

country abolished its planned economy system in favor of a market oriented one. Ever

since the reforms in the mid-1980s, Vietnam has enjoyed substantial economic

growth.

ii. Current Economy Development

Vietnam’s 2019 was a remarkable year for its economic growth amid a global

slowdown. Gross Domestic Product (GDP) growth remained robust at about seven

percent (the highest in Southeast Asia) with inflation stable at four percent. There are

major developments and regulatory changes in labor code and visa policy in 2020

which are:

1. Vietnam’s rising FDI inflow 

2019 marks 10 consecutive years of increase in Foreign Direct Investment

(FDI) inflow into Vietnam. There is a significant rise in both the volume and

the value of FDI projects. As of November 2019, 3478 new projects (28.2

percent YoY increase) brought in US$31.8 billion (3.1 percent YoY increase).

In 2019, South Korea was the top investor in Vietnam followed by Hong

Kong. Vietnam remains a beneficiary of the US-China trade war, and the

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 political tension in Hong Kong, which have contributed to rising investments

from both Mainland China and Hong Kong. Vietnam is being chosen by

investors among other ASEAN countries because of its cultural proximity to

China, low labor cost and pro-investment policies. The processing and

manufacturing sector attracted the highest amount of investment, accounting

for 68 percent of Vietnam’s total FDI. The transition of multi-national

corporations’ factories from China to Vietnam is the most important external

factor.

2. Rising Fintech Industry

Accounting for 36 percent of Southeast Asia’s total investment in fintech is

Vietnam’s biggest milestone in 2019. These investments raise the proportion

of fintech startup funded by foreign investors to 70 percent. With 90 percent of

the transactions conducted in cash, electronic payment service is the industry’s

priority. 60.5 percent of fintech startup operate as payment intermediaries.

Apart from significant demand, government policies have also played a role in

the industry’s strong growth. Introduced in September 2019, Circular

13/2019/ND-CP provides an overarching plan to create favorable conditions

for startup as per Industry 4.0 standards. In particular, start-ups in hi-tech

sectors will get a corporate tax exemption for four years and a 50 percent

reduction for the nine years.

3. Labor code 2021

This year, the Labor Code has two major changes in retirement age and

overtime hours limit. The retirement age for men has been increased from 60

to 62, and from 50 to 55 for women. The increase is inevitable to avoid labors

shortages in the next decade and to address an unbalanced social insurance

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 fund. Companies can introduce a more flexible retirement scheme whereby

senior workers can choose to be freelancers, independent contractors or part-

time workers.

The new code also limits overtime to 40 hours a month (300 hours a year).

The cap is higher than that of other Asian countries, such as China’s 36 hours

a month. However, some policymakers are advocating for an increase in the

cap to 400 hours in five special sectors: garments, textiles, seafood, leather

shoes, and electronics because of the seasonality in their orders. Employers

and workers still need to enter a voluntary agreement before working the

overtime limit. These changes are still under review and will officially come

into effect in 2021. By then, companies should already have a concrete plan to

protect workers’ rights and to sustain their financial position.

4. Visa friendly policies

The amended Law on Entry, Exit, Transit, which will come into effect in July

2020, allows foreigners to enter coastal economic zones for 30 days without a

visa. The zones need to have international airports, geographical boundaries

and must be separate from the mainland. The exemption is hailed as a good

policy for FDI firms to visit and gather information about potential economic

zones. In November, the government also announced that it would extend visa

exemption for citizens of Japan, South Korea, Denmark, Norway, Sweden,

Finland, and Belarus until December 31, 2022, if their stay does not exceed 15

days. Japan, South Korea, and Russia are key markets for Vietnam’s tourism

sector. The number of tourists from these countries has an annual increase of

about 30 percent in the past decade. A flexible visa policy will entice more

foreigners to come to Vietnam, thus boosting the tourism sector’s growth,

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 bringing in foreign investments and fostering the cultural exchange between

nations.

5. Amended Securities Law

In November 2019, the Securities Law was amended to suit the actual

development in the scale of Vietnam’s stock market. Procedures and

conditions related to Initial Public Offering (IPO) have been the main focus of

the amended law. To be able to file for an IPO, VND30 billion (US$2 million)

charter capital of a company is required, a rise from the former requirement of

VND10 billion (US$500,000). Major shareholders must retain their ownership

of 20 percent of the charter capital one year after the IPO. Public companies

are also subject to stricter requirements in auditing, information disclosure,

and management. Mr. Choi Ji Ung, Director of ASEAN Law Firm, applauds

that the law is now close to the standards of the International Organization of

Securities Commission (IOSCO) and Organization for Economic Cooperation

and Development (OECD). With new regulations to enhance transparency in

the investing environment, especially for foreign investors, Vietnam hopes to

make the stock market’s size equal to the country’s GDP in 2020. Larger

market capitalization would help Vietnam move from a frontier market to an

emerging market according to the Financial Times Stock Exchange (FTSE)’s

ranking.

II. Body

i. General Tax Procedures

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 There are authorities that regulates taxation system in Vietnam which are

Provincial Tax Departments, General Department of Taxation, and Ministry of

Finance.

The Ministry of Finance granted Circular No.80/2012/TT-BTC regulating tax

code registration under the Law on Tax Administration and replacing Circular

No.85/2007/TT-BTC which is Under Circular 80, organizations, households and

individuals producing, trading, providing goods and services; individuals earning

incomes subject to personal income tax; foreign organizations without Vietnamese’s

legal status, foreign individuals doing independent business in Vietnam; other

organizations and individuals related to tax issues such as: project management

boards, non-business units, organizations and individuals without tax liability but

eligible for tax refund or receiving aid from abroad will be issued with a sole tax code

for the whole operation as from the tax registration until the shutdown (except for

contractors).

The tax code of an enterprise after the business transformation shall be retained.

For enterprises established under the Law on Enterprise, the tax codes are also the

enterprise codes. The enterprise therefore does not need to apply separately for a tax

code.

In addition, the procedure for registering a tax code is simplified, with a number

of documents being removed from the list of required documents. Taxpayers are also

only required to submit the registration form and the copy (not notarized) of business

certificate (for enterprise), the copy (no notarized) of identify card or passport (for

individual) and the timeline for approval is no more than 3 working days from the

date of application, replace of 5 to 10 working days according to the previous

regulation.

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 If a tax payer issued with the tax code engages in new business or production or

expands the business engages in new business or production or expands the business

to other provinces or cities (without establishing new branches or affiliated units),

such tax payers must apply for tax registration at the local tax authorities where new

business activities or business expansion arise and still use the issued tax code for

declaring and paying tax.

The tax payers are individuals subject to personal income tax that complete the

procedures and tax registration dossiers shall be issued with “the Tax registration

certificate” or “the personal tax code card”.

Individuals paying personal income tax via multiple paying organizations shall

apply for tax registration at one paying organizations for the tax code issuance.

Individuals shall notify their tax codes to other paying organizations for them to make

tax declaration and tax payment using those tax codes.

Under Circular 80, if an individual simultaneously pays personal income tax and

does business, the personal income tax code shall be used for declaring and paying tax

on the business. If a business individual is already issued with the tax code, such tax

code shall be used for declaring and paying personal income tax.

When any information related to tax registration changing, organizations,

households and individuals must notify the tax authorities in charge within 10 days as

from the change occurs under the form No. 08-MST promulgated together with

Circular 80.

Vietnam citizens are taxed based on their profits, whether it is earned from

personal or corporate income. Vietnamese residents are taxed on their worldwide

income, non-residents are taxed only on Vietnam’s source of income. An individual is

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 classified as residents, if he/she spends 183 days or more in the aggregate in a 12-

month period in Vietnam, starting from the day the individual arrived in Vietnam.

Besides that, they need to maintain a resident in Vietnam, or has leased a resident for

183 days or more in a tax year, unless he/she is present in Vietnam for less than 183

days and can prove residents in other countries. In Vietnam, individual residents must

find their own returns separately, because joint filling is not allowed.

There are deductions and allowances that were applied in Vietnam taxation

systems. Subject to certain restrictions, tax deductions are granted for compulsory

social security contributions. Severance allowances, redundancy compensations, and

non-accumulative insurance premiums are not taxable. Other tax deductions include a

personal deduction, a dependent deduction, a deduction for voluntary retirement fund

contributions and charitable contributions.

For employees, tax on employment income is withheld by the employer and

remitted to the tax authorities. And individual must file a tax return and make a final

tax payment by March 30 in the year following the assessment year. Tax payer are

subjected to pay penalties per day for the late payment of tax, and under reported

amounts or for tax invasions.

Corporation is generally considered as residents, if it is incorporated in Vietnam.

Companies are taxed on worldwide income and non-resident company is taxed only

on Vietnam’s source of income. Foreign source income derived by residents is

subjected to corporate tax in the same way as Vietnam’s source of income.

ii. Types of Tax

1. Personal tax refers to an individual's total earnings from wages, investments,

and other activities during a given period, the Personal Income Tax represents

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 the amount of taxes an individual is required to pay into the Vietnamese state

budget from salary deductions and other sources of income. It includes:

2. Corporate taxation (CIT) is a direct tax levied on the profits earned by

companies or organizations. All income arising inside Vietnam is subject to

CIT, no matter whether a foreign enterprise has a Vietnam-based subsidiary or

whether that subsidiary is considered a permanent establishment. It includes:

3. Withholding tax means the Vietnamese contracting party will withhold a

percentage of the invoice to pay therefor to the Vietnamese tax office. The

foreign party then receives a net amount and, by this, shall not be obligated to

register for tax authorities in Vietnam.

4. Real property tax in Vietnam, there is no tax on owning a house. Land users,

including Foreign Investment Entities, must pay annual non-

agriculture land use tax at a progressive rate of 0.03 per cent to 0.15 per cent

of the land price per square meter, decided by the state every five years.

5. Social security Private- and public-sector employees with at least a one-month

contract, including household workers; employees in agriculture, fishing, and

salt production; civil servants; employees of cooperatives and unions; police

and military personnel; part-time workers in communes, wards, and

townships; and foreign citizens legally working in Vietnam.

6. Stamp duty certain assets, including houses, land, automobiles and

motorcycles, etc., that are subject to registration of ownership are subject to

stamp duty. The stamp duty rates vary depending on the asset transferred.

7. VAT applies to goods and services used for production, trading, and

consumption in Vietnam (including goods and services purchased from non-

residents), with certain exemptions.

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 8. Tax treaty is a bilateral—two-party—agreement made by two countries to

resolve issues involving double taxation of passive and active income. Tax

treaties generally determine the amount of tax that a country can apply to a

taxpayer's income, their capital, estate, or wealth. There is an income tax

treaty between Vietnam and Indonesia that was effective since 10 February

1999.

9. Other taxes include stamp duty of 0.5%-15% is levied on the transfer of

property. Other than stamp duty, there is also social security contributions

where employers are required to make social insurance (SI), health insurance

(HI) and unemployment insurance (UI) contributions of 15%, 3% and 1%,

respectively.

iii. Income Tax

Tax payer: A taxpayer is a person or organization (such as a company) that have a

tax code issued by a government to citizens or firms who is subjected to pay tax.

Income tax: tax levied by a government directly on income, especially an annual

tax on personal income.

CIT (Corporate Income Tax) rates: The standard CIT rate shall be

25%. Preferential CIT rates of 10% and 20% are available for enterprises investing in

geographical areas with socio-economic difficulties, economic zones or hi-tech parks

or in encouraged investment sectors for a certain period of time. When the period for

enjoyment of preferential rates expires, the CIT rate generally reverts back to the

standard rate. 

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No. Preferential Conditions Enjoyed Tax Holidays
CIT Rates Duration
CIT Exemption CIT Reduction
1. 20% Newly set up enterprises under 10 2 years from 50% CIT
investment projects in years generating reduction for 4
geographical areas with socio- taxable income consecutive years.
economic difficulties
2. 10% Newly set up enterprises under 15 4 years from 50% CIT reduction
investment projects in years generating for 9 consecutive
geographical areas with extreme taxable income years.  
socio-economic difficulties,
economic zones or hi-tech parks;
newly set up enterprises under
investment projects in the
domains of high technology,
scientific research and
technological development,
development of the State’s
infrastructure works of special
importance, or manufacture of
software products
3. 10% Enterprises in the domains of During 4-years CIT 50% CIT
education and training, vocational the exemption reduction for 5
training, health care, culture, sport duration consecutive years
and environment (socialization) of
project

The duration for application of tax rate incentives is counted from the first year an

enterprise has turnover. The tax exemption or reduction duration is counted from the

first year an enterprise has taxable income; in case an enterprise has no taxable

income for the first three years from the first year it has turnover, the tax exemption or

reduction duration is counted from the fourth year.

Vietnam’s Law on Investment specifies three forms of incentives that are

available to companies operating within the country. The following incentives are

listed under Section 1, Article 15.1:

1. Application of a lower rate of corporate income tax for a certain period

of time or throughout the project execution;

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 2. Exemption or reduction of import tax on goods imported as fixed assets

on raw materials, supplies, and parts used for the project;

3. An exemption, reduction of land rents and land levy.

Vietnam’s Law on Investment, as well as its subsequent decrees and circulars,

specify in the types of projects that qualify for incentives and the nature of incentives

that these projects qualify for. The most common incentives are those available for

investments made in specialized locations, industries, or investment zones in the

country.

Personal Income Tax

A. Employment income

Tax declaration and payment is carried out on a withholding basis. The

regulations encompass the concept of tax deduction at source, and legalese this by

specifying that certain employers are designated entities for tax collection purposes.

Such entities are required to deduct income tax at source prior to paying income to

individuals.

Although individual foreigners who are paid from an overseas entity may opt

to declare and settle their own tax directly with the tax authority, the local tax

authorities can require deemed employers in Vietnam to undertake to collect taxes on

employees and ensure timely submission of the employees’ tax declarations.

Under these circumstances, the employer must withhold a percentage of their

employees’ personal income equal to the respective employees’ personal income tax

liabilities and deposit the withheld amount with the State Treasury within the statutory

deadlines.

The employer finalizes PIT on behalf of the employees at year-end provided

that the employees have income only from this employer (or any irregular income

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from other sources not exceeding 10,000,000 Vietnamese dong (VND) per month and

10 percent PIT of which has been withheld) and that the employees authorize the

employer to finalize their tax on their behalf.

Vietnam’s tax authorities have singled out a number of incomes that are

exempt from PIT. These include:

1. Income from transfer of residential houses by individuals who possess only

one residential house or land plot;

2. Interest earned on deposit from the bank or from life insurance contracts;

3. Overseas remittance, retirement pension, scholarship;

4. Income from compensation for insurance contracts or from charity funds;

5. Wages paid for night shift or overtime work, which are higher than those

paid for day shifts or prescribed working hours in accordance with the law;

and

6. Income received from governmental or non-governmental foreign aid for

charity or humanitarian purposes approved by competent state agencies.

A resident taxpayer is allowed to deduct from his taxable income US$388

(VND9,000,000) every month or US$4,700 (VND108,000,000) every year. The

yearly amount can be fully deducted, regardless of whether the taxpayer had an

income every month.

Taxpayer can be obtained the tax reduction for each dependent is pegged at

US$155 (VND 3,600,000) per month. Qualified dependents are children aged below

18 years old, or children over 18 years old but earning a low income, which does not

exceed US$21 (VND 500,000) per month. In addition, spouses or parents of taxpayers

who are unable to work or have low income are also qualified dependents.Only one

person can claim the reduction for each dependent. The dependent allowance is not

13
automatically granted, and the taxpayer needs to register the qualifying dependent and

provide the supporting documents to the tax authority.

For non-employment who receives income from investment capital, capital

assignment, transfer of securities, royalties, winnings/prizes and franchises, tax

declaration and payment is carried out on a withholding basis. Income paying bodies

are required to withhold tax at source and then pay to the relevant tax authority within

the statutory deadlines mentioned previously.

Each payment from VND2,000,000 to individual sale agents or individual

service providers is subject to 10 percent withholding tax. In case they provide a

commitment indicating they have income less than the personal and dependent relief

then there will be no withholding tax required.

Vietnam personal income tax rates are progressive to 35%. Nonresidents are

taxed at a flat tax rate of 20%. Nonemployment income is taxed at rates from 0.1% to

25%.

Non-resident can be exempted from taxation for certain benefits such as:

1. One-off relocation allowances for foreigners to relocate to Vietnam (based

on the amount stipulated in the labor contract or agreement between the

employer and the employee).

2. One round-trip air fare a year for foreign employees’ annual leave, paid for

by employers (the air ticket should indicate the country where these

employees are nationals or where the foreigner’s family lives).

3. General education school fee or tuition paid by the employer for the

expatriates’ children studying in Vietnam (based on the invoice from the

school and the labor contract).

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 4. Contributions to a voluntary pension fund, up to the amount of

VND1,000,000 per month.

Taxable income including most employment benefits, is taxable. As from 1

January 2009, dividends (except for government bonds), interest (except for bank

deposits and life insurance), capital gains from securities trading, private business

income and other income from franchising, inheritance, the transfer of land use rights,

and gifts/winnings or prizes are taxable in Vietnam. Profits derived from the carrying

on of a trade or profession generally are taxed in the same way as profits derived by

companies.

The timing of tax declaration on various income elements varies depending on

the type of income and circumstances.

1. For employment income, the 20th of the following month for monthly tax

declarations, the 30th of the first month of the following quarter for the

quarterly tax declarations and the 90th day of the following year for the

annual tax return.

2. If someone leaves Vietnam during the year, a finalization return will be

due within 45 days of the departure date.

3. For business income, the finalization due date depends on the type of

business income.

4. For income from real property transfer and from capital assignment, at the

same time as conducting the relevant procedures of transfer or assignment.

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 5. For income from transfer of securities, generally withholding tax is

applicable at the time of receiving the income.

6. For income from in heritance and gifts, at the time of receiving the

income.

Personal Income tax rates levied on income from business, salaries, wages are

applied according to the progressive tax rate schedule as follows:

Taxable Income per year (VND) Tax rate

VND 0 - 60,000,000   5%

VND 60,000,000 - 120,000,000  10%

VND 120,000,000 - 216,000,000  15%

VND16,000,000 - 384,000,000 20%

VND 384,000,000 - 624,000,000 25%

VND 624,000,000 - 960,000,000 30%

Above VND 960,000,000 35%

Other tax rates for individual residents

Income from capital investment 5%

Income from transfer of capital 20%

Income from transfer of real estate 25%

Other tax rates for individual non-residents

Income from business and production of goods 1%

Income from business and production of services 5%

Manufacturing, construction, transport and other 2%

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 activities

Salary and wages 20%

Income from capital investment 5%

Transfer of capital 0.1%

Transfer of real estate 2%

Copyright and franchise activities 5%

Lottery wins, inheritance and gifts which are 10%

securities, capital or assets

Method of calculation:

The foundation to calculate individual income tax for incomes from business

activity, salary and wage are assessable income tax rate. It is determined by the

calculation:

Individual income tax payment = assessable income x tax rate

Assessable income = taxable income – deductions

In which:

Taxable income = Gross salary – non-taxations

a. Gross salary include: salary, wages, charges, etc.

b. Non-taxations include: allowances for lunch, telephone allowances, clothing

allowances, overnight and overtime working pay, welfare allowances, etc.

Illustrations:

Under labour contract, I enjoy a monthly salary of VND 35 million. I neither

register deductions based on family circumstances for my dependants nor pay any

insurance premiums or make charity, humanitarian or study promotion

contributions… How much personal income tax amount will I pay?

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 According to the Law on Personal Income Tax, the payable personal income

tax amount of a resident individual is determined as follows:

First, the taxpayer may have family circumstance-based deduction for himself

made from January or from the month he comes to Vietnam to the month when his

labour contract terminates and he leaves Vietnam in a tax year, for individuals present

in Vietnam for the first time. Deduction for a taxpayer himself is VND 9

million/month, or VND 108 million/year.

Second, in a year, if the taxpayer is present in Vietnam for 183 days or more,

the tax year is the calendar year. If he is present in Vietnam for less than 183 days in a

calendar year but his period of presence in Vietnam is 183 days or more if counted in

12 consecutive months from the first day of his presence in Vietnam, the first tax

period is 12 consecutive months from the first day of his presence in Vietnam. From

the second year on, the tax year will be the calendar year.

In your case, the first tax year will be counted from June 1, 2014, to May 31,

2015:

- Total taxable income in the first tax year:

VND 35 million x 12 months = VND 420 million

- Deductions based on family circumstances:

VND 9 million x 12 months = VND 108 million

- Taxed income:

VND 420 million - VND 108 million = VND 312 million

- According to the Partially Progressive Tax Tariff (*), payable personal

income tax amount in the first tax year: VND 60 million x 5% + (VND 120

million - VND 60 million) x 10% + (VND 216 million - VND 120 million) x

15% + (VND 312 million – VND 216 million) x 20% = VND 42.6 million

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 The second tax year (from January 1, 2015, through December 31, 2015):

- Taxable income generated in 2015:

VND 35 million x 12 months = VND 420 million

- Deductions based on family circumstances: VND 9 million x 12 months

= VND 108 million

- Taxed income in 2015: VND 42.6 million

However, as tax for the first five months (January 2015 to May 2015) of the

second tax year has already been paid in the first tax year, the coincidentally

calculated amount to be deducted is: (VND 42.6 million/12 months) x 5 months =

VND 17.75 million

- Remaining personal income tax amount to be paid in 2015:

VND 42.6 million - VND 17.75 million = VND 24.85 million

Total payable personal income tax amount: VND 67.45 million.

iv. VAT (Value Added Tax)

Value Added Tax (VAT) is the indirect tax which applies to goods and services

used for production, trade and consumption in Vietnam. Goods and services

purchased from overseas are also subject to VAT. The general tax rate is 10%.

In respect of goods purchased from overseas, VAT must be paid at import stage.

Services purchased from overseas are subject to VAT under the withholding regime

of the Foreign Contractors Withholding Tax (FCWT). A reduced rate of 5% also

applies to certain goods and services. Other than Value Added Tax, Vietnam also

levies a Special Sales Tax (SCT) which is applicable to goods and services classified

as luxury. The rates are from 10% to 70% for SCT.

When supplying goods and/or services subject to VAT, the business must charge

VAT on the value of goods or services supplied. In addition, VAT applies to the duty

19
paid value of imported goods. The importer must pay VAT to Customs at the same

time it pays import duties.

The VAT system of Vietnam is also characterized by two types of VAT payers:

deduction method VAT payers and direct method VAT payers. Most companies and

business organizations are deduction method VAT payers. This means that the

businesses will have to pay the output tax (i.e., VAT collected from their customers)

after deducting the input tax (i.e., the VAT businesses have paid to their suppliers).

The businesses must file VAT returns monthly to the tax authorities. The tax

authorities, in turn, will process the tax return and issue a tax assessment notice to the

tax payer. The payable VAT must be paid to the State budget the following month.

The direct method generally applies to small business households that do not keep

proper accounting records (there are currently over 1 million family businesses). For

these businesses, VAT is calculated at a deemed rate on gross turnover.

Method of calculation:

- The VAT credit method is specified as follows:

Payable VAT amount = Output VAT amount – Creditable input VAT amount

- The VAT direct method is specified as follows:

Payable VAT amount = Added value of sold goods or services * VAT rate

Where: Added value of sold goods or services = Selling price – Purchasing price

of goods or services.

Tax Rate

Applicable VAT rates are 0%, 5%, and 10%, respectively. The 0% rate applies to

export of goods and certain services including sales to EPZs. VAT is calculated by

multiplying the taxable price (net of tax) with the applicable VAT rate. With respect

20
 to imported goods, VAT is calculated by adding the import price with the import duty

and the special sales tax (if applicable).

v. Comparison

Vietnam Indonesia

Personal income taxes are using Personal income taxes are using
progressive rate with the rate up to 35% progressive rate with the rate up to
30%

Taxpayer can apply for tax reduction if The taxpayer can apply tax reduction
taxpayer has dependent. The tax
reduction for the taxpayer isn’t limited to if taxpayer is married, and/or for any
amount of depended as long as the
taxpayer register the qualifying dependent blood relatives, relatives or adopted
and providing supporting documents. The
qualified dependent are children aged children that is fully dependent on the
below 18 years old, or children over 18
with low income (not exceed US$21), in taxpayer with the maximum of three
addition spouse or parents of taxpayers
who are unable to work or have low people.
income is also qualified.

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 Vietnam doesn’t have the deduction of Indonesia provide the deduction of
occupational expense for the employees
occupational expense for their

employees with the maximum of IDR

500,000 a month.

All organizations, individuals, Producer or trader must report VAT.

entrepreneurs and branches must register VAT liabilities are settled with an
for VAT. VAT Payable by a corporation input-output mechanism
is calculated by the tax credit method or
calculated directly on the basis of added
value
Corporate tax income in Vietnam is Corporate tax income in Indonesia is
generally 20% generally 25%

For oil and gas corporation, the tax rate For oil and gas corporation, tax rate
ranges from 32%-50% ranges from 30%-45%

VAT rates are generally 10%, and can be VAT rates are generally 10%, and can
reduced to 5% depending certain goods be reduced to 5%-15% depending on
and services the government regulations.

vi. Illustrations of the Tax Compared

Personal Income Tax

James (m/1) works in one of YG branches with a salary 30,000,000 VND / month.

No housing is provided by the employer. The expatriate employee has two dependents

(wife and a child).

a. Calculate annual tax payable needed to be paid by James if he works in

Vietnam

b. Calculate annual tax payable needed to be paid by James if he works in

Indonesia (1VND = IDR 0.63)

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 Answer

a. Salary/ month VND 30,000,000

Personal allowance VND 9,000,000

Dependent allowance VND 7,200,000

Taxable Income/ month VND 13,800,000

PIT

5 % * VND 5,000,000 =VND 250,000

10% * VND 5,000,000 =VND 250,000

15% * VND 3,800,000 =VND 570,000

Total PIT =VND1,070,000

Annual PIT Payable =VND12,840,000

b. Salary/ month (30,000,000 * 0.63) IDR 18,900,000

Salary/ year IDR 226,800,000

Occupational Expense (500,000 * 12) IDR 6,000,000

PTKP (m/1) IDR 63,000,000

Taxable Income IDR 157,000,000

Tax payable

5 % * IDR 50,000,000 =IDR 2,500,000

15% * IDR 107,000,000 =IDR16,050,000

Tax Payable/ year =IDR18,550,000

VAT

A taxable person sells taxable goods with the selling price of VND 40,000,000.

The company purchase the taxable goods for the amount of VND35,000,000.

Calculate his VAT of the taxable goods,

a. If he lives in Vietnam (use direct method)

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 b. If he lives in Indonesia (VND 1 = IDR 0.63)

Answer

a. Selling price VND 40,000,000

Purchasing price VND 35,000,000

Added value of taxable goods VND 5,000.000

Payable VAT amount

(10% * VND 5,000,000) VND 500,000

b. Selling price (VND 40,000,000 * 0,63) IDR 25,200,000

Purchasing price (VND 35,000,000 * 0.63) IDR 22,050,000

VAT on purchasing (IDR 22,050,000 * 10%) IDR 2,205,000

VAT on selling (IDR 25,200,000 * 10%) IDR 2,520,000

Taxable period in that month

Output tax IDR 2,520,000

Input tax (IDR 2,205,000)

Underpaid IDR 315,000

III. Conclusion

According to the report above, we can conclude that not all taxes in Vietnam and

Indonesia are the same. The main subtopic of taxes available are the personal income tax,

corporate income tax and also VAT. Personal income tax includes the employment

income which means the tax declaration and payment is carried out on a withholding

basis. For individual foreigners who are paid from an overseas entity may opt to declare

and settle their own tax directly with the tax authority, and under these circumstances, the

employer must withhold a percentage of their employees’ personal income equal to the

respective employees’ personal income tax liabilities and deposit the withheld amount

with the State Treasury within the statutory deadlines.

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 For corporate income tax, companies who are producing and trading goods and

services and earning income shall be liable to pay CIT (Corporate Income Tax). Here, the

tax rates are only 20%, which is for newly set up businesses under investment projects in

geographical areas with socio-economic difficulties, and 10%, which is for newly set up

businesses under investment projects in the domains of high technology and also for

businesses in the domains of education and training, vocational training, health care,

culture, sport and environment (socialization).

VAT applies to goods and services circulated and consumed in Vietnam. VAT is

collected through production, trading and provision of services. The general rate of VAT

in Vietnam which applies to goods and services is 10%. A reduced rate of 5% also applies

to certain goods and services.

IV. Reference

https://www.vietnam-briefing.com/news/vietnamese-circular-tax-code-

registration.html/

https://www.vietnam-briefing.com/news/personal-income-tax-vietnam-tax-exemption

reduction-payment.html/

https://www.ducksters.com/geography/country/vietnam_history_timeline.php

https://www.vietnam-briefing.com/news/vietnams-year-in-review-outlook-2020.html/

https://home.kpmg/xx/en/home/insights/2011/12/vietnam-income-tax.html

https://www.avalara.com/vatlive/en/country-guides/asia/vietnam.html

https://www.vietnam-briefing.com/news/introduction-corporate-income-tax-

vietnam.html/

https://home.kpmg/xx/en/home/insights/2011/12/vietnam-income-tax.html

https://en.luathongduc.com/how-to-income-tax-calculation-guidence-viet-nam

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 https://www.vietnam-briefing.com/news/introduction-personal-income-tax-

vietnam.html/

https://lawyer-vietnam.com/wp-content/uploads/2018/03/GP_VAT_06-2016.pdf

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