Brief on Taxation in Vietnam
Vietnam is a single-party, socialist republic.
The current Constitution of Vietnam is its fifth
constitution and was adopted in 2013. The
President of Vietnam is the head of state, and
the Prime Minister of Vietnam is the head of
government. Executive power is exercised by
the government headed by the PM, and the
President. Legislative power is vested in the
National Assembly of Vietnam. Significant
power is also exercised by the General
Secretary of the Communist Party of Vietnam,
who is the Party leader and head of the
Politburo.
The President is elected by National Assembly
for a five-year term and acts as the commander-
in-chief of the Vietnam People's Armed Forces
and Chairman of the Council for Defence and
Security. The government, the main executive
state power of Vietnam, is headed by the Prime
Minister, who presides over a council of
ministers composed of five deputy prime
ministers and the heads of 26 ministries and
commissions. The executive branch is
responsible for the implementation of political,
economic, cultural, social, national defence,
security and external activities of the state. The
National Assembly is a unicameral legislative
body. The National Assembly currently
comprises of 483 members, elected by popular
vote to serve five-year terms.
According to Article 110 of the Constitution of
Vietnam, the administrative units of the
Socialist Republic of Vietnam are distributed
into provinces, which is further divided into
districts, provincial cities and towns, and cities
under direct central rule. Special administrative
economic units are created by the National
Assembly. Local governments are organised in
administrative units which consist of the
People’s Council, which is the local body of
State power and the People’s Committee, which
is the executive body of the former and elected
by it.
Tax Administration in Vietnam
The legislative framework of tax law in
Vietnam is based on laws passed by the
National Assembly of the Socialist Republic of
Vietnam, as well as Decrees, Circulars and
Official Letters issued by the Ministry of
Finance (“MOF”), the General Department of
Taxation (“GDT”) and/or local provincial
taxation authorities (including customs
authorities). The GDT is organized into a
hierarchical system from the central to local
level according to administrative units. A range
of different tax laws exist in Vietnam which
may seek to levy tax on assets, capital gains,
turnover, profits or earnings. Withholding taxes
also apply in a range of circumstances. Tax
laws are supplemented by the Law on Tax
Administration, which regulates the
administration elements of taxation in
Vietnam1.
Vietnam has a consolidated tax administration
law which contains statutory provisions
governing the administration of various tax
laws including customs and personal income
tax. However, Vietnam has 64 autonomous
regional provinces and each province has a
local tax authority which is responsible for the
collection and administration of taxation from
taxpayers registered within each respective
province. Accordingly, the administration of
taxation law in Vietnam is decentralised and
this can and often results in different
administrative practices, or interpretations of
law. Taxpayers are required to register, file and
pay taxes in the provincial location of their
commercial registration or place of residence.
Taxpayers with multiple registered locations
(e.g dependent or independent branches) will
therefore be subject to tax administration by the
provincial tax authority in each separate
registered location2. The major taxes in Vietnam
include:
 Corporate Income Tax (“CIT”);
 Foreign Contractor Tax (“FCT”);
 Value Added Tax (“VAT”);
 Special Sales Tax (“SST”)
  Customs duties;
 Personal Income Tax (“PIT”);
 Employment taxes including, Social
Insurance (“SI”), Unemployment
Insurance (“UI”) and Health Insurance
(“HI”)
The government introduced a new law on tax
administration which seeks to overhaul the
principle of taxation in the country. The
Vietnam National Assembly passed the new
Law on Tax Administration No. 38/2019/QH14
(hereon referred to as “the Law”) on 13 June
2019. The law was supposed to take effect from
1 July 2020 but it was postponed to 1 January
20213.
The Law introduces the ‘substance over form’
principle to determine tax obligations with
respect to entities and transactions in Vietnam.
Using this approach, the tax authorities may
review the economic substance of transactions
rather than just the legal form and is indicative
of a changing stance by the Vietnamese tax
authorities in how they will deal with tax
management.
Fiscal Decentralisation
The task of budgeting and taxation is divided
across ministries and different levels of
Government in Vietnam. According to the State
Budget Law 20024, powers of making laws
regarding budgeting and the fiscal and
monetary policy rest with the National
Assembly. The central government, on the basis
of resolutions passed by the Assembly is tasked
to decide on the assignment of budget revenue
and expenditure tasks to each ministry, the
revenue and expenditure tasks and level of
addition from the central budget to each
province or centrally-run city and to assign the
percentage of division between the central
budget and the budget of each locality regarding
the revenues. These tasks are practically unified
under the Ministry of Finance, with auxiliary
responsibilities shared with other ministries.
The People’s Councils at provincial levels have
to decide on budget revenue and expenditure
estimates for their area On the basis of the
budget revenue and expenditure tasks assigned
by the superior authorities and the practical
situation in their respective localities. They also
decide the division of budget revenue across
departments. This task is mostly done by the
executive body and ratified by the Councils.
With regards to sources of tax revenue, the
central government has exclusive rights to
revenues from taxes like VAT on imported
goods, export taxes, special consumption taxes
etc. VAT revenue from goods other than
imported goods is divided between central and
local government as are taxes on high income
earners, petrol and oil charges etc. Local
governments have exclusive rights to revenue
from taxes land tax, land levy, natural resource
tax (excluding oil and gas) etc. The expenditure
tasks are similar for both levels of government,
albeit for local governments, the scope is
limited to their jurisdiction. Local government
are expected to balance their expenditure with
their revenue sources. In situations where local
governments need to invest in the construction
of infrastructure projects which come under the
scope of the provincial-level budgets but
beyond the limit of their budget balance, they
may mobilize domestic capital under the
condition that yhe debit balance from the
mobilized capital source must not exceed 30%
of the provincial-level budget’s annual
investment capital for domestic capital
construction.
Overall, local authorities have been granted
increasing levels of fiscal responsibilities since
the adoption of the State Budget Law 5. Local
government spending constitutes an important
share of provincial economies in Vietnam.
Local authorities are now responsible for just
over half of total government spending, which
is high by international standard. Although
higher levels of spending have also been
matched by higher levels of local revenue, local
authorities have little to no autonomy over
revenue policy and administration.
Furthermore, there is significant
decentralization within provinces, bringing
resource allocation decisions closer to the
people. Compared to other countries,
decentralized revenues in Vietnam constitute
relatively large shares of national GDP (9-10
percent. General government revenue to GDP is
around 20 percent of GDP) and general
government revenue (33 percent excluding
extra budgetary sources)6. The share of
decentralized revenue over total local revenue
however has declined over time.
Digital Tax
Vietnam is not an OECD member and is
therefore not bound by OECD rules. However,
Vietnam was the 100th jurisdiction to join the
OECD’s Inclusive Framework on Base Erosion
and Profit Shifting (BEPS) in June 2017. It has
not yet formally agreed to adopt the OECD’s
Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent BEPS7.
The Law, however, introduces provisions which
have opened the avenue for taxation of digital
services. It provides for the division of
responsibilities regarding taxation of the digital
economy across different ministries. The
Ministry of Industry and Trade is tasked with
“Directing and providing guidelines to
authorities on sharing and providing related
information so as to cooperate with the Ministry
of Finance in tax administration of enterprises
and individuals involved in activities of e-
commerce, commercial rights transfer and
related activities”8. The Ministry of Information
and Communication is similarly tasked with
“directing and providing guidelines….to
coordinate with tax authorities regarding
provision and use of Internet services, online
information and online game”, and the
organizations and individuals directly
participating or involved in their management9.
The State Bank of Vietnam also has a role in
taxation of e-commerce. They have been tasked
with building and developing a nation-wide
payment system to facilitate collection of taxes
from e-commerce activities. Banks will also be
required to be involved in the e-commerce
taxation through withholding and making tax
payments on behalf of overseas parties which
conduct e-commerce activities and derive
income from Vietnam. This will, however,
place a significant burden on commercial banks,
and it remains unclear exactly what
mechanisms will be required to make this work
in practice10.
Overseas suppliers without permanent
establishments in Vietnam doing business based
on digital platforms are required to register for
tax in Vietnam or authorise someone to do so.
This is an entirely new requirement for tax
management. Currently in order to register for
direct filing of tax in Vietnam, foreign suppliers
(contractors) must have a local PE, among other
conditions. Place of consumption rules are
already in place, but do not focus on digital
services sold online and consumed in Vietnam.
A 10% FCT, which is a mix of 5% VAT and
5% corporate income tax is currently withheld
at source by the Vietnamese party to the
contract.
On October 19, 2020, Vietnam adopted Decree
No. 126/2020/ND-CP which clarifies and
details VAT (at 10%) compliance measures on
sales by foreign online sellers to Vietnam-based
consumers. The proposed new collection
mechanisms appear to be a mix of voluntary
registration by foreign online sellers and VAT
collection from financial intermediaries. The
FCT, in this case, would be replaced by VAT at
a rate of 10% rather than the above split. The
decree was to be effective from December 5,
202011.
The Decree provides a mechanism for foreign
sellers of digital services to register for a local
Vietnamese tax code, and voluntarily comply
with domestic VAT obligations, which they
could not previously, without the need for a PE
or physical presence in Vietnam. The ultimate
aim here is voluntary compliance and
remittance. Financial intermediaries would,
however, be required to withhold the VAT due
on these sales where the foreign sellers do not
register voluntarily.
Under the Law, banks are generally required to
withhold and pay tax on behalf of overseas
businesses which conduct e-commerce
activities and derive income from Vietnam. The
decree extends the above requirements to
payment intermediary service companies and
clarifies that the above withholding requirement
is applicable to transactions where Vietnamese
individuals purchase goods & services from
overseas suppliers conducting e-commerce and
digital-based business activities (“e-commerce
foreign contractors”). In this respect, banks and
payment intermediary service companies are
required to:
 Withhold and pay tax on behalf of the e-
commerce foreign contractors on a
monthly basis if such contractors do not
register to pay tax in Vietnam. The
General Department of Tax will work
with relevant authorities to determine
the name and website address of e-
commerce foreign contractors which do
not register in Vietnam and provide this
information to the banks and payment
intermediary service companies.
 Keep records of payments remitted to
overseas and provide this data to the
General Department of Tax on a
monthly basis if the Vietnamese
individual customers use a payment
method whereby withholding cannot be
performed (e.g. payments via credit
cards)12
There has, however, been a draft circular issued
by the GDT in March, 2021 which was opened
for public comments till 15 March 202113. In
addition to the detailed guidance on the tax
compliance procedure, tax refund, the tax audit
process and other tax administration related
subjects, the Draft Circular includes noteworthy
definitions of activities and business entities
who will fall under the scope of the regulations
on registration, declaration, and payment of tax
in relation to e-commerce activities and digital-
based businesses. Article 3 of the Draft Circular
defines "e-commerce activities" and "digital-
based business" broadly, as follows:
 "E-commerce activities" is the conduct
of part or the entire process of
commercial activities by electronic
means connected to the internet, mobile
telecommunications networks or other
open networks.
 "Digital-based business" is the provision
of services through the internet or an
electronic network and the nature of
such provision is basically automated
with little to no human intervention and
cannot be done without using
information technology.
Article 84 of the Draft Circular identifies the
entities responsible for tax registration, tax
declaration and tax payment for e-commerce
business activities and digital-based business, as
follows:
 overseas suppliers that do not have a
fixed place of business in Vietnam and
conduct e-commerce or digital-based
business with organizations and
individuals in Vietnam (hereinafter
referred to as overseas suppliers) that
are considered to have a permanent
establishment in Vietnam
 Vietnamese organizations that purchase
goods and services from overseas
suppliers
 commercial banks and intermediary
payment service providers (IPSP)
Furthermore, according to the circular, tax will
include VAT and CIT, which are calculated at
the deemed rates as provided under current
Circular No. 103/2014/TT-BTC regarding
foreign contractor tax on revenues derived in
Vietnam. Overseas suppliers will pay tax
directly on a quarterly basis, while banks and
IPSPs will withhold and pay tax on a monthly
basis.
It is unclear at this point whether the circular
supersedes or supplements the Decree issued in
October as there seems to be considerable
overlap in terms of the nature of the tax to be
applied and the frequency of tax payments.
Concluding Remarks/Clarifications
It needs to be clarified whether the Decree has
been implemented as it was supposed to in
December 2020 or whether it will be
implemented once the draft circular detailing
the provisions of the Law and the Decree are
finalised post-public comments. The Decree
indicates a VAT of 10% while the circular says
the tax will be a mix of VAT and CIT under
FCT rules.
The SBL 2002 currently assigns the same
expenditure responsibilities to both central and
provincial authorities i.e. most spending
assignments are shared/concurrent which causes
ambiguity over spending assignments. Unlike
center-province division of responsibilities,
there are explicit assignments for authorities
within provinces; but in some cases, all tiers
within the province are explicitly responsible
for the same services, causing further
confusion. Moreover, shared revenues in
Vietnam are split based on where revenues are
actually collected rather than where the tax is
incurred (the so-called “derivation principle”).
This raises questions concerning the VAT. It
needs to be clarified whether this principle
would apply in the case of the tax imposed on
digital services as VAT.
It also needs to be clarified whether the revenue
derived from this tax will be retained entirely
by the central government as VAT on imports
or split between the centre and local
governments.
1
KPMG, “Vietnam Tax & Legal Handbook”.
https://assets.kpmg/content/dam/kpmg/vn/pdf/publication/2020/Vietnam_Tax_Legal_Handbook.pdf
2
Ibid., 09.
3
KPMG Tax News Flash,”Vietnam: Taxation of e-commerce, withholding rules effective in 2021”
https://home.kpmg/us/en/home/insights/2020/06/tnf-vietnam-taxation-e-commerce-withholding-rules.html
4
Law No.01/2002/QH11 of December 16, 2002. State Budget Law.

5
Rab,Habib Nasser; Martinez-Vasquez, Jorge; Shah,Anwar M.; Vu,Quyen Hoang; Nguyen,Minh Van; Monkam,Kamo
Francoise Nara; Prasad,Abha; Doan,Quang Hong; Iyer,Indira.2015. “Fiscal Decentralization Review in Vietnam: Making
the Whole Greater than the Sum the Parts : Summary report (English)” . Washington, D.C. : World Bank Group.
http://documents.worldbank.org/curated/en/389051468187138185/Summary-report

6
Ibid.
7
KPMG, “Vietnam Tax & Legal Handbook”.
8
Law no. 38/3019/QH 14, Law on Tax Administration, National Assembly. Vietanlaw. Accessed on 15-04-2021
https://vietanlaw.com/vietnams-tax-administration-law-38-2019-qh14-425672/
9
Id.
10
PwC Vietnam NewsBrief, “New law on tax administration has finally been issued”. 12 July 2019. Accessed on 16-04-
2021 https://www.pwc.com/vn/en/publications/2019/190712-pwc-vietnam-newsbrief-tax-admin-38-en.pdf

11
Taxamo. “Vietnam VAT obligations on sales by foreign online sellers may come into force on December 5”. November
26, 2020.

12
PwC Vietnam NewsBrief. “New Decree implementing the Law on tax administration 2019”. 26 October 2020.
13
Baker McKenzie. “New draft regulation governing taxation of e-commerce activities”. March 5, 2021.