FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

---------***---------

MID-TERM REPORT

Major: International Business Economics

FUNDAMENTALS AND PRACTICE OF VIETNAM’S TAX

LAWS ON CORPORATE INCOME TAX

Student: Student ID:

Lê Nguyễn Gia Hân 1911155027
Phạm Hoàng Tuấn Trung 1911115567
Lương Thanh Thảo 1911115477
Cao Xuân Bách 1911155008
Nguyễn Phan Nhật Đan 2011155087
Mai Nguyệt Ánh 2011155048

Class code: ML188

Lecturer: Trần Nguyên Chất

Ho Chi Minh City, November 2022

 TABLE OF CONTENT

PREFACE ...........................................................................................................................1
CHAPTER 1: FUNDAMENTALS OF CORPORATE INCOME TAX (CIT)
IN VIETNAM .....................................................................................................................2
1.1. CONCEPT AND CHARACTERISTICS OF CIT IN VIETNAM...........2
1.1.1. CONCEPT OF CIT .....................................................................................2
1.1.2. CHARACTERISTICS OF CIT .................................................................3
1.2. PRINCIPLES OF CORPORATE INCOME TAXPAYER
DETERMINATION ...................................................................................................3
1.2.1. PRINCIPLE OF NATIONALITY ............................................................3
1.2.2. PRINCIPLE OF TERRITORY..................................................................3
1.2.3. PRINCIPLE OF RESIDENCY..................................................................4
CHAPTER 2: CORPORATE INCOME TAX LAW AND
ADMINISTRATION IN VIETNAM ............................................................................5
2.1. MAIN CONTENT OF CIT LAW IN VIETNAM .......................................5
2.1.1. TAXPAYERS ..............................................................................................5
2.1.2. TAX BASES ................................................................................................6
2.1.3. TAX DECLARATION...............................................................................9
2.1.4. EXAMPLE OF CIT CALCULATION ................................................. 10
2.2. POSITIVE IMPACTS OF CIT LAWS AND POLICIES IN VIETNAM 10
2.2.1. ECONOMIC PERSPECTIVES .............................................................. 11
2.2.2. LEGAL AND SOCIAL WELL-BEING PERSPECTIVES................ 13
2.3. CIT ADMINISTRATION IN VIETNAM .................................................. 14
2.3.1. CIT ADMINISTRATION LAW IN VIETNAM ................................. 14
2.3.2. COMMON FOCUS OF TAX AUTHORITIES IN TERMS OF CIT 15
CHAPTER 3: SPECIAL CASES OF CORPORATE INCOME TAX
PRACTICE IN VIETNAM .......................................................................................... 17
3.1. SPECIAL TAX TREATMENT FOR CORPORATES ........................... 17
3.1.1. GENERAL PROVISION ........................................................................ 17
3.1.2. TYPES OF TAX INCENTIVES ............................................................ 17
3.2. CIT EVASION: COCA-COLA VIETNAM’S CIT EVASION CASE 20
CHAPTER 4: SUGGESTIONS FOR BETTERING CIT SYSTEM OF
VIETNAM........................................................................................................................ 22
REFERENCES ............................................................................................................... 23
 LIST OF ABBREVIATIONS

Abbreviations Full meaning

CIT Corporate Income Tax
GDP Gross Domestic Product
VND Viet Nam dong
SMEs Small and Medium-sized enterprises
FDI Foreign Direct Investment
FCT Foreign Contractor Tax
VAT Value-added Tax
 LIST OF FIGURES
Figure 2.1 . Top corporate income tax rates in Asia .................................................... 11
Figure 2.2 . Real FDI Fund of Vietnam in the first 9 months of 2022 witnessed a
record high figure. ............................................................................................................ 12

LIST OF TABLE
Table 1 .1. Estimates and settlement according to the state budget by field (2018 -
2020)......................................................................................................................................2
 1

PREFACE
Business organizations are the main contributory element to the development of
any economy. With the rising trend of free trade and democratic economy, more and
more business emerges, compelling the presence of effective management so that
business benefits the society as a whole rather than taking advantage of the society to
earn personal benefits. Among management tools of the government, tax in general and
corporate income tax in particular prove to be of great importance.
As participants of Vietnam’s economy working in different business organizations,
the group of authors view the matter of comprehending and complying well with
corporate income tax policies in Vietnam as a matter of necessity, from understanding its
concept and nature, to getting a good grasp of current laws on corporate income tax.
Understanding is key to good practice, and good practice of tax laws shall bring about
significant benefits such as avoidance of legal problems.
Hence, the group of authors decided to do research on the topic “Fundamentals
and practice of Vietnam’s tax laws on corporate income tax”. The research shall be
structured in four chapters, ranging from the fundamentals and practice of corporate
income tax in Vietnam to practical cases, administration and application of corporate
income tax, to finally arrive at some suggestions to better the tax system as a whole:
Chapter 1: Fundamentals of corporate income tax in Vietnam
Chapter 2: Corporate income tax laws and administration in Vietnam
Chapter 3: Special cases of corporate income tax practice in Vietnam
Chapter 4: Suggestions for bettering corporate income tax system in Vietnam
 2

CHAPTER 1: FUNDAMENTALS OF CORPORATE INCOME TAX (CIT) IN

VIETNAM
1.1. CONCEPT AND CHARACTERISTICS OF CIT IN VIETNAM
1.1.1. CONCEPT OF CIT
Tax is a compulsory monetary contribution from the private sector to the public
sector or the government. Tax generates direct impacts upon the existence and
development of a nation due to its role in financing government’s expenditure,
redistributing the society’s income and performing the macro-regulatory and
management functions for economic and social activities in the entire national economy.
One major element of the private sector who accounts for the larger proportion of a
nation’s GDP in particular and economic activities in general are corporate or enterprises,
which render them eligible for bearing tax burden. One of such burden is corporate
income tax - a kind of direct tax imposed by governme nt on business profits, earnings or
taxable incomes.
Table 1.1. Estimates and settlement according to the state budget by field (2018-2020)
Revenue from Revenues from Revenue from
Year of the
state-owned foreign-invested non-state
report
enterprises enterprises economic sector

Estimates 286.441 201.057 194.419

2017 Settlement 282.439 172.166 181.001
Compare % 98,6% 85,6% 93,1%
Estimates 166.498 222.823 217.974
2018 Settlement 153.323 190.309 209.624
Compare % 92,1% 85,4% 96,2%
Estimates 177.709 213.734 241.530
2019 Settlement 165.055 212.199 238.228
Compare % 92,9% 99,3% 98,6%
Estimates 177.815 228.726 270.980
2020 Settlement 148.183 209.090 247.134
Compare % 83,3% 91,4% 91,2%
(Unit: billion VND)
(Source: The Ministry of Finance)
 3

In developing countries like Vietnam, CIT is of great importance in maintaining

stability to government revenue and redistribution of society’s income. Tax rate imposed
on specific taxpayers are dependent on the government’s viewpoint o n what is relevant to
the nation’s benefit at the moment.
In nature, CIT is the liability of firms and business organizations to the
government and are viewed by corporates as an expense that reduces net profit. Thus,
corporates find every possible method to reduce tax burden and increase their net profit.
1.1.2. CHARACTERISTICS OF CIT
CIT is operated upon these characteristics:
● Direct tax: The taxpayers directly bear the tax burden of CIT;
● Varied according to the government policies: The government can impose a
lower tax rate/less complex tax brackets or allow for tax reduction/exemption to
incentivize the growth and fruition of a certain industry;
● Progressive: Larger and more profitable firms should pay more taxes;
● Complex: There are numerous exemptions and deductions to attract investment,
which makes the administration of CIT complicated and prone to abuse.

1.2. PRINCIPLES OF CORPORATE INCOME TAXPAYER DETERMINATION

1.2.1. PRINCIPLE OF NATIONALITY
This principle stipulates that taxpayers of one country shall be organizations that
bear the nationality of that country i.e. organizations that are established under the
country’s law and has their headquarters situated in the country. This principle also
specifies that eligible organizations are responsible for paying taxes for their incomes
regardless generated within the country’s territory or not.
1.2.2. PRINCIPLE OF TERRITORY
This principle specifies that all incomes generated within a country’s territory
regardless of the taxpayers’ nationality or relation with the country’s government. Hence,
this principle is also called the principle of income origin.
 4

1.2.3. PRINCIPLE OF RESIDENCY

This principle specifies that when a business organization identifies at a “resident”
of a country i.e. associating its economic activities closely with those of the country and
enjoying the benefits and infrastructure of the country are responsible for paying tax for
its income whether generated within the country or not. On the other hand, business
organizations that are not “residents” of the country are only taxed for the income
generated within the country’s territory. “Residency” is determined by whether the
organization has permanent establishment in the country.
In Vietnam, the second and third principle is used complementarily.
 5

CHAPTER 2: CORPORATE INCOME TAX LAW AND ADMINISTRATION IN

VIETNAM
2.1. MAIN CONTENT OF CIT LAW IN VIETNAM
2.1.1. TAXPAYERS
Article 2 of the 2008 Vietnam Law on Corporate Income Tax, amended and
supplemented in 2013 stipulates that CIT taxpayers are organizations engaged in
production and trading of goods and services with taxable income in accordance with the
Law on Corporate Income Tax, including the following subjects:
● Enterprises established in accordance with the law of Vietnam;
● Enterprises established in accordance with foreign laws (foreign enterprises) with
or without a permanent establishment in Vietnam;
● The non-business units and organization established under the Law on
Cooperatives;
● Other organizations with income-generating production and business activities.

Regarding taxable income, there are four basic categories as follows:

● Incomes generated in Vietnam that are associate with the operation of the
enterprises’ establishments in Vietnam (1);
● Incomes generated in Vietnam t hat are NOT associate with the operation of the
enterprises’ establishments in Vietnam (2);
● Incomes generated outside of Vietnam that are associate with the operation of the
enterprises’ establishments in Vietnam (3);
● Incomes generated outside of Vietnam t hat are NOT associate with the operation
of the enterprises’ establishments in Vietnam (4);
The law stipulates that enterprises established under Vietnam law shall pay
enterprise income tax for all categories. Foreign enterprises with a permanent
establishment in Vietnam shall pay tax for category (1), (2) and (3), while foreign
enterprises without one is only responsible for tax stemming from category (1) and (2).
 6

2.1.2. TAX BASES

2.1.2.1. TAXABLE INCOME
Basis for taxable income:

Taxable income = Turnover - Deductible expenses + Other incomes

● Turnover: According to Article 8 of the 2008 Vietnam Law on Corporate Income

Tax, turnover is the total sales, processing remuneration, service provision charges,
subsidies and surcharges enjoyed by enterprises, calculated in VND;
● Deductible expenses: According to Article 9.1 of the 2008 Vietnam Law on
Corporate Income Tax, deductible expenses must be actually paid expenses related
to production and business activities and accompanied with adequate invoices and
documents as prescribed by law. Deductible expenses shall not include fines for
administrative violations, expenses for advertisements, marketing, sales promotion
and brokerage commissions and other expenses as stipulated in Article 9.2 of the
same Law;
● Other incomes: Incomes deriving from other activities beyond sales of products
and provision of services, including income from the right to own or use asset,
income from the transfer of capital or real estate and other income as stipulated in
Article 3.2 of the 2008 Vietnam Law on Corporate Income Tax.
2.1.2.2. TAXED INCOME
Basis for taxed income:

Taxed income = Taxable income - Tax-exempt income - Losses carrying forward

● Tax-exempt income: According to Article 4, Vietnam Law on Corporate Income

Tax No 14/VBHN-VPQH and Article 8, Circular 78/2014/TT-BTC, there are
certain exemptions from CIT corresponding to the economic incentives and
natives’ well-being stimulation from the government, generally applicable to
income from agricultural activities, infant scientific research and technological
 7

development, income from activities that aim at benefiting disadvantaged people

in the society (ethnic minorities, the disabled, detoxified, HIV-infected, etc.) and
financial support for social activities in Vietnam;
● Losses carrying forward: According to Article 16 of the 2008 Vietnam Law on
Corporate Income Tax, loss-suffering enterprises may carry forward their losses to
subsequent year with the time limit of 5 years counting from the year following
the year the loss arises;
● Tax period: According to Article 5 of the 2008 Vietnam Law on Corporate
Income, taxed income is generally calculated for a tax period of a calendar year or
a fiscal year.
2.1.2.3. TAX RATE
Vietnam has gradually reduced the common corporate income tax rate through
amendments and supplements to a number of articles of the Law on CIT according to the
set schedule, from 28% (before 2009) to 25% (from January 1st). January 2009), and
down to 22% (from January 1, 2016). Particularly, small and medium-sized enterprises
(SMEs) are entitled to the tax rate of 20% from July 1, 2013. The reduction of the general
CIT rate, although significantly reducing the contribution obligation of many enterprises,
has also had the effect of encouraging business and facilitating enterprises to increase
accumulation, increase investment, and promote growth.
According to Article 10, Article 13 and Article 14 of the Law on Corporate
Income Tax 2008 amended and supplemented in 2013 and Article 10 of Decree
218/2013/ND-CP, Article 10, Vietnam Law on Corporate Income Tax No 14/VBHN-
VPQH dated July 15, 2020, the general CIT rate is 22%, and from January 01, 2016, the
CIT rate of 20% shall apply to enterprises that are implementing the CIT rate of 22% as
prescribed.
However, there are exceptions to the aforementioned tax rate, specified in Clause
2 and Clause 3 of such Article as well as the entities that are entitled to preferential CIT
treatment: An enterprise whose total revenue earned during a year does not exceed VND
20 billion shall apply the CIT rate of 20%. The revenue as the basis for determination of
 8

eligibility for 20% CIT rate specified in this Clause is the revenue earned in the previous
year. Additionally, the rate of CIT on exploration and extraction of petroleum in Vietnam
shall be from 32% to 50% depending on each project or business entity, respectively, the
rate of CIT on exploration and extraction of other rare and valuable resources in Vietnam
shall also be 40% to 50% depending on each project or business entity (PwC, Vietn amese
Tax Handbook, n.d.).
2.1.2.4. TAX CALCULATION METHODS
Pursuant to Article 6 of the Law on Corporate Income Tax 2008, Article 5 of
Decree 218/2013/ND-CP, CIT is calculated as follows:

CIT = Taxable income in the period x Tax rate

Accordingly, the corporate income tax payable by the enterprise in the tax period
will be determined based on the period of taxable income with the tax rate. In case the
enterprise has established a science and technology fund, this amount will be deducted
from taxable income.
Therefore, taxable income in the tax period is determined by total revenue
regardless of domestic or foreign arising, minus deductible expenses, plus other taxable
income, in which, the taxpayers must prepare an annual CIT finalization declaration
showing the adjustments between income for accounting purposes and taxable income for
tax purposes. Notably, this shall not distinguish whether the enterprise has received the
payment or not. In addition, the eligible taxable income for specific circumstances i s
stated in Clause 3, Article 8 of Decree 218/2013/ND-CP and Clause 3, Article 5 of
Circular 78/2014/TT-BTC.
Furthermore, the current Law on CIT has also basically covers a number of new
incomes such as income from the transfer of investment projects; inco me from the
transfer of the right to explore, exploit and process minerals; income from the transfer of
the right to contribute capital, the right to participate in investment projects, etc., to
ensure clear and transparent policies, to properly reflect the economic nature of the
incomes and the legal basis for the implementation.
 9

2.1.3. TAX DECLARATION

Companies must temporarily pay estimated quarterly taxes. The total temporarily
paid CIT amount of the first 3 quarters of the tax year must not be lower th an 75% of the
payable CIT amount according to the annual finalization. If the quarterly temporarily
paid tax amount is lower than the prescribed amount, the company must pay a late
payment interest for the outstanding tax amount (currently 11%/year for late payment),
from the 3rd quarter tax payment deadline. The finalization of CIT is done annually, and
the deadline for submitting the CIT finalization declaration and paying CIT is the last day
of the third month from the end of the fiscal year.
In case the taxpayer has a dependent accounting establishment (for example, a
branch) in another province or centrally-run city, the taxpayer only needs to submit the
CIT return in the locality where the head office pays the tax. However, manufacturing
companies must allocate the amount of tax payable to the respective tax authorities in the
provinces where there are dependent accounting production facilities. The basis for
allocating tax payable in each locality is based on the ratio of the expenses of each
production facility to the total expenses of the company. However, for dependent units or
business locations whose income is entitled to CIT incentives, the company needs to
separately determine the amount of CIT payable.
At the gist of it, the system of CIT legal documents in Vietnam is quite complete,
which alleviates the cost of compliance for taxpayers significantly and meeting basic
global standards. Current CIT law in Vietnam has contributed to facilitating the
investment environment, promoting production and business, ensuring fairness and
equality in competition among economic sectors; regulate most of the income from
production and business activities, thereby contributing to generating revenue for the
state budget; help businesses have more financial resources, increase accumulation to
promote investment and development. In addition, the regulations on CIT are in line with
international practices and Vietnam's commitments with international organizations.
 10

2.1.4. EXAMPLE OF CIT CALCULATION

ABC Company end-of-quarter revenue and cost of Quarter 1 this year is as
follows:
● Turnover from sales of goods and service provisions: 800,000,000 VND
● Employees’ salary: 150,000,000 VND
● Employees’ social insurance: 30,000,000 VND
● Interests from bank deposit: 1,000,000 VND
● Expenses directly related to sales of goods: 100,000,000 VND
● Expenses related to the administration and operation of the establishment:
120,000,000 VND

Taxable income = Turnover - Deductible expenses + Other incomes

= 800,000,000 - (150,000,000 + 30,000,000 + 100,000,000 + 120,000,000)
+ 1,000,000
= 401,000,000 (VND)
Taxed income = Taxable income - Tax-exempt income - Losses carried forward =
401,000,000 (VND)
(As there are no tax-exempt income and losses reported by the company)
Payable corporate income tax: Taxed income x CIT rate = 401,000,000 x 20% =
80,200,000 (VND)

2.2. POSITIVE IMPACTS OF CIT LAWS AND POLICIES IN VIETNAM

The Law on CIT has been promulgated and amended many times and has
increasingly succeeded its role as an effective and uniform macro-market management
tool, which is applicable to all economic sectors and business models, both foreign
investors and domestic enterprises, creating a fairer and healthier competitive
environment in the new economic conditions, thus enables the country to q uickly
integrate with the regional and global economy.
 11

2.2.1. ECONOMIC PERSPECTIVES

Firstly, this current tax rate compared to other countries in the region and the
world is quite low, which means businesses can earn high profits without paying the
same tax rate as before.
Figure 2.1. Top corporate income tax rates in Asia

(Source: Efisha’s Map 2022)

This trend of reducing the tax rate gradually over time has been positively
affecting the investment mindset of investors, which is effective in encouraging and
attracting the investment environment in Vietnam. This is especially important to a
developing country that especially depends on foreign direct investment to grow both
economically, technologically and socially like Vietnam. As observable, changes in tax
policy and tax rates have brought increasing efficiency in attracting and promoting
investment in Vietnam, given the increasing number of FDI projects in Vietnam for
instance. The outstanding highlight is that foreign direct investment (FDI) recognized in
Vietnam increased by 16.3% over the same period last year, which is the highest increase
of 9 months of the years from 2018-2022, the ratio of capital FDI realized on registered
capital recorded a record of 82.3%. Specifically, according to statistics from the Foreign
 12

Investment Department - Ministry of Planning and Investment, in the first eight months
of 2022, foreign investors poured nearly 16.8 billion USD into Vietnam.
Figure 2.2. Real FDI Fund of Vietnam in the first 9 months of 2022 witnessed a
record high figure.

(Source: General Statistics Office (n.d.))

Among 63 countries and territories with newly licensed investment projects in
Vietnam in the first nine months of 2022, Singapore remains the top-notch investor with
1.45 billion USD, accounting for 20.4% of the total newly registered capital; followed by
Denmark with 1.32 billion USD, accounting for 18.5%; Japan 927.5 million USD,
accounting for 13%; Korea 749.1 million USD, accounting for 10.5%; and finally, China
735.3 million USD, accounting for 10.3%, according to the General Statistics Office
Secondly, CIT contributes to encouraging and promoting production and business
development in the direction of the plan, strategy and comprehensive development of the
government. By legal provisions on CIT, the state shows proper attention to taxpayers,
and at the same time contributes to sharing the tax burden with businesses, creating
preferential conditions to maintain production and business activities through CIT
exemption and reduction policies. Furthermore, the provisions of the CIT law have the
effect of creating a change in resource allocation, encouraging and attracting selective
 13

investment to develop regions with extremely difficult socioeconomic conditions and a

number of important sectors according to development policy such as high-tech and
agriculture.
It can be affirmed that regulations on tax policies have played an important role in
attracting domestic and foreign investment capital, promoting economic restructuring in
regions, regions and between regions of the national economy, and at the same time
encourage enterprises to invest in industries producing high value-added products,
supporting industries, using high technology, biotechnology and high-quality services.
Thirdly, CIT is an accurate measurement to evaluate the performance of taxpayers.
By looking at the amount of income tax that the unit has to pay, comparing it with the
amount of enterprises in the same industry locally and nation-wide, can produce an
overview of production and business efficiency of the unit. For instance, the higher the
amount of tax a business pays can reflect better business performance, which has resulted
in higher profitability, and vice versa. Therefore, this is truly a tool to accurately evaluate
the performance of an enterprise.
In addition, Vietnam CIT laws create a favorable business and investment
environment, ensuring fairness and equality in competition; reducing the general tax rate
encourages enterprises to have more financial resources, increase savings, accumulate
equipment innovation, promote investment and development, and improve
competitiveness.
2.2.2. LEGAL AND SOCIAL WELL-BEING PERSPECTIVES
CIT is a tax that plays an important role in the tax legal system of Vietnam,
performing the function of regulating socioeconomic activities in each certain period of
economic development, concurrently, ensuring social fairness in tax for businesses. The
government uses CIT as a tool to regulate the income of high-income subjects, ensuring
that the requirements of business entities' contributions to the state budget are fair and
reasonable. In Vietnam, CIT is applied to all types of enterprises of all economic sectors,
ensuring not only horizontally but also vertically. This means, regardless that whether an
enterprise does which business, if it has taxable income, it must pay corporate income tax,
 14

and in the same line of business with a uniform tax rate, enterprises with high incomes
must pay more tax than enterprises with low incomes.
In short, CIT laws in Vietnam is a basically complete system and is on the well-
thought side that brings about various benefits to the development of the country both
economically, legally and socially.

2.3. CIT ADMINISTRATION IN VIETNAM

2.3.1. CIT ADMINISTRATION LAW IN VIETNAM
Vietnam’s CIT administration is subject to Vietnam’s Law on Tax Administration
and relevant legal documents applicable to CIT. There are several focused aspects in
terms of CIT administration:
First, the taxable period. The standard tax year is the calendar year. However,
provided the approval from tax authorities, different year-ends accounting methods are
applicable.
Second, tax refund. The annual final CIT refund and the audited financial
statements must be filed no later than the last day of the third month as of the ending date
of a calendar year or a financial year.
Third, payment of tax. Enterprises are required to make quarterly provisional CIT
payments based on the quarterly business results. If the total amount of provisional
quarterly CIT paid in the first 3 quarters of a tax year accounts for less than 75% of the
total CIT liability for the year, the difference shall be deemed as late payment and shall
be subject to late payment interest. Fi nal payment of CIT is due with the final quarter of
the taxable period.
Fourth, penalties for violation of tax law. Tax penalties are generally considered to
be serious noncompliance and consequences can range from minor administrative
penalties to heavy tax penalties depending on the seriousness of the noncompliance.
Fifth, tax audit process. Tax audits are carried out regularly and often cover a
number of tax years. This procedure is carried out to ensure transparency and integrity in
complying with CIT duty of corporate and business organizations.
 15

Sixth, statute of limitations. The normal statute of limitations is 10 years for taxes
and five years for penalties. The tax authorities have the right to collect outstanding taxes
and penalties at any time when a taxpayer fails to register for taxes or engages in tax
evasion that is punishable by criminal prosecution.
2.3.2. COMMON FOCUS OF TAX AUTHORITIES IN TERMS OF CIT
2.3.2.1. TRANSFER PRICING
Transfer pricing is a topic that is frequently covered in the media, and the
businesses that are drawing the attention of the tax authority are typically multinational
corporations with a high volume of inter-company transactions, losses that have been
reported for a long time, and/or growing operations.
2.3.2.2. CIT INCENTIVES
The rules governing the eligibility for CIT incentives are complex. It is not quite
apparent how to categorize new investment and investment expansion (both are subject to
various incentive regimes). Additionally, adherence to the stringent accounting system
standards is a precondition for the use of tax benefits. Taxpayers must determine for
themselves whether they qualify for the tax advantages. Therefore, during tax audits, the
tax authorities concentrate on examining whether the taxpayers have complied with the
requirements.
2.3.2.3. DOCUMENTATION ON EXPENSES
The documentation of costs, including contracts, invoices, proof of job
completed/benefit received, etc., is closely scrutinized by the tax authorities. Input VAT
credit/refund and CIT conductibility are being denied due to insufficient paperwork.
2.3.2.4. FCT ON SUPPLY OF GOODS
To help the tax authorities recover under-declared FCT resulting from in-country
import/export transactions, the customs authority has been asked to give the tax aut hority
information on businesses involved in these transactions.
 16

2.3.2.5. SECONDMENT ARRANGEMENTS

Tax authorities want to levy FCT on Vietnamese companies that reimburse
expatriate compensation costs. Businesses must make sure that supporting documentation
is available to demonstrate that amounts have been reimbursed at cost.
 17

CHAPTER 3: SPECIAL CASES OF CORPORATE INCOME TAX PRACTICE IN

VIETNAM
3.1. SPECIAL TAX TREATMENT FOR CORPORATES
3.1.1. GENERAL PROVISION
The consolidated document No. 26/VBHN-BTC directing CIT and Decree No.
31/2021/ND-CP outlining the application of a number of provisions of the Investment
Law specify the requirements for receiving CIT incentives as follows:
● CIT incentives are only applicable to enterprises that implement the invoice and
voucher accounting regime and pay CIT according to the declaration.
● CIT incentives are only given to businesses with brand-new or expanding
investment projects that completely adhere to all legal requirements.
There must also be accompanying criteria for CIT incentives for a number of
industries that are prioritized for investment and encouraged to develop, such as high-
tech enterprises, high-tech application projects, and science and technology enterprises
e.g. when it comes to high-tech business, revenue from high-tech products must be at
least 70% of the total revenue for the enterprise to enjoy tax incentives from the
government
3.1.2. TYPES OF TAX INCENTIVES
3.1.2.1. TAX RATE INCENTIVES
10% tax rate (in 15 years):
● Incomes of enterprises from carrying out new investment projects in highly
challenging socioeconomic environments, economic zones, and high-tech zones;
● Incomes of enterprises from carrying out new investment projects;
● Revenues of high-tech businesses and high-tech agriculture businesses under the
High Technology Law of 2008;
● Revenue received by the business from the implementation of new investment
projects in the production sector (apart from mining projects and projects to
generate commodities subject to excise tax)
 18

● Profits from businesses undertaking new investment projects to create goods on

the priority list for development of supporting industry goods

10% tax rate:

● Incomes of enterprises from performing socialization activities in the fields of
education, vocational training, healthcare, culture, sports and environment;
● Incomes of enterprises from implementing investment projects - social housing
business for sale, lease, lease purchase for the subjects specified in Article 53 of
the Law on Housing 2014;
● Incomes of press agencies from printing press activities, including advertising on
printed newspapers according to the provisions of the Press Law 2016; income of
publishing agencies from publishing activities in accordance with the Law on
Publishing 2012;
● Income of enterprises from: planting, tending and protecting forests; farming and
processing agricultural and aquatic products in areas with difficult socioeconomic
conditions; to cultivate forest products in areas with difficult socioeconomic
conditions;
● Income of cooperatives operating in the fields of agriculture, forestry, fishery and
salt production, which are not located in areas with difficult socioeconomic
conditions or areas with special socioeconomic conditions. difficulties, except for
income of cooperatives specified in Clause 1, Article 4 of the Law on Corporate
Income Tax 2008 (amended 2013).

15% tax rate:

For the revenues of businesses engaged in agriculture and angling that are not
situated in regions with challenging socioeconomic circumstances or regions with special
difficult socioeconomic circumstances
 19

3.1.2.2. PREFERENTIAL TAX EXEMPTION AND REDUCTION PERIOD

The following are the corporate income tax incentives for tax exemption and
reduction periods:
● High-tech application enterprises are eligible for tax exemption for no more than
four years and a 50% reduction in payable tax for a maximum of nine additional
years for profits from the implementation of new investment projects listed in
Clause 1, Point a, Clause 2, Article 13 of the Law on Corporate Income Tax 2008
(amended 2013);
● The Prime Minister shall decide to apply tax exemption for a maximum of 6 years
and a 50% reduction of payable tax for a maximum of 13 years for investment
projects described in Clause 2, Article 20 of the Law on Investment 2020;
● For firm profits from the implementation of new investment projects in the region
as well as those mentioned in Clause 3 of Article 13 of the Law on Corporate
Income Tax 2008 (modified in 2013). Industrial parks are eligible for tax
exemption for no more than two years and a 50% reduction in payable tax for a
maximum of four consecutive years, with the exception of industrial parks located
in geographic areas with advantageous socioeconomic conditions as stipulated by
law;
● Expand the scope of investment projects that businesses with investment plans
undertake in fields and regions that qualify for corporate income tax advantages
under the terms of the 2008 Law on Corporate Income Tax (amended 2013). They
will be chosen to benefit from tax benefits in accordance with the project still
running if they meet one of the three defined criteria. (if any) or benefit from a tax
break or reduction for the greater income brought on by increased investment;
● In the same sector or field of corporate income tax incentives, the tax exemption
or reduction period for additional income owing to investment expansion is the
same as the tax exemption or reduction period applicable to new investment
projects;
 20

● The investment project's completion, production, and commercialization year

serves as the start of the tax exemption and reduction term. This tax advantage,
however, does not apply to expansion investment situations resulting from firm
mergers, acquisitions, or ongoing investment projects.
Indeed, Vietnam has a generous regime of tax incentives, which are based on
location (industrial zones, difficult socioeconomic areas), incentivised sectors (such as
high-tech, agribusiness, energy-saving) and the size of projects. The incentives generally
consist of a tax-free period as well as preferential tax rates. On top of CIT incentives,
there are also import duty exemptions and accelerated investment depreciation that can
push businesses’ tax liabilities further down. Compared to the world, Vietnam’s CIT
incentives bear considerable resemblance. However, there are still some differences
between Vietnam’s CIT and the world’s: Vietnam also places a premium on agriculture,
forestry, and aquaculture, as well as other related industries including forest cultivation,
conservation, and development. It also adapts and flexibly adjusts CIT policies to meet
our economic condition.

3.2. CIT EVASION: COCA-COLA VIETNAM’S CIT EVASION CASE

As aforementioned, CIT is deemed by business organizations to reduce net profit
significantly, thus business organizations are predisposed to find methods to reduce the
taxable income as much as possible. However, unfortunately, this could mean resorting to
illegal methods such as tax evasion in some enterprises.
Coca-Cola entered Vietnam in February 1994. According to the Ho Chi Minh City
Tax Department, although the annual revenue grew at an average of 24%, in 2011, the
company's financial statements recorded a cumulative loss of 3,768 billion dong,
exceeding the initial investment capital which is 2,950 billion VND.
According to the General Department of Taxation, Coca-Cola Vietnam has
declared and submitted related transaction declarations and made market price
determination documents for the financial years from 2007 to 2015. In 2010, the
company reported a loss of 188 billion VND, equivalent to 8.98 million USD in the
 21

Vietnam market. From 2013, the company started to declare profit. However, because the
business was allowed to carry on the loss within five years, even though it was profitable
in 2013 and 2014, Coca-Cola Vietnam had not yet paid corporate income tax at that time.
The declared data of Coca-Cola Vietnam reflect losses and carry forward losses
incurred in the previous period, leading to the start of corporate income tax payment in
2015.
As stated by the tax authority, the way for this business to continuously declare
losses lies in the cost of raw materials, in which mainly flavorings are imported directly
from the parent company at very high prices. On average, the cost of raw materials and
accessories accounts for over 70% of the cost of goods, especially in 2006 -2007, the cost
of raw materials and accessories is up to 80-85% of the cost of goods.
The inspection team determined that Coca-Cola Vietnam was in the case of price
fixing related transactions, and used the data selected by Coca-Cola Vietnam in the
market price determination file to fix the price. Thereby increasing the net profit of this
enterprise through the three years 2007, 2011, and 2012 to a total of nearly 362 billion
dong.
Through the inspection, the General Department of Taxation has reduced the loss
incurred in the audit year by more than 762 billion VND, determining the loss of the
previous period (from 2002 to 2006) that cannot be carried forward is more than 202.3
billion VND. The deductible VAT reduction (in December 2015) for the next period is
more than 72.8 billion VND.
At the end of December 2019, the General Department of Taxation decided to
impose an administrative penalty on taxes for Coca-Cola Vietnam Beverage Company
Limited with a total amount of more than VND 821.4 billion. The management agency
believes that this business has violated the false declaration leading to the lack of tax
payable.
 22

CHAPTER 4: SUGGESTIONS FOR BETTERING CIT SYSTEM OF VIETNAM

First, before deciding whether sectors necessarily entail special treatment, it is
important to take a step back and look at the big picture of present tax incentive policies
for all companies. The State's policies on tax incentives need to be explicit and
established on clear standards that can be readily met by businesses in order to guarantee
adherence to the law and efficient management.
Second, eliminating ineffective incentives and expanding those that are good value
for money is crucial and several Southeast Asian countries are already doing it. To be
more detailed, authorities may strengthen and establish more favorable policy
frameworks that are sufficiently robust and more suitable for promising sectors that need
to be promoted at each stage of growth, particularly high-tech and R&D.
Third, developing cooperation between countries helps countries investigate cases
of corporate incomes tax evasion, especially transfer pricing of businesses, and reduce the
time and cost of the investigation process. The announcement between countries on cases
of tax evasion will partly force multinational corporations to make adjustments to
maintain their reputation when investing in another country.
Fourth, in order to guarantee fairness and accuracy in calculating tax
responsibilities, the power to collect and pay taxes is generally exercised by tax
authorities acting on behalf of the state. However, if the use of authority results in dispute
with the taxpayer, the source of the disagreement should also be taken into account. As a
result, the Tax Administration Law must specify the duties of tax authorities in
concretizing the tax collection and payment process, publicize the process for taxpayers
to implement, and establish a foundation for community supervision of the tax autho rities
with respect to the responsibilities of tax officials.
Finally, streamlining the process of CIT compliance to reduce the costs of
complying with CIT law. This could be conducted through payment methods, reducing
the number of layers the taxpayers have to go through to commit to tax duties and
producing clear guidelines available to all taxpayers to give proper guidance on tax
compliance.
 23

REFERENCES
Asia Briefing (2022). An introduction to CIT in Vietnam. Available at:
https://www.asiabriefing.com/countryguide/vietnam/taxation-and-accounting/country-
wise-tax-structure/corporate-income-tax (Accessed: November 8, 2022)
Atika, D. (2020) CocaCola Vietnam got fined $35.5m for tax evasion, Go Trading Asia.
Available at: https://www.gotradingasia.com/finance/8675-cocacola-vietnam-got-fined-
35-5m-for-tax-evasion (Accessed: November 6, 2022).
Circular no. 66/2010/TT-BTC guiding the determination of market prices (2017).
Available at: https://vanbanphapluat.co/circular-no-66-2010-tt-btc-guiding-the-
determination-of-market-prices (Accessed: November 6, 2022).
Decree no. 20/2017/ND-CP prescribing tax administration for enterprises engaged in
transfer pricing (2017) Kreston Vietnam. Available at: https://docs.kreston.vn/vbpl/giao-
dich-lien-ket/quy-dinh-hien-hanh/ban-dich-tieng-anh/decree-20-2017-nd-cp/ (Accessed:
November 6, 2022).
Efisha’s Map (2022). Top corporate tax rates around the world. Available at:
https://efisha.com/2022/02/22/top-corporate-tax-rates-around-the-world/ (Accessed:
November 8, 2022)
PwC (2021). Sổ tay thuế Việt Nam 2021. Available at:
https://www.pwc.com/vn/vn/publications/2021/pwc-vietnam-ptb-2021-vn.pdf (Accessed:
November 7, 2022)
PwC (2022). Vietnam - Corporate - Tax administration. Available at:
https://taxsummaries.pwc.com/vietnam/corporate/tax-administration (Accessed:
November 5, 2022)
The Ministry of Finance (2022). Hệ thống công khai ngân sách của Nhà nước. Available
at:https://ckns.mof.gov.vn/SitePages/nsnn-dt-
thulv.aspx?fbclid=IwAR1XOgYszPz8WVb0rz_YkV_ShdhBgoQkn5CmCxijhYMA4g4C
gh3zwAyHMpQ (Accessed: November 6, 2022).
 24

Vietnam Briefing (2013). Introduction to Corporate Income Tax in Vietnam. Available at:
https://www.vietnam-briefing.com/news/introduction-corporate-income-tax-
vietnam.html/ (Accessed: November 6, 2022)
VnExpress (2020) Coca-Cola Việt Nam Bị Phạt, Truy Thu Thuế 821 tỷ đồng,
vnexpress.net. VnExpress. Available at: https://vnexpress.net/coca-cola-viet-nam-bi-phat-
truy-thu-thue-821-ty-dong-4040166.html (Accessed: November 6, 2022).