Vietnam continues to be one of Southeast Asia’s most attractive destinations for entrepreneurs and foreign investors seeking opportunities to grow a business. The country’s rapid economic expansion over the past two decades has been achieved through enjoying political stability, having a young and educated workforce, and a government committed to creating business development.
Its strategic location makes Vietnam a natural hub for trade and manufacturing, where infrastructure continues to improve across ports and industrial parks, while the rise of digital innovation and e-commerce has created additional opportunities. With competitive labour costs, improving logistics, and favourable trade agreements, the country is ideal for both start-ups and established enterprises, once they’ve considered the phrase Taxation in Vietnam: Complete guide. Here are 5 important takeaways.
- The standard corporate income tax rate in Vietnam is 20%, which is competitive within the region, with the government offering numerous tax incentives for companies operating in encouraged sectors or specific geographic areas. These incentives can include reduced tax rates as low as 10% or offer tax holidays for several years, with investors in education, healthcare, software development, and renewable energy being able to take maximum advantage.
- Payroll efficiency is something any startup should aim at, with advice being available as it is in Vietnamese tax through professional advisory services. Vietnam operates a VAT system that applies to most goods and services, with registration being mandatory for most businesses. Companies are required to issue electronic invoices and submit regular VAT returns, with proper management of credits and refunds essential to maintain healthy cash flow and compliance.
- Employers in Vietnam must withhold Personal Income Tax from employee salaries and remit it to the tax authorities on a monthly or quarterly basis. The tax system is progressive, ranging from 5% to 35%, depending on income level. Both residents and non-residents are subject to taxation, while employers must also contribute to social, health, and unemployment insurance schemes, which represent additional employment costs.
- Exploring government grants for startups might offer excellent incentives to those eligible, who are also advised to seek the best advice to avoid pitfalls, particularly in relation to tax. Foreign companies providing services or goods in Vietnam without establishing a local entity are subject to the Foreign Contractor Tax, with the rates depending on the nature of the service or industry. This system ensures that foreign entities contributing to Vietnam’s economy are taxed fairly while still allowing businesses flexibility in structuring their operations and contracts.
- Vietnam takes transfer pricing seriously, particularly as more outside investors establish subsidiaries in the country. Companies that engage in related-party transactions must ensure that pricing is consistent with market values and provide documentation. Businesses meeting certain thresholds must prepare and maintain transfer pricing files, with failure to comply leading to penalties or reassessment of taxable income.
Understanding Vietnam’s tax framework, from corporate and personal income tax to VAT, foreign contractor rules, and transfer pricing obligations, is critical to avoiding pitfalls, often best left in the hands of professional advisors.
