16.1 Legislation
The backbone of the taxation system is set up by:

(i) the 2006 Law on Tax Administration, which supplies general regulations on:

• Tax registration, tax declaration, tax payment and fixing amounts of tax payable;
• Conduct of procedures for tax refund, tax exemption and tax reduction;
• Cancellation of outstanding tax payable and of fines;
• Management of information about tax payers;
• Tax checks and inspections;
• Compulsory enforcement of administrative decisions about tax;
• Dealing with breaches of the law on tax;
• Resolution of complaints and denunciations about tax; and

(ii) other tax laws, which detail taxable and non-taxable objects, basis for calculation of tax and tariffs, exemption from and reduction of tax, declaration and payment of tax, complaints and dealing with breaches for each specific kind of tax, etc. For instance, they include the Law on Corporate Income Tax, the Law on Value-Added Tax, the Law on Special Sales Tax, all passed in 2008, the 2007 Law on Personal Income Tax and the 2005 Law on Import/Export Tax in replacement of the formers as of 2003, 1997, 1998 and 1991 respectively.
There are also hundreds of decrees, circulars and other regulations being issued by the Government, various ministries and agencies, from time to time, with a view to provide guidelines for the implementation of those laws.

16.2 Types of Taxes
According to the prevailing tax law system, at least, the following taxes should be aware of by foreign investors when doing business in Vietnam:

(i) Corporate income tax;
(ii) Value-added tax;
(iii) Special sales taxes;
(iv) Withholding tax;
(v) Import/export tax;
(vi) Foreign contractor tax; and
(vii) Personal income tax.

Details about each type of taxes are described herein.

16.3 Corporate Income Tax
The standard tax rate is now 25%, decreased from 28% thanks to the issuance of the Law on Corporate Income Tax in 2008 (effective from 1 January 2009), and applicable to all legal entities; except for enterprises operating in the oil and gas industry that are subject to CIT rates ranging from 32% to 50% depending on each project and business establishment (increasing from the former rates between 28% and 50%).
Below are the incentives including preferential tax rates, tax holiday and tax reductions:

(i) The tax rate of 10% for 15 years from the generating year of the 1st turnover with up to 4 years of tax holiday from the generating year of the 1st taxable income and 9 following years of 50% reduction shall be applied to enterprises newly established from investment projects carried out: (a) in localities with especially difficult socio-economic conditions, in economic zones, and high technology zones; or (b) in the fields of high technology, science research and technology development, development of infrastructure especially important for the State, computer software manufacture.

(ii) The tax rate of 10% with up to 4 years of tax holiday from the generating year of the 1st taxable income and 9 following years of 50% reduction shall be applied to enterprises operating in the fields of education and training, vocational education, health care, culture, sports, environment.

(iii) The tax rate of 20% for 10 years from the generating year of the 1st turnover with up to 2 years of tax holiday from the generating year of the 1st taxable income and 4 following years of 50% reduction shall be applied to enterprises newly established from investment projects in localities with difficult socio-economic conditions.

The silence of the 2003 Law is broken as now in case an enterprise has not derived taxable income during 3 years as per the generating year of first turnover, the tax holiday or reduction shall apply from the fourth year.

16.4 Value-Added Tax
Value-Added Tax (VAT) is levied on the added value of most goods and services generated during the process from the production, circulation to consumption (With respect to some categories, they are also subject to Special Sales Tax, as described in Section 16.5 hereunder). Since January 1, 2009 (effective date of the new Law on VAT), there are three (instead of four as previously) VAT rates as follows:

(i) The tax rate of 0% is applicable to exported goods and services, international transportation, and to goods and services which are not subject to VAT and which are exported, except for the following: technology transfers and intellectual property transfers to foreign countries; services being reinsurance offshore; credit services, assignment of capital and derivative financial services; post and telecommunications services; and export products being exploited natural resources and mined minerals which have not yet been processed ;

(ii) The tax rate of 5% is applicable to:

(a) Clean water for manufacturing and for living purposes.
(b) Fertilizers; ore used for production of fertilizers; pesticides and growth stimulants for animals and crops.
(c) Feed for cattle, poultry and other animals.
(d) Services of digging and ploughing, and dredging canals, ditches, ponds and lakes for agricultural production; planting, raising and pest control of crops; semi-processing and preserving agricultural products.
(e) Products of cultivation, husbandry and aquaculture which have not yet been processed, except for products of cultivation, husbandry, aquaculture, seafood and fisheries which have not yet been processed into other products or which have only been subject to conventional preliminary treatment by organizations and individuals in the stages of production, catching, sale and import.
(f) Semi-processed latex; semi-processed resin; and netting, cord and fibre used for weaving into fishing nets.

(iii) The standard tax rate of 10% is applicable to other goods and services.

16.5 Special Sales Tax
Other than those subject to VAT, the following are being subject to the Special Sales Tax with the rates ranging from 10% to 70% (lower than in the past which varied from 10% to 80%), which are:

(i) Cigarettes, cigars and other products processed from tobacco and used to inhale, sniff, chew, smell or swallow;
(ii) Spirits;
(iii) Beer;
(iv) Passenger vehicles of less than 24 seats, including vehicles for carrying both passengers and cargo with two or more rows of seats, designed with a fixed partition between the passenger and cargo compartments;
(v) Two-wheel and three-wheel motor vehicles with cylinder capacity above 125 cm3;
(vi) Aircraft and yachts;
(vii) Various types of petrol, naphtha, reformate component and other products used to mix in petrol;
(viii) Air conditioners with a capacity of 90,000 BTU or less;
(ix) Playing cards;
(x) Votive paper;
(xi) Business of operating dancehalls;
(xii) Business of operating massage lounges and karaoke parlours;
(xiii) Business of operating casinos and of operating electronic games with prizes including jackpot machines, slot machines and other similar types of machines;
(xiv) Betting business;
(xv) Golf business including selling membership cards and tickets to play golf; and
(xvi) Business of operating lotteries.

Most of these rates will apply as per 1 April 2009, except for ones applied to spirits and beers of which the application is fixed backward as of 1 January 2010.
Contrary to previous regulations providing that the goods and services subject to VAT were not subject to special sales tax, and vice versa according to new VAT Law, these two taxes may be concurrently applied on the same goods or service.

16.6 Withholding Tax
Since the corporate income tax rate increased to 28% from 25% as provided for by the 2003 Law on Corporate Income Tax, foreign capital projects and investors are free from paying the withholding tax from 1 January 2004 when this Law came into full effect. However, they are subject to corporate income tax or personal income tax as described in Sections 16.3 above and 16.9 hereunder as the case may be.

16.7 Import/Export Duties
Vietnam is now adjusting its import and export tariffs in order to promote export and to fulfill the international commitments to cut down import duties and remove non tariff barriers in line with Agreement On The Common Effective Preferential Tariff (CEPT) Scheme For The ASEAN Free Trade Area (AFTA), FTAs between ASEAN and China, Japan, Korea, India, Australia and New Zealand, and other international trade organizations.
According to the 2005 Law on Investment and the 2005 Law on Import/Export Tax, foreign capital projects and foreign investors to BCCs in the list of domains entitled to import duty preferences or in the list of geographical areas entitled to import duty incentives, and investment projects funded with official development assistance (ODA) are exempted from duties imposed on the goods which they import to create their fixed assets, including:

(i) Machinery, equipment and professional tools that are temporarily imported and re-exported, or temporarily exported and reimported in order to service work within a specified period.
(ii) Goods which are moveable assets pursuant to regulations of the Government.
(iii) Goods which are imported in service of processing for a foreign party and then exported, or goods that are exported overseas in service of processing for a Vietnamese party and then re-imported pursuant to a processing contract.
(iv) Goods which are imported in order to form fixed assets of a project that is an encouraged investment or of a project funded by Official Development Aid (ODA), comprising:

(a) Equipment and machinery;
(b) Specialized means of transportation of a technological line and means of transportation used for transporting employees;
(c) Components, details, separate sections, spare parts, fittings, moulds and accessories accompanying the equipment, machinery and specialized means of transportation;
(d) Raw materials and materials used to manufacture equipment and machinery in technological lines or to manufacture components, details, separate sections, spare parts, fittings, moulds and accessories accompanying the equipment and machinery;
(e) Construction materials which are not yet domestically produced; and
(f) Raw materials and other materials imported for performing BOT, BTO and BT projects;
(g) Plant and animal seeds/ breeds, special agricultural products which are allowed to import to carry out agricultural, forestry and aquatic projects
(h) The said tax exemptions will also apply to cases of expanding the scale of a project and of replacing and renewing technology.
(i) Goods which are equipment and facilities imported for the first time pursuant to the list stipulated by the Government for investment projects for hotels, offices, apartments for lease, residential housing, commercial centres, technical services, supermarkets, golf courses, tourist resorts, sporting resorts, entertainment areas, medical diagnosis and treatment establishments, and entities that are training, cultural, financial, banking, insurance, auditing, and consultancy services establishments.

(v) Goods imported in order to support petroleum operations, comprising:

(a) Equipment, machinery, replacement accessories and specialized means of transportation which are essential for petroleum operations;
(b) Materials which are essential for petroleum operations and which are not yet able to be produced domestically.

(vi) Goods which are imported for direct use in scientific research and development of technology, including machinery, equipment, accessories, materials and means of transportation which are not yet able to be produced domestically, and technology which is not yet able to be created domestically; and scientific books and data.

(vii) Raw materials, materials and component parts imported for production of projects on the list of sectors where investment is specially encouraged or on the list of regions with specially difficult socio-economic conditions will be exempted from import duty for a duration of 5 years from the commencement of production.

(viii) Goods which are manufactured, processed, recycled or assembled in nontariff zones without using raw materials or component parts which are imported from abroad, upon import thereof into the domestic market; in the case where raw materials and component parts imported from abroad are used, upon import of goods into the domestic market, import duty must be paid on that part of the goods which is imported raw materials or component parts which form a constituent part of such goods.

(ix) Other cases pursuant to a decision of the Prime Minister.
Import duties imposed on any and all input materials, components, parts and other materials imported for manufacture of exported products will be entirely refunded.

16.8 Foreign Contractor Tax
Foreign contractors who conduct production and business activities in Vietnam, not under the Law on Investment, on the basis of signing contracts with Vietnamese legal entities, and sub-contractors who provide services to contractors in Vietnam, shall be liable for paying the same taxes and tax rates as applicable to the local enterprises. These taxes include VAT, corporate income tax, import-export duty, personal income tax, and others if so required by the laws of Vietnam.
Foreign contractors and sub-contractors may choose one between the two following ways to pay VAT and corporate income tax:

(i) Ordinary Method:
This is applicable to whom following the Vietnamese accounting system. The tax payment will be done in the same way of local entities, at the VAT and corporate income tax rates as described above.

(ii) Combined Method:
This method is applicable when foreign contractors or sub-contractors do not use the Vietnamese accounting system. In order to facilitate the assessment and payment of VAT and corporate income tax, these two types of taxes are consolidated into one base which is the taxable revenues.

(a) Added values vary subject to business lines. VAT will be calculated by multiplying the said added values with the respective rates as described in the below table:

16.9 Personal Income Tax
All foreigners having incomes in/ from Vietnam, regardless the length of time they live in Vietnam, are the payers of personal income tax.
With respect to whom being present in Vietnam for a period less than 183 days, calculated within one calendar year or within 12 consecutive months from the date of entry into Vietnam or without a regular residential location in Vietnam that is a residential location for which permanent residence has been registered or a property rented pursuant to a lease for a term for residential purposes (so called non-resident foreigners):

(i) 1% to activities in the form of business in goods.
(ii) 5% to activities in the form of business in services.
(iii) 2% to activities in the form of production, construction, transportation and other business activities.
(iv) 20% to income from salaries and wages.
(v) 5% to income from capital investments.
(vi) 0.1% to income from transfers.
(vii) 2% to income from real property transfers.
(viii) 5% to income in the form of royalties and to income from franchises.
(ix) 10% to income from winnings or prizes and from an inheritance or a gift.

With respect to whom living in Vietnam over 183 days or having a regular residential location in Vietnam (so called locally-resident foreigners), they will be subject to the progressive tax tariff, with the maximum rate of up to 35% of their monthly income.
For the first ever, resident individuals irrespective of whether they are foreigners or Vietnamese will be subject to the same tax scales:

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