Setting up your Business in Vietnam
Issues to consider
Vietnam is a developing country in South East Asia, Vietnam’s 89 million-strong population
boasts a large and young workforce that has also seen an increase of disposable income in
recent years. Vietnam’s economy is already bouncing back to pre-crisis growth trends in
2015, and is expected to continue on this path. With a total revenue growth of 25% a year
even in the time of global economic crisis and domestic economic slowdown, the Vietnamese
retail market offers a lot of potential for foreign investors.
However there are a number of issues which you must consider when you are looking to set
up your business in Vietnam. This document takes you through some of the common
questions we come across and gives you practical information about the issues you need to
consider.
What type of Business Structure should we use?
There are advantages and disadvantages to all of them, and there is no one correct answer,
it’s all dependent on your specific business circumstances and needs. A brief overview of the
main structures is below:
Establishment (a branch of your overseas business)

Not a separate legal entity but an extension of the overseas parent company

No limited liability or ring-fencing of the Vietnam operations

Parent company bear the liability

If have a permanent establishment in Vietnam then profits from this PE are liable to
Vietnam Corporation tax

Must file parent company accounts, prepared under Vietnam Company Law, at
Companies House for public inspection, even if these are not made publically
available overseas

Unlike a representative offices, a branch office is entitled to do business in Vietnam,
although the law prohibits it from carrying out commercial activities other than those
stated in the parent company’s business license. If a branch conducts business in a
conditional sector, it is only allowed to operate upon meeting the prescribed conditions

To set up a branch, a parent company must have had conducted business in its home
country for at least five years
Setting up your Business in Vietnam
Issues to consider
Limited Company

Provides limited liability and ring-fencing to Vietnam operations

Gives a perception of a local business, with longevity

Corporation tax to be paid on company profits

There is usually no minimum capital requirement for foreign investors that intend to
establish an LLC in Vietnam, although authorities will expect the investor to commit a
reasonable amount of charter capital according to the scale and business scope of
the project.

An LLC can consist of a single member or multiple members, but the total number of
members cannot exceed 50. Investors can be corporations or individuals. The
management structure of a limited-liability company consists of the members’ council,
the chairman of the members’ council, the director or general director and a controller
(or board of supervisors where the limited- liability company has more than 10
members).

A limited-liability company established by foreign investors may take the form of
either:
 A 100% foreign-owned enterprise (where all members are foreign
investors).
 A foreign-invested
joint-venture
enterprise between foreign investors
and at least one domestic investor.

A limited-liability company cannot issue share
Limited Liability Partnership

A partnership may be established between an individual or a legal entity and the
general partner, who must be an individual. The general partner has unlimited liability
for the operations of the partnership.

Profits are allocated to members who then pay Income Tax on these profits personally

The tax residence of the member, and where the profits in the LLP originated will
determine in what jurisdiction and how these profits are taxed
Setting up your Business in Vietnam
Issues to consider
Joint-stock company

A joint-stock company is a legal entity established by its founding shareholders based
on their subscription for shares in the joint-stock company.

Under Vietnamese law, this is the only type of company that can issue shares. The
charter capital of a joint-stock company is divided into shares and each founding
shareholder holds a number of shares that corresponds to the amount of capital the
shareholder has contributed to the company.

A joint-stock company is required to have at least three shareholders. There is no limit
to the maximum number of shareholders in such companies.

The management structure of a joint-stock company is comprised of the general
meeting of shareholders, the board of management, the chairman of the board of
management, the general director and a board of supervisors (where the joint stock
company has more than 10 individual shareholders or if a corporate shareholder holds
more than 50% of the shares of the joint-stock company).

A joint-stock company may either be 100% foreign-owned or may take the form of a
joint venture between both foreign and domestic investors.
Representative offices

A representative office is not an independent legal entity and thus may not conduct
direct commercial or revenue- generating activities

However, a representative office is permitted to:
 Act as a liaison office to observe the business environment;
 Search for trade and/or investment opportunities and partners;
 Supervise and accelerate the implementation of contracts entered into by its head
office;
 Act on behalf of the head office to supervise and direct the implementation of
projects in Vietnam.

Unlike in certain other Asian countries, ROs in Vietnam are permitted to hire staff
directly.
Setting up your Business in Vietnam
Issues to consider
Business cooperation contract (BCC)

A BCC is a cooperation agreement between foreign investors and at least one
Vietnamese partner in order to carry out specific business activities.

This form of investment does not constitute the creation of a new legal entity. The
investors in a BCC share the revenues and/or products arising from a BCC and have
unlimited liability for the debts of the BCC.
Build-operate-transfer (’BOT’), Build-transfer (’BT’) and Build-transfer-operate (’BTO’)
Contracts

Foreign investors may sign BOT, BT and BTO contracts with a competent State body
to implement infrastructure construction projects in Vietnam. Typically, the contracts
are for projects
in the fields of transportation, electricity production, water supply,
drainage and waste treatment.

The rights and obligations of the foreign investor will be regulated by the signed BOT,
BT and BTO contract.

Under a decree dated 5 April 2011 on BOT, BTO, and BT contracts, the Government
encourages both public- and private-sector investors to participate in BOT, BTO and
BT in the following sectors:
(i) Construction, operation and management of brand-new infrastructure facilities;
and
(ii) Renovation, expansion, modernisation, operation and management of the existing
infrastructure facilities such as:
 Roads, bridges, tunnels, and ferry landings;
 Railway bridges and railway tunnels;
 Airports, seaports and river ports;
 Clean water supply systems; sewage systems;
 Wastewater, waste collecting and handling systems;
 Power plants and power transmission lines;
 Infrastructure works of health service, education, training, career training,
culture, sport and offices of State agencies;
 Other projects as may be determined by the Prime Minister.
Setting up your Business in Vietnam
Issues to consider
How much Corporation Tax will the business pay?
Current Corporation Tax rates in Vietnam are:
Tax rate (%)
Small co rate
Intermediate rate
Full rate
20
20
20
(NB: rates are for the tax year to 31/12/2016)
What if we use Vietnam to set up our holding company?
Dividend: no tax is imposed on dividends remitted overseas unless paid to individual, where
a 5% withholding tax is imposed.
Interest: Interest paid to a non-resident is subject to a 5 % withholding tax, unless the rate is
reduced under a tax treaty.
Royalties: Royalties paid to a foreign party for the right to use or license of patents, inventions,
industrial property, designs, trademarks, copyright and technical knowhow (broadly referred
to as ‘transfer of technology’) are subject to withholding tax of 10 percent. Where a tax treaty
provides for a lower rate and conditions are met, the tax treaty rate should apply
Technical service fees: a withholding tax of 5 % (corporate tax) and 5 %( VAT) generally
applies to technical service fees paid to a non-resident. The corporate tax may be exempt
under a tax treaty.
Withholding tax of 5 percent is applicable to any other amounts charged by the offshore
lender in connection with loan agreement. An offshore loan provided by certain government
or a semi-government institution may be eligible for an exemption, where a tax treaty applies.
Vietnam has a ‘foreign contractor tax’ regime. The regime covers the taxation of outbound
cross-border remittance of contract payments by a resident entity to overseas goods and
services providers.
What if we make cross-border transactions between group companies?
Vietnam follows internationally recognised Transfer Pricing (TP) rules where cross-border
trading and financial transactions between affiliated entities have to be conducted on an arm’s
Setting up your Business in Vietnam
Issues to consider
length basis. The price and terms should be the same as if the transactions had been
between completely independent parties.
Vietnam has transfer pricing regulations which outline various situations where transactions
will be considered as being between related parties and the mechanisms for determining the
market ’arm’s length’ transaction value (comparable uncontrolled price, cost plus, resale
price, comparable profits and profit split).
Under the wide-ranging definition of associated parties, the control threshold is lower than in
many other countries (20%). The definition also extends to certain significant supplier,
customer and funding relationships between otherwise unrelated parties.
Compliance requirements include an annual declaration of related-party transactions and
transfer pricing methodologies used. Specified documents must be filed together with the
annual CIT return. Companies which have related- party transactions must prepare and
maintain contemporaneous transfer pricing documentation.
Typical transactions between affiliated entities that are covered by TP regulations are:

Sale and purchase of goods

Provision of management services

Property rental charges

Transfer of intangible assets e.g. trademarks, patents

Sharing of knowledge, expertise, business contacts etc.

Provision of financial support e.g. inter-group loans and charging a “market” interest
on loans
A business will need to prepare a Transfer Pricing Report proving the arm’s length basis of
transactions. The report will include a functional and risk analysis, analysis of the adopted
pricing model and benchmarking of the arm’s length basis.
Circular 66/2010/TT-BTC, dated 22 April 2010, and issued by the Ministry of Finance
provides guidelines on the calculation of arm’s length prices in business transaction between
affiliated parties defines “the related parties”
There are two additional criteria to determine related parties:
Setting up your Business in Vietnam
Issues to consider
(i) Two enterprises that hold directly or indirectly at least 20 percent of the investment capital
of a third enterprise are considered affiliated; and
(ii) An enterprise that provides a guarantee or grants a loan that constitutes 20 percent or
more of the amount of the investment capital or that is more than 50 percent of the total value
of the long- and medium-term loans of another enterprise will be regarded as related.
Moreover, even if an entity is exempt from the Vietnam transfer pricing regime it may fall
under the scrutiny of the other international tax jurisdictions where it transacts. There may
also be other tax regulations which ensure transactions are undertaken at a commercial
value.
What Employment Taxes and Social Security will need to be paid?
If an individual is resident in Vietnam then they are subject to Vietnam tax laws.
A resident is an individual satisfying one of the following conditions:

Is staying in Vietnam for an aggregate of 183 days or more within one calendar year
or a consecutive 12-month period from the first date of arrival;

Has a permanent residence that has been registered pursuant to the Law on
Residence; or

Has a leased residence to stay in Vietnam where the lease contract has a term of 183
days or more within the tax assessment year. Leased residences include hotels,
boarding houses, rest houses, lodgings and working offices.
If an individual stays in Vietnam for more than 90 days but fewer than 183 days in a tax year;
or they can prove that they are a tax resident of another country in the 12 consecutive months
following the date of arrival in Vietnam, that individual will be treated as a non-resident in
Vietnam for tax purposes. If they cannot prove that they are a tax resident of another country,
they will be treated as a tax resident.
We would advise any new entrant to Vietnam or person who spends time working in Vietnam
to take professional advice to determine whether they are Vietnam tax resident.
Setting up your Business in Vietnam
Issues to consider
For tax residents, there is a unified progressive tax rates applicable to (worldwide)
employment and business income, with a top tax rate of 35 percent. For non-residents, a flat
tax rate of 20 percent is applicable to Vietnam-sourced employment income and Vietnamsourced business income is taxed at 1 percent, 2 percent or 5 percent depending on business
activities. Other income items e.g. dividends, capital gains etc. are subject to flat rates.
Current Income Tax rates in Vietnam are:
Band of income (Monthly-VND)
Tax rate (%)

0 – 5,000,000
5%

5,000,001 – 10,000,000
10 %

10,000,001 – 18,000,000
15%

18,000,001 – 32,000,000
20%

32,000,001 – 52,000,000
25%

52,000,001 – 80,000,000
30%

Over 80,000,000
35%
(NB: rates are for the tax year to 31/12/2016)
Resident-other tax rates on resident individuals

Income from capital investment, copyright and franchise activities
5%

Income from transfer capital
20%

Income from transfer real estate
25%
Non-residents – other tax-rates on non-resident individuals

Income from business and production of goods
1%

Income from business and production of services
2%

Manufacturing, construction transport and other activities
2%

Salary of wages
20%

Income from capital investment
0,1%

Transfer of real estate
2%

Copyright and franchise activities
5%

Lottery wins, inheritance and gifts which are securities, capital or assets
10%
(NB: rates are for the tax year to 31/12/2016)
Setting up your Business in Vietnam
Issues to consider
Employers and employees also have to pay Vietnam social security.
Social, health, and unemployment insurance contributions are compulsory in respect of
Vietnamese employees. Health insurance is also applicable to foreigners working in Vietnam
under labour contracts. These contributions provide the employees with entitlement to
various benefits such as retirement, maternity and healthcare under the public social security
and healthcare systems. The total contribution rates (i.e. social, health and unemployment
insurance) are 18 percent for employers and 8 percent for employees, based on gross salary.
For employees working under an employment contract that is less than three months in
duration, the social insurance contribution amount will be included in their salary, and the
employees will be responsible for paying their own social insurance or other insurance.
Current Social Security rates are
Rate (%)

Employer
18

Employee
8
(NB: rates are for the tax year to 31/12/2016)
It is the employers’ legal responsibility to pay over employee’s tax and social security
deductions to the Vietnam tax authorities.
Regarding to deduction, subject to certain restrictions, deductions are granted for compulsory
social security. Severance allowances and redundancy compensation are not taxable. Other
deductions include a personal deduction, a dependent deduction, a deduction for voluntary
retirement fund contributions and charitable contributions.
Moreover, a resident taxpayer is allowed to make a personal deduction of VND9, 000,000
every month or VND108, 000,000 every year from his taxable income. The yearly amount
can be fully deducted, regardless of whether the taxpayer had income every month.
The tax reduction for each dependant is pegged at VND3, 600,000 per month or VND43,
200,000 annually. Qualified dependants are children aged below 18 years old or children
over 18 years old but earning a low income which does not exceed VND1, 000,000 per month.
In addition, the spouses or the parents of the taxpayers who are unable to work or have low
incomes are also qualified dependants. The reduction for each dependant can be claimed
Setting up your Business in Vietnam
Issues to consider
only by one person. The dependent allowance is not automatically granted and the taxpayer
needs to register qualifying dependents and provide supporting documents to the tax
authority.
Until now, Vietnam has not entered into any international social security agreements or
treaties.
What is Value Added Tax (VAT) and should the business be registered?
VAT is a “goods and services tax” on supplies made, the standard rate of which is 10%. A
reduced rate of 5% also applies to certain good and services, exports of goods and services
are subject to 0 percent.

Zero rate is applicable to exported goods or services including goods exported to
foreign countries and non-tariff zones; services provided to foreign individuals or
organizations or which do not have a permanent establishment in Vietnam;
processing of goods for export; construction and installation work performed in nontariff zones; international transportation; certain airline and marine services provided
directly or indirectly via agents to overseas organizations, aircraft or sea-going
vessels repair services to foreign organizations or individuals; in-country export of
goods on the spot exported goods.

5 percent is applicable to the supply of specified essential goods and services
including clean water; fertilizer; agricultural activities, products and equipment; fresh
foodstuffs; semi-processed latex; sugar by-products; medical and educational
equipment; children toys, books, cultural, sport and athletic activities; scientific and
technological services; sale, lease or hire-purchase of houses under social housing
scheme according to the Law on Housing.

There are 26 categories of VAT exempt supplies including certain agricultural
products; water supply and drainage; salt products; transfer of land use rights; life
insurance, financial, medical, public postal, telecommunications, public hygiene
services; construction work related to cultural work; education and vocational training;
radio and television broadcasting; publication; public transportation; goods which
cannot be produced in Vietnam, specialized arms; imported goods for humanitarian
purposes; technology transfers; gold bars; unprocessed minerals and natural
resources, goods in transit via the territory of Vietnam, goods temporarily imported
and re-exported etc.

A number of cases for which VAT declaration and payment are not required including
but not limited to: goods or services provided outside of Vietnam by Vietnamese VATregistered parties; compensation, bonus and/or allowance receivable; proceeds from
assignment of emission rights and other financial income services provided by foreign
organizations (without permanent establishment in Vietnam) or non-resident
individuals such as repair of transportation means, marketing and advertising
services, and so on where such services are rendered outside of Vietnam; sales of
assets by organizations or individuals not conducting business and not VATregistered in Vietnam.
Setting up your Business in Vietnam
Issues to consider
All organizations and individuals producing and trading taxable goods and services in
Vietnam and importing taxable goods or purchasing taxable services from overseas,
comprising:






business organizations
economic organizations of political, socio-political, social, or socio-professional
organizations and other organizations
enterprises with foreign owned capital and foreign parties to business co-operation
contracts
foreign organizations and individuals conducting business in Vietnam but which have
not established a legal entity in Vietnam
individuals, family households, independent groups of persons conducting business
and other business entities conducting production, trading or import activities and
organizations and individuals conducting production and business in Vietnam and
purchasing services from foreign organizations without a permanent establishment in
Vietnam or a foreign individual being a non-resident in Vietnam.
Each branch or outlet of an enterprise must register separately and declare tax on its own
activities.
Registration for tax payment is required within 10 days of a corporation’s establishment date.
VAT payable by a corporation is calculated by the tax credit method or calculated directly on
the basic of added value.
Any entity who fails to register within the stipulated deadlines shall be subject to penalties:
 an warning or a fine of between VND 100,000 and 1,000,000, for submitting from 10
to 20 days later than stipulated deadlines or
 A fine of between VND 200,000 and 2,000,000 for submitting more than 20 days later
than stipulated deadlines.
There are three types of supply:
 Taxable – must charge VAT on supplies, can reclaim input VAT
 Exempt – cannot charge VAT nor reclaim input VAT
 Outside the scope – not in the Vietnam VAT system
The supply of most types of goods and services in Vietnam would be classed as Taxable
supplies. However when these supplies are made to companies which are outside of the
Vietnam advice needs to be sought as to what rate of VAT, if any, to use.
Other than Value Added Tax, Vietnam also levies a Special Sales Tax (SST) which is
applicable to goods and services classified as luxury. The rates are from 10% to 70% for
SST. Exported goods are not subject to SST.
Goods and services subject to special sales include:

Goods: cigarettes, cigar, beer, alcohol, automobiles ( less than 24 seats), assorted
types of petrol, naphtha, reformate, components, and other components used to mix
in petrol, air-conditioners of 90,000,000BTU or less; and playing card and votive
paper.
Setting up your Business in Vietnam
Issues to consider

Services: Operating dance-halls; massage lounges; karaoke parlors; casinos, offering
jackpot games; betting entertainment; golf operation businesses; and the lottery
business
Can we provide Share option plans to our staff?
Many companies see Share Option plans as being an important way of attracting, motivating
and retaining key staff.
Vietnam has a number of “approved” share option plans which give tax benefits to employees
and employers alike and it is often possible to adapt an overseas stock option plan to fit into
one of these “approved” plans.
However this is a very technically complex area and careful planning needs to be undertaken
as soon as share option plans are being considered for implementation in Vietnam.
How else can we compensate our employees?
Vietnam has a very comprehensive range of compensation and benefit options available for
companies to offer their employees.
Pensions, private medical insurance, life and disability cover are now commonplace benefits
provided by many Vietnam businesses to their workforce.
Flexible benefit packages are also gaining in popularity, giving employees options on how
they wish to “spend” their benefits allowance; which can range from “purchasing” additional
holiday entitlement to obtaining full family medical cover.
To discuss your requirements please contact the International Office on +44 (0) 1245
449266 or email us directly.
Kreston International
Kreston International Limited is a global network of independent accounting firms with the
reputation for providing trusted compliance and advisory services to entrepreneurial business
in the SME and mid-market sectors.
Currently ranked as the 12th largest accounting network in the world, Kreston has a presence
in over 100 countries, providing a resource of over 20,000 professional and support staff.
Our members are accustomed to working together to deliver cohesive international solutions
to ensure clients receive the highest quality of expertise available in their respective
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which support the consistent delivery of exceptional international service.
This information is provided for guidance only and is not a substitute for professional advice.
Neither Kreston International Limited nor its member firms accept any liability for any loss
arising as a result of actions taken or not taken based on the information contained in this
document.
The information in this document was prepared as at 31 May 2016.