Foreigners earning incomes from providing services in Vietnam, what are their tax liabilities? |
Income earned by foreigners from rendering services in Vietnam is taxed in Vietnam regardless of their residence status. However, the tax implications are different depending on various factors that are specified in this article to help the foreigners to comply with the tax regulations in Vietnam as well as mitigate the risks of additional tax, penalties and interests on late tax payment.
According to the current tax regulation, an individual is regarded as a Vietnamese tax resident if:
In addition, if an individual has a rented house in Vietnam for a rental period of 183 days or more and actually resides in Vietnam for less than 183 days in the tax year, but fails to prove his tax residence in any country, he is considered as a Vietnamese tax resident.
An individual does not meet the aforementioned conditions for being a tax resident is a non-tax resident in Vietnam.
A foreigner with a license or a practicing certificate, who renders services to organisations/individuals in Vietnam, is regarded as a business individual, and accordingly his income is taxed in Vietnam with the tax rates applied to business income.
It is important to note that to be treated as business individual, the foreigner’s activities must be licensed according to the regulations in foreign countries or the foreigner must have documents issued under the foreign countries to prove himself as a business individual.
Business income of a business individual, being a tax resident in Vietnam is subject to Value Added Tax (“VAT”) and Personal Income Tax (“PIT”)
Value Added Tax:
VAT payable = Revenue subject to VAT x VAT rate
In which, VAT rates are as below:
- Services, leasing machinery and equipment, insurance; construction, installation excluding materials or machinery and equipment: 5 per cent;
- Production, transport, services accompanied by goods; construction, installation including materials or machinery and equipment: 3 per cent;
- Other activities: 2 per cent.
Personal Income Tax:
PIT payable = Revenue subject to PIT x PIT rate
In which, PIT rates are as below:
- Services, construction exclusive of building materials: 2 per cent;
- Manufacture, transport, provision of services associated with goods, construction inclusive of building materials: 1.5 per cent;
- Other activities: 1 per cent.
Value Added Tax: same as tax resident
Personal Income Tax:
PIT payable = Revenue subject to PIT x PIT rate
In which, PIT rates are as below:
- Service provision: 5 per cent;
- Production, construction, transportation, and other activities: 2 per cent.
In case a foreigner with a labour contract is regarded as a Vietnamese tax resident, his employment income is subject to Vietnamese PIT at progressive tax rates ranging from 5 per cent to 35 per cent. Tax relief including personal relief (VND9 million/person) and family relief (VND3.6 million/qualified tax dependent) is applied.
Meanwhile, a foreigner, being a Vietnamese tax resident enters into a service agreement, his employment income is subject to Vietnamese PIT at the tax rate of 10 per cent.
Employment income of a non-tax resident is taxed at a flat PIT rate of 20 per cent.
Of note, the organisations paying income take responsibility for declaring and paying tax on behalf of the foreigners. Additionally, in practice, in the event if the business individuals cannot provide the license or practicing certificate or the provided documents are not properly legalised, the tax authority can deem the tax rates of employment income on the income of business individuals.
Tax implications on incomes that a foreigner earns from rendering services in Vietnam are summarised in the below table:
Taxation | Business Income | Employment Income |
VAT | 2 per cent, 3 per cent or 5 per cent on revenue | Not Applicable |
PIT |
1 per cent, 1.5 per cent or 2 per cent on revenue
2 per cent or 5 per cent on revenue |
- with labor contract: progressive tax rates from 5 per cent to 35 per cent on assessable income - with service agreement: 10 per cent on assessable income
20 per cent on assessable income |
Supporting documents | Legalised license/practicing certificate according to foreign laws | Labour contract or service agreement |
Example: A foreign independent financial advisor (without qualified tax dependent) receives monthly income of VND80 million (3,500). In comparison with tax payable computed by tax rates applied to employment income, tax payable computed by tax rates applied to business income are more efficient:
Taxation | Business Income | Employment Income |
VAT | 5 per cent x VND80 million = VND4 million ($174) | Not Applicable |
PIT |
2 per cent x VND80 million = VND1.6 million ($70)
5 per cent x VND80 million = VND4 million ($174) |
- with labor contract: (VND80 million – VND9 million) x 30 per cent - VND5.85 million = VND15.45 million ($672) - with service agreement:VND80 million x 10% = VND8 million ($348)
VND80 million x 20 per cent = VND16 million ($695) |
In conclusion, where a foreigner earns income from rendering services in Vietnam, his tax liabilities calculated by tax rates applied to business income are more efficient than the liabilities calculated by tax rates applied to employment income. It is obvious that a thorough understanding of tax regulations will bring significant benefits to the taxpayers.
To be specific, good knowledge of tax regulations and practical tax experience can help the taxpayers to mitigate tax risks of additional tax payable, penalties and interests on late payment and more importantly optimise tax efficiency.
*This article is of a general nature only and readers should obtain advice specific to their circumstances from professional advisors.
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