Overview of Corporate Income Tax (CIT)
Standard rate
Standard rate: 20%
Scope of application: The standard rate is generally applicable to most industries and enterprises and is the basic rate for corporate income tax. This rate applies to the taxable income of an enterprise after deducting all allowable costs and expenses from its operating income. The standard rate is applicable to a wide range of enterprises, including manufacturing, service, trading and other industries.
Policy Background: By setting a uniform standard tax rate, the government ensures the fairness and stability of tax policy while providing a reliable source of fiscal revenue.
Industry-specific tax rates
Oil and gas industry: 32%-50%
Scope of application: The corporate income tax rate for the oil and gas industry is relatively high, usually between 32% and 50%. This rate reflects the industry’s high profitability and resource scarcity, while also taking into account environmental impacts and the need for resource management. The taxable income of oil and gas companies includes all income related to extraction, production and sales.
Policy background: The government obtains more fiscal revenue from resource-intensive industries through higher tax rates, while encouraging enterprises to adopt sustainable development strategies and reduce negative impacts on the environment.
Mining industry: 40%-50%
Scope of application: The corporate income tax rate for the mining industry is usually 40%-50%, which applies to companies that mine and sell mineral resources. This high tax rate is intended to reflect the mining value of mineral resources and their impact on the environment, ensuring that the country obtains full benefits from resource development.
Policy Background: By imposing a higher corporate income tax on the mining industry, the government ensures the efficient management of scarce natural resources while supporting environmental protection measures and sustainable development policy goals.
Preferential tax rate
10%: Applicable to investment projects in specific industries or regions, with a term of up to 15 years
Scope of application: Investment projects in certain specific industries or regions can enjoy a preferential tax rate of 10%, usually applicable to high-tech, infrastructure construction, environmental protection projects and underdeveloped areas that are key to national development. This preferential tax rate is valid for up to 15 years to encourage long-term investment.
Policy Background: The government encourages investment in specific industries or regions through lower tax rates, supports economic diversification and balanced regional economic development, and promotes technological innovation and sustainable development.
17%: Applicable to certain investment projects, with a term of up to 10 years
Scope of application: Certain investment projects, such as high-tech industries, R&D centers and certain industries that meet the government’s development priorities, can enjoy a preferential tax rate of 17%. This tax rate is applicable for up to 10 years and is intended to attract foreign investment and technology investment.
Policy Background: By providing moderate tax incentives for specific projects, the government hopes to promote technology introduction and innovation, and drive national industrial upgrading and enhance economic competitiveness.
Preferential policies
Tax incentives in different countries usually vary according to regions, industries and investment amounts, aiming to promote balanced economic development, support the development of specific industries and attract large-scale investment. The following is a detailed description of the incentives:
By region
Special economic zones and underdeveloped areas: enjoy tax incentives
Scope of application: In order to promote balanced economic development, the government provides tax incentives to enterprises established in special economic zones and underdeveloped areas. For example, the “four exemptions and nine half reductions” policy stipulates that enterprises are exempt from corporate income tax for the first four years from the date of profitability, and then half the corporate income tax for the next nine years. Certain special areas or projects can also enjoy a more favorable policy of “six exemptions and thirteen half reductions”, that is, tax exemption for the first six years and half the tax for the next 13 years.
Policy background: Through these preferential policies, the government hopes to attract investors to set up enterprises in relatively underdeveloped economic regions or strategic special economic zones to promote local economic growth, job creation and infrastructure construction. This policy not only helps narrow the regional development gap, but also promotes the balanced development of the domestic market.
By Industry
High-tech enterprises: 10% preferential tax rate, up to 15 years
Scope of application: High-tech enterprises are the key targets of national support and can usually enjoy a preferential corporate income tax rate of 10% for a period of up to 15 years. This policy is mainly applicable to enterprises in the fields of scientific and technological innovation, information technology, biomedicine, environmental protection technology, etc.
Policy background: The government encourages the growth of high-tech enterprises by reducing tax rates, promoting technological innovation and industrial upgrading, and enhancing the overall competitiveness of the national economy. This policy also helps attract foreign investment in high-tech fields and promotes technology transfer and localized production.
Education, medical care, environmental protection and other industries: enjoy different levels of tax benefits
Scope of application: Due to their important contributions to social welfare and sustainable development, industries such as education, medical care, and environmental protection usually enjoy different degrees of tax incentives. These incentives may include reductions or exemptions in corporate income tax, exemptions from value-added tax, or special tax credits for specific projects.
Policy background: The government supports the development of the public service industry through tax incentives, improves the level of education, quality of medical services and environmental protection. These policies not only promote the sustainable development of society, but also improve the overall welfare level of the country.
According to investment amount
Large investment projects: Up to 30 years of preferential tax reduction of half income tax
Scope of application: For large-scale investment projects, especially those with a significant impact on the national economy, enterprises can enjoy a 50% reduction in income tax for up to 30 years with the approval of the Prime Minister. Such projects usually involve infrastructure construction, large industrial parks, energy development and other fields.
Policy Background: By providing long-term tax incentives for large investment projects, the government hopes to attract major capital investment and promote infrastructure construction and the development of national strategic industries. This will not only help enhance the country’s economic growth potential, but also drive the overall development of upstream and downstream industries.
Calculation of corporate income tax
Calculation of taxable income
Total revenue: including sales revenue, service revenue, rental revenue, transfer revenue, etc.
The calculation of corporate income tax (CIT) involves the determination of taxable income and the calculation of tax payable. Below is a detailed explanation of the CIT calculation process, including the calculation of taxable income, the calculation of tax payable, and an explanation of special provisions and types of non-deductible expenses.
Calculation of taxable income
Total income:
Definition: Total income refers to all income earned by an enterprise from various business activities in a tax year, including but not limited to sales income, service income, rental income, transfer income, interest income, investment income, foreign exchange income, etc.
Main types of income:
Sales Revenue: Revenue from product sales and supply of goods.
Service income: income earned from providing services.
Rental income: income obtained from leasing fixed assets, land, equipment, etc.
Transfer income: income obtained from the transfer of assets (such as land, equipment, equity, etc.).
Deductible expenses:
Definition: Deductible expenses refer to reasonable expenses incurred by an enterprise in the course of production and operation, which can be deducted from total income, thereby reducing taxable income.
Main types of expenses:
Production and operating expenses: including direct production costs such as raw materials, energy, and labor costs.
Administrative expenses: Expenses incurred in the daily operation and management of an enterprise, such as office expenses, travel expenses, rental fees, etc.
Selling Expenses: Expenses associated with the sale of a product, such as advertising, sales commissions, shipping costs, etc.
Financial expenses: interest expenses, exchange losses, etc. incurred in corporate financing activities.
Accumulated carry-forward losses:
Regulation: If a company incurs a loss in a particular year, the loss can be carried forward to the next five tax years to offset the taxable income. Losses must be offset year by year in the order of previous years and cannot be offset across years.
Calculation of tax payable
Tax payable:
Calculation formula: Tax payable = Taxable income × Applicable corporate income tax rate
Note: When calculating tax payable, an enterprise must first determine taxable income and then calculate the tax payable based on the applicable tax rate (such as standard rate, industry-specific rate or preferential rate).
Special Provisions
Research and development expenses:
Regulation: R&D expenses of enterprises can be deducted from taxable income, and the deduction amount shall not exceed 10% of the taxable income of the year. Enterprises are required to report the specific expenditure and deduction of R&D expenses to the tax authorities on an annual basis.
Purpose: Through the tax deduction policy for R&D expenses, the government encourages enterprises to increase R&D investment and promote technological innovation and industrial upgrading.
Types of non-deductible expenses
When calculating taxable income, some expenses are non-deductible, meaning they cannot be deducted from income. These include:
Depreciation expenses of fixed assets that do not comply with current legal provisions: Depreciation expenses of fixed assets that do not comply with prescribed depreciation standards or depreciation methods cannot be deducted.
Costs of raw materials, supplies, fuel, energy and goods in excess of statutory reasonable consumption rates: Costs in excess of reasonable consumption standards are not deductible.
Leasing assets to individuals without adequate documentation: Expenses for leasing assets to individuals are not deductible if the business does not have adequate contracts, invoices, or other supporting documentation.
Employee benefit expenses exceeding the monthly average salary limit: Employee benefit expenses exceeding the prescribed limit are not deductible.
Interest on loans from non-economic institutions and non-credit institutions that exceeds 1.5 times the interest rate published by the Central Bank of Vietnam: Such interest expenses that exceed the prescribed limit are not deductible.
Interest expenses on loans to related-party companies that exceed 30% of EBITDA: Interest expenses on loans to related-party companies that exceed 30% of EBITDA are not deductible.
Various financial investment loss provisions, inventory impairment provisions, bad debt provisions, etc. that do not comply with current legal provisions: These provisions that do not comply with regulations cannot be deducted.
Accrued expenses for the period not yet paid in full or in part: Expenses accrued but not actually paid are not deductible.
Unrealized exchange gains and losses resulting from period-end revaluations of non-accounts payable items: Unrealized exchange gains and losses cannot be deducted.
The amount of indirect expenses apportioned by a permanent establishment of a foreign enterprise exceeds the amount apportioned in proportion to the income: The amount of indirect expenses apportioned in excess of the prescribed proportion is not deductible.
Other donations except for education, medical care, disaster relief, and public housing purposes as prescribed by law: Except for specific donations, other donations are not deductible.
Administrative penalties, fines, and late payment fees: Fines, late payment fees, etc. caused by illegal acts cannot be deducted.
CIT declaration
Prepaid taxes
Enterprises are required to prepay corporate income tax on a quarterly basis and submit returns within 30 days after the end of each quarter.
Annual tax settlement
Enterprises must complete annual tax reconciliation and submit annual corporate income tax returns within 90 days after the end of the fiscal year.
fine
For enterprises that fail to declare or pay taxes on time, a fine of 0.05 to 0.07 per day will be charged; a fine of 20% will be levied on the under-declared amount; and more severe penalties will be imposed on tax evasion.
Types of business and applicable tax rates
The applicable tax rates for corporate income tax vary depending on the type of enterprise, industry and region. Countries usually implement differentiated tax rate policies for different types of enterprises based on the nature of the enterprise, economic contribution and regional development needs. The following is a detailed description of different types of enterprises and their applicable tax rates:
General Enterprise
Tax rate: 20%
Applicability: A standard corporate income tax rate of 20% is generally applicable to general businesses. This rate applies to businesses in most industries, regardless of their size or location.
Policy Background: The standard tax rate provides the government with stable tax revenue while ensuring the fairness and uniformity of tax policies.
High-tech enterprise
Tax rate: 10%
Scope of application: High-tech enterprises can enjoy a preferential corporate income tax rate of 10%. Such enterprises usually include enterprises in the fields of information technology, biomedicine, new materials, energy conservation and environmental protection.
Preferential period: The preferential period for high-tech enterprises can be up to 15 years. During this preferential period, the corporate income tax rate remains at 10%.
Policy Background: By lowering tax rates and extending the preferential period, the government encourages technological innovation and industrial upgrading, and promotes the country’s dominant position in global scientific and technological competition.
Enterprises located in special economic zones or underdeveloped areas
Tax rate: 10%-17%
Scope of application: Enterprises located in special economic zones or underdeveloped areas can enjoy preferential tax rates of 10%-17%. The specific tax rate is determined according to the economic development policy and industry type of the region where the enterprise is located.
Preferential period: The preferential period depends on specific policies and is usually linked to the company’s local investment scale, industry type and economic contribution.
Policy Background: By providing tax incentives to enterprises in specific regions, the government aims to promote regional economic development, narrow regional development gaps, and attract more investment into economically underdeveloped regions.
Oil and Gas Industry
Tax rate: 32%-50%
Scope of application: Companies in the oil and gas industry are subject to higher corporate income tax rates, usually between 32% and 50%. These companies include companies engaged in the exploration, extraction, production and sale of oil and gas.
Preferential period: The preferential period depends on the specific project and may include tax rate reduction, tax base adjustment or other forms of financial support.
Policy Background: Due to the high profitability and resource scarcity of the oil and gas industry, the government obtains the benefits of resource extraction through higher tax rates and implements tax incentives for specific projects to encourage the rational development of resources.
Mineral resource mining companies
Tax rate: 40%-50%
Scope of application: Enterprises engaged in mining of mineral resources are subject to a corporate income tax rate of 40%-50%. Mineral resources include metal ores, non-metallic ores and other important mineral resources.
Preferential period: The preferential period also depends on the specific project and may include preferential policies such as tax exemptions for long-term investment projects.
Policy Background: The high tax rates in the mineral resource mining industry reflect the scarcity of resources and their impact on the environment. The government uses these taxes to obtain revenue from mineral resource development while managing and controlling the sustainable development of mineral resources.
Small and Medium Enterprises
Tax rate: 17%
Scope of application: Qualified small and medium-sized enterprises can enjoy a preferential tax rate of 17%. These enterprises usually refer to small and micro enterprises with low annual taxable income or that meet other specific conditions.
Preferential period: The preferential period is determined according to specific policies and may include tax exemptions during the start-up period or long-term preferential tax rate support.
Policy Background: By providing lower tax rates to small and medium-sized enterprises, the government supports entrepreneurship and the development of small and medium-sized enterprises, enhances economic vitality, promotes employment growth and social stability.
Calculation of specific cases
The following are three corporate income tax (CIT) calculation examples for different types of companies, showing how to calculate the tax payable based on the type of company and the applicable tax rate.
Case 1: General Enterprise
Total income: 1,000,000,000 VND
Deductible expenses: 600,000,000 VND
Accumulated carry-over loss: 0 VND
Taxable income: 400,000,000 VND
Calculation method: Taxable income = total income – deductible expenses
400,000,000 VND = 1,000,000,000 VND – 600,000,000 VND
Tax payable: 400,000,000 VND * 20% = 80,000,000 VND
Calculation method: Tax payable = Taxable income * Standard tax rate (20%)
Summary: The corporate income tax payable by an average company is VND80,000,000.
Case 2: High-tech enterprise
Total income: 1,000,000,000 VND
Deductible expenses: 600,000,000 VND
Accumulated carry-over loss: 0 VND
Taxable income: 400,000,000 VND
Calculation method: Taxable income = total income – deductible expenses
400,000,000 VND = 1,000,000,000 VND – 600,000,000 VND
Tax payable: 400,000,000 VND * 10% = 40,000,000 VND
Calculation method: Tax payable = Taxable income * Preferential tax rate (10%)
Summary: The corporate income tax payable by a high-tech enterprise is 40,000,000 VND, which is half the tax paid by a general enterprise.
Case 3: Oil and Gas Industry
Total income: 1,000,000,000 VND
Deductible expenses: 600,000,000 VND
Accumulated carry-over loss: 0 VND
Taxable income: 400,000,000 VND
Calculation method: Taxable income = total income – deductible expenses
400,000,000 VND = 1,000,000,000 VND – 600,000,000 VND
Tax payable: 400,000,000 VND * 40% = 160,000,000 VND
Calculation method: Tax payable = Taxable income * Industry-specific tax rate (40%)
Summary: The corporate income tax payable by companies in the oil and gas industry is VND160,000,000, which is a heavier burden than general companies, reflecting the industry’s high profitability and resource scarcity.
Vietnam’s corporate income tax system is highly competitive, especially with many tax incentives for specific industries and regions. When investing in Vietnam, entrepreneurs should fully understand and take advantage of these incentives to reduce their tax burden and improve their profitability. At the same time, it is recommended that companies regularly consult professional tax advisors to ensure compliance and optimize tax planning.
