Tax Policies for Wholly Foreign-Owned Enterprises

Tax policies for 100% foreign-invested enterprises represent an important component of many countries’ tax systems, aimed at facilitating foreign investment while ensuring fairness and efficiency in tax administration. These policies typically include regulations on corporate income tax, value-added tax, import-export duties, and other taxes. The primary objective is to encourage direct foreign investment, enhance competitiveness, and ensure that foreign enterprises make a fair contribution to the national budget. Tax regulations may vary depending on each country’s policies but generally balance tax incentives to attract investment with the protection of domestic economic interests.

What Is a 100% Foreign-Invested Enterprise?

A 100% foreign-invested company is an enterprise wholly owned by foreign investors, established in Vietnam with capital contributed by foreign investors who independently manage and bear full responsibility for business results.

Such companies are established and operate in accordance with the Investment Law, Enterprise Law, Vietnam’s WTO commitments, international treaties, and related legal documents. A 100% foreign-invested company is formed as a limited liability company or joint-stock company, acquires legal personality under Vietnamese law, and commences operations from the date of issuance of the investment license.

Taxes That 100% Foreign-Invested Enterprises Must Pay

License Tax (Lệ phí môn bài)

License tax is a direct tax levied annually on the business registration certificate. It is assessed on a tiered basis according to registered capital or annual revenue. Since January 1, 2017, “business license tax” has been replaced by “license fee” pursuant to Official Letter 5633/TCT-CS dated December 29, 2015.

License fee levels are prescribed in Decree 22/2020/ND-CP amending Decree 139/2016/ND-CP:

• Charter capital exceeding VND 10 billion: VND 3,000,000 per year.
• Charter capital of VND 10 billion or less: VND 2,000,000 per year.
• Other economic organizations: VND 1,000,000 per year.

Corporate Income Tax

Corporate income tax is levied on income from production and business activities and other income of the enterprise. Other income typically includes income from asset transfers and property rights.

**Corporate Income Tax Calculation Formula**

• Corporate income tax payable = [Taxable income – (Tax-exempt income + Losses carried forward from previous years)] × Tax rate
• Taxable income = Revenue – Deductible expenses + Other income.

**Corporate Income Tax Rates in 2024**

The standard corporate income tax rate is 20%, except in the following cases:

Value-Added Tax (VAT)

Value-added tax is levied on the value added of goods and services during production, circulation, and consumption.

There are two calculation methods:

**Method 1: Deduction Method**

Tax payable = (Value of goods/services sold × VAT rate) – Input VAT already paid.

VAT rates: 0%, 5%, or 10% depending on the type of goods or services.

**Method 2: Direct Method**

Tax payable = Revenue × VAT percentage rate.

Personal Income Tax

A 100% foreign-invested company operating in Vietnam and directly employing labor is responsible for declaring, withholding, and paying personal income tax for its employees. This is an integral part of financial management and legal compliance for such enterprises. Therefore, tax obligations for 100% foreign-invested enterprises include not only corporate income tax but also personal income tax for employees.

Corporate Income Tax Incentives for 100% Foreign-Invested Enterprises

Foreign-invested enterprises (FIEs) are entitled to preferential corporate income tax rates when implementing investment projects in priority sectors or geographical areas as prescribed by law.

Preferential Tax Rates

Pursuant to Article 19 of Circular 96/2015/TT-BTC, FIEs are entitled to the following preferential rates:

• Newly established enterprises enjoy a preferential tax rate of 10% throughout the operational period.
• Income from new investment projects in areas with difficult socio-economic conditions is subject to a tax rate of 17% for 10 years.
• Income of enterprises engaged in agriculture, livestock farming, and processing in areas with particularly difficult or extremely difficult socio-economic conditions is subject to a tax rate of 15%.
• People’s credit funds, cooperative banks, and microfinance organizations: 17%.

Corporate Income Tax Exemption and Reduction

Pursuant to Article 20 of Circular 78/2014/TT-BTC (amended by Circular 96/2015/TT-BTC), certain FIEs are entitled to corporate income tax exemptions and reductions as follows:

– Exemption for 4 years and 50% reduction for the next 9 years for income from new investment projects eligible for the 10% preferential rate for 15 years or from new investment projects in socialized sectors in difficult or extremely difficult socio-economic areas.

– Exemption for 4 years and 50% reduction for the next 5 years for income from new investment projects in socialized sectors not located in difficult or extremely difficult socio-economic areas.

– Exemption for 2 years and 50% reduction for the next 4 years for income from new investment projects subject to the 17% rate for 10 years or from new investment projects in industrial zones.

Import Tax Exemption

• 100% foreign-invested enterprises are exempt from import tax on goods imported to form fixed assets; raw materials, materials, and components imported for production.

Corporate Income Tax Exemption and Reduction

• Some cases of corporate income tax exemption and reduction are prescribed in Circular 78/2014/TT-BTC as amended by Circular 96/2015/TT-BTC. Exemption for 2 years and 50% reduction for the next 4 years applies to enterprises in industrial zones located in areas with difficult socio-economic conditions.

Exemption and Reduction of Land Use Fees, Land Rent, and Land Use Tax

• Enterprises with agricultural projects allocated land by the State or permitted to change land use purpose for housing under the Land Law are exempt from land use purpose change fees and land use fees for the converted land area.
• Agricultural land use tax exemption applies in cases such as projects in encouraged investment sectors; priority investment sectors; projects in areas with particularly difficult socio-economic conditions.

Conditions for Enterprises to Enjoy Tax Incentives

100% foreign-invested enterprises must meet specific requirements and conditions to enjoy corporate income tax incentives, including:

– Meeting criteria for priority investment sectors as prescribed by law.
– Operating in priority geographical areas such as industrial zones, hi-tech zones, or economic zones designated as priority investment locations.
– Fully complying with tax obligations and legal requirements.
– 100% foreign-invested enterprises in Vietnam may enjoy various corporate income tax incentives, including exemptions and reductions for priority sectors and geographical areas, as well as special investment projects.

Important Notes on Taxation for 100% Foreign-Invested Enterprises

100% foreign-invested enterprises must fully declare and pay all applicable taxes in accordance with Vietnamese law.

The standard corporate income tax rate is 20% for all foreign projects unless they qualify for preferential treatment. Personal income tax on salaries and wages of employees is calculated as follows:

• 20% for non-resident individuals;
• 10% for resident individuals or progressive rates.

For value-added tax, 100% foreign-invested enterprises are subject to the same VAT rules as domestic enterprises. For export-oriented manufacturing enterprises, VAT treatment depends on whether the enterprise qualifies as an export processing enterprise under applicable regulations.

Tax Law Consultation Services for Foreign-Invested Enterprises in Vietnam Provided by BKC Law

BKC Law’s tax law consultation services for foreign-invested enterprises in Vietnam focus on providing comprehensive and accurate solutions to ensure full compliance with tax regulations. We assist in analyzing and optimizing issues related to corporate income tax, value-added tax, and other tax obligations, while advising on how to maximize tax incentives and minimize tax risks. With an experienced team of experts deeply knowledgeable in Vietnamese tax law, BKC Law is committed to delivering high-quality and effective consultation services, enabling your enterprise to operate smoothly and sustainably in the Vietnamese market.

With a team of senior lawyers with many years of experience, solid legal knowledge, and strong bilingual consultation capabilities, BKC LAW is confident in being one of the best legal partners on the market to support consultation services related to the establishment of foreign-invested companies in Vietnam.

To receive free legal consultation at BKC Law, please contact our lawyers using the following information:

Telephone: 0901 3333 41
Email: info@bkclaw.vn
Branch in District 1: 9th Floor, Diamond Plaza Building, 34 Le Duan Street, District 1, Ho Chi Minh City
Branch in Binh Tan: 41 Ten Lua Street, Binh Tan District, Ho Chi Minh City

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