Vietnam offers strong growth opportunities, but its tax system can quickly become a challenge for companies new to the country’s rules.
If your business hires foreign workers or handles cross-border payments, early tax mistakes can lead to audits, penalties, and slow down your growth.
Vietnam’s tax system is broad, closely monitored, and regularly changed. For foreign-owned businesses and regional employers, knowing how taxes affect both your company and your foreign staff is essential for daily operations.
TL;DR
- Vietnam’s tax rules affect how easily companies can enter the market, manage costs, and avoid audits.
- Vietnam’s tax system applies differently for foreign workers based on their residency, which can create payroll and withholding risks for employers.
- Sunbytes supports new-entry companies in Vietnam with structured payroll and tax compliance, reducing risk from day one.
Overview of Vietnam’s Tax System Structure
Vietnam has a centralized tax system managed by the General Department of Taxation. Businesses and individuals must calculate and file their own taxes, and the government verifies these filings through regular audits and inspections. Although Vietnam’s tax rates are competitive in the region, the country enforces strict and consistent compliance standards.
Foreign companies and individuals often find it challenging to navigate Vietnam’s complex and changing tax regulations. Tax compliance is closely connected to labor and immigration rules. With the introduction of e-tax filing, e-invoicing, and nationwide data sharing, transparency has improved. This makes it easier for authorities to spot inconsistencies in tax declarations, payroll, or residency status, and harder to fix mistakes after the fact.
For new investors in Vietnam, this guide may helpful for you: Entering a New Market: Strategy, Risks, and a Step-by-Step Guide for Successful Expansion
What Is Vietnam’s Tax System and How Does It Work?
Vietnam’s tax system aims to support economic growth while also requiring accuracy, consistency, and accountability from taxpayers. Companies and individuals entering Vietnam need to understand how the system works to avoid compliance issues and unexpected tax liabilities.
The tax system covers both businesses and individuals. Companies must pay corporate and indirect taxes, and employers also handle tax withholding for their employees, especially foreign workers. Mistakes in payroll, tax residency, or income reporting can affect both the company’s taxes and employees’ personal tax obligations.
For companies entering Vietnam, the tax system is more than just a financial obligation. It shapes how businesses enter the market, plan their workforce, and grow over time. Correctly handling tax compliance from the beginning helps build a stable, sustainable business in Vietnam.
Vietnam’s Tax System for Businesses: A Practical Guide
Key Business Taxes in Vietnam
Foreign companies typically encounter the following core taxes:
- Corporate Income Tax (CIT)
- Value-Added Tax (VAT)
- Personal Income Tax (PIT)
- Foreign Contractor Tax (FCT) for cross-border services
Each tax affects not only financial reporting, but also pricing, contracts, and workforce planning.
Corporate Income Tax (CIT) in Vietnam
Vietnam’s standard Corporate Income Tax rate is 20%, applied to profits derived from business activities in Vietnam.
For foreign-invested companies, CIT exposure depends on:
- The legal presence established in Vietnam
- Profit allocation between Vietnam and overseas entities
- Transfer pricing and cost-sharing arrangements
CIT compliance goes beyond annual filings. Tax authorities routinely review expense deductibility, related-party transactions, and profit margins especially for inbound companies operating within regional group structures. Additionally, large multinational enterprises (with global revenue over €750 million) are now subject to the Global Minimum Tax (GMT). If their effective tax rate in Vietnam is below 15% due to incentives, a top-up tax will apply. This new regulation effectively overrides certain preferential tax rates and tax holidays for major foreign investors.
Tax Incentives and Preferential CIT Regimes
Vietnam offers preferential CIT rates and tax holidays to attract foreign investment, particularly in:
- High-tech industries
- Manufacturing
- R&D
- Renew energy
However, incentives are conditional, not automatic. Companies must meet these criteria on:
- Business lines
- Investment scale
- Operational substance
- Ongoing reporting obligations
FDI often underestimate the compliance burden required to maintain these incentives, not just obtain them.
For more information, read on our new update on Vietnam digital incentives: visa, work permit and PIT exemptions and CIT incentives
Value-Added Tax (VAT) in Vietnam: Rates, Scope, and Compliance Trends
The National Assembly has officially extended the 2% VAT reduction through December 31, 2026.
- Most sectors (logistics, manufacturing, construction, etc.) currently pay 8%, not 10%.
- Exceptions (paying 10%): Real estate, finance/banking, telecommunications, IT services, and special consumption tax goods.
Enforcement priorities increasingly focus on digital transactions. Foreign digital service providers supplying services to Vietnam-based users are now required to register, declare, and pay VAT through the GDT’s electronic portal. In addition, electronic invoices and non-cash payment evidence are mandatory for VAT refunds and input tax credits, with inspections emphasizing invoice accuracy and transaction documentation.
Foreign Contractor Tax and Cross-Border Payments
Foreign Contractor Tax (FCT) remains a key withholding mechanism for payments made to non-resident service providers. FCT typically consists of:
- A VAT component of 5 percent (or exempt for software/tech transfer)
- A CIT component ranges from 1 percent to 10 percent, depending on the nature of the services.
Current regulation, regulatory guidance emphasizes electronic registration and declaration of FCT, with tax authorities coordinating with banks to monitor cross-border payments to non-compliant foreign suppliers.
Transfer Pricing Compliance Aligned with OECD BEPS
Vietnam closely aligns its transfer pricing framework with OECD BEPS principles but enforces them rigorously.
FDI companies face scrutiny on:
- Related-party transactions
- Management fees and service charges
- Cost allocation methodologies
Documentation expectations are high. Failure to maintain proper transfer pricing files can lead to tax adjustments, penalties, and retroactive assessments.
Tax Digitalization and Compliance Enforcement in Vietnam
Vietnam’s tax system is rapidly digitizing:
- Mandatory e-tax filing
- Nationwide e-invoicing
- Increased data matching across agencies
With greater transparency comes stricter enforcement. Penalties for late filings, underpayments, or incorrect declarations are applied consistently, regardless of company size or origin.
Vietnam’s Tax System for Foreign Workers: What You Need to Understand
Tax Residency Rules in Vietnam
Personal income tax (PIT) in Vietnam is imposed on individuals based on tax residency status. Tax residents are subject to progressive rates from 5 percent to 35 percent on worldwide income, while non-residents are taxed at a flat rate of 20 percent on Vietnam-sourced income.
Foreign workers are classified as resident or non-resident for tax purposes.
- Resident: Present in Vietnam ≥183 days in a tax year or having a permanent residence
- Non-resident: Do not meet residency criteria
PIT brackets changed from 7 brackets into 5 brackets, the Ministry of Finance is expected to issue further guidance on the tax treatment of remote workers and foreign employees working for overseas employers while residing in Vietnam
Below is personal income tax rate for resident and non-resident in Vietnam:
| Tax income per month ( VND mil) | Tax income per year ( VND mil) | Tax rate | Non-resident PIT rate |
|---|---|---|---|
| Upto 10 | Up to 120 | 5% | 20% |
| Between over 10 and 30 | Between 120 and 360 | 10% | |
| Between over 30 and 60 | Between 360 and 720 | 20% | |
| Between over 60 and 100 | Between 720 and 1200 | 30% | |
| Over 100 | Over 1200 | 35% |
Tax Obligations for Resident Foreign Workers
For many foreign professionals in Vietnam, tax exposure goes far beyond their local payslip. Once a worker is classified as a tax resident, Vietnam’s tax system follows them globally.
A resident foreign worker is taxed on worldwide income. This includes salaries paid in Vietnam and compensation paid offshore by overseas entities, such as headquarters or regional offices. For inbound companies, this is often where hidden risks begin—offshore income is easy to overlook, but difficult to defend during an audit.
Personal Income
Resident foreign workers are subject to Vietnam’s progressive Personal Income Tax (PIT) rates, which can reach up to 35%. Unlike non-residents, they may claim certain deductions, but their tax obligations are broader in scope.
Tax Calculation for Resident Foreign Workers
Tax is calculated annually and requires mandatory tax finalization, typically coordinated by the employer. Employers are responsible for accurate monthly withholding, while ensuring all income local and offshore is properly declared.
When offshore income is missed or incorrectly reported, the consequences extend beyond the employee. Tax authorities may reassess liabilities, impose penalties, and scrutinize the employer’s payroll controls.
For companies hiring resident foreign workers, getting classification and reporting right from the start is essential not just for compliance, but for maintaining trust with both employees and regulators.
Tax Obligations for Non-Resident Foreign Workers
Not every foreign worker in Vietnam becomes a tax resident. Many short-term assignees, consultants, and rotating specialists fall into the non-resident category—often without realizing the tax implications.
A foreign worker is considered a non-resident individual when both of the following conditions are met simultaneously:
- Being present in Vietnam for less than 183 days in a calendar year or in 12 consecutive months; and
- Not having a permanent residence in Vietnam (including a registered permanent residence or a rented house under a contract for a period of 183 days or more).
While this status simplifies some aspects of compliance, it also comes with clear limitations.
Tax Responsibilities for Non-Resident Foreign Workers
Non-resident foreign workers are taxed only on income sourced from Vietnam (i.e., income derived from work performed in Vietnam). Unlike residents, they are not entitled to family deductions or personal allowances. All Vietnam-related salary and wages are subject to tax, regardless of the worker’s seniority or contract length.
Instead of progressive rates, non-residents are taxed at a flat Personal Income Tax rate of 20%, which often results in higher effective withholding for short-term assignments.
Calculating Tax for Non-Resident Workers
Calculating the tax is simple:
Personal income tax payable = 20% × Vietnam-sourced income
There are no deductions. Tax is withheld on the total salary paid for work performed in Vietnam, and is calculated on each payment occasion (non-residents do not perform annual tax finalization).
Extra attention is needed if work is done both in Vietnam and abroad:
- Tax applies to income earned for days actually worked in Vietnam, regardless of whether the employer is Vietnamese or foreign, or where the salary is paid.
- It is vital to keep an accurate record of workdays in Vietnam vs. workdays abroad. Income attributed to workdays outside of Vietnam is generally not taxable for non-residents.
For employers, misjudging non-resident status or workday allocation can quickly lead to under-withholding, which is one of the most common compliance risks for inbound companies operating in Vietnam.
Exclusions from Taxable Income
Not all benefits received by foreign workers in Vietnam are taxable. If set up properly, some allowances and employer-provided benefits can be excluded from Personal Income Tax (PIT) or taxed at a lower effective rate. This helps lower employees’ tax burden and reduces employers’ compliance risks.
Some common tax-exempt or tax-advantaged benefits are:
- Employer-provided housing (taxable value capped at 15% of total income)
- Relocation and home-leave costs (one round trip/year)
- Certain work-related allowances
Often, employer-paid non-accumulative insurance premiums, medical support in kind, tuition fees for children (preschool to high school) paid directly to schools in Vietnam, and Mid-shift meals are also not counted as taxable income.
However, the rules on what is taxable and what is not are strict. Cash payments without invoices , benefits that go over the allowed limits, or allowances without proper records can lose their tax-exempt status. If benefits are not set up correctly, support meant for employees can turn into unexpected taxable income and may lead to reassessments during tax finalization.
These exclusions usually apply to both resident and non-resident foreign workers, provided all the tax authority’s conditions are met. Double Taxation Agreements (DTAs) can also affect how some benefits are handled, especially for expatriates working across borders.
By having clear policies, keeping good records, and seeking professional advice, companies can help expatriates stay compliant, avoid surprises, and focus on their work in Vietnam.
Key Payroll and Tax Risks for Employers in Vietnam
Foreign companies frequently face:
- Residency misclassification of foreign workers
- Incorrect PIT withholding
- Inconsistent payroll reporting between Vietnam and HQ
These issues often surface during tax inspections or when immigration and tax data are cross-checked.
For payroll compliance comprehensive guide, read on: Payroll Compliance in Vietnam For Foreign Businesses
Other resources: Payroll Processing Guide in Vietnam: Compliance and Best Practices
How Sunbytes Supports Stress-Free Payroll and Tax Compliance in Vietnam
Handling payroll and taxes in Vietnam goes beyond paperwork. For companies entering the country, it impacts costs, team stability, and legal risks. Problems often arise when payroll, taxes, and hiring are managed separately.
Sunbytes is a Dutch tech company based in the Netherlands with a delivery hub in Vietnam. For more than 14 years, we have helped international companies set up compliant workforce operations in Vietnam, not just process payroll.
Digital Transformation: Payroll designed for today’s businesses
We create payroll processes that work with digital reporting, e-tax filing, and real-time compliance in Vietnam. This leads to accurate calculations, clear reporting, and fewer manual fixes as your team grows.
Security Solutions: Stay compliant and protected
Payroll data is always sensitive. Our Secure by Design approach builds in data protection, access control, and compliance at every step. This lowers audit risk and keeps both employer and employee information safe.
Accelerate Workforce Solutions: Compliance that grows with your business
At Sunbytes, payroll, tax, and workforce operations all work together. We make sure foreign workers are classified properly, taxes are withheld correctly, and reporting stays consistent as your team grows. This helps companies expand in Vietnam with confidence.
With Sunbytes, payroll and tax compliance will not hold you back. They become a stable foundation. Instead, they become a strong base for steady growth in Vietnam.
Contact with our knowledgeable expert to stay compliance and growth fast in Vietnam!
FAQs
Corporate Income Tax, Value-Added Tax, Personal Income Tax (PIT), and Foreign Contractor Tax are the primary taxes affecting foreign companies.
Residents are taxed on worldwide income with progressive rates, while non-residents are taxed at a flat rate on Vietnam-sourced income only.
Most FDI companies work with local payroll services partners to ensure correct withholding, reporting, and alignment with Vietnamese regulations.
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