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Branches of foreign companies are obliged to comply with the tax and accounting regimes in accordance with Vietnam’s regulations. Accordingly, does a branch of a foreign company have to pay corporate income tax (CIT)?
Do branches of foreign companies have to pay CIT?
CIT taxpayers are organizations engaged in production and business activities of goods and services with taxable income, specifically the subjects specified in Clause 1, Article 2 of Circular No. 78/2014/TT-BTC.
Thus, branches of foreign companies in Vietnam are subject to CIT according to regulations.
Responsibility to declare CIT of branches of foreign companies
According to Clause 1, Article 12 of Circular 156/2013/TT-BTC, as amended and supplemented in Article 16 of Circular 151/2014/TT-BTC, the branch’s responsibility to declare corporate income tax is as follows:
- Independent accounting branch: Submit the CIT declaration file arising at the branch to the tax agency directly managing the branch.
- Dependent accounting branch: Not required to submit CIT declaration. When an enterprise submits its corporate income tax return, it is responsible for making a centralized declaration at the head office, including the arising part of the branch.
- Dependent accounting branch is a production establishment (including a processing and assembling establishment) operating in a province or centrally run city different from the area where the enterprise’s head office is located: responsibility for CIT declaration is concentrated at the head office, both arising at the head office and where there is a dependent accounting production branch.
How to calculate corporate income tax in Vietnam?
Pursuant to Clause 1, Article 3 of Circular No. 78/2014/TT-BTC as amended and supplemented in Circular No. 96/2015/TT-BTC, payable CIT is determined according to the following formula:
CIT payable = Taxable income x CIT rate
In case an enterprise deducts funds for science and technology development, CIT is calculated according to the following formula:
Payable CIT = (Taxable income – S&T fund appropriation (if any) ) x CIT rate
1) Taxable income = Taxable income – Exempt income – Losses carried forward from previous years.
2) Taxable income = (Revenue – Deductible expenses) + Other income
3) CIT rate
- Tax rate of 20%: Applicable to all businesses established under Vietnamese law.
- Tax rate of 32% – 50%: Applied to enterprises engaged in prospecting, exploration and exploitation of oil and gas and other precious and rare natural resources in Vietnam.
- Tax rate of 50%: Applicable to enterprises having activities of searching, exploring and exploiting precious and rare natural resource mines such as: platinum, gold, silver, tin, etc. Corporate income tax = (calculated income) tax – deductions for science and technology ) x tax rate.
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