What is tax? After establishing a business, what taxes must businesses pay? These are frequently asked questions by new business owners. This article will help customers better understand the taxes businesses must pay when first participating in production and business activities.
According to Clause 1, Article 3 of the Law on Tax Administration 2019, tax is defined as a mandatory amount of money that organizations and individuals must pay to the State according to the provisions of the law. Taxes are used to serve the public spending needs of the state, contributing to socio-economic development.
After establishing a business, businesses must pay the following taxes:
Business License tax (or license fee)
Value Added Tax (VAT)
Corporate income tax (CIT)
Personal income tax (PIT)
1. Business License tax (License fee)
License tax, also known as license fee, is a direct tax and is usually a quota levied on business licenses of businesses, organizations, individuals, and household businesses. This is one of the taxes businesses must pay annually to tax authorities.
Subjects and license fee payment rates
According to Clause 1, Clause 2, Article 4 of Decree 139/2016/ND-CP and Clause 1, 2, Article 4 of Circular 302/2016/TT-BTC, tax payers and license fee payment rates are prescribed and determined as follows:
2. Value added tax
Value added tax (VAT) is a tax levied on the added value of goods and services arising in the process from manufacturing, circulation to consumption.
Enterprises that produce, trade goods and services, and import goods subject to value-added tax will be the ones who must pay value-added tax.
Subjects of VAT are goods and services used for manufacture, trade and consumption in Vietnam (including goods and services purchased from organizations and individuals abroad), except for subjects not subject to VAT as guided in Article 4 of Circular 219/2013/TT-BTC.
Tax rates: VAT rates are specified for each type of goods and services, with three tax rates of 0%, 5% and 10%. The list of specific goods and services and in proportion tax rates are specified in Article 9, Article 10 and Article 11 of Circular 219/2013/TT-BTC, amended and supplemented by Circular 43/ 2021/TT-BTC.
VAT calculation method
- Deduction method
- Direct method
With activities of buying, selling and processing gold, silver and gemstones:
For businesses with a revenue of less than 1 billion VND (if they do not voluntarily register to use the tax deduction method) or do not follow the accounting, invoice and document regime:
Including:
- Revenue for calculating VAT is the total amount of actual sales of goods and services recorded on the sales invoice for goods and services subject to VAT, including surcharges and additional fees that the business establishment charged
- The percentage to calculate VAT on revenue is specified for each activity as follows:
- Distribution and supply of goods: 1%.
- Services and construction excluding raw materials: 5%.
- Manufacture, transportation, services associated with goods, construction with raw materials: 3%.
- Other business activities: 2%.
3. Corporate income tax
Corporate income tax is a direct tax, levied on businesses and economic organizations with taxable income including from business activities, manufacture, transportation of goods, services and other activities, and other income of the enterprise according to regulations.
Tax rate:
Tax rate: Method of calculating corporate income tax
4. Personal income tax
Personal income tax is an amount of money that must be deducted from a part of the salary and other income sources of the income generator to the Tax agency to pay into the state budget after being deducted. For individuals with low income below the taxable limit, personal income tax is currently not applicable.
Personal income tax declaration
According to Point c, Clause 2, Article 8 of Decree 126/2020/ND-CP and Point b, Clause 1, Article 44 of the Law on Tax Administration 2019 as follows:
Newly established businesses that choose to declare VAT quarterly will declare personal income tax for employees quarterly, accordingly, the deadline for submitting personal income tax declaration documents is the last day of the first month of the quarter following the quarter in which tax obligations arise ( similar to quarterly VAT declaration).
No later than the 20th day of the month following the month in which tax obligation arises in case of monthly declaration and payment;
No later than the last day of the first month of the quarter following the quarter in which tax obligation arises in case of quarterly declaration and payment.
VAT payment deadline: Coincides with the VAT declaration submission deadline.
Method of calculating personal income tax
For resident individuals with labor contracts of 3 months or more: Deductions are made according to the partially progressive tariff and employees are entitled to family circumstances deductions. The income-paying organization is responsible for settlement on behalf of authorized individuals.
For resident individuals without a labor contract or with a labor contract of less than 03 months: Deduct 10% directly at source before paying income with a total payment of 2,000,000 VND or more, not permitted to calculate family circumstances deductions but can make commitment 02/CK-TNCN (if eligible) so temporary income-payment orgaization won’t deduct tax of these individuals.
For non-resident individuals: deduct 20% before paying income.
Above is information about the types of taxes businesses must pay. In case you need advice, please contact us if you are having legal problems or need support. You can contact us through the online legal consultation hotline number 1900.57.57.73. In addition, you can also send a detailed email to the email address: luatsu@aladinlaw.vn to receive quick and effective support and answers to your questions. We appreciate your cooperation and look forward to accompanying you on every legal journey.