Taxes in Vietnam

When I started writing here, I planned on talking more about life in Vietnam than I actually have. Let’s try to change that…

All of the big consulting agencies like KPMG and PriceWaterhouseCoopers put out tax guides for multiple countries that offer a high level overview of how taxes there. It doesn’t cover every nuance but it is a great way to get a feel for how things work when you can’t read the language.

Here’s the 2016 one from PWC for Vietnam.

Income Taxes

Vietnam, like most other places, has a progressive taxation system. At first glance, it sounds reasonable. Tax brackets start at 5% for low incomes and go up to 35% for high incomes. By comparison: in the US it starts at 10% for low incomes and goes up to 39.6% for high incomes.

So it sounds like you’ll come out ahead by paying taxes in Vietnam?

Nope.

The reason is that the tax brackets start at very different level. The American top tax bracket don’t kick in until you reach over $400,000 in annual income. The Vietnamese top tax bracket starts at around $40,000.

Here are two examples of how that works out in practice. Let’s say you earn a very moderate amount of money, $40,000 a year:

  • In the US you would pay $5,743. Most of your income falls into the 15% tax bracket.
  • In Vietnam you would pay $5,630. You have some income in the 20% bracket but also some in the 5% bracket, so it works out to be about the same as in the US.

Now let’s say you have $100,000 in income.

  • In the US you would pay $20,986. Most of your income is in the 25% tax bracket.
  • In Vietnam you would pay $30,205. Most of your income is in the 35% tax bracket.

The Vietnamese tax brackets are “sized” for Vietnam incomes. As a foreigner in Vietnam you are almost certainly extremely wealthy by local standards and most of your income will fall into the top end of the tax bracket, just the same as if someone making $5,000,000 a year were living in the US.

Interest & Dividends & Capital Gains

Term deposits from VIB bank as of March 2017

In Vietnam you don’t pay tax on bank interest. I don’t really understand why but there it is.

But it certainly makes the 7.15% you get from a 12-month CD more appealing.

Dividends have a 5% tax.

Capital gains have a 20% tax. There’s no concept of “short term” versus “long term” capital gains.

Those rates make a very different situation than in the US: in Vietnam you’d really really like to get all your income via dividends.

(But remember you still owe US taxes on those dividends…)

Something I only discovered after living here for almost a year: if you receive dividends you’re supposed to file (and pay) taxes quarterly.

Not being able to read the laws sucks

Not being able to read the local language is tough, especially for do-it-yourself types that aren’t accustomed to just trusting whatever a tax preparation agent says.

You basically have no choice but to hire someone to prepare your taxes.

Tax Treaty

As another sign of warming relations between the US and Vietnam, in 2016 the very first tax treaty between them went into effect.

From what I can tell, the tax treaty doesn’t actually affect individuals in any significant way, though: the provisions are mostly around business taxes.

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