VAT, CIT, PIT in Vietnam: A Guide for New Investors

New investors in Vietnam hear three names — VAT, CIT, PIT — and mix them up. The consequences: wrong credits, missing filings, or believing a loss-making company owes no tax at all.

This article is the general map of VAT CIT PIT Vietnam new investors need: where the three taxes differ, who pays, what they tax — and new investors' most common mistakes.

Contents

• 1. Three taxes, one core question
• 2. VAT: tax on value added
• 3. CIT: tax on corporate profit
• 4. PIT: tax on personal income
• 5. Quick comparison table
• 6. Foreign contractor tax (FCT): not a fourth tax
• 7. The three most common mistakes
• 8. Frequently asked questions
• 9. When to work with a tax lawyer/accountant
• References

1. Three taxes, one core question

To tell the three taxes apart, one question suffices: what does the tax tax, and who ultimately bears it?

• VAT: taxes value added at each stage of circulation — the end consumer bears it; businesses collect, remit, and credit input VAT;
• CIT: taxes the company's own income (profit) — the company is both payer and bearer;
• PIT: taxes individuals' income — the paying company must withhold at source.

One transaction can trigger all three: a company sells goods (VAT), makes a profit (CIT), and pays the salesperson's salary (PIT).

2. VAT: tax on value added

VAT taxes the value added to goods and services at each production and circulation stage. The mechanism: the business collects output VAT from customers, credits input VAT paid to suppliers, and remits the difference.

Standard rates: 10%; 5% for some essential goods and services; 0% for exported goods and services (with conditions). Note: under Resolution 204/2025/QH15, from 01/7/2025 to 31/12/2026 most of the 10% group is reduced by 2% (to 8%, except groups such as telecoms, finance–banking–securities–insurance, real estate business, goods subject to special consumption tax…). The "not subject to VAT" and "0% rate" groups have different input-credit consequences — confusing them is a classic mistake (see our article on VAT for exported goods). New investors should also master early the conditions and process for VAT refunds on new investment projects — zero-rated output is only valuable if the input VAT behind it is actually recoverable.

The key point for new investors: VAT does not depend on profit or loss — a loss-making company must still declare and pay VAT in full if it has taxable activities.

3. CIT: tax on corporate profit

CIT taxes a company's taxable income = revenue minus deductible expenses (plus other adjustments). The standard rate is 20%; qualifying projects enjoy incentives (preferential rates, tax holidays and reductions) — see our article on CIT incentives for new FDI projects. On loss carry-forward — often overlooked in the first years' modeling — see the 5-year loss carry-forward rules for Vietnam CIT.

Unlike VAT: expenses deductible for CIT must meet conditions (related to production and business, valid invoices and documents, non-cash payment for invoices of 5 million VND and above — a new threshold harmonized between VAT and CIT, previously 20 million VND). A valid VAT invoice is not necessarily a deductible expense — and vice versa.

Losses may be carried forward to offset future taxable income, within the limits the law sets on duration and scope — a relief many new investors overlook when modeling their first years. But loss carry-forward has conditions of its own: proper finalization filings, continuity of the enterprise, and no artificial loss creation. Treat the first years' tax filings as carefully as profitable years — they build the loss inventory you will rely on later.

4. PIT: tax on personal income

PIT taxes individuals' income: salaries and wages; capital investment; capital and real-estate transfers; and others. For resident individuals' employment income: a progressive schedule from 5% to 35%.

The paying company must withhold at source — paying salaries without withholding PIT leaves the company liable. For foreign experts: determining residency status (resident vs. non-resident) decides the taxable income scope and calculation method — the most common error when employing foreign labor.

Residency turns on physical presence and ties, not on the passport: an individual present in Vietnam for the statutory day-count threshold, or with a registered permanent residence here, is a resident taxed on worldwide employment income under the progressive schedule; a non-resident is taxed only on Vietnam-sourced income at a flat rate. Get the classification wrong and every subsequent calculation — including treaty relief claims — collapses. When in doubt, document the day count from entry.

5. Quick comparison table

The table below summarizes how to distinguish VAT CIT PIT Vietnam new investors ask about most:

6. Foreign contractor tax (FCT): not a fourth tax

Hearing "foreign contractor tax", many investors assume Vietnam has another tax. It does not. FCT is the collection mechanism for VAT and CIT on foreign contractors not operating under Vietnamese law — the Vietnamese party withholds and remits when paying abroad.

Understanding this avoids two mistakes: (1) modeling FCT as a standalone tax cost on top of VAT/CIT; (2) forgetting the withholding obligation when paying foreign contractors — the obligation sits with the Vietnamese payer. For Vietnam–China transactions, the Vietnam–China double taxation agreement may affect a foreign contractor's tax obligations.

7. The three most common mistakes

Mistake 1 — Confusing input VAT with deductible expenses: input VAT is credited against output VAT; expenses are deducted from CIT taxable income. Two mechanisms, two condition sets. Spending that fails VAT credit conditions may still be a CIT-deductible expense, and vice versa.

Mistake 2 — Forgetting PIT withholding: paying salaries, bonuses, or hiring foreign experts without withholding — at finalization, the company faces arrears plus penalties. Especially with foreign labor: misjudging residency status miscalculates everything, and treaty relief cannot fix a wrong classification retroactively.

Mistake 3 — Confusing the two VAT groups: "not subject to VAT" vs. the "0% rate" — each with different input-VAT credit consequences. Zero-rated exports get input credit/refund; non-subject supplies do not. Confusing the groups means wrong filings and disallowed credits at inspection.

8. Frequently asked questions

What is the core difference between VAT, CIT, and PIT?

The core: who bears the tax and what it taxes. VAT taxes the value added at each stage of goods and services — the end consumer bears it; businesses only collect, remit, and credit input VAT. CIT taxes a company's income (profit). PIT taxes individuals' income (salaries, capital investment, transfers). One transaction can trigger all three at once.

What taxes must a newly established FDI enterprise pay?

In principle: VAT (if it has taxable activities), CIT (on profits), PIT (withheld at source for employees and payments to individuals), business license tax, and others depending on activity (foreign contractor tax on outbound payments, import/export duties). Plus social, health, and unemployment insurance obligations for employees.

What are the standard rates of the three taxes?

Standard rates: VAT 10% (5% or 0% for some goods and services; note the temporary reduction to 8% for most of the 10% group from 01/7/2025 to 31/12/2026 under Resolution 204/2025/QH15); CIT 20% (with incentives for qualifying projects); PIT progressive from 5% to 35% on employment income of resident individuals. These are standard rates — exceptions and incentives apply case by case.

Does a loss-making company still pay tax?

It depends on the tax. Losses mean no CIT (no taxable income), but VAT still arises on taxable buying and selling (VAT does not depend on profit or loss), and PIT withholding for employees remains in full. "A loss-making company pays no tax" is a common and dangerous misunderstanding.

How does foreign contractor tax (FCT) relate to these three taxes?

FCT is not a fourth standalone tax — it is the mechanism for collecting VAT and CIT from foreign contractors not operating under Vietnamese law, via the Vietnamese party withholding and remitting. Correct understanding: FCT = VAT + CIT collected differently, not a new tax on top.

Where do new investors most often go wrong on tax?

Three common mistakes: (1) confusing creditable input VAT with deductible expenses for CIT — two different mechanisms; (2) forgetting PIT withholding for foreign experts and employees; (3) failing to distinguish "not subject to VAT" from the "0% rate" — each group has different input-credit consequences.

9. When to work with a tax lawyer/accountant

This article is the map, not the detailed compass. Work with a tax lawyer or accountant when you: structure cross-border transactions (FCT, transfer pricing, double-tax treaties); have projects qualifying for tax incentives; employ many foreign workers; or prepare for tax inspection (FDI tax inspection preparation checklist). From the legal angle, we focus on tax risk: inspections, arrears, penalties, and disputes — not pure bookkeeping or filing services.

FLAT Law Firm advises FDI enterprises on tax risk — from distinguishing the VAT CIT PIT Vietnam new investors often confuse, to transaction structuring, tax incentives, foreign contractor tax, and handling tax inspections and complaints. Contact our hotline at 0988424851 for advice on your specific case.

References

1. Law on Value-Added Tax No. 48/2024/QH15, effective 01/7/2025 (household and individual business revenue threshold provisions effective 01/01/2026).
2. Law on Corporate Income Tax No. 67/2025/QH15, effective 01/10/2025.
3. Law on Personal Income Tax No. 04/2007/QH12 (as amended).