Tax Structuring in Vietnam & SE Asia

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Today Granger Whitelaw reviews Corporate and Tax structures everyone should be aware of In Vietnam and SE Asia. Granger Is joined by Jack Nguyen, Partner at Mazars in Vietnam, an expert In Tax and accounting. Grab your coffee, sit back..and Lets go!

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Below is a transcript of the episode, edited for readability.

Listen to the full episode at link below:


Granger Whitelaw:  Good morning. This is Granger Whitelaw with the Lotus talks Monday morning. Hope you guys all have your coffee and ready to take on the week ahead. Today, I have a guest with me joining Jack Nguyen, Good Morning Jack!  

Jack Nguyen:  Good morning, Granger, very nice to be here.  

Granger Whitelaw: I’m glad you’re here man. Did you have a nice weekend?  

Jack Nguyen: I did a very relaxing to spend time with the family, my wife and two boys. you know, their schedule is fully pack on the weekends. I have to drive –  I’m the driver of the family  

Granger Whitelaw: You’re the chauffeur.  

Jack Nguyen: I’m the chauffeur. I Drive my wife to work. I drive my boys to swimming, to basketball, to Chinese classes.  

Granger Whitelaw: I met your boys. They’re really nice.  

Jack Nguyen: Yeah. Thank you. I try to keep them busy.  

Granger Whitelaw: I was swimming with one of them at Fred’s party or something.  

Jack Nguyen: Yeah, he did mention – a big men swimming beside him.  

Granger Whitelaw:  I think I was the first one that jumped in the pool. Right  

Granger Whitelaw:  Splash. I was scaring all the kids splashing everywhere. So yeah, I mean there’s a lot going on. I guess now the kids are out of school for another 45 days or something. It’s gotta be taxing on the families. Right ?  

Jack Nguyen:  Yeah. It’s, it’s frustrating, you know, I mean, Vietnam says they have 16 cases of Corona virus, mostly in the North. We’re here in the South and yet they close down school for all February and likely all of March.  

Granger Whitelaw: Oh no, they’ve, they’ve announced it.   Jack Nguyen: They announced it? – Where as ,in Singapore and Thailand. It’s school as usual. You know, the kids are in school and then there’s really not much,  

Granger Whitelaw:  well, I don’t, I don’t know what’s going on. I don’t want to, I don’t want to second guess the government, but it’s gotta be difficult for the parents. I know a lot of parents are frustrated about it and, and you know, keeping them active is good — schooling from home is great. it seems to be working to a degree, but hopefully this thing will contain itself soon, and then kids can go back to school.  

Jack Nguyen:  Yeah. I mean, absolutely. I think everybody looks forward to life. Back to normal. Yeah.  

Granger Whitelaw:  So today,  I want to talk about tax structuring for businesses in Vietnam and Southeast Asia. And I’m glad that you are here since you are very knowledgeable on this subject. So, thank you for joining me. just for our viewers out there, you are business people, you may be ex-pats, and there are different things that you need to know for yourself and for your company and how much tax you’re paying. the kinds of tax that are paid in Southeast Asia and Vietnam are PIT which is personal income tax, corporate income tax, right CIT and Vietnam, VAT it’s 10%, I think it’s 10%. So all countries in Southeast Asia employee a progressive track structure, right Most of them have a 0% minimum PIT, right With the exception of Vietnam, Indonesia who impose a minimum rate of 5% in the Philippines, Thailand and Vietnam have the highest maximum tax rate of 35%. Is that correct  

Jack Nguyen: Yes, that’s correct. Very progressive.  

Granger Whitelaw: Yeah. So aside from Brunei, who doesn’t impose any individual tax Singapore and Cambodia boast the lowest tax rate of a maximum of 20%. Yeah,  

Jack Nguyen:  it’s pretty cool.  

Jack Nguyen: That’s very, very, very nice living in Singapore. What, did you have a ceiling on the personal income tax rate that you pay out  

Granger Whitelaw:  Yeah, I know we looked at that in the United States too, right And it’s a big political conversation though, is should there be a cap Should there be just a standard tax rate And, and I think it can be a good idea. It’s, it’s, it’s really complex. I don’t understand all this stuff. And you’re an expert, so we can talk about that some more. But, seeking, advice is a good thing. It’s important to know though, residency status can affect your tax rate, right So for example, in Malaysia, foreign workers in the country who are working more than 60 days but less than 182 days are considered non-residents and they’re subject to a flat tax rate of 28%. Right Right. But those working in the country for less than 60 days are exempt from paying tax. So if you’re over 182, you’re considered a tax resident and you’re subject to the pit. These are complex things, right It goes by country –  Malaysia, Cambodia…  

Jack Nguyen:  most countries in the world, they’re, you know, they look at the 185 days as the Mark where it is imposed for the rest of these and big name is the same thing. So if you are here in Vietnam for more than 185 days, then you consider a resident and you’re subject to the PIT tax here in Vietnam.    

Jack Nguyen:  But if you, you’re a nonresident and Vietnamand, but you have income from Viet Nam source income that you’re subject to a flat 20% PIT.  

Granger Whitelaw:  So if you are here working, but you’re not a resident, you’re still subject to Vietnamese tax. Correct. Okay. And that’s 20%.   Jack Nguyen: That’s 20% flat flat.  

Granger Whitelaw: But if you are a resident of Vietnam, yes. Your tax rate is as high as 30%. 35%.   Jack Nguyen:  yeah. Yeah. So it’s progressive, you know, from 5% to 35%.  

Granger Whitelaw:  Gotcha. And then for corporate tax, for instance, the Philippines imposes the highest tax rate of 30% and businesses in Singapore have the lowest tax rate of 17%.   Jack Nguyen:  Right. It’s pretty crazy mean  

Jack Nguyen: when you look at a taxpayer, you understand why a lot people and companies want to live and set up business in Singapore, both personally and the corporate tax wise is friendly to, to investors. 

Granger Whitelaw:  Yeah. They have a great banking infrastructure and legal infrastructure, which is super important. I mean, certainly I talked about this on the Lotus talks, looking at the legal infrastructure of anywhere you’re going to do business is key,  

Jack Nguyen:  right That’s correct. And, and given what’s going on in Hong Kong, the past, you know, 12 months with a protest and the virus, I mean, a lot of money, will be moving more to Singapore and Singapore become more prominent.  

Granger Whitelaw:  and Taipei  

Jack Nguyen:  that’s right. Yeah.  

Granger Whitelaw: But yeah, the, the, the Hong Kong banks and system has always been very strong for investment over the years. But certainly Singapore is, I think, arisen as the place to, have legal structure, to structure yourself in the most tax advantaged way possible, to invest from Singapore into Vietnam and how you do that or in other countries in Southeast Asia, takes a real,  thoughtful person and specialty to understand how to do that. because there are tax treaties and tax advantages on the way you do it in different countries and for different things.   Jack Nguyen: Right, right,  

Granger Whitelaw: I remember when we looked at a Bermuda for instance, or actually a Hong Kong, you know, a great place to, structure if you’re doing business in the US – the Cayman islands. whereas U S companies will use Bermuda for a lot of offshore structuring for Europe and for media rights, we’ll use Lichtenstein and other countries, right Because there’s certain tax treaties you have to look at.  

Jack Nguyen:  Yeah. Yeah. And, and Singapore is definitely a friendly, I mean, you look at Singapore, there’s a lot of, investment funds that are set up in Singapore to do investment in countries around Singapore. it’s just got another specialized, right. That’s right. It’s specialized. It’s got a very, friendly tax regime that, you know, investors like to, to use.  

Granger Whitelaw:  Yeah. I think Vietnam is trying to emulate that to a large degree, right They’re trying to start setting up things — a couple of years ago, they allowed for 100% foreign ownership in a business here and they’re trying to figure out ways to structure. I know that yesterday I was at at, — not yesterday, — today is  Monday.. last week, I was at an event, and I was listening to Fred Burke speaking about, you know, all the different, decrees and laws that are coming up to be discussed in Vietnam. And certainly there are investment ones that are key and paramount, that they’re considering. And this is all to incentivize more FDI investment because Vietnam has one of the highest FDI investment ratios of all the Southeast Asia. So, it’s interesting to see that happening.  

Jack Nguyen:  Yeah, yeah, definitely. I mean, you know, Vietnam, especially the last 10, 15 years are, you know, they open tier doors for foreign investment to come in. they have signed multiple, trade treaties with, you know, a lot of countries, a lot of, regions around the world and, and  

Granger Whitelaw: a new foreign trade agreement last week. That’s Europe or Canada. It’s quite great timing too, given some other events in the world. Right.  

Jack Nguyen: And that’s exactly what it is. And countries are looking at big now. It was a great place to invest. you know, they’re, they’re moving shops to Viet Nam, open a manufacturing plant or  looking at industries zones to set up.  

Granger Whitelaw:  Sure. Yeah. So also the, the issues, if you’re an expat who owns a business in Asia, certainly a U S citizen for example, there’s US tax law that you still are required to report to and pay. So there’s a foreign earned income exclusion that you can use. The FEIE this year for 2019 is $105,900. It’s almost 106,000 of tax exclusion. Yeah. Yeah. The FTC, the foreign tax credit, and of course there’s a housing exclusion in deduction that you can use as well. So that offsets a tax you pay here in Vietnam, in the U S correct.  

Jack Nguyen:  Yeah, I mean, I talked to a lot of my American Ex-pat friends and you know, I think US is probably the only country where you have to file a US tax return wherever you live, around the world.  

Granger Whitelaw:  so not as a British citizen, not as a French citizen. You don’t have that environment.  

Jack Nguyen:  No, there’s no requirement. I mean, you know, for Canadians for example, you know, if you leave the country, your no longer resident, you no longer require to follow income tax return. but I know that big dam in the U S has a tax treaty, to, to avoid double taxation on your personal income tax. So that, that, that, that’s a good arrangement to have. you know, the inconvenience that you have to file a tax return.  

Granger Whitelaw: Singapore is part of that too and..  

Jack Nguyen: Yeah, that’s right. The inconvenience. You have to file tax to him, but then you get credit for paying tax here in Vietnam.  

Granger Whitelaw:  Well you have 106,000 105,900 exemption, right If you’re self-employed though, you still have to pay the self-employment tax in the U S that’s on your net earnings and that’s 15.3% for the first $133,000 income. Right And, and it’s important to know that you can’t use the FTC, the foreign tax credit for income You’ve already excluded under FEIE  

Jack Nguyen: . right, right, right.  

Granger Whitelaw: So, but you know, and, and also your FBAR your foreign bank accounts, you have to file if your combined value, your foreign bank counts is over $10,000 cumulatively in any year. And of course, if you have mutual funds or foreign pension stocks and bonds, you’re investing here in the market. You have a form 8938 you have to file.  

Jack Nguyen:  Yeah, there’s a lot of forms to file.  

Granger Whitelaw:  Wait, listen, we should talk this more. I would love to, to have you come talk about Mazars your company, right This is what you guys specialize in.  

Jack Nguyen:  Yeah, I mean, my is, I’m a partner in Mazars here in Viet Nam. We are an international firm where we have presence in 91 countries and you know, one of the biggest services we provide is tax advice to companies and to individuals   Granger Whitelaw:  And other advisory too   Jack Nguyen:  and other advisory  

Granger Whitelaw: So come Friday and let’s, let’s do a story and a podcast about your business and what you guys do. Cause this is something that everybody really needs to think about and you need experts like you guys and I just don’t know if they’re aware of the complexities and, and, and the breadth of what you can do.  

Jack Nguyen:  For sure. I’ll, I’ll be happy to have to come back again and then talk about other issues that, everyone faces. You know.  

Granger Whitelaw:  Cool – All right, everybody, this is Granger with the Lotus talks Monday. I hope you have a fantastic week, ahead. Certainly, there’s a light at the end of the tunnel. We’re seeing positive things about the coronavirus, which does affect all of our business. certainly think about how you can better structure your business and what you need to look at for a tax standpoint and a personal standpoint here in Vietnam and Southeast Asia, especially if you have diverse portfolios, potentially you’re married to a Vietnamese, that could have other impacts. We’ll talk about more of that on Friday with Jack Nguyen, when he returns on our Friday notes profile. Until then, have a great week, Jack.  

Jack Nguyen: Thank you, Granger for having me.    

The Lotus Talks is produced by The Vietnam Group and Hosted by Granger Whitelaw.
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