Tax Basics for U.S. Expats in Vietnam

Vietnam is a beautiful country with a unique culture influenced by the Chinese and French. Although a poor country, its economy has been fast-growing. Did you know that Vietnam is the largest exporter of cashews in the world, and the second largest exporter of rice? Another major export item is coffee. Caphe sua da (coffee with condensed milk on ice) is simply delicious.

If you are planning to become a U.S. expat in Vietnam, or have been one for a while, it’s important to know the tax laws of Vietnam and the potential impact on your U.S. tax return. Expat taxes can be complicated. Fortunately, we have prepared the key points (outlined below).

Photo by: Nathan O’Nions

Taxation in Vietnam

Let’s start by reviewing some basics about the tax system in Vietnam. Residents are taxed on worldwide income, while non-residents are taxed on Vietnam-source income only. Foreigners in the country for 183 days or more during a 12-month period are considered residents for tax purposes.

The tax rates in Vietnam are progressive:

• Employment income for residents – Progressive from 5% to 35%
• Employment income for non residents – Flat rate of 20%
• Taxation on capital gains – Either 20% of the capital gain, or 0.1% of gross sale

Vietnam and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

How Living in Vietnam Impacts U.S. Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Vietnam. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Vietnam. with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Vietnam

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. Vietnam and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.