This August 2017 Tax Updates publication from Domicile Corporate Services looks at selected changes that have an impact on businesses operating in Vietnam. If you have any questions arising from this publication, then please contact us.
Vietnam’s National Wage Council released an announcement on 7 August that the Minimum Monthly Wage for workers in Vietnam would increase an average of 6.5% from 1 January 2018. This increase is subject to the Prime Minister’s approval, however this is expected to be procedural only.
Increases to Minimum Monthly Wage from 1 January 2018
2017 Minimum Wage
2018 Minimum Wage
Employers should ensure that their staff are not paid less than the monthly minimums, and also note that these minimums are also used as a cap for government Unemployment Insurance contribution calculations (ie, 20 x Minimum Wage).
OFFICIAL LETTERS RELEASED
Exemption for Issuing VAT Invoices when Selling Gift Vouchers
On 24 April 2017, the Ho Chi Minh City Department of Taxation released Official Letter 3611/CT-TTHT regarding the exemption for issuing Value Added Tax (“VAT”) Invoices when selling Gift Vouchers.
It follows that when a company sells Gift Vouchers, the company is not required to issue a “red” VAT Invoice or record revenue at the time of the transaction, but instead is to treat the transaction as a liability. When the holder of the Gift Voucher later uses the Gift Voucher to buy goods, it is at that time the company is required to issue the VAT Invoice.
Limitations for CIT Deductions for Foreign Loans to Commercial Housing Developments
On 15 June 2017, The Ministry of Construction released Official Letter No 156/BXD-QLN, reconfirming to the State Bank of Vietnam (“SBV”) that foreign sourced loans used for commercial housing developments are not considered lawful sources of funding. Thus, any interest expenses arising for these unlawful funding transactions will be treated as non-deductible expenses for Corporate Income Tax (“CIT”) purposes.
10% PIT Withholding for Individuals
On 12 June 2017, The General Department of Taxation (“GDT”) released Official Letter No 2547/TCT-TNCN regarding Personal Income Tax (“PIT”) for individuals who are not registered to provide red VAT Invoices.
1) PIT withholding for Individuals with income from salary or wages: When a taxpayer makes a payment to an individual that (i) is a resident who does not have a labour contract, or (ii) has a labour contract of 3 months or less with total income exceeding VND 2 million, then 10% PIT must be withheld by the taxpayer and a PIT declaration prepared following term 1, Article 25, Circular 111/2013/TT-BTC.
2) PIT withholding from service income of Individuals that are not registered as businesses: If a company hires services from a non-business registered individual, the payment is considered employment income and subject to 10% PIT. The tax authorities will not issue a red VAT invoice for these situations.
Exchange Rate for Calculating Withholding Taxes
On 3 July 2017, GDT released Official Letter No 2936/TCT-CS regarding exchange rates used for calculating withholding taxes (“WHT”)
1) For the period before 1 January 2015: The exchange rate for calculating WHT for foreign contractors shall be carried according to the regulations of Circular No. 219/2013/TT-BTC and Circular No. 78/2014/TT-BTC. Following these provisions, when a foreign contractor receives foreign currency dominated revenue, the revenue must be converted into VND according to the inter-bank exchange rate for calculating the WHT.
2) From 1 January 2015: The exchange rate for calculating WHT for foreign contractors is adjusted according to Circular No. 200/2014/TT-BTC.
i) If the foreign contractor has a bank account in Vietnam, the exchange rate for calculating WHT is based on the rate at that commercial bank.
ii) If the foreign contractor does not have a bank account in Vietnam, the exchange rate for calculating WHT is based on (a) average inter-bank exchange rate during the period 1 January 2015 to 4 January 2016 or (b) the exchange rate of VND vs USD published by the State Bank of Vietnam on the payment date of transaction.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Senior Manager - Accounting
Nguyen Thi Thuy, Business Manager