This month we look at a proposal for structural changes to Vietnam’s taxation system in this September 2017 publication of our Tax Updates from Domicile Corporate Services. We also look at other releases from the authorities that we believe are of interest to taxpayers in Vietnam.Download PDF
PROPOSAL FOR CHANGES TO VIETNAM TAX RATES & STRUCTURE
In August 2017, the Ministry of Finance (“MOF”) released a document proposing changes to a range of taxes in Vietnam. Although the Vietnam Government has since announced that it has declined to accept the draft proposal, the release gives an indication of where the Vietnamese authorities see their tax base and income needs heading.
Changes to VAT
A recommendation was that Value Added Tax (“VAT”) rates were to increase from 10% to 12% for standard VAT, and from 5% to 6% for the reduced rate. In addition, the minimum requirement for non-cash (bank) payments to ensure expenses were creditable for VAT and deductible for Corporate Income Tax (“CIT”) was to be decreased from 20,000,000 VND to 10,000,000 VND.
Changes to CIT
Corporate Income Tax was recommended to be decreased from the standard 20% at present to 15% for small taxpayers and to 17% for other taxpayers.
Changes to PIT
Personal Income Tax (“PIT”) bands were to be relaxed, with the lowest 5% rate applied for the first 10,000,000 VND per month instead of the current 5,000,000 VND. In addition, the threshold after which withholding tax is required on payments for service contracts was to be increased from 2,000,000 VND to 5,000,000 VND.
We will see what changes in the future as the Government further considers its options.
OFFICIAL LETTERS RELEASED
Official Letters are releases showing the Tax Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.
Exemption from PIT for Work Permit Expenses
On 25 August 2017, The General Department of Taxation (“GDT”) released Official Letter 3867/TCT-TNCN regarding Personal Income Tax (“PIT”) implications where an employer arranges a Temporary Resident Card or Visa for foreign employees. The Official Letter reconfirms that these items are subject to PIT for the employee, and are also deductible for Corporate Income Tax (“CIT”).
However, for employer expenses related to arranging Work Permits for employees, as the employer is required to arrange the Work Permit for staff in order to meet labour compliance requirements, expenses will not be subject to PIT and will be treated as deductible expenses for CIT purposes.
Tuition Fees for Children of Foreign Employees
On 2 June 2017, GDT released Official Letter 5141/CT-TTHT regarding the payment of tuition fees for the children of foreign employees. Foreign employees (ie, with a Work Permit or an Exemption Certificate) need to meet the requirements that:
(i) There is a specific agreement in the labour contract that children will be provided with tuition;
(ii) Tuition fees are paid by the employer for kindergarten through to secondary school; and
(iii) The employer has full invoices and vouchers as required for evidence and tax compliance from the school.
If the above are satisfied, the tuition fees are subject to the PIT cap in accordance with Clause 2 Article 2 of Circular 111/2013/TT-BTC (ie, employees are subject to a maximum PIT rate of 15% on the tuition fees).
Taxable turnover of Foreign Airlines
On 19 June 2017, the Ho Chi Minh City Department of Taxation (“HCMDT”) released Official Letter 5731/CT-TTHT regarding tax policy application for foreign airlines in receipt of ticket revenue in Vietnam.
Article 20 of Circular 156/2013/TT-BTC details that Vietnam ticketing offices of foreign airlines are required to declare Corporate Income Tax on behalf of the foreign airlines on their total turnover (excluding VAT) which they receive. The applicable CIT rate is 2% per Article 13, Circular 103/2014/TT-BTC.
In addition, this Official Letter states that the turnover subject to CIT must include all foreign ticket sales with departures from Vietnam.
Issuance of VAT Invoices for Gifts Provided to Customers
On 2 June 2017, HCMDT released Official Letter 5136/CT-TTHT regarding the issuance of “red” VAT invoices for gifts given to customers.
Where the value of gifts is equal to or greater than 200,000 VND, then the taxpayer is required to issue the VAT invoice at the time of the gifting. The taxpayer is also required to issue a VAT invoice at the end of the day for all gifts below 200,000 VND following the requirements of Circular 39/2014/TT-BTC.
Reimbursement of Import Taxes for Exporters
On 18 August 2017, The Ministry of Finance released Official Letter 11080/BTC-TCHQ regarding the reimbursement process for import taxes for exporters.
Where goods are produced for export purposes, refunds of import taxes are permitted if:
(i) The manufacturer of the exported goods has a factory, owns or the right to use machinery and equipment at a factory suitable for the raw materials, supplies, and component products imported for manufacturing;
(ii) The manufacturer directly produces those products or goods; and
(iii) The manufacturer directly exports the products or authorises another entity to do so.
If a company resells imported goods to other companies for export, it does not meet the conditions for refunds of import taxes according to Article 36 of Decree 134/2016/ND-CP.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Senior Manager - Accounting
Nguyen Thi Thuy, Business Manager