In this June 2018 publication on Tax and Accounting updates in Vietnam, where cover adjustments to insurance calculations for payrolls effective 1 July 2018, and we look at a selection of recent Official Letters released by Tax and related authorities.
INCREASE TO MINIMUM BASIC WAGE FROM 1 JULY 2018, AND IMPACT ON SALARY (INSURANCE) PAYMENTS
Changes come into force from 1 July 2018 to the Minimum Basic Wage in Vietnam, affecting the calculation of Vietnamese Social Insurance payments, following adoption of Decree 72/2018/ND-CP by the National Assembly.
Specifically, the changes have resulted in an increase to the maximum caps for calculating Social Insurance and Health Insurance payments, and therefore increasing the potential payments by employees and employers for these insurances.
All employers should ensure their payroll software and internal calculations are updated for all pay runs after 1 July 2018.
Changes to Insurance Caps from 1 July 2018
|Insurances||Calculation Basis||Up Until 30 June 2018 Maximum Cap||From 1 July 2018 Maximum Cap|
|Social Insurance (SI)||20 x Minimum Basic Wage||26,000,000 VND (20 x 1,300,000 VND)||27,800,000 VND (20 x 1,390,000 VND)|
|Health Insurance (HI)||20 x Minimum Basic Wage||26,000,000 VND (20 x 1,300,000 VND)||27,800,000 VND (20 x 1,390,000 VND)|
|Unemployment Insurance (UI)||20 x Minimum Monthly Wage||79,600,000 VND (20 x 3,980,000 VND) *for Zone 1 Employees||79,600,000 VND (20 x 3,980,000 VND) *for Zone 1 Employees|
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.
Guidance on Personal Income Tax for Employees with Income from both Vietnam and Foreign Locations
On 17 May 2018, the General Department of Taxation (“GDT”) issued Official Letter 1827/TCT-TNCN regarding Personal Income Tax (“PIT”) for individuals who have income in Vietnam and from a foreign location.
Circular 92/2015/TT-BTC states that an individual who is a Vietnam tax resident, and who receives income from a Representative Office in Vietnam and additional income from a foreign company within the same group, then the grossed-up income is the total actual income received plus any other benefits in kind (if any) minus deductions, plus any PIT withheld.
Circular 111/2013/TT-BTC states if the paying foreign company is under the same group and its headquarters is located in a country which has a Double Tax Treaty with Vietnam, the PIT already paid in the foreign country will be credited and deducted from the total PIT payable in Vietnam. However, the deducted amount cannot exceed total PIT payable calculated based on Vietnamese tax rates for income from overseas payers.
PIT on Tax Advisory, Visa Applications, Temporary Residence Cards and Tuition Fees for Employees
On 16 May 2018 GDT issued Official Letter 1801/TCT-TNCN providing guidelines where employers pay tax consulting costs, visa applications, Temporary Residence Cards service fees for their foreign employees and tuition fee for their children.
Expenses paid by the employer on behalf of foreign employees for these activities are to be included in their assessable income (Item 7, Clause 2, Article 2 of Circular 111/2013/TT-BTC).
Tuition fees (from pre-school to secondary school) paid by employers on behalf of foreign employees for their children in Vietnam will be excluded from their assessable income.
Declaring Wrong Production Type for Import Tax Refunds
On 3 May 2018 the General Department of Customs issued Official Letter No. 2378/TCHQ-TXNK on import tax refunds.
For declarations made before 1 September 2016: Where enterprise imported more raw materials than the final goods exported that were manufactured from those materials, where they met provisions on import tax refunds and had tax refund documents (as stated in Clause 5, Article 114 and Article 119 of Circular No. 38/2015/TT-BTC), enterprises will be refunded the amounts paid for the imported raw materials based on the percentage of actual exported goods and will be held responsible for the accuracy and validity of the documents.
For declarations made from 1 September 2016: Item C, Clause 3, Article 36 of Decree 134/2016/ND-CP states enterprises will be refunded the import tax paid for raw materials used in the production of export goods if the exported goods are declared as “produced for export”. Conversely, if enterprises do not declare the goods as “produced for export“ (register the wrong production code on customs declaration), the import tax amount paid will not be refundable.
Transferring Input VAT and Overpaid CIT in Corporate Mergers and Branch Dissolutions
On 29 March 2018 GDT issued Official Letter 1064/TCT-KK regarding the obligations for refundable input VAT and overpaid CIT in mergers and branch dissolutions.
If the merged company, which is located in the same region as the merging company, still has outstanding tax refunds after the merger, it is to file a request to transfer outstanding deductible input VAT to the merging company. The local tax office will inspect and finalise tax obligations of the merged company up until the date of closure for both companies for them to hand over and carry on tax obligations as regulated (Article 195 of the Law on Enterprises 68/2014/QH13 and Article 54 of Law on Tax Administration 21/2012/QH13).
Similarly, upon dissolution, if branches have not requested a refund of outstanding deductible VAT and overpaid CIT, the branch will need to undertake procedures to transfer those amounts to its parent company.
Guidance for Allocating General Management Costs to Tax Incentive Activities
On 10 April 2018, the Hanoi Department of Taxation issued Official Letter 16706/CT-TTHT providing guidelines for allocating management costs to tax incentive activities.
Under the provisions of Clause 2, Article 18 of Circular 78/2014/TT-BTC, where a company incurs general management expenses related to both its incentive and non-incentive business activities, the management costs for each type of activity is to be recorded separately. If the expense cannot be accounted for separately, it is to be allocated based on the percentage of revenue of incentive activities to the total turnover, to determine the deductible amount for CIT calculations.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Senior Manager - Accounting
Do Thi Thao, Manager - Accounting