Our August 2018 publication on Tax and Accounting updates overs changes to Social Insurance payments for branches, and highlights the proposed minimum salary increases for 2019. We also look at a selection of recent Official Letters released by Tax and related authorities in this publication.
MODIFICATION TO SOCIAL INSURANCE PAYMENT PROCESSES FOR BRANCHES
On 16 July 2018, The Vietnam Social Insurance Department released Decision 888/QĐ-BHXH, effective from 1 July 2018, which amended and supplemented articles on the collection processes for Social Insurance, Health Insurance and Unemployment Insurance.
A significant amendment from this Decision is that branches are now permitted to pay Social Insurance contributions as part of a single payment combined with the parent company payment, replacing the previous requirement for the branch to submit payments in the locality where the branch is located (Clause 1, Article 1).
PROPOSED ANNUAL MINIMUM SALARY INCREASES FOR 2019 RELEASED
The National Wage Council has finalised their proposed annual changes to minimum salaries for 2019, and these have been submitted to the Government for final ratification.
The proposed minimum salaries will increase by 5.3% on average for 2019 across the 4 regions, with region 1 (which covers most of HCMC and Hanoi) increasing to VND 4,180,000 from the 2018 minimum salary of VND 3,980,000.
The increase will also effect the maximum payment cap for Unemployment Insurance, which is 20 times the minimum salary. Employers should factor in these changes into their budgeting process for 2019.
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.
Chief Representative of Foreign Representative Office in Vietnam is Exempt from Annual PIT finalisations if they Are Not a Vietnam Tax Resident
On 9 July 2018 the Hanoi Department of Taxation (“HDT”) issued Official Letter 47490/CT-TTHT concerning Personal Income Tax (“PIT”) finalisation for the Chief Representative of a foreign Representative Office in Vietnam who is not a Vietnam tax resident.
According to Circular 111/2013/TT-BTC and its amendments in Circular 119/2014/TT-BTC, the Head of a Representative Office of a foreign organisation who is a foreign individual and is not a Vietnam tax resident is exempt from annual PIT finalisations.
However, the Head of a Representative Office is still required to declare and pay PIT on income derived in Vietnam but received abroad on a quarterly basis to the local Tax Office where the work arises (Clause 8, Article 16 of Circular 156/2013/TT-BTC) at a PIT rate of 20% (Article 18 of Circular 111/2013/TT-BTC).
PIT Withholding During Probation
On 9 July 2018, HDT issued Official Letter 47484/CT-TTHT providing guidelines on PIT withholding for individuals during probation.
If a labour contract is to be signed after probation, the PIT rate will be 10% during probation, however if a labour contract is signed incorporating the probation period, then progressive PIT rates apply.
According to Article 25 of Circular 111/2013/TT-BTC, after completing probation, if the company and its employee agree to sign a labour contract for at least 3 months, the progressive rates will apply to this salary. Otherwise, the salary will be subject to a fixed PIT rate of 10%.
Requirements for Signatures on VAT Invoices
On 22 June 2018, the General Department of Taxation (“GDT”) issued Official Letter 2515/TCT-CS clarifying the requirements for signatures on VAT invoices.
According to Article 19 of Accounting Law 88/2015/QH13, accounting vouchers must be signed by non-fading ink and must not have stamped signatures. As VAT Invoices are also accounting vouchers, users cannot use signature stamps, and must be individually signed.
E-Invoice Issuance Requirements
On 9 July 2018, HDT issued Official Letter 47491/CT-TTHT providing guidelines for the procedures required in order to use E-invoices.
According to Circular 32/2011/TT-BTC, before using E-invoices, companies are required to undertake the following two procedures:
1. Submitting the decision on the application of E-invoices (Form No. 1) to its Tax Office in hard copy or via web portal before the e-invoice is initialised.
2. Submitting the notice of E-invoices issuance (Form No. 2) along with a sample invoice, which must include the digital signature, at least two days prior to companies first using E-invoices.
Upon receipt, if the Tax Office believes the notice of issuance does not meet required content, within 2 days from the receipt date, the Tax Office must issue a written notice to the company to revise.
Exemption From Issuing Invoices for Assets Transferred when Separating a Dependent Branch into a New Company
On 25 July 2018, HDT issued Official Letter 51693/CT-TTHT overing invoice issuance for assets transferred when separating a dependent branch into a new company.
Under Circular 219/2013/TT-BTC, transferred assets in a separation of a business are exempted from VAT invoice issuance and declaration. However, if a company separates its dependent branch into a new company, it must have a transfer decision along with documents of origin for the assets being transferred.
Note that where the company transfers assets between independent branches or entities, VAT invoices are required to be issued.
Machinery Leased from an Offshore Parent Company is Subject to Foreign Contractor Tax
On 16 July 2018, HDT issued Official Letter 49272/CT-TTHT regarding Foreign Contractor Tax (“FCT”) on machinery leased from an offshore parent company.
Under the provisions of Circular 103/2014/TT-BTC, where an offshore parent company derives income from leasing its machinery and equipment to its subsidiary in Vietnam, it will be subject to FCT. If the parent company does not meet the conditions for paying tax directly, the Vietnam subsidiary will be responsible for withholding and paying FCT, comprising VAT of 5% and CIT of 5% (Article 12 and 13 of Circular 103/2014/TT-BTC).
If the parent company has its bank account in Vietnam, the foreign exchange rate applicable for the tax is based upon the buying rate of the commercial bank where the account is held, and if the parent company does not have a bank account in Vietnam, the foreign exchange rate is based upon the selling rate of the commercial bank where the Subsidiary has its account.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Senior Manager - Accounting
Do Thi Thao, Manager - Accounting