This August 2019 publication of our Tax and Accounting Updates looks at the new Circular on Foreign Exchange Management for Foreign Direct Investments in Vietnam, and our regular review of recent Official Letters released by the Tax Authorities.
Vietnam Tax & Accounting Update August 2019
NEW CIRCULAR PROVIDING GUIDANCE ON FOREIGN EXCHANGE MANAGEMENT FOR FOREIGN DIRECT INVESTMENTS IN VIETNAM, EFFECTIVE 6 SEPTEMBER 2019
On 26 June 2019, the Vietnamese Government issued Circular 06/2019/TT-NHNN providing guidance for management of Foreign Direct Investments in Vietnam.
Foreign Direct Investment (“FDI”) Enterprise Definition
Under this circular, an FDI enterprise is defined as:
a) Economic organizations in which foreign investor(s) hold positions as shareholders, and in which obtaining an Investment Registration Certificate (“IRC”) is required under investment laws, or
b) Enterprises which do not fall into the case specified above, and having foreign investor(s) owning 51% or more of their charter capital, including:
(i) Enterprises which have foreign investors contributing capital or buying shares of enterprises that lead to foreign investors owning 51% or more of the enterprises’ charter capital.
(ii) Enterprises established after splitting or merging that lead to foreign investors owning 51% or more of the enterprises’ charter capital, or
(iii) Newly established enterprises in accordance with specialized laws.
Significant Changes arising from the Circular
a) FDI enterprises (as defined in the Circular) are required to open a Direct Investment Capital Account (“DICA”) in a foreign currency at an authorized bank to conduct transactions related to their foreign direct investment activities in Vietnam.
b) FDI enterprises can open only one account at one authorized bank.
c) If investors contribute capital in VND, enterprises can also open a DICA in VND at the bank where the DICA in a foreign currency is opened.
d) Foreign investors who participate in multiple Business Cooperation Contracts (“BCC”) contracts or Private Public Partnership (“PPP”) projects must open a separate DICA for each BCC contract or PPP project.
Within 12 months from the effective date of the Circular, enterprises and foreign investors who are non-residents owning shares or contributed capital in Vietnamese enterprises, must carry out the following transitional provisions.
a) Where an enterprise has foreign investors, who have opened an Indirect Investment Capital Account (“IICA”) to contribute capital or purchase shares in the enterprise leading the foreign investors to own 51% or more of the capital, they must open a DICA according to the provisions in this Circular.
b) Where the following enterprises have opened DICAs, they must close these accounts and foreign investors, who are non-residents owning shares or contributed capital in such enterprises, must open an IICA following regulations on foreign exchange management:
(i) Enterprises where foreign investors own less than 51% of their charter capital, except for the case the foreign-owned enterprises which were set up and operated under an IRC.
(ii) Enterprises that are not required to obtain an IRC but have requested and been issued an IRC by an authorised authority in accordance with the investment laws.
(iii) FDI enterprises that have stock listed or registered for trading on a stock exchange.
(iv) If an enterprise specified in points (i), (ii) and (iii) undertakes the borrowing and repayment of foreign loans through a DICA, it may continue to maintain this account for borrowing and repayment of foreign debts in accordance with the law on foreign loans and debt repayment of enterprises.
The Circular takes effect from 6 September 2019 and replaces Circular 19/2014/TT-NHNN dated 11 August 2014.
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.
Work Permit Requirement for Foreign Employees When Switching Companies
On 16 July 2019, the Ho Chi Minh City Department of Labour, Invalids and Social Affairs issued Official Letter 646/CVL-QLLD on the requirements for foreign employee Work Permit applications when switching companies (employers).
Foreign employees who have obtained a Work Permit and which is still valid, that seek to work with another employer, even in the same position as in the previous company, are still required to obtain a new Work Permit with the new employer.
The required documents and process for the Work Permit application in this case is simpler than the original Work Permit application, as the requirements for criminal record check, health check certificate and documents proving the professional and technical qualifications of the foreign employees are removed.
Personal Income Tax on Per Diem Payments to Foreign Experts
On 8 July 2019, the Hanoi Department of Taxation (“HDT”) issued Official Letter 53587/CT-TTHT on Personal Income Tax (PIT) policy for per diem payment to foreign experts.
Where a Representative Office pays travel and accommodation expenses for foreign experts (non-resident individuals) and who provide technical assistance to customers in Vietnam (and the individuals do not receive specific salary or allowances for the working period in Vietnam), the payments for travel and accommodation shall be included in the income subject to PIT (taxable income) of the foreign individuals. PIT would apply at a tax rate of 20%.
House rental, electricity and other services (if any) which are paid by the employer will also be considered as taxable income, regardless of where the income is paid.
Credit Card Payments
On 12 June 2019, the General Department of Taxation (“GDT”) issued Official Letter 2376/TCT-CS regarding credit card payments, which were also covered in Official Letter 5465/TCT-KK dated 25 November 2016.
Where a Company authorizes an individual, who is an employee of the Company, to use personal credit cards for the payment of goods or services to a vendor, with the Company reimbursing the individual via bank transfer from the Company’s registered bank account to the employee’s bank account:
٠ If the form of payment is specified in the financial policy of the Company, or the Authorisation Decision of the Company for individuals; and
٠ The payments have sufficient documents as proof that goods and services are used for “production purposes” and are related to business activities of the Company, including:
+ Invoice(s) for the goods and services, with name and tax code of the Company;
+ Authorization document of the Company, authorising the employee to pay the vendor on the Company’s behalf and this will be reimbursed by the company;
+ Vouchers as proof that the payment was paid from personal credit card account of the employee to the vendor’s account; and
+ Vouchers as proof that the reimbursement was paid from the Company’s bank account to the employee’s account.
Then such payments would be deemed to satisfied the conditions for declaring and deducting input VAT, and for recording as deductible expenses for calculating Corporate Income Tax (“CIT”).
The Company is responsible for preparing and monitoring the list of personal credit card accounts of authorized employees for these payments, and to provide them to relevant authorities where required.
Foreign Contractor Tax (“FCT”) on Advertising Fees for Foreign Websites and Applications
On 27 May 2019, HDT issued Official Letter 38360/CT-TTHT guiding FCT on advertising fees for foreign websites and applications.
Where Vietnamese companies enter into a contract with a foreign vendor, such as Google or Facebook, to advertise on its website or applications, the income generated in Vietnam by the foreign vendor is subject to FCT. Where the foreign vendor does not have a permanent establishment in Vietnam, the Vietnamese paying company is required to withhold, declare and pay FCT (VAT, and CIT) on the vendor’s behalf.
If the contract states that the amount paid to the foreign vendor does not include CIT, the CIT portion paid as part of the FCT by the Vietnamese company is deductible for the Vietnamese company’s CIT if the payment satisfies the conditions stipulated at Article 4, Circular 96/2015/TT-BTC. The VAT paid as part of the FCT is also deductible for the Vietnamese company if the VAT payment meets the conditions stipulated at Article 15, Circular 219/2013/TT-BTC.
Offsetting Business Losses for Companies with Tax Incentives
On 1 July 2019, HDT issued Official Letter 51364/CT-TTHT guiding how to offset losses from business operations for companies with tax incentives.
According to the provisions of Clause 9, Article 18 of Circular 78/2014/TT-BTC, losses incurred by companies from their business activities that are entitled to tax incentives are permitted to be offset against profit from other business activities which are not subject to incentives (except for profits from property transfers, investment project transfers, transfer of rights to participate in investment projects, mineral exploration, exploitation and processing rights).
Accordingly, if a company has a dependent accounting branch which is entitled to tax incentives and incurs losses, it is permitted to offset the losses against the profit of the head office, including profits from business activities which are not subject to tax incentives.
Tax Refunds for Exported Goods
On 12 June 2019, GDT issued Official Letter 2383/TCT-CS on tax refunds for exported goods.
Under the provisions of Article 2 of Circular 25/2018/TT-BTC, VAT incurred and related to exported goods is refundable only when the accumulated input VAT, which has not otherwise been deducted, reaches VND 300 million or more. If the claimable export VAT is below VND 300 million, it is to be carried forward for deducting/claiming in the next VAT period
In addition, since July 1, 2016, VAT refunded for exported goods is limited at not more than 10% of exported revenue for each refund claim.
For further information contact:
Matthew Lourey, Managing Partner
Jason Turnbull, Partner
Do Thi Thao, Manager - Accounting