Tax UpdatesTax Updates From Domicile Corporate Services



The March 2017 monthly publication of Domicile’s Tax Updates looks at recently issued Decrees and Official Letters from Vietnam’s authorities which have an impact on businesses in Vietnam. As always, please contact us if you would like further information on any of the items discussed in our publication.


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On 24 February 2017, the Government published Decree 20/2017/ND-CP (“Decree 20”) concerning tax administration for enterprises with related-party transactions. This is an important release for Transfer Pricing (“TP”) and also introduces a number of other non-TP related changes to taxation.



Decree 20 requires taxpayers with related-party transactions to prepare and maintain substantial documentation regarding pricing calculations. “Related Parties” have been redefined so that 25% common ownership (increased from 20%) between entities is required to trigger the requirements, and the former practice of being a Related Party simply by way of transaction levels with another entity (transactional dependency) has been removed.


Enterprises that have been issued exemptions from some of the transfer pricing documentation requirements include:

Domestic groups:

- Entities having transactions with Related Parties which are subject to Corporate Income Tax (“CIT”) in Vietnam; and

- Both parties apply the same CIT rate, with neither party are enjoying tax incentives


Other parties:

- Taxpayers who have related party transactions, but which have total revenue in a tax year of less than VND 50 Billion and the total value of related party transactions in the tax year of less than VND 30 Billion; or

- Have signed a mutual agreement regarding Advance Pricing Agreement (APA) and annually lodge an APA report; or

- Operate a “simple function” business with total revenue less than VND 200 Billion and achieving an EBIT ratio of at least 5% for “distribution”, 10% for “manufacturing” or 15% for “processing”


Tax Deductions

Decree 20 introduces a cap on interest deductions for enterprises in Vietnam of 20% of EBIT, regardless whether the interest is from related or external parties.


Further, Decree 20 introduces another requirement that in order for expenses for intercompany services to be deductible, the economic benefit of the expense and the reasonableness of the pricing mechanism need to be justified.


Decree 20 takes effect from 1 May 2017.





Personal Income Tax (“PIT”)

On 16 January 2017, the General Department of Taxation (“GDT”) issued Official Letter 177/TCT-TNCN regarding self-printed Certificates of Withholding for Personal Income Tax (hereby referred to as “PIT Tax Receipt”).


According to this Official Letter, where an enterprise self-prints PIT Tax Receipts, there are several conditions that the enterprise needs to satisfy, including:

- Registration of enterprises’ tax code with Vietnamese authorities;

- Having appropriate computer hardware and software; and

- Not being subject to tax administrative sanctions 2 times within the 12 month period prior commencing to self-print PIT Tax Receipts


Prior to commencing self-printing, the enterprise is required to register a PIT Tax Receipt sample with Tax Authorities and notify employees within 5 days after receiving approval from the Tax Authorities.


Personal Income Tax

On 23 February 2017, GDT published Official Letter 580/TCT-TNCN regarding family circumstances deductions. This Official Letter confirms that dependant deductions for PIT calculations commence from the month of birth of a child, provided the dependent registration has been filed appropriately.


The deadline for dependant registrations for 2016 PIT finalisation is on or before 31 March 2017.


Value-Added Tax (“VAT”)

On 22 February 2017, GDT released Official Letter 554/TCT-CST concerning VAT declarations and payments.


This letter notes that when the VAT rate stated in a VAT invoice is higher than the actual/permitted rate, purchasers are only permitted to declare VAT credits based upon the actual/permitted VAT rate. Nevertheless, where suppliers have declared and paid tax based on the stated VAT rate, then the purchasers can continue to declare input VAT with the stated VAT rate.


Foreign Contractor Withholding Tax (“FCWT”)

On 17 January 2017, GDT issued Official Letter 209/TCT-DNL guiding tax treatment on bank service charges which are levied by foreign banks on transactions connected to Vietnam.


In this Official Letter, the Tax Department reconfirms that bank service charges levied on international telegraphic transfers by foreign banks located outside of Vietnam, are performed and consumed outside of Vietnam and therefore are not subject to Foreign Contractor Withholding Tax (“FCWT”).


Business License Fee (“BLF”)

On 28 February 2017, GDT published Official Letter 658/TCT-CS regarding Business License Fees for Representative Offices.


In this letter, GDT advises that Representative Offices are only required to pay the annual BLF where they are undertaking activities in Vietnam (i.e. manufacturing or trading). Conversely, Representative Offices acting as liaison offices without operating activities are not subject to this annual fee.


This contradicts the guidance contained in Decree 139/2016 concerning BLF for enterprises/businesses operating in Vietnam where it stipulates that all Representative Offices are required to pay the annual BLF irrespective of their activities undertaken in Vietnam. We encourage Representative Offices to seek guidance from their Tax Department for further clarity on this issue.



For further information contact:


Matthew Lourey, Managing Partner

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Phan Thi Thu Thuy, Manager

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