This Tax Update publication for December 2016 looks at a recent selection of Circulars and Official Letters that have been released and which are relevant to businesses operating in Vietnam.
CIRCULAR 173 - AMENDMENT ON VAT REGULATIONS
The Ministry of Finance released Circular 173/2016/TT-BTC (“Circular 173”) on 28 October 2016 amending Value-Added Tax regulations relating to “Conditions for creditable input VAT”.
As a result of Circular 173, the requirement that “the bank accounts of both the purchaser and the seller must be bank accounts which have been registered with, or notified to, the Tax Office” has been removed as evidence for effective bank payments. Prior to the removal of this provision, money transferred and paid via registered bank accounts were an essential condition for creditable payments or tax refunds. This change better reflects the business realities in Vietnam and no longer requires parties to ascertain whether the other party had registered their bank account (which was an impractical step) prior to making or receiving payment for a transaction.
Notwithstanding, this change does not remove an enterprise’s obligation to register their bank accounts with the Tax Office within 10 days from the date an account is opened. Fines for failing to register bank accounts range from VND 400,000 to VND 1,000,000, in accordance with Decree 129/2013 and Circular 166/2013.
This Circular takes effect from 15 December 2016.
OFFICIAL LETTERS RELEASED
Value-Added Tax (“VAT”) - VAT Refunds
On 4 November 2016, the General Department of Taxation (“GDT”) released Official Letter 5120/TCT-KK providing additional guidance for the conditions for a VAT refund.
In this letter, the tax authorities reconfirmed that the company is still eligible for creditable VAT provided supporting documents are in order and maintained, regardless of whether the bank account has been registered with tax office or not. This interpretation covers periods prior to Circular 173, and moves to protects companies from unnecessary denials of deductions when appropriate documents are maintained.
Companies that have not registered bank accounts for business operations would still be subject to administrative penalties.
Foreign Contractor Withholding Tax (“FCWT”)
On 7 November 2016, the Ministry of Finance (“MOF”) issued Official Letter 15888/BTC-CST regarding FCWT on payments made for the right to use a foreign trademark in Vietnam.
The Official Letter comes to the conclusion that payment for the right to use a trademark is distinguishable from franchising (which is regulated by Commercial Laws). The Official Letter further concludes that the payment for the right to use a trademark is regulated by the Laws on Science and Technology, which involves a Vietnamese party using the trademark in Vietnam and making payment to a foreign party for the right.
As such, the FCWT rate applicable on foreign payments for the right to use a trademark are:
- 10% CIT rate on taxable income; and
- 5% VAT rate for the Direct method and/or 10% VAT rate for the Credit method
This Official Letter also covers implementation of the transition for this interpretation. For enterprises that lodge tax declarations relating to payments for the use of foreign trademarks prior to this determination, they will not be required to re-declare and resubmit the lodgements. Where enterprises have not made payment for taxes (regardless if they have lodged or not), they will be required to declare and pay taxes in accordance with the interpretation detailed in the Official Letter.
Corporate Income Tax (“CIT”) - Deductibility for Business Expenditure Paid by Employee Personal Credit Cards
Subsequent to Official Letter 3671/TCT-DNL dated 16 August 2016 regarding deductible expenses where they are initially paid by an employee credit card or by transfer from an employee bank account, on 25 November 2016, GDT issued Official Letter 5465/TCT-KK covering employee credit cards used for expense payments for business operations.
According to the Official Letter, expenses paid by employee personal credit cards are eligible for creditable VAT payments and deductible CIT expenses provided that supporting documents are available, including (i) official invoices, (ii) authorisation letter from the employer, (iii) payment voucher, from the employee’s credit card to the supplier’s bank account, and (iv) payment voucher, from the employer’s bank account to reimburse the employee.
Additional requirements from the authorities are that the delegation to employees is clearly mentioned in the company’s internal finance regime and a list of credit card numbers and the card holder’s name should be maintained by the company for review.
2016 has seen positive steps from the administrative authorities, facilitating more flexibility in how companies pay for goods and services. This puts companies more in line with the practicalities of the modern business environment, and the global move towards a more “Cashless Society”.
Tax Administration - PIT Declaration for Representative Offices
On 2 December 2016, the Tax Department of Hanoi (“TD-HN”) issued Official Letter 74118/CT-TTHT guiding PIT declarations for Representative Offices (“RO”).
Pursuant to this Official Letter, where the RO does not directly employ and pay salaries to an employee (ie, payment is settled by another entity/office in the Group), the RO is not responsible for employee’s PIT declaration and payment in Vietnam. The responsibility for declaration and payment will lay with the entity/office which makes the payments to the employee.
As a result of the above, RO’s which do not employ, pay salary and make PIT declarations on behalf of an employee, are required to revise and resubmit their registration dossiers relating to “Tax Obligation” items: these staff are to be changed from “PIT declaration and payment” as initially submitted to “No Tax Obligation incurred”.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager