This Tax Update publication for November 2016 looks at a selection of Decrees, Circulars and Official Letters which have been released in recent weeks and which we believe will be of interest to readers.
DECREE 139 - BUSINESS LICENSE FEE CHANGES
The Government of Vietnam released Decree 139/2016/ND-CP (“Decree 139”) on 4 October 2016 concerning Business License Fees (“BLF”) for enterprises/businesses operating in Vietnam.
In this Decree, the previous terminology of “Business License Tax” has been replaced by “Business License Fee”. No longer treated as separate tax, the annual fee paid at the start of the financial year is similar in practice to annual company registration fees that are common place in other countries.
|Enterprise with charter/investment capital||Annual BLF (VND)|
|More than VND 10 billion||3,000,000|
|From VND 10 billion or below||2,000,000|
|Branch, Representative Office, business locations and others||1,000,000|
The BLF applicable to individuals and household businesses will vary based upon their revenue, ranging from VND 300,000 to VND 1,000,000 per annum.
Representative Offices (“ROs”) are required to pay the annual BLF, irrespective of their activities undertaken in Vietnam. Previously, ROs acting as liaison offices without operating activities were exempt from annual fees.
The Decree also covers implementation transition, so for enterprises that lodge declarations prior 1 January 2017, they are not required to re-submit the filing (provided that there are no changes in their charter/investment capital). The Tax Administration Office is responsible for the review and release of notifications to businesses for payment and further action.
The Decree takes effective from 1 January 2017 and replaces Decree 75/2002/ND-CP.
CIRCULAR 147 - APPLICATION OF DEPRECIATION
On 13 October 2016, the Ministry of Finance released Circular 147/2016/TT-BTC providing several amendments to accounting for fixed asset depreciation. Changes include:
- Where a mixed-use complex comprises two categories of assets, i.e. “held for sale or renting” and “operating use”, then enterprises are not permitted to depreciate the portion relating to “held for sale or renting”;
- Where enterprises cannot separate the portions for “sale or renting” from the mixed-use complex, they are not permitted to record any of the property as a fixed asset and cannot depreciate accordingly.
OFFICIAL LETTERS RELEASED
Corporate Income Tax (“CIT”) - Warranties
On 13 October 2016, the General Department of Taxation (“GDT”) issued Official Letter 4738/TCT-CS guiding CIT deductibility for warranty expenditure. This Official Letter details the conditions that enterprises must meet in order to record warranty expenses as deductible for CIT. These include:
(i) Warranty services are actually provided to clients;
(ii) Warranty services are prescribed and detailed in sales contracts, and which are to be performed by the enterprise;
(iii) The enterprise has accrued a provision for warranty costs in line with accounting principles; and
(iv) Warranty expenses must be substantiated by supporting documents, i.e. product inspection reports provided by an authorised warranty center, warranty certificate, delivery note for replacement products, and forms confirming receipt for replacement warranty products
Corporate Income Tax (“CIT”) - Company Credit Cards
On 17 October 2016, GDT issued Official Letter 4807/TCT-KK regarding deductible expenditure paid by company credit card.
Where an enterprise contracts with a bank to issue credit cards to chosen senior employees to use for business operations, then payments made using those cards are considered as non-cash payment and the expenses incurred will be creditable for Value Added Tax and deductible for CIT, provided that:
(i) The company has issued a guarantee to repay the credit card via its registered bank account; and
(ii) The payment method is detailed and permitted within the company’s internal policies.
This is positive news continues to confirm the flexibility of using credit cards as a non-cash payment for company expenses, removing complexity that previously existed. Prior to this, company credit cards were only available to the General Director and were to be guaranteed by the company’s cash deposits. It is still important under this Official Letter to limit credit cards to senior employees, and to ensure proper internal documentation is maintained.
Social Insurance (“SHUI”)
On 18 October 2016, Social Insurance Department of Ho Chi Minh City (“SHUI-HCM”) issued Official Letter 2533/BHXH-QLT guiding SHUI procedures. Thus, it is no longer required to return Health Insurance Cards (“HI Card”) to the SHUI Department when terminating employment for staff. Employers are only liable to lodge dossiers notifying that staff have finished their employment and to fully contribute the compulsory SHUI to the authority up until the termination.
Accounting and Invoices
On 21 October 2016, GDT issued Official Letter 4886/TCT-KK providing guidance on exchange rates presented on commercial invoices. Further to this release, enterprises which have registered with the tax authorities to use foreign currencies for their accounting records can issue invoices using the foreign currency, along with detailing the exchange rate of the currency (converting into VND) based upon the rate at the commercial bank where enterprises’ accounts are located.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager