Our September 2016 Tax Updates cover recent tax and accounting releases in Vietnam that may have an impact on Vietnamese business operations.
CIRCULAR 130 - PROVIDING DETAILED GUIDANCE ON THE IMPLEMENTATION OF A NUMBER OF EXISTING TAX LAWS
Subsequent to the issuance of Decree 100/2016 on 1 July 2016, the Ministry of Finance released Circular 130 on 12 August 2016 providing further guidance on a number of changes to existing tax laws including Value Added Tax (“VAT”) and Special Sales Tax (“STT”), as well as amending certain Tax Administrative Procedures. Key elements include:
Enterprises with revenues derived from exporting goods or services will be able to claim VAT refunds provided that they meet the VND300 million refund threshold. Notwithstanding, total VAT refund payments are capped at 10% of total revenue earned from exporting.
This may have a cash flow impact on business that are expanding or increasing their stock levels for export and have large credits at one time, or for highly seasonal businesses where large purchases are acquired out of sync with the exporting of products.
Additional details on services not subject to VAT
- The ratio of exported natural resources, including energy expenses, is determined by total natural resources plus energy expenses, divided by total cost of goods sold of the product;
- Where natural resources are not exported directly, but sold domestically to another enterprise in Vietnam for export, such goods will be subject to VAT when exported by the second enterprise.
From 1 July 2016, the applicable interest charge for late payment of tax obligations (including VAT) is 0.03% per day. Where VAT liabilities have arisen prior to 1 July 2016 but are settled after that date, the interest charges applicable correspond to the period that the debt relates to, not the calendar dates as for other tax debt calculations, as follows:
|Period debt relates to||Daily interest rate||Comment|
|Prior to 1 Jan 2015||0.05%||Within 90 days of late payment|
|Prior to 1 Jan 2015||0.07%||After 90-day period of late payment|
|1 Jan 2015 to 30 Jun 2016||0.05%|
|1 Jul 2016 onwards||0.03%|
Circular 130 is effective from 1 July 2016 (except for Article 4, which is applicable for the 2016 tax year).
OFFICIAL LETTERS RELEASED
Official Letters provide guidance as to the Tax Office’s view on interpretation and application of tax laws.
Foreign Contractor Withholding Tax (“FCWT”)
On 25 July 2016, the Tax Department of Hanoi (“TD-HN”) issued Official Letter 49013/CT-HTr which confirms that Representative Offices in Vietnam of foreign organisations cannot declare and pay FCWT on behalf of foreign organisations.
Where a Vietnamese party enters into contractor agreement with a foreign party which is not registered as a tax payer under Vietnam laws, the Vietnamese party is responsible for FCWT declaration and payment, irrespective of the foreign company having a Representative Office in Vietnam.
This position further clarifies the tax responsibilities of each paying party relating to FCWT, and elaborates on the functions that the Representative Office cannot conduct in respect of the foreign parent company.
Corporate Income Tax (“CIT”)
On 15 August 2016, TD-HN issued Official Letter 53276/CT-TTHT providing guidance for enterprises which enter into restructuring arrangements that include labour reductions, and which involve the payment of severances allowances and employment termination allowances in addition to those required to paid in under the Labour Code. These additional payments are to be treated as staff welfare costs and will deductible for CIT, subject to a cap at one month’s average salary, and the payments need to be supported with appropriate documents, including (i) Decision of Company’s management; (ii) List of beneficiaries with amounts; and (iii) Payment voucher (by cash or non-cash payment).
Essentially, payments following the Labour Code are deductible for CIT, with additional payments deductible but subject to a cap.
Value-Added Tax (“VAT”)
On 10 August 2016, the General Department of Taxation (“GDT”) issued Official Letter 3550/TCT-KK regarding procedures to register for the VAT deductible method (lodgement of form 06/GTGT).
According to this Official Letter, the taxpayers resuming business operations after a temporary cessation will be allowed to continue using their previous VAT declaration method within the first calendar year for tax purposes.
By 20 December each year, enterprises that wish to continue to apply the VAT deductible method should submit form 06/GTGT to entitle them to continue to utilise this method.
On 1 September 2016, GDT also issued Official Letter 3991/TCT-CS guiding that expenses paid by a parent company for their branch office, which is under establishing stage, shall be deductible for CIT and creditable for VAT in the relation to branch’s tax declaration.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager