This August 2016 edition of our Tax Update publication looks at significant changes to Value Added Tax (“VAT”) refunds and associated regulations for taxpayers in Vietnam, along with discussions on recent Official Letters released by tax authorities covering Personal Income Tax, Corporate Income Tax and VAT.
VALUE ADDED TAX - CHANGES TO REFUND PROCESSES AND ADMINISTRATIVE MATTERS
There have been a number of regulatory changes to VAT in recent months that together make significant changes to VAT refunds and associated procedures.
The National Assembly enacted Law No. 106/2016/QH13 on 6 April 2016, which was followed by the Government issuing Decree 100/2016/ND-CP on 1 July 2016 and the Ministry of Finance issuing Official Letter 10315/BTC-TCT on 25 July 2016. The key effects of these releases on VAT are:
Additional Services not subject to VAT
- Enterprises that buy and sell agricultural products that have only had basic treatments applied (cleaned, dried, de-seeded, etc) are not required to declare or pay VAT on outputs, but can claim VAT credits for inputs,
- Services provided in caring for seniors or disabled people are not subject to VAT, and
- Exported natural resources, where the total value (including energy expenses) exceed 51%, are not subject to VAT.
The ability for enterprises to receive VAT refunds has been reduced, so that VAT refunds are now only available in specified cases from 1 July 2016. Other enterprises will have to carry forward VAT credits to offset against future liabilities.
Enterprises with revenue derived from exporting goods or services will still be able to claim VAT refunds from the government, provided that they meet the VND 300million refund threshold. Where exporters also sell goods or services domestically, they will either need to be able to allocate inputs directly against outputs to determine creditable VAT related solely to exports, or they will have to do an apportionment based upon revenue ratios.
Enterprises with creditable VAT prior to 1 July 2016 will still be able to submit their applications to local authorities for processing for those earlier credits.
Enterprises with new investments in certain conditional sectors will not be able to claim VAT input credits until specified conditions are satisfied, but will be able to carry these forward to future periods.
Interest charges for late payments of tax obligations (including VAT) decrease from 1 July 2016 to 0.03% per day from 0.05% per day. Where liabilities have arisen prior to 1 July 2016 but are settled after that date, the 0.03% will apply to the calculations after 1 July 2016.
VAT Timelines for Refunds
The Ministry of Finance also released Circular 99/2016/TT-BTC on 29 June 2016, which took effect from 13 August 2016. This Circular provides guidance on the supervision and administration of VAT refunds.
Key elements of the Circular include:
- VAT dossiers can be lodged with the tax office via the e-tax system, via mail or in person at the authorities.
- Enterprises can utilise the “Refund First, Audit Later” system unless they have violated tax or customs regulations in recent years, whereby they will need to follow the “Audit First, Refund Later” process.
- Dossiers will be reviewed to confirm compliance with requirements (and therefore accepted into the system) within 1 working day for “Refund First, Audit Later” enterprises, and 3 working days for “Audit First, Refund Later” enterprises.
- Once dossiers are accepted, VAT Refund Decisions will be issued within 6 working days for “Refund First, Audit Later” enterprises and within 40 working days for “Audit First, Refund Later” enterprises.
- Relevant State Treasury offices will be required to issue the refund to enterprises within 3 working days after the Refund Decision is issued.
OFFICIAL LETTERS RELEASED
Personal Income Tax
On 1 August 2016, the General Department of Taxation (“GDT”) issued Official Letter 3420/TCT-TNCN which seeks to provide guidance on dependent registration. It specifies requirements for dependents who are 15 years or older, and the requirements for ID cards to be provided with registrations (with certain exceptions).
The Official Letter also confirms that students studying post-graduate programs (including Masters and Doctorate programs) are not eligible to be registered as dependents for PIT purposes.
Value Added Tax
On 20 July 2016, GDT issued Official Letter 3421/TCT-KK covering VAT on exported goods that are returned to Vietnam. Enterprises are required to adjust tax returns in respect of credits and refunds, and pay any additional interest where applicable.
On 12 July 2016, the Tax Department of Hanoi issued Official Letter 46431/CT-Htr which confirmed that VAT is not applicable on assets (ie office equipment) sold by Representative Offices in Vietnam of foreign organisations. It also confirms that Representative Offices cannot purchase “sales invoices” from the Tax Office.
Corporate Income Tax
On 31 May 2016, the Tax Department of Ho Chi Minh issued Official Letter 4973/CT-TTHT confirming that where employees are on authorised business travel and purchase tickets with their personal credit/bank cards, and later seek reimbursement back from their employer, then this will satisfy the non-cash payment requirements for amounts exceeding VND 20million.
However, where the card of another person is used, then these expenses will be non-deductible for tax purposes.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager