In this Tax Update for May 2016 we look at a selection of Circulars, Official Letters and Resolutions that have been released and which are likely to impact businesses operating in Vietnam. Highlights of relevant elements of these releases are detailed below.
LAW AMENDING A NUMBER OF TAX LAWS APPROVED
On 6 April 2016 the National Assembly approved Law 106/2016/QH13 which amended a number of existing tax laws including Value Added Tax (“VAT”) and Special Sales Tax (“SST”), as well as amended certain Tax Administrative Procedures. Changes include:
Goods & Services Not Subject to VAT
An enterprise which purchases and sells cultivation, husbandry, aquaculture, seafood and fisheries products to another enterprise, where the products which have not been processed into other products (or which have only been subject to conventional preliminary treatment), is not required to declare and pay output VAT but is entitled to a credit for input VAT paid.
Medical/health services, veterinary services, and services of caring for seniors and disabled people, together with exported natural resources and minerals where the total value (including energy expenses) accounts for more than 51% of the cost price, will not be subject to VAT.
Businesses using either a monthly or quarterly VAT declaration, and which have revenue derived from exported goods or services and have creditable input VAT carried forward exceeding VND 300 million will be entitled to a VAT refund, except for goods imported for export or exported goods which are not appropriated exported as prescribed in the laws concerning Customs requirements. A refund shall be made on the principle of refund first and check after.
Businesses will not be allowed to claim credits for input VAT, but will be permitted to carry forward to the next declaration period if:
(i) An investment project for which the business has not yet contributed the full amount of the charter capital as registered, or a business in a conditional industry or trade when all conditions as prescribed in the Law on Investment have not been satisfied or have not been maintained during the operational process;
(ii) An investment project for exploitation of natural resources or for mining minerals which is licensed on or after 1 July 2016 or an investment project for the manufacture of products and goods where the total value of natural resources or minerals plus energy expenses account for 51% or more of the cost price of the product.
Special Sales Tax
Changes result in sales to certain related parties / group entities now being included in the calculated price for determining SST applicable to a product. Imported goods also have their calculation methodology changed. Revised SST tariffs have also been published with updated rates.
Tax Administration Procedures
Interest charges for late payments of tax obligations will decrease from the current 0.05% per day to 0.03% per day.
These changes take effective from 1 July 2016, except for the removal of the 275 day settlement clause for exporters which comes into effect from 1 September 2016.
OFFICIAL LETTERS RELEASED
Value Added Tax
On 25 April 2016, the General Department of Taxation (“GDT”) issued Official Letter No. 1711/TCT-KK providing guidance on declarations for input VAT.
Where the entity discovers an amount of input VAT which was mistakenly declared or credited, it may make an additional declaration or credit before the tax office or authority announces the tax examination or inspection decision at the head office of the taxpayer.
Tax Administrative Procedures
providing guidance on dealing with tax payments allocated to an incorrect account
Where the company settles tax payables to the wrong account (ie, PIT obligations are credited against the VAT account) it is required to prepare and submit an official letter in order to ask for a tax payable adjustment. Upon receiving confirmation or affirmation from the authority then the enterprise can carry out necessary additional steps to correct.
Personal Income Tax - Foreign Employees
On 25 March 2016, the ax Department of Ho Chi Minh City (“TD-HCM”) issued Official Letter No. 2592/CT-TTHT guiding PIT treatment for work permit, visa and temporary resident card expenses for foreign employees.
This Official Letters states that enterprises incurring expenditure on work permits, visas and temporary resident cards accompanied with appropriate supporting documentation (i.e. invoices), those expense shall be deductible for CIT. However, the expenses will be treated as benefits for employees and deemed as taxable income when calculating PIT.
This contradicts with a former Official Letter (No. 1675/CT-TTHT dated 11/02/2015 issued by TD-HCM) where such expenses are to be considered as deductible for CIT provided that legal supporting documents are in place, and no PIT is applicable for employees.
We encourage enterprises to have these benefits clearly mentioned in labour contracts, and retain supporting documents. Enterprises may also seek further guidance, in writing, from the Tax Department for further clarity of their position on your specific situation.
Personal Income Tax - Property Leasing
On 4 May 2016, GDT issued Official Letter No. 1834/TCT-TNCN guiding the income threshold for individuals who lease their property (real estate).
Where individuals have contracts relating to leasing property with total revenue not exceeding VND 100 million in a year, they are not required to declare and pay VAT as well as PIT for such income.
Where individual have contracts related to leasing property with total revenue exceeding VND 100 million per a year, the Tax Office does not issue invoices for those, but enterprise renting the property from individual(s) will be entitled for CIT deductions provided they have the service/rental contract, payment voucher for evidence of monthly rental payment, and PIT payment voucher on behalf of landlord.
Corporate Income Tax - Trade Union Fees
On 14 April 2016, GDT issued Official Letter No. 1564/TCT-DNL providing guidance on deductible expenses for CIT calculations.
Pursuant to this Official Letter, where enterprises contribute Union Fees following Trade Union requests, the expense will be deductible for CIT. Where the enterprise pays prior years Union Fees that were not previously paid, these expenses are still considered as deductible for CIT.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager