This May 2019 Tax and Accounting publication by Domicile Corporate Services looks at increases to Insurance Costs for employees and employers from 1 July 2019, changes to enterprise registration procedures, and provides our regular review of recent Official Letters released by the Tax Authorities.
INCREASE TO MINIMUM BASIC WAGE FROM 1 JULY 2019, AND IMPACT ON SALARY (INSURANCE) PAYMENTS
Changes come into effect from 1 July 2019 to the Minimum Basic Wage in Vietnam, affecting the calculation of Vietnamese Social Insurance payments, following the adoption of Decree 38/2019/ND-CP on 9 May 2019 by the National Assembly.
Specifically, the changes have resulted in an increase to the maximum caps for calculating Social Insurance and Health Insurance payments, and therefore increasing the potential payments by employees and employers for these insurances.
All employers should ensure their payroll software and internal calculations are updated for all pay runs after 1 July 2019.
|Insurances||Calculation Basis||Up Until 30 June 2019 Maximum Cap||From 1 July 2019 Maximum Cap|
|Social Insurance (SI)||20 x Minimum Basic Wage||27,800,000 VND (20 x 1,390,000 VND)||29,800,000 VND (20 x 1,490,000 VND)|
|Health Insurance (HI)||20 x Minimum Basic Wage||27,800,000 VND (20 x 1,390,000 VND)||29,800,000 VND (20 x 1,490,000 VND)|
|Unemployment Insurance (UI)||20 x Minimum Monthly Wage||83,600,000 VND (20 x 4,180,000 VND) *for Zone 1 Employees||83,600,000 VND (20 x 4,180,000 VND) *for Zone 1 Employees|
Please note that the Minimum Basic Wage is a published reference for calculating salaries for government employees, and should not be confused with the Minimum Monthly Wage that applies to the majority of employers in Vietnam, although they are both used for Insurance caps.
AMENDMENTS TO ENTERPRISE REGISTRATION FORMS AND PROCEDURES
On 8 January 2019, the Ministry of Planning and Investment issued Circular 02/2019/TT-BKHDT, amending and supplementing regulations on enterprise registration in Circular 20/2015/TT-BKHDT dated 1 December 2015.
A significant element of this Circular is the replacement of 86 forms used for enterprise registration and household registration that were issued in Circular 20/2015/TT-BKHDT (Clause 1 Article 1).
Other key items in the Circular are:
• Procedures for notifying changes to the information of founding shareholders of a joint stock company are to follow the new provisions in Clause 16, Article 1 of Decree 108/2018/ND-CP, instead of the previous Article 51 Decree 78/2015/ND-CP (Clause 3, Article 1).
• Procedures for re-issuing certificates for branches, representative offices, and business locations will follow Article 58 of Decree 78/2015/ND-CP and Clause 18, Article 1, Decree 108/2018/ND-CP (Clause 4 Article 1).
• Procedures for business location registration and change of business location registration information will be carried out at the Business Registration Office of the Province where the business location is situated, instead of at the Province where the head office is located as previously regulated (Clause 5, Article 1).
The Circular takes effect from 11 March 2019.
PROCESS FOR SETTLING SOCIAL INSURANCE CLAIMS
On 31 January 2019, the Social Insurance Authority issued Decision 166/QD-BHXH providing guidelines on the process to settle Social Insurance claims. The Decision details the process and requirements for Social Insurance claims and provides updated application forms.
The Decision is effective from 1 May 2019.
OFFICIAL LETTERS RELEASED
Official Letters are releases showing the Tax Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.
CIT and PIT on Salaries for Owners of Single Member Limited Liability Companies
On 22 April 2019, the General Department of Taxation (“GDT”) issued Official Letter 1590/TCT-DNNCN on Corporate Income Tax (“CIT”) and Personal Income Tax (PIT”) in respect to salary expenses of the owner of a one-member Limited Liability Company (“LLC”).
Following Point d, Clause 2.6, Article 4 of Circular 96/2015/TT-BTC, the salary paid to the owner of a single member LLC, even if he/she is directly involved in the management of the business, shall not be accepted as deductible expenses.
However, the salary of the owner is not subject to PIT in accordance with Article 2 of Circular 111/2013/TT-BTC.
Enterprises in Ho Chi Minh City Required to Pay Taxes Through Banks
On 23 April 2019, the Ho Chi Minh City Department of Taxation (“HCMDT”)issued Notice 5657/TB-CT on the implementation of payments into the State Treasury.
Following the amendments in Circular 136/2018/TT-BTC, HCMDT announced that enterprises which have opened bank accounts at commercial banks are required to pay taxes in non-cash payment forms or deposit cash at the bank into the State Treasury’s account.
PIT Finalisation for Employees Working in Economic Zones
On 8 April 2019, GDT issued Official Letter 1285/TCT-DNNCN providing guidelines to calculate PIT for employees working in Economic Zones for 2018 PIT finalization.
According to Decree 82/2018/ND-CP, from 10 July 2018 employees working in the economic zones are required to pay full PIT instead of being entitled to a 50% PIT reduction. Thus, in 2018, those employees are only entitled to a PIT reduction for the period from 1 January 2018 to 9 July 2018.
The issued formula in the Official Letter pro-rata’s the PIT reduction based upon the income earned in the reduction period as a portion of total annual income.
Foreign Contractor Withholding Tax for Technical Consultancy Services in Vietnam for Foreign Vendors
On 26 March 2019, GDT issued Official Letter 11508/CT-TTHT regarding Foreign Contractor Withholding Tax *”FCWT”) for technical consultancy services provided in Vietnam by foreign vendors.
Where a Vietnam company engages an foreign vendor (without a permanent establishment in Vietnam) to provide technical consultancy services in Vietnam, the Vietnam company is required to withhold and pay the FCWT, being 5% VAT and 5% CIT, on behalf of the foreign vendor.
The turnover for calculating VAT is the full amount to be paid to the foreign vendor for the provision of services and/or services associated with goods which is subject to VAT, under the contract.
The turnover for calculating CIT is the full amount, excluding VAT, paid to the foreign contractor under the contract.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Director - Accounting
Do Thi Thao, Manager - Accounting