Non-cash settlement document (or settlement via banking system) for input VAT credit: the absence of banker’s address  would not impact the tax credit

In relevant to requirement on non-cash settlement document for an input VAT credit, official letter 874/TCT-KK dated 12 (“Letter 874”) March 2015 of the General Department of Taxation (“GDT”) confirms that the absence of the banker’s address (as the payment order form is default by relevant bankers) on the payment document shall not adversely impact the input VAT credit of relevant payment.

Letter 874 helps to release the concerns of taxpayers on the disallowance of input VAT credit due to the absence of banker’s address on non-cash payment documents, as stringently required in previous official letter 5806/TCT-KK dated 24 December 2014 of the GDT.

2. Corporate income tax (CIT) deduction on staff welfare

Following the provisions of Decree 91/2014/ND-CP date 1 Oct 2014, Circular 151/2014/TT-BTC date 10 Oct 2014 and Circular 78/2014/TT-BTC dated 18 June 2014 which state that staff welfare expenses (such as: holiday travel, health care treatment, etc.) are deductible for CIT purposes if not in excess of one-month average salary expense in a tax year, recently, the center and local tax authorities have issued several official letters (i.e. official letter 1694 dated 3 February of the Ministry of Finance, official letter 2647 dated 26 March, official letter 2713 dated 27 March 2015, official letter 2631 dated 25 March of the Tax Department of Ho Chi Minh City) further confirming that:

  • Staff welfare expenses, including non-compulsory insurance on health care or accidents, staff traveling, year-end parties, awards to staff’s children, supporting to staff’s family for certain circumstances, etc. are deductible provided that:
    • Required invoice/payment document is available; and
    • The allowable deduction amount is not in excess of an average monthly salary expense actually incurred in a tax year.
  • This provision is applied for 2014 tax year onward. It is therefore recommended that corporate taxpayer to review the treatment of this expense for maximizing tax deduction for 2014.

3. Guiding on PIT finalization for 2014

On 2nd March 2015, the General Department of Taxation issued Official Letter No. 7850/CT-TNCN guiding annual PIT finalization for 2014.

The letter reiterates and outlines key requirements, documents and procedures for annual PIT finalization that are mostly covered in certain circulars governing PIT, along with certain further guidance.

Taxpayers subject to PIT finalization

Taxpayers and/or income payers (i.e. employers) that are subject to PIT finalizations include:

(i)  Income payers

  • Income payers (i.e. corporate or individual employers) paying incomes which are subject to PIT regardless whether the tax withholding liabilities is incurred or not; and/or proceeding PIT finalization authorized by their employees.
  • Income paying organizations that are transformed, merged, consolidated, divided, spinning off, liquidated or, insolvent are required to proceed the PIT finalization on the PIT that have been withheld by the organizations within 45 days from the date a decision on the restructuring is approved. A tax withholding receipt must be issued to relevant employees for their subsequent PIT finalization. The PIT finalization is however not required for the income paying organization in this case if the there is no withholding liabilities on the paying income. Instead, the income paying organizations are just required to provide the tax authorities the list of individuals that have received income in the year.

(ii)   Individuals taxpayers

Individual tax residents are required to directly proceed the PIT finalization with tax authorities in the following cases:

  • Individual tax residents
    • that have employment income or business income; and
    • the PIT provisionally paid is less than the actual PIT liabilities (additional PIT payment is required); or the provisional PIT payment is greater than the actual PIT liabilities and they wish to claim a refund on the overpayment amount or to offset the  overpayment amount against the tax liabilities of subsequent tax period. 
  • Tax resident that are expatriates are required to proceed the PIT finalization before leaving Vietnam upon the termination of Vietnamese assignment.

Cases that are not subject to PIT finalizations

The following cases are NOT subject to PIT finalization:

  • Individuals that have the provisional PIT payment is greater than the actual PIT liabilities, but they do not wish to claim a refund on the overpayment amount or to offset the overpayment amount against the tax liabilities of subsequent tax period.
  • Individual, household that have paid PIT at deemed rates on their business income.
  • Individual and household having a single source of income from house or land leasing and that have paid tax to the local tax authorities where the properties are located.
  • Individuals, in addition to employment income generated from employment contract with a term of at least 3 months, have income from house/land lease of up to VND20 million a month and have paid tax on the leasing income; the leasing income is not subject to compulsory tax finalization.
  • Insurance agents, lottery agents and multi-level sale agents that the PIT on the agency income have been withheld (by income paying organization) are not subject to PIT finalization on this income.
  • Individuals that have provisionally paid PIT at 0.1% on the sale proceeds of the income from securities transfer and do not wish to re-determine the PIT payable at 20% on gains generated from the aforesaid securities transfer.

Authorization for PIT finalization

Individuals having employment income can authorize their income payers to proceed the PIT finalization on their behalf in the following cases:

  • Individuals having a single source employment income, working under a labour contract with a term of at least 3 months for an employer (including the cases where the individuals have been working for relevant employer less than 12 months) and retaining employees of the authorized employers at the time of authorization.
  • Individuals, in addition to employment income generated under a labour contract with a term of at least 3 months with an employer, having non-employment income from other sources, are allowed to authorize the employer to proceed the PIT finalization on employment income, if:
    • the average monthly non-employment income is up to VND10 million (the greatest monthly amount) which has been withheld PIT at 10% by the income payer; and
    • the individuals do not wish to carry out the PIT finalization on the non-employment income.
  • Individuals, in addition to employment income generated from employment contract with a term of at least 3 months, having income from house/land lease of up to VND20 million a month which the PIT on the leasing income have been paid to local tax authorities where the properties located, are allowed to authorize the employer to proceed the PIT finalization on the employment income if the individuals do not wish to carry out the PIT finalization on the leasing income.

Restriction on authorization for PIT finalization

Authorization for PIT finalization on employment income is NOT allowed in certain cases, including:

  • Individuals that have been granted PIT withholding receipts by income payers;
  • Individuals that have a single source of income which is non-employment income and the PIT of 10% on that income have been withheld; and
  • Individuals, in addition to employment income generated under a labour contract with a term of at least 3 months with an employer, having non-employment income from other sources which the PIT on non-employment income have not been withheld.

Adjustment on PIT finalization in case non-qualified individuals have already authorized their employer to proceed PIT finalization on their behalf is however not required (for employer). The employer in this case is only required to further issue the PIT withholding receipt to relevant individual employees.

Tax deductions

  • Tax residents that are Vietnamese are allowed to claim personal deductions for 12 months in a tax year if the annual PIT finalization is proceeded.
  • Personal deduction for tax residents that are foreigners is allowed from the month the foreigners arrive Vietnam.
  • Hypo tax (or tax equalization) and hypo housing benefits are not included in taxable income for PIT purposes (as guided in official letter 12495 dated 6 September 2014 of the Ministry of Finance).
  • Further guidance on tax deduction for taxpayer’s dependant is provided.

Certain simplification on tax finalization dossiers

  • In case income payers that no longer exist, failed to provide PIT withholding tax receipt to individual taxpayers, tax authorities should base on their internal database for dealing with the tax finalization dossiers of relevant individual taxpayer, without requesting the PIT withholding receipt be provided by taxpayers.
  • Copy of PIT withholding receipt is allowed in case the original one is missing.