In order to guide the implementation of the Tax Law on amending key tax laws which was effective from January 20151, the following guidance regulations have been issued:
- Decree 12/2015/ND-CP dated 12 February 2015 of the Government (“Decree 12”); and
- Circular 26/2015/TT-BTC dated 27 February 2015 of the Ministry of Finance (“Circular 26”).
Decree 12 and Circular 26 are generally effective from the effective date of the Tax Law they guide which was from 1 January 2015. Certain provisions of the regulations may however retroactively be applied.
Noticeable changes covered in Decree 12 and Circular 26 are outlined and discussed below.
Corporate Income Tax (“CIT”)
- Vietnam-sourced income generated by foreign entity (non-tax resident of Vietnam) subject to Vietnam CIT additionally covers income from capital transfer, project transfer, and transfer of capital contribution rights, transfer of participating rights in investment projects, transfer of the rights for exploration, exploitation and processing of natural resources. This addition is generally to formulate and is in lines with existing provisions of withholding tax and other relevant regulations.
- The following expenses are now fully deductible (rather subject to a cap or disallowed for tax deduction as previously): a. Life insurance benefits for employees (the expense is no longer subject to a cap of VND1 million/month/person for tax deduction purposes); b. Expenses on professional/technical training for employees; c. Once charter capital of a company has fully contributed, interest expenses that company paid for a loan used for investment in other companies is deductible for the investor (the invested company). This provision seems a positive clarification contradicting to previous practical tax rulings which specified that interest expenses paid for a loan used for investment in other company (making capital contribution or buying shares) is disallowed for tax deduction for the investor; and d. In lines with the CIT Law, the guiding Decree reiterates the removal of the cap on tax deduction regarding advertising and promotional expenses.
- CIT incentives Most of changes/additional CIT incentives covered in Decree 12 are in line with the new Tax Law 71 (Please refer to our Tax update in December 2014), and other guiding regulations on amendment to the key CIT circular 782 in term of conditions and tax incentive entitlements.
1 Please refer to our December 2014 Tax update for further information on key points of the Tax Law No.71/2014/QH13 (Tax Law No.71) dated 26 November 2014 and effective from 1 January 2015.
One noticeable change is relevant to condition on the number of employee used by large scale project. Accordingly, in order to enjoy CIT preferential rate of 10% for 15 years, plus 4 years of CIT exemption and 9 years of a 50% reduction of tax payable following the exempt period, in addition to requirements on (i) minimum registered investment capital of VND 6,000 billion and (ii) disbursed within three years from the date of licensing; (iii) the condition on the number of employee (of at least 3,000) is counted on the total number of employees utilization (rather than just taking into account of full time employees as provided under Decree 218/2013/ND-CP).
Personal Income Tax (“PIT”)
- Tax treatments on business income
- Decree 12 reconfirms that business income is subject to PIT at a flat rate varying from 0.5% to 5% depending on particular business activities, if the annual business income is in excess of VND 100million. The deemed tax is as follows:
Click here to view table.
- Ascertainment of deemed taxable revenues are guided in details.
- Individual that use regularly at least 10 employees is required to establish an enterprise, adopt Vietnamese accounting system/invoicing and file corporate income tax. Failure of establishment of an enterprise shall expose that individual to deemed tax liabilities by tax authorities.
- Individuals that have business income and employment income are no longer subject to PIT finalization as previously required.
Employment income and benefits
- Non-taxable and tax exempt incomes additionally include:
- Housing benefits where the housing built by employer and provided for employees working in industrial parks (it seems unclear, in this case, that the housing must also be located in the industrial parks) or housing built in economic zones or in locations facing difficulties or extremely difficulties on social and economic conditions.
- One-off relocation allowances for Vietnamese assignment of Vietnamese citizens who have resided overseas for a long-time. Decree 12 however does not specify the length of time which is considered “long-time” in this case.
- Employment income earned by Vietnam citizens working on ships of foreign shipping companies or Vietnamese shipping companies that provide international transport service.
2 Such as Circular 119/2014/TT-BTC.
- Tax deductions:
- Contribution to voluntary pension scheme is tax deduction at VND1 million/month/person, including the contribution of both employer and employee.
- Vietnam tax residents working overseas are allowed to deduct the contribution to statutory compulsory insurance scheme required by relevant foreign countries.
- Contribution to non-compulsory insurance schemes
- Life insurance and other non-compulsory insurance benefits (except pension insurance) offered and contributed by employer for employees under premium accumulated mechanism provided by insurance companies that are established and operating in accordance with the law of Vietnam are taxable at the time the insurance policy (contract) is mature. The insurance companies are required to withhold 10% PIT on the accumulated premium contributed by employers from 1 July 2013 onwards before making payment to beneficial employees.
- Life insurance and other non-compulsory insurance benefits (except pension insurance) offered and contributed by employer for employees under premium accumulated mechanism provided by insurance companies that are not established and operating in accordance with the law of Vietnam are taxable at the time of contribution. Employer is required to withhold 10% PIT on the insurance premium contributed.
- After tax income from capital investment (which would mean dividends) to sole proprietor or to a single member limited liability company is not subject to PIT. Though not clearly specified, this provision of Decree 12 would indicate that the tax-free in this case is merely applicable to the individual owner of these entities.
- In line with the new tax law, under Decree 12:
- Income from winnings at casino is no longer subject to PIT.
- Income from transfer of securities and real property generated by residents or non-residents are commonly subject to PIT at deemed rate of 0.1% and 2% on the sale proceeds respectively.
Tax withholding and filing
- Employer is required to withhold PIT at progressive tax rate on income paid to employees working under a labour contract with the term of at least 3 months. Filing the tax, employer is not responsible for the accuracy of dependant deduction declared by their employees.
- Employer is required to withhold 10% PIT on non-employment income or employment income paid to those who work under a labour contract with the term of less than 3 months.
- Certain cases are now not subject to PIT finalizations.
Value Added Tax (VAT)
- Further guidance on VAT exemption applicable to cultivating, breeding, aquaculture products that are unprocessed is provided.
- The supply of fertilizer, feed for livestock, poultry, seafood and other animals is now VAT exempt, rather than subject to 5% VAT as previously. This shall therefore increase the cost for the manufacturer/supplier as the input VAT is non-creditable. Input VAT in relation to the purchase of goods and services before 1 January 2015 is creditable if the VAT invoices are issued or the payments of import VAT (for imported goods) are made before this timeline.
- In case a secured loan becomes defaulted and the borrower has to hand over the collateral to the creditor, no VAT invoice/VAT charge is required upon the transfer of the collateral (from borrower to creditor). The subsequent sale collateral by creditor for debt recovery is VAT exempt.
- In case credit institutions take over collateral surrogating for the repayment of the loan (from borrower), the credit institutions record the collateral as an increase of their operating assets (it is however unclear about the value of assets recorded in the book). When the asset is disposed, VAT must be charged.
- Imported cigarettes, spirits, and beer that are subsequently exported are VAT exempt. The relevant input VAT is not creditable.
- The revenues that are not subject to VAT are included in the total revenues for computation of proportion (percentage) of input VAT credit on the total input VAT (in case a taxpayer provides both VATable and non-VATable goods/services).
- Non-cash payment for claiming input VAT credit: - Import VAT of imported gifts is creditable without requirement of non-cash settlement evidence. - In case the payment of purchases is made via bank transfer, purchasers are not required to register or notify tax authorities credit account used for payment to their suppliers. - Input VAT that is unqualified for a credit due to the absence of non-cash payment evidence is not required to declare in the VAT filing as previously. - Input VAT of goods/services purchased on credit is not creditable if non-cash payment document is not available when the payment is made. The input VAT if already claimed must be adjusted (as a non-creditable input). The timeline for ascertainment of non-cash payment qualification, under Circular 26, seems to be based on when the payment is actually made, rather than the contractual due date or 31 December as provided under previous Circulars.
- Instead of two separate approaches, Circular 26 provides a common approach on proportioning refundable input VAT applicable to both manufacturing and trading taxpayers.
- Input VAT incurred to an investment project that is liquidated or insolvent prior to operating or generating any taxable revenue is treated as follows: - Upon the completion of the respective procedures (on liquidation or insolvency), any non-refundable input VAT shall not be refunded - The input VAT that have been refunded pre-liquidation or insolvency shall be recovered (by tax authorities), except the input VAT of assets disposed during the liquidation/insolvency process.
- The foreign contractor tax (withholding tax) filing for foreign shipping companies has been simplified under Circular 26: - Foreign contractor tax (“FCT”) for shipping companies is now filed on an annual basis. The tax is however paid provisionally on a quarterly basis but the quarterly return is no longer required. - For claiming tax exemption in accordance with relevant double tax treaties (DTTs), a number of documents, including vessel registration certificate, contracts, bill of lading are not required to be submitted along with the notification of tax relief. However, it is required that relevant documents must be archived (by Vietnamese agents or representative office of the shipping companies) in accordance with the Accounting regulations, Maritime Code and presented to the tax authorities when requested. Practically, the tax authorities would apparently require the documents that are not officially required by Circular 26.
- Tax payment receipt is no longer a required document (under Circular 26) for claiming FCT refund under DTTs. In practice, tax authorities may however require this document.
- Changes and further guidance regarding exchange rates used for tax payment and for conversion of taxable revenues received in foreign currency are available under Circular 26.
- No written confirmation (issued by tax authorities) on fulfillment of individual tax liabilities required for Vietnamese individuals leaving Vietnam for residing overseas or for foreigners when departing Vietnam.
- Taxpayers’ notification on the use of self-printed invoice must be responded (approve or not approve) by relevant tax authorities within 5 working days since the date the applicant received. If no responses from tax authorities within this timeline, the registered invoice can be used by relevant taxpayers (it is indicated that “silence or zero reaction” from tax authorities implies their “approval” or “agreement”).
- The tax authorities are no longer empowered to determine/limit the number of invoices allowed to be used by taxpayers for a period from 3 to 6 months, along with every notification on invoice issuance.
- Taxpayers (including organizations and individuals) engaging in sectors such as restaurant, hotel, supermarket, etc. which use cashiers, selling management systems for sale revenues collection are required to have their systems connected to the tax authorities’ in accordance with tax authorities schedule.
- Taxpayers (including organizations and individuals) that are assessed as high tax risk cases are required to issue electronic invoices and obtain a code for verification purpose from the tax authorities. Cases that are subject to this provision shall be further specified under a separate guidance of the Ministry of Finance.
- An adjusted invoice is not required to be issued in case the buyer’s name or/and address is wrongly presented in the invoice, if the buyer’s tax code is correctly recorded. A minute signed by both parties for rectifying the information is however required.