The new law on tax administration of Vietnam (“New Law on TA”) was adopted in June 2019 and will be effective from 1 July 2020. This means that 6 months remain to get ready for the changes. Further clarification and guidance for some points will be needed.
In this legal update we will highlight the most noteworthy changes set out by the New Law on AL.
1. Increased Governance and Enforcement
1.1. E-commerce activities
The New Law on TA sets out some new and notable tax rules for e commerce activities which are on the rise in Vietnam. Some rules will mainly have an impact on offshore providers. Vietnam like many countries is trying to collect taxes from providers that have obtained earnings in Vietnam. Therefore, if an e-commerce company is established offshore, but earns income from activities in Vietnam, commercial banks will be required to withhold and pay taxes on behalf of these companies; and an e-commerce company that does not have a permanent establishment in Vietnam but does business on a digital platform is required to register for tax in Vietnam or authorise another entity to do so.
The State Bank of Vietnam will play a role in taxing e‑commerce activities, including the building and development of a nationwide payment system to facilitate the collection of taxes from e-commerce activities.
1.2 Transfer Pricing and Related Party Transactions
The New Law on TA introduces also new principles for tax administration, including the arm’s length principle, principle of comparative analysis with arm’s length transactions and an emphasis on “substance over form” rules. These are all important with regard to transfer pricing.
Furthermore, the New Law on TA gives tax authorities additional power to collect tax, especially where taxpayers attempt to evade tax. This includes failure to comply with regulations on declaring related party transactions.
In addition, businesses subject to transfer pricing requirements will need to file a separate return for related party transactions instead of including it in the corporate income tax return as was the case under the current law.
Finally, international cooperation with foreign tax authorities is broadened and has become more extensive.
1.3 Legal Representatives
A very important point is that a legal representative of a company can be denied exit from Vietnam if his/her employer has not paid its due taxes.
2. Administrative Procedures
2.1 Filing Personal Income Tax (PIT) Finalisation
The statutory timeline for filing PIT finalisation is extended to 4 months from the calendar year end compared to the 3 months under the current law. It will also be possible to submit a corrected file if a mistake is found. The term for this is 10 years but can only be done before an audit by the tax authorities has been announced.
2.2 Tax Registration Certificate Issuance
The timeline for the tax authority to issue the tax registration certificate is shortened to 3 business days from 10 under the current law.
2.3 E-tax Transactions
Taxpayers and tax authorities satisfying conditions for e-tax transactions must conduct e-tax transactions (i.e. electronically conducting tax administrative procedures) for tax purposes.
2.4 Interest for Refunded Tax
Taxpayers are entitled to receive interest on any tax, late payment, a penalty refunded after appeal or a litigation process at the rate of 0.03% per day on the refunded amount.
2.5 Personal Tax Code
Once the new personal identification number is available to everyone, it can be used as a tax code. It will no longer be necessary to request the issuance of a separate personal tax code.
The New Law on TA sets out provisions on e-invoicing, which align with the guidance under the ne w Decree 119/2018 on e‑invoicing except the timeline. The provisions of the New TAL will take effect from 1 July 2022 while Decree 119/2018 requires all taxpayers to apply e-invoices from 1 November 2020. This is inconsistent and further guidance from the authorities will be needed.
4. Tax Audits
There will be two types of tax audit, namely a tax inspection (thanh tra thuế ) and a tax examination (kiểm tra thuế). The former is longer and more focused on specific issues, while the latter is shorter and has a wider coverage. Under the New Law on TA, the maximum tax examination period is increased from 5 to 10 working days. Taxpayers will also be allowed to submit additional documents after the tax authorities have issued an audit or inspection decision and announced it.