In order to implement the Amended Value Added Tax (“VAT”) Law and Amended Enterprise Income Tax (“EIT”) Law, the government issued Decree No. 209/2013/ND-CP (“Decree No. 209”) on 18 December 2013 and Decree No. 218/2013/ND-CP (“Decree No. 218”) on 26 December 2013 to provide guidance on these amended laws, respectively.
Decree No. 209 took effect on 1 January 2014 and Decree No. 218 took effect on 15 February 2014 to both apply starting tax year 2014. These amendments include some good news for taxpayers.
Major changes and guidelines on VAT regulations under Decree No. 209
For banking businesses, the sale of mortgaged assets will be VAT-exempt. Decree No. 209 also confirms that this VAT exemption also applies to lending services by non-credit institutions.
Decree No. 209 broadens the scope of supplies that are not subject to VAT declaration and payment to include the transfer of investment projects for the production of and trading in goods or services that are subject to VAT by enterprises or cooperatives.
In addition to entities that voluntarily apply the credit method for VAT calculation (versus the direct calculation method, which calculates VAT payable at the deemed rate on the sale price), the credit method also applies to business entities with an annual revenue of VND1 billion or higher, and complying with the relevant accounting and invoicing requirements.
Under the old law, the time limit for the adjustment of undeclared input VAT was six months from the month the VAT was incurred. On 1 January 2014, Decree No. 209 allowed taxpayers to adjust the declaration of input VAT any time before the tax authority issued a decision to conduct a tax audit or investigation.
Guidelines on EIT regulations under Decree No. 218
As stipulated in EIT, the standard EIT rate drops from 25 percent to 22 percent on 1 January 2014 and will fall to 20 percent in 2016. This will apply to enterprises whose total annual revenue in the preceding year does not exceed VND20 billion (approximately USD956,000). A tax rate of 20 percent had been applicable since 1 July 2013. These amendments include some good news for taxpayers. In another long-awaited change, the cap on the deductibility of advertising, marketing and promotion expenses is increased from 10 percent to 15 percent. However, payments for each purchase worth VND20 million or more must be made via banks in order to be tax deductible. Losses incurred from the transfer of immovable property, investment projects, the right to participate in an investment project (except in projects that deal with exploring and exploiting mineral resources) can be offset against the income from the main business. The remaining loss after offsetting the losses between the mentioned activities can be carried forward for five consecutive years.
Decree No. 218 provides more details regarding the business sectors and provides a new list of locations that are eligible for tax incentives.