Vietnam Technical Update 2017/Issue 2

Vietnam Technical Update 2017/Issue 2

New update on CIT, PIT, FCT, SCT, Import duty and Export duty, and other taxes and fees on March 2017.

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1. Corporate Income Tax (“CIT”)
(i) No CIT incentive tax rate applicable for investment projects located in industrial parks

According to Official Letter No. 292/TCT-DNL dated 23 January 2017 by the General Department of Taxation (“GDT”), investment projects located in industrial parks are not entitled to CIT incentive schemes applicable to those located in locations under difficult socio-economic circumstances, following the provisions of current CIT regulations. As such, the investment projects located in the industrial parks are only allowed to enjoy CIT exemption and CIT reduction in accordance with tax incentive policy to projects located in industrial parks. No incentive CIT tax rate is applicable.

(ii) A company generating income from agricultural and fishery processing is not entitled to multi-CIT incentive schemes simultaneously

In accordance with Official Letter No. 3091/BTC- TCT dated 8 March 2017 of the Ministry of Finance (“MoF”), where a company qualifies for CIT incentives for both having income from agricultural and fishery processing activities, and other incentives at the same time, the company is allowed to choose the most optimal incentive scheme following one incentive condition. This guidance supersedes previous guidance as stipulated under Clause 2(i) of Official Letter No. 5181/TCT-CS dated 15 April 2016.

Please note that the GDT has also requested local tax authorities to review the cases whereby companies declared CIT following the provision of Official Letter No. 5181/TCT-CS. Adjustment shall be required to be made in this case.

2. Personal Income Tax (“PIT”)
(i) Bonus granted to a group but then distributed to individuals is subject to PIT

In accordance with Official Letter No. 281/TCT-TNCN dated 23 January 2017 of the GDT, in case a company grants a bonus payment to a functional group, and the bonus is distributed to individual employees, then such bonus distribution is subject to PIT.

(ii) Gross-up of the assessable income in case an expatriate employee is remunerated on a net basis of PIT and compulsory health insurance

In accordance with Official Letter No. 2037/BTC- TCT dated 16 February 2017 of the MoF, in case an expatriate employee signs a labour contract that states their remuneration is net of both PIT and compulsory health insurance, in this case, assessable income shall be determined as follows:

  • The compulsory health insurance is considered as income and is required to be grossed up. However, at the same time, such insurance, as it is a compulsory contribution, is deducted for the determination of PIT assessable income.
  • The housing benefit paid by the employer on behalf of an employee should be taken into account in the gross-up calculation, and is capped at 15% of total assesable income.

3. Foreign Contractor Tax (“FCT”)
(i) Differentiation between capital assignment and securities transfer in a joint stock company (“JSC”) for FCT purpose

On 1 March 2017, the GDT issued Official Letter No. 664/TCT-CS providing tax treatment guidelines on tax obligations for a foreign corporate investor, which is raised from the capital assignment in a JSC. Particularly:

  • Where a foreign corporate investor assigns the capital in a public JSC in accordance with the provision of the Law on Securities, such investor is subject to FCT at a rate of 0.1% on the CIT portion on the proceeds from securities transfer;
  • Where a foreign corporate investor assigns the capital in a non-public JSC, such an investor is subject to Capital Assignment Tax at a rate of 20% on the net gain from the capital transfer.

(ii) Transfer charges for money remitted to overseas bank accounts is not subject to FCT

Following the State Bank of Vietnam’s opinion under Official Letter No. 695/NHNN-PC dated 9 February 2017, the GDT has confirmed that transfer charges that a foreign bank earns for money transfers leaving Vietnam to be received overseas are not subject to FCT.

This guidance supersedes Official Letter No. 1924/TCT-DNL, 1566/TCT-DNL, 3704/TCT-DNL and 3992/TCT-DNL, which previously provided guidance on the tax position of such income.

(iii) Income earned from the distribution of television channels and content of television channels in Vietnam is subject to VAT

In accordance with Official Letter No. 586/TCT-CS dated 24 February 2017 of the GDT, the distribution of television channels and content of television channels in Vietnam for a specific duration is neither considered as a science and technology service related to intellectual properties, nor an intellectual property transfer transaction. The activities are classified as transfers of the use right to copyrights in accordance with the Law on Intellectual Property. Subsequently, the income earned by a foreign party for those activities is subject to VAT portion of the FCT at a rate of 5%.

4. Special Consumption Tax (“SCT”)

(i) Circular 20/2017/TT-BTC amending Circular 195/2015/TT-BTC and Circular 130/2016/TT-BTC on SCT

On 6 March 2017, the MoF issued Circular No. 20/2017/TT-BTC amending Circular 195/2015/TT-BTC and Circular 130/2016/TT-BTC on SCT. Accordingly, where a taxpayer incurs SCT at the import stage and cannot fully claim SCT credit, the taxpayer is allowed to record the remaining SCT as a deductible expense for CIT calculation.

Previously, under the provision of Circular 195 and Circular 130, the taxpayer could only claim a CIT deduction for the remaining SCT if it is unable to be credited as a result of an objective reason and an event of force majeure. Circular 20 takes effect on 20 April 2017.

5. Import duty and Export duty
(i) Material imported for trading purposes but then utilised for production of export goods is not subject to material finalisation report

In accordance with Official Letter No. 811/TCHQ-GSQL dated 14 February 2017 of the General Department of Customs, where material is imported for trading purposes, for which the import duty has been fully settled, but then is utilised for production of export goods, a company is entitled to an import duty refund on such imported material. The imported material is also not subject to a customs finalisation in this case.

6. Other taxes and fees
(i) A representative office not having business function is not subject to business license fee

In accordance with the MoF’s confirmation under Official Letter No. 1200/BTC-TCT dated 24 January 2017, in case a representative office of a foreign entity is maintained in Vietnam as a liaison office to perform market researches and promote investment opportunities, and the representative office does not carry out business activities in Vietnam, such a representative office will not be charged business licence fees.

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