Vietnam Technical Update 2017/Issue 3

Vietnam Technical Update 2017/Issue 3

New update on CIT, PIT and labor policies, VAT, SCT, and tax administration on April 2017.

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1. Corporate Income Tax (“CIT”)

(i). Depreciation for a fixed asset being a complex building

On 12 April 2017, the Ministry of Finance issued Circular 28/2017/TT-BTC (“Circular 28”), amending and supplementing Circular 147/2016/TT-BTC and Circular 45/2013/TT-BTC on fixed asset depreciation for a complex building.

Accordingly, where a fixed asset being a complex building is utilised for both the normal business activities and leasing or sales purposes, the company is required to record which areas of the complex building suit which purpose. Particularly:

  • With regards to the areas utilised for the normal business operation and for leasing purposes (except for financial leasing): the company is allowed to record the utilised area as a fixed asset and claim depreciation expense in accordance with the current regulations;
  • With regards to the areas for sales purpose, the company is not allowed to recognise the areas as its fixed asset and claim depreciation. Instead, the areas shall be monitored as an assets for sales purpose;
  • In case the company cannot separate the area for business operation and the area for leasing or sales purposes, the whole area of the complex building is not recognised as an asset, and the depreciation expense is not deductible.

Circular 28 takes its effect on 26 May 2017 and is applicable for fiscal year 2016.

(ii). Interest income gained from late payments is not entitled to CIT incentive

In accordance with Official Letter No. 1234/TCT-CS dated 03 April 2017 of the General Department of Taxation (“GDT”), in case a company enjoying CIT exemption for agricultural planting and processing, receives interest on payments that were overdue in accordance with the payment terms of the sales contract, this interest is not related to the encouraged investment sector and hence is not eligible to be taken into account with the CIT incentive.

(iii). Determination of incentive entitlement in case of incentive location conversion

In accordance with Official Letter No. 1421/TCT-CS dated 17 April 2017 of the GDT, in case a company has an investment project in a location mentioned on the list of incentive locations of Decree 118/2015/ND-CP, such a project is entitled to CIT incentives from the effective date of Decree 118 (i.e. 27 December 2015).

2. Personal Income Tax (“PIT”) and labor policies

(i). Increase of base salary to VND1,300,000 per month

On 24 April 2017, the Government issued Decree 47/2017/ ND-CP stipulating the base salary for State employees, officers and army force. Accordingly, with effect from 1 July 2017, the base salary shall be VND1,300,000 per month. For companies remunerating its employees based on the contractual agreement, the base salary shall be used to determine the cap of salary subject to compulsory social insurance and health insurance contributions (i.e. capped at 20 times the base salary).

(ii). The contribution rate of labour accident and occupational diseases insurance reduces from 1% to 0.5%

On 14 April 2017, the Government issued Decree 44/2017/ND-CP stipulating the rate of contribution to labour accident and occupational diseases insurance. Accordingly, effective 1 June 2017, this ratio decreases from 1% to 0.5%. This provision is also applicable to employees working under a labour contract with a term of 1 or 3 months, effective 1 January 2018.

The Government shall consider making an adjustment to the contribution rate as of 1 January 2020.

(iii). The Government concurs with the proposal to reduce compulsory unemployment insurance for the employers’ portion to 0.5%

According to the Resolution No. 34/NQ-CP dated 7 April 2017 on the Periodical Meeting for March 2017, the Government agrees with the proposal to lower the unemployment insurance contribution rate of the employers’ portion from 1% to 0.5%. The Government Office is responsible for drafting an official resolution in this regard for the National Assembly’s consideration. If ratified by the National Assembly, this reduction shall be applied from the ratification date to 31 December 2019.

3. Value Added Tax (“VAT”)

(i) If a branch uses the headquarters’ bank accounts to settle payments, input VAT may still qualify to be credited

In accordance with Official Letter No. 1224/TCT-CS dated 31 March 2017 of the GDT, in case a branch uses the headquarters’ bank account to settle payments in accordance with the scope of authorisation, and the branch has notified its customers, and the sales contracts or annexes of the sales contracts clearly mention this authorised payment method, the customers are still allowed to credit the related input VAT.

(ii) Project management office is entitled to a VAT refund upon its dissolution

In accordance with Official Letter No. 1221/TCT-CS dated 27 March 2017 of the GDT, in case a project management office of a foreign contractor dissolves and accumulated input VAT which has not been fully credited, the project management office is entitled to a VAT refund.

4. Special Consumption Tax (“SCT”)

(i) The taxable price for SCT calculation is exclusive of the trade discount

In accordance with Official Letter No. 5355/BTC-CST dated 25 April 2017 of the Ministry of Finance, in case a company offers a trade discount to its customers, the price on which SCT is calculated shall be exclusive of the trade discount. If an adjusted invoice is issued to customers that qualify for the trade discount, the SCT declaration shall be required to be amended to decrease the SCT payable accordingly.

5. Tax administration

(i) Guidance to the implementation of index of the State Budget collection in accordance with Circular 300/2016/TT-BTC

In accordance with Circular 300/2016/TT-BTC dated 15 November 2016 of the Ministry of Finance amending and supplementing the index of the State Budget collection, the GDT has issued Official Letter No. 1147/TCT-KK on 29 March 2017. This official letter provides detailed guidance with regards to accounting records and conversion of data for the updated index of the State Budget collection, and reporting items for tax purposes.

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