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Grant Thornton November Tax Newsletter

Update on the latest regulations and important tax policies in Vietnam:

November 2018 – No.1

Grant Thornton Vietnam would like to update the latest regulations and important tax policies as follows:

  1. Decree No. 143/2018/ND-CP on compulsory Social Insurance (“SI”) for expatriates.
  2. Decree 140/2018/ND-CP amending some regulations on issuance of work permit.
  3. Circular No. 16/2018/TT-BGDDT prescribing the sponsorship for educational institutions in the national education system.
  4. The input VAT of domestic sales is not allowed to combine with input VAT of exports for VAT refund purpose.
  5. Materials imported for production of exports but designated to deliver to domestic enterprises (on-spot exports) is not exempt from import duties.
  6. Invoicing for interests paid by the enterprise to the bank on behalf of the enterprise’s customers who buy goods on interest-free credit.
  7. Foreign Invested Enterprises are not required to apply for retail licenses when selling goods directly produced by these enterprises themselves.
  8. Advertisements on Google/ Facebook are subject to Foreign Contractor Tax.
  9. VAT declaration of activities in provinces other than where the company’s head office is located.

Here are details on each Decree:

1. Decree No. 143/2018/ND-CP on compulsory Social Insurance (“SI”) for expatriates 

On 15 October 2018, the Government issued Decree No. 143/2018/ND-CP (“Decree 143”) elaborating Law on Social Insurance and Law on occupational safety and hygiene regarding compulsory Social Insurance for expatriates working in Vietnam. This Decree will be effective on 1 December 2018. 

According to Decree 143, expatriates are required to contribute compulsory Social Insurance in Vietnam when they obtained (i) the work permit or practising certificate or practising license issued by the relevant competent authorities in Vietnam and (ii) the indefinite-term labour contract, labour contract with term of one year signed with the employers in Vietnam. Correspondingly, the expatriates who sign the labour contract under one (1) year are not required to pay compulsory Social Insurance. 

The mobile employees under global mobility scheme or expatriates who reach the retirement age will be exempt from compulsory Social Insurance. 

The Social Insurance (“SI”) contribution rates are as follows: 

– From 1 December 2018, the Employers will make the contribution of 3% into the sickness, maternity and paternity Insurance Fund and 0.5% into the occupational accident – occupational disease Insurance Fund. 

– From 1 January 2022 onwards, the Employers will make a contribution of 14% and the expatriates will make a contribution of 8% of their monthly salary into the retirement and death benefit fund.

 

2. Decree 140/2018/ND-CP amending some regulations on issuance of work permit 

The Government issued Decree No. 140/2018/ND-CP (“Decree 140”) dated 8 October 2018 amending and supplementing some decrees on the condition of business, investment and administration procedures under the management of Ministry of Labour, Invalids and Social Affair. 

One of the significant points is that Decree 140 has amended the regulations stated in Decree 11/2016/ND-CP regarding conditions and procedures to issue the work permit for expatriates working in Vietnam, in particular: 

– There is supplement of the case in which the Employers are not required to determine the demand for use of expatriates, including Chief of representative offices, Directors of projects of international organizations or non-governmental organizations in Vietnam.

– There is supplement of the case in which the expatriates responsible for establishing the commercial presence will be exempt from work permit.

– Work permit for expatriates will be issued within five (5) working days instead of seven (7) working days.

 

3. Circular No. 16/2018/TT-BGDDT prescribing the sponsorship for educational institutions in the national education system 

On 3 August 2018, the Ministry of Finance (“MOF”) issued Circular 16/2018/TT-BGDDT (“Circular 16”) on the sponsorship for educational institutions in the national education system. This Decree is effective from 18 September 2018 and replaces Circular 29/2012/TT-BGDDT dated 10 September 2012 issued by Ministry of Education and Training regarding the sponsorship for educational institutions. 

One of the significant points of this Decree is the supplement of sponsorship forms for educational institutions, such as sponsorship in form of construction, non-material sponsorship. 

The enterprises can refer to the regulations on the sponsorship for educational institutions stated in this Decree as a legal base to determine the deductible expenses for Corporate Income Tax (“CIT”) calculation. 

 

4. The input VAT of domestic sales is not allowed to combine with input VAT of exports for VAT refund purpose 

The General Department of Taxation (“GDT”) issued Official Letter No. 3842/TCT-KK dated 9 October 2018 on VAT refund of exports. 

In case the company performs both exports and domestic sales, provided that the amount of input VAT of exported goods remains at least VND300 million after being offset against input VAT of domestic sales, the Company is entitled to VAT refund. The VAT amount to be refunded cannot exceed 10% of revenues from exported goods. 

In case the Company has outstanding creditable input VAT of domestic sales and paid VAT of irregular sale activities in provinces or cities other than where the company is headquartered, the Company is not permitted to combine such outstanding input VAT with input VAT of exports to request for VAT refund under the regulations on VAT refund for exports. However, the outstanding creditable input VAT can be carried forward to next period. 

Accordingly, in case the imported materials for production of exports are exempt from import duties, however the products are thereafter delivered to domestic enterprises as on-spot export as mentioned above, the customs authorities will deem the import duties, the interests due to late tax payment and administrative penalty according to the current regulations 

the import duties will be exempt (where the goods are imported for production of exports) or the import duties will be refunded (where the enterprises already paid the import duties on imported goods but thereafter the imported goods are put into production for exports). 

However, in case the exported goods are produced by domestic enterprises but delivered to other domestic enterprises in Vietnam according to the appointment of the foreign parties, the exemption of import duties will not applied to the imported materials. 

 

5. Materials imported for production of exports but designated to deliver to domestic enterprises (on-spot exports) is not exempt from import duties 

The General Department of Customs issued Official Letter No. 5826/TCHQ-TXNK dated 5 October 2018 on handling tax liabilities on goods imported for production of exports. According to this Official Letter, in case the goods are produced by domestic enterprises and sold to Export Processing Enterprises (“EPEs”) (which are not located in export processing zone but satisfying the regulations on non-tariff areas according to clause 1, article 4, Law on Import-Export Duties), 

Accordingly, in case the imported materials for production of exports are exempt from import duties, however the products are thereafter delivered to domestic enterprises as on-spot export as mentioned above, the customs authorities will deem the import duties, the interests due to late tax payment and administrative penalty according to the current regulations 

the import duties will be exempt (where the goods are imported for production of exports) or the import duties will be refunded (where the enterprises already paid the import duties on imported goods but thereafter the imported goods are put into production for exports). 

However, in case the exported goods are produced by domestic enterprises but delivered to other domestic enterprises in Vietnam according to the appointment of the foreign parties, the exemption of import duties will not applied to the imported materials. 

Accordingly, in case the imported materials for production of exports are exempt from import duties, however the products are thereafter delivered to domestic enterprises as on-spot export as mentioned above, the customs authorities will deem the import duties, the interests due to late tax payment and administrative penalty according to the current regulations. 

The enterprise will pay the interests to the bank (on behalf of their customers), then the bank is required to issue invoices to the enterprise for their recording of interest expenses. 

The enterprise will pay the interests to the bank (on behalf of their customers), then the bank is required to issue invoices to the enterprise for their recording of interest expenses. 

 

6. Invoicing for interests paid by the enterprise to the bank on behalf of the enterprise’s customers who buy goods on interest-free credit 

On 12 June 2018, the GDT issued Official Letter No. 2331/TCT-DNL providing the guidelines on the invoicing policy when the enterprise pays interests to the bank (incurred from program of selling goods with interest-free credit) on behalf of the enterprise’s customers. 

As mentioned in this official letter, the bank and the enterprise enter into a cooperation contract that allows the customers holding credit cards of that bank to buy goods on interest-free credit. 

The enterprise will pay the interests to the bank (on behalf of their customers), then the bank is required to issue invoices to the enterprise for their recording of interest expenses. 

 

7. Foreign Invested Enterprises are not required to apply for retail licenses when selling goods directly produced by these enterprises themselves 

On 10 July 2018, the Ministry of Industry and Trade issued Official Letter No. 5447/BCT-KH guiding the implementation of retail activities of goods produced by Foreign Invested Enterprises (“FIEs”) themselves.. 

According to the Ministry of Industry and Trade, the wholesale trade and retail sales of the goods produced by the FIEs themselves in line with their licensed investment projects are not regulated by Decree 09/2018 /ND-CP. 

Correspondingly, the FIEs are not required to apply for business licenses or licenses for establishing retail outlets as stipulated in Decree 09/2018 /ND-CP. 

However, for goods subject to conditional production and trading, the FIEs have to meet the production and business conditions according to the relevant regulations. 

 

8. Advertisements on Google/ Facebook are subject to Foreign Contractor Tax 

The GDT issued Official Letter No. 3149/TCT-CS dated 15 August 2018 to provide guidelines on Foreign Contractor Tax (“FCT”) implication on advertising activities on Google/ Facebook.

Based on the guidance in this Official Letter, technically, Google and Facebook (foreign contractors) who sign contract with a Vietnamese company (Vietnamese party) to provide advertising services on Google, Facebook and generate income in Vietnam, are liable to Foreign Contractor Tax (including VAT and CIT) in Vietnam. Before making payment of service fees, the company is responsible for withholding, declaring and paying FCT (including VAT and CIT) on behalf of Google and Facebook in compliance with the regulations.

Provided the online advertising expenses are (i) related to the company’s business activities and (ii) supported by legitimate invoices and documents stating the company’s name, address and tax code as well as payment vouchers in line with VAT regulations, these online advertising expenses are deductible for CIT purpose.

Of important note, in case the foreign contractors do not provide the relevant invoices, the company is required to have the FCT returns and tax payment vouchers for recording purposes.

 

9. VAT declaration of activities in provinces other than where the company’s head office is located 

The GDT issued Official Letter No. 3527/TCT-KK dated 18 September 2018 guiding the case where the company does not separately declare VAT for construction activities in provinces other than where its head office is located but declares VAT under the VAT return of the head office. 

Accordingly, the GDT requested the tax department (who directly manages the company) to notify the incorrect VAT declaration to the enterprise and to the local tax authority where the extra-provincial construction takes place. Additionally, the company is required to submit a request letter on transferring VAT payable at local tax authority but already paid together with the head office back to the local tax authority in order to fulfil its extra-provincial VAT obligations. However, the company must ensure that the VAT amount to be remitted back to the local tax authority cannot exceed the VAT amount paid to the tax authority where the company is headquartered. 


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