New Circular guiding on Value Added Tax, Special Consumption Tax and Law on Tax Administration

On 12 August 2016, Ministry of Finance ("MOF") has issued Circular No. 130/2016/TT-BTC (''Circular 130'') providing guidance on Decree No. 100/2016/ND-CP and Law No. 106/2016/QH13, which amend and supplement a number of articles of the Law on Value Added Tax ("VAT"), Law on Special Consumption Tax ("SCT") and Law on Tax Administration. The Circular also amends several articles in other tax circulars (such as Corporate Income Tax, etc.). Below are some notable points in this Circular.

Exported products not subject to VAT

  • Circular 130 provides the formula for calculating the proportion of the value of natural resources, minerals plus the energy cost over the production cost to determine whether the export products are subject to VAT or not*:

Where:

  • The value of natural resources, minerals plus the energy costs are the recorded data in the  accounting book, which is corresponding with the summary of total production cost.
  • Production costs shall include direct material costs, direct labor costs and general manufacturing expenses. Other indirect costs such as selling expense, administration expense, financial expense and other expenses are not included in the production cost.
  • The value of natural resources and minerals plus energy costs, and production cost shall be determined according to the finalization of the previous year. The newly established enterprises who have no such report of the last year shall base on the investment plan.

*To eventually determine whether the export products are subject to VAT or not, please review Decree No. 100/2016/ND-CP in our previous issue.  

Taxable price for SCT

  • Circular 130 has clarified (with detailed examples) the principles for determining taxable price in case where the SCT-subjected goods are sold to the related party trading entities. The principles are consistently applied on determining the SCT of all types of goods subject to SCT, including gasoline and automobiles with less than 24 seats.  
  • As for automobiles which were imported before 01 July 2016 but have only been sold since 01 July 2016, the trading entities must declare and pay SCT in accordance with the new tax rate as prescribed in Law No. 106/2016/QH13.

Tax administration

Charges for late payment

  • For the outstanding tax payments which have arisen prior to 01 July 2016, but have not been paid until 01 July 2016, the late payment interest shall be calculated as follows:The late payment interest applied before 01 January 2015 shall be referred to the Law on Tax Administration No. 78/2006/QH11 and Amended Law No. 21/2012/QH13. Specifically, the rate would be 0.05%/day before 01 July 2013; after 01 July 2013, the rate would be 0.05%/day for the first 90 days and 0.07%/day from the 91th day onwards.
  • From 01 January 2015 to 30 June 2016, the applicable rate is consistently 0.05% (referring to the Law No. 71/2014/QH13 on amendments to certain articles of tax laws). 
  • From 01 July 2016, the rate of 0.03%/day shall be applied.
  • For the cases of under-declaration of tax liabilities for the tax period before 01 July 2016 which have only been detected after 01 July 2016 (either by investigations of the competent authorities or through self-detection of taxpayers), basically the same principles as above shall be applied; of note, according to Circular 26/2015/TT-BTC, the rate 0.07% would not be applied for such cases (period from 01 July 2013 till 30 June 2016) but only 0.05%/day. Hence, overall for these cases, the rate 0.05%/day shall be applied consistently from the payable date until 30 June 2016, and then 0.03%/day from 01 July 2016 to the payment date to the State Budget.

Corporate Income Tax

Criteria for determining the expansion investment project for the period from 2009 to 2013

Circular 130 has officially added the guidances on how to determine whether the investment is expansion investment or regular investment during the period from 2009 to 2013 for purpose of CIT incentives (these guidances are similar to the one on Official Letter No. 4769/BTC-TCT dated 07 April 2016 of the MOF, for which we have updated in our previous Tax Alert).

Specifically, during its operational phase, if the enterprises use the depreciation fund; net profits after tax; or capital within registered capital for reinvestment in additional machinery/equipment and do not increase their production capacity in accordance with the registered or approved business plans, the additional investments are not considered business expansion activities.

Effective dates

Circular 130 took effect upon the day that Law No.106/2016/QH13 came into effect (i.e. 01 July 2016). Guidances on tax exemption for non-agricultural land, in particular, are applicable from the whole tax period of 2016 onwards.

Bilingual full guide downloads available as per below.

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