On 15 August 2017, the Ministry of Finance (“MOF”) held a press conference titled "Introduction of draft Law on amendments of five (05) tax laws". This project is part of the efforts of the MOF and the Vietnamese Government to restructure state budget revenue, ensure national financial security as well as to formulate a consistent tax policy in order to ease the difficulties for enterprises and be in line with international practice. As planned, the draft law is expected to be submitted to the National Assembly for approval in 2018 and will take effect as from 01 January 2019. The draft law has the following remarkable points:
Value Added Tax (“VAT”)
- The current 5% rate is proposed to increase to 6%. The standard VAT rate of 10% is proposed to increase to (i) 12% from 01 January 2019, or (ii) 12% from 01 January 2019 and 14% from 01 January 2021.
- In addition, some goods/services which are currently under the 5% category are proposed to be moved to applying standard tax rate.
- Non-VAT goods/services are to be limited; most notably, transfer of land use rights and export products being processed from natural resources and minerals whose total value of natural resources and minerals inclusive of energy costs accounting for 51% or more of manufacturing costs would be applying standard tax rates.
- The maximum amount of an invoice allowed to be paid in cash is to be reduced to VND 10 million (currently, VND 20 million) for the purpose of VAT input deduction and CIT deductible expense.
- Adding one more case of VAT refund where enterprises engaged in producing goods or providing service which is subject to VAT rate of 6% and having accumulated VAT input not fully credited continuously for at least 12 months or 4 quarters (this rule is not applicable to trading establishments).
Special Consumption Tax (“SCT”)
- SCT is proposed to be imposed on soft drinks, including carbonated, non-carbonated, strengthened, sports drinks, tea, instant coffee packed under industrial production chains (excluding fruit juice, 100% natural vegetable juice, milk and dairy products) at the rate of either 10% or 20% from 01 January 2019.
- Taxable price for automobiles with 9 seats or less which are manufactured in Vietnam will be exclusive of the value of the parts produced domestically.
- Two options are proposed to increase SCT on cigarettes and cigars: (i) hybrid SCT calculation, including a fixed amount of VND 1,000 per pack of 20 cigarettes and VND 1,500 per cigar on top of the tax payable as currently calculated; or (ii) increase the tax rate from 75% to 80% from 01/20/2020 and to 85% from 01/01/2021.
Corporate Income Tax (“CIT”)
There proposed a few amendments on deductible and non-deductible expenses:
- The interest expense incurred from loans in excess of 05 times of the owner’s equity of enterprises operating in manufacturing sector, 12 times in case of credit institutions and banks, or 04 times for other enterprises shall be non-deductible (of note, if there are rules and regulations otherwise applicable with respect to owner’s equity in some particular industries or sectors or enterprises, then such rules and regulations shall prevail).
- Input VAT which has not been fully credited but not eligible for VAT refund can be recorded as deductible expenses.
Supplementing the regulation that allows the offsetting of profits from the activities of transfer of project, transfer of the rights of project participation, or transfer of real estate against the losses from other business activities which are not entitled to tax incentives.
Enterprises with an annual revenue of less than VND 03 billion may opt to calculate its CIT/VAT as percentage (%) on revenue, or have the CIT calculated based on revenue whilst apply the VAT credit method as usual. Such method as opted shall be applied for a stable period of 02 years and the enterprises shall not be required to conduct CIT and VAT finalization upon dissolution or bankruptcy.
CIT rates for small and medium-sized enterprises (“SMEs”) are proposed with two scenarios: (i) CIT rate of 15% to be applied to enterprises with annual revenue of less than VND 03 billion and 17% for those having annual income from VND 03 billion up to VND 50 billion and having averaged number of employees in the year participating in social insurance not exceeding 200 person, or (ii) the tax rate of 17% shall apply to all enterprises with the annual income equal or less than VND 50 billion.
A number of amendments and supplementations to CIT incentives:
- Excluding economic zones located in areas with favorable socio-economic conditions from the list of areas being eligible for tax incentives.
- Introducing CIT incentives for some important software services and digital content production which are prioritized sectors for development under Government’s regulations, for investment projects on renovation of old condominiums, and for some other industries in line with the provisions of the Investment Law and the Law on support to SMEs.
- Some other amendments and supplementations are also proposed in order to enhance the transparency and certainty in applying tax incentives.
In regards of CIT on foreign contractors, the Draft Law also proposes some amendments with respect to the applicable rate, including: 1% CIT on revenue for capital transfer instead of 20% on income as per current regulations (of note, the transfer of securities remains unchanged, i.e. 1% CIT on revenue), 0.5% CIT for the supply and distribution of goods in Vietnam in case of spot import/export (currently, 1% CIT which is the same as tax on supply and distribution of goods in other forms of import and export).
Personal Income Tax (“PIT”)
- Similar to the proposal for amending CIT law, for capital transfer transaction of an individual (either resident or non-resident), the PIT to be applied is 1% on the transfer value. PIT on securities transfer remains unchanged, i.e. 0.1% on transfer value.
- There are changes to the progressive tax rates to income from salary and wages: reducing to only 5 tax brackets and expanding the gaps of threshold incomes. Income from winning prize is also to be subject to progressive tax table (10%, 20%, 30%) instead of flat rate of 10%.
- 50% reduction of PIT payable is to be granted to high-technology human resources who work in the field of information technology, agriculture/agricultural processing projects which apply high-technology, and projects producing high-technology products included in the list of products being prioritized for investment/ development.
- As for ad-hoc wages, the withholding tax of 10% is proposed to only be required for payment from VND 5 million (currently, VND 2 million).
- The Draft Law also aims at simplifying the administrative procedures for individuals and reducing burden for tax authorities, hence proposes to either abolish the obligation to perform PIT finalization or keep the finalization but allow no action from both taxpayer and tax authorities if the tax amount is less than VND 300,000.
Natural Resources Tax (“NRT”)
Additional provisions are introduced to provide clearer guidance on taxable output, taxable price of water resources.
We do trust the above points are notable and sufficient, but should you have any question or need a deeper discussion on this issue, please do not hesitate to contact us.
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