Mazars Vietnam Newsletter - Issue November 2018

We would like to bring you tax and legal updates in November 2018 with the following highlights influencing the corporate operation and payroll amendments:

OPERATIONAL UPDATES

Official Letter 4311/TCT-CS on applying E-invoices

On 05 November 2018, the General Tax Department issued Official Letter 4311/TCT-CS on applying E-invoices for the period from 01 November 2018 to 31 October 2020.

Official Letter 5826/TCHQ-TXNK on Import Duty of the imported raw material

On 05 October 2018, General Customs Department issued Official Letter 5826/TCHQ-TXNK on Import Duty of the imported raw material.

Accordingly, if an enterprise imports raw materials for export production process, however the finished goods are exported under the form of on-spot export as per the instruction of foreign customer, such imported raw material shall not be eligible for Import Duty exemption.

 

Official Letter 43609/CT-TTHT on CIT incentives for new investment project utilizing the assets of other operating investment project

On 25 June 2018, the Hanoi Tax Department issued Official Letter 43609/CT-TTHT on CIT incentives for new investment project utilizing the assets of other operating investment project.

Accordingly, if an enterprise established a dependent branch to carry out a newly registered investment project in Bac Ninh and transfers some of the machine and equipment from the current operating project, such project shall not be considered as “a new independent project”. Therefore, CIT incentive for the new investment project would not be available.

If the project satisfied one of the three conditions of being qualified expansion project, the branch shall be eligible for tax holiday (i.e. number of years with tax exemption and tax reduction) incentives for the additional income of the expansion project as regulated.

 

Official Letter 54153/CT-TTHT on the exemption of preparing transfer pricing documentation of an enterprise having independent.

According to Official Letter 54153/CT-TTHT issued by Hanoi Tax Department on 02 August 2018, the total revenue and total value of related party transactions (“RPTs”) used as a basis for determining the exemption of preparing Transfer Pricing Documentation of an enterprise having independent accounting units, shall be determined as follows:

  - For the enterprise, the total revenue and total value of RPTs shall be the figure in the consolidated financial statements of the enterprise and its independent branch;

  - For independent branch, the total revenue and total value of RPTs shall be its own figure.

 

Official Letter 3790/TCT-DNL on the deductible interest expenses of enterprises having RPTs.

According to Official Letter 3790/TCT-DNL issued by the General Tax Department on 05 October 2018, in case an enterprise incurred RPTs, the total deductible interest expenses of the financial year shall be capped at 20% of earnings before interest, tax, depreciation and amortization (“EBITDA”). The capped interest expenses as indicated shall include interest expenses incurred from both related parties and independent parties.

Official letter 3149/TCT-CS on supporting documents for the online advertisement expenses from Facebook and Google

On 15 August 2018, General Tax Department issued Official Letter 3419/TCT-CS providing guidance on supporting documents for the online advertisement expenses from Facebook and Google.

Accordingly, if the online advertisement expenses from Facebook and Google satisfy the condition of being business related, supported by proper invoice, other supporting documents with the enterprise’s details, i.e. name, address and tax code numbers, such expense shall be deductible when calculating CIT.

In case the supplier did not issue invoice, the supporting documents for this transaction shall include declaration form, payment evidence of the incurred Foreign Contractor Tax (“FCT”) and non-cash payment evidence to supplier in accordance with VAT regulations.

Official letter 6600/CT-TTHT on the obligations for withholding, declaring and paying of tax for the foreign contractors.

According to Official Letter 6600/CT-TTHT issued by Ho Chi Minh City (“HCMC”) Tax Department on 06 July 2018, if the enterprise compensates to foreign contractors for violation of the contracts, the enterprise must be responsible for withholding, declaring and paying of Foreign Contract Tax (“FCT”) with the CIT rate of 2%. In case the enterprise did not make payment directly and transfer such compensation to another local company as requested by the foreign contractor, the transferee shall be subject to such FCT filling and payment.

Official letter 3037/CT-TTHT on tax obligations for the case of being imposed tax at import stage of the imported material for export production which is due to the discrepancy between the actual and reported closing inventory.

According to Official Letter 3037/CT-TTHT issued by Bac Ninh Tax Department on 21 September 2018, in case an enterprise is imposed tax at import stage for the imported material for export production which is due to the discrepancy between the actual and reported closing inventory, the tax obligations shall be treated as follows:

If the actual closing inventory figure is lower than the declared one to the customs authority due the wrong declaration of Bill of Material (“BOM”), such imposed VAT shall be eligible as input VAT;

If the declared and actual BOM is consistent, however the actual closing inventory is lower than the reported one, the imposed VAT shall still be eligible as input VAT. The shortage in materials, which is not caused by objective reasons or force majeure as stipulated in Circular 219/2013/TT-BTC, shall be considered as domestically consumed goods. The enterprise must declare the corresponding additional VAT output and taxable CIT revenue.

PAYROLL UPDATES

Official letter 6327/CT-TTHT on declaration of personal income tax (“pit”) finalization forms for the employees who are subject to pit under both of progressive tax rates and flat rate.

According to Official Letter 6327/CT-TTHT issued by the HCMC Tax Department on 29 June 2018, if an employee is subject to both of PIT under flat rate of 10% (for the probation period) and progressive tax rates (for employment period), the PIT finalization shall be declared as follows:

  - Declaring the income which is subject to PIT progressive tax rate on the appendix 05-1BK-QTT-TNCN; and

  - Declaring the income which is subject to PIT flat rate of 10% on the appendix 05-2BK-QTT-TNCN.

 

Official letter 3850/TCT-TNCN on dependent registration for family relief

According to Official Letter 3850/TCT-TNCN issued by General Tax Department on 10 October 2018; during the current tax assessment year, the taxpayer (i.e. mother) registered the child as dependent for family relief, such registration shall be maintained until the end of the assessment year. If another taxpayer (i.e. father) would like to register such child as his dependent, the registration shall be applied and taken into account in the next tax assessment year.

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