Mazars Vietnam Newsletter - Issue November 2017

Mazars’ Vietnam editorial team is proud to present its monthly newsletter for November 2017. The issue covers tax and legal changes including operational updates on the regulations relevant to import tax, permanent establishment of a foreign contractor, VAT of leasing software activity, liquidation of a branch’s fixed asset, stock-out-cum-internal-delivery-notes, repairing services of temporarily imported machine within the territory of Vietnam, guideline on faulty goods used as gift to employees and Tax policy of Vietlott lottery distribution system.

Operational Updates 

Official Letter 4007/TXNK-CST on import tax exemption of raw materials used for export production which is outsourced to other enterprises for processing

According to Official Letter 4007/TXNK-CST issued by Import Export Tax Division dated 18 October 2017, if a company imports raw material used for an export production however outsources such materials to other enterprise for processing, and then finishes and directly exports the finished products, it is not eligible for import tax exemption as per Decree 134/2016/ND-CP.

Official Letter 63363/CT-TTHT on determining a Permanent establishment of a foreign contractor

According to Official Letter 63363/CT-TTHT issued by Hanoi Tax Department (“HNTD”) dated 21 September 2017, if a foreign contractor jointly works with a Vietnamese party to provide their service in Vietnam for the period over 183 days, the foreign contractor will be deemed to have a Permanent establishment in Vietnam and will not be eligible for Corporate Income Tax (“CIT”) exemption under Double Tax Agreements mechanism between Vietnam and the other country (specifically Singapore in this case).

Official Letter 66400/CT-TTHT on VAT of leasing software activity

According to Official Letter 66400/CT-TTHT issued by HNTD dated 09 October 2017, software leasing activity shall subject to VAT of 10%. If a Vietnamese enterprise leases the software from foreign suppliers, Vietnamese enterprise must withhold Foreign Contractor Tax (including VAT, CIT) before making payments to the foreign suppliers. The definition of leasing software is however not provided.

Official Letter 56314/CT-TTHT on liquidation of a branch’s fixed asset

According to Official Letter 5124/CT-TTHT issued by HNTD dated 18 August 2017, in case a branch does not have revenue, does not carry out the sale of goods, does not declare and pay VAT to local tax department (all tax filing is centralized at the head office), then the head office shall issue the invoices when the branch liquidates its fixed assets. In case where the branch has been declaring and paying VAT directly to local tax department, the branch shall use its invoice upon liquidation of its fixed assets.

Official Letter 58325/CT-TTHT on the stock-out-cum-internal-delivery-notes

According to Official Letter 58325/CT-TTHT issued by HNTD dated 25 August 2017, the ‘stock-out-cum-internal-delivery-note’ is a supporting document used for the internal transfer of goods between warehouses of the company, and this is not included in the regulation on electronic documents. Consequently, the company shall still need to use, manage and issue the ‘stock-out-cum-delivery-notes’ in paper forms, not electronic forms.

Official Letter 62111/CT-TTHT on repairing services of temporarily imported machine within the territory of Vietnam

According to Official Letter 62111/CT-TTHT issued by HNTD dated 14 September 2017, in case where a company sells machines to foreign customers, then re-imports for some repair and maintenance services in Vietnam, this activity is not export one, hence subject to VAT standard rate of 10%.

Official Letter 5124/CT-THTT on faulty goods used as gift to employees

According to Official Letter 5124/CT-TTHT issued by Ho Chi Minh City Tax Department dated 01 June 2017, if a company have faulty products and unable to export, and would like to give such products to employees as gifts, the company is required issue VAT invoices similar as sale to customers. The revenue shall not be included in CIT revenue; the relevant expenses shall be treated as welfare expenses and deductible for CIT purpose if the total welfare expense is not exceeded monthly average salary during the tax assessment year.

Official Letter No. 5318/TCT-DNL on tax policy of Vietlott lottery distribution system

The GDT has released Official Letter (“OL”) 5318/TCT-DNL on 17 November 2017 to replace Official Letter 4361/TCT-DNL dated 26 September 2017. Previously, according to OL 4361, in case the organizations and individuals sign business cooperation contracts (“BCC”) with agents of Vietlott (not directly contracting with Vietlott), they shall not be considered lottery agents of Vietlott and need to calculate, declare and pay VAT, CIT and PIT in accordance with the current regulations.

However, according to OL 5318, for organizations and individuals who sign BCC with agents of Vietlott, and organizations and individuals who sign contracts with organizations that have signed BCC with Vietlott's agents to deploy lottery sale points at pre-determined quoted prices and receive agency commissions, then these organizations and individuals shall also be considered lottery agents. Particular for individual lottery agents, there will be no VAT; PIT shall be applied at the rate of 5% on the recevied remuneration if total income from all of the business activites is more VND100million in the calendar year. The commission payments to be allowed as deductible expenses at the income payer’s side must by supported by BCCs, payment evidents, confirmation minutes of the revenues and advanced commissions, and PIT withholding vouchers.

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