This October 2016 edition of Domicile’s Tax Updates looks at recently issued Official Letters from Vietnam’s tax authorities, providing guidance in the often confusing realm of Vietnamese taxation. As always, please contact us if you would like further information on any of the items discussed in our Tax Updates publications.Download PDF
CORPORATE INCOME TAX - DEDUCTIBLE EXPENDITURE WHERE EXPENSES INITIALLY PAID BY EMPLOYEES
On 9 September 2016 the General Department of Taxation (“GDT”) issued Official Letter 3671/TCT-DNL regarding deductible expenditure where expenses are initially paid by an employees credit card or by transfer from the employees bank account.
According to this Official Letter, where an enterprise delegates an employee to make payments for purchasing goods and services on the company’s behalf, and approves the use of his/her personal credit card or bank account, then such payments are considered as non-cash payments and the expenses incurred will be creditable for Value Added Tax (“VAT”) and deductible for Corporate Income Tax (“CIT”). However, supporting documentation needs to be in place, including:
(i) Invoices issued under Company’s name and tax code;
(ii) Authorization letter from the Company, permitting the employee to make payment and claim back reimbursement;
(iii) Payment voucher - from employer’s bank account to the employee’s bank account or credit card for reimbursement; and
(iv) Proof of purchase/payment, showing the money was transferred from the employee’s card/account to the suppliers’ bank account.
This is good news for enterprises, confirming the flexibility for paying for goods and services that is often necessary in business. Previously the tax authorities had only formally recognised the payment of business travel expenses by employee personal cards/accounts.
Notwithstanding this Official Letter, given there have been many recent releases from various tax authorities with differing interpretations of the ability for employees to make personal payments on behalf of an enterprise, taxpayers may wish to further confirm this interpretation with their local tax authority.
CORPORATE INCOME TAX - SUPPORTING DOCUMENTS FOR BUSINESS TRAVEL EXPENSES
On 29 September 2016 GDT issued Official Letter 4525/TCT-DNL further guiding the tax deductibility for business travel expenses and relevant supporting documents.
The guidance details the conditions for tax deductibility relating to business travel expenditure through a per diem or “payment first, reimbursement later” arrangement with employees. The conditions include:
(i) Appropriate invoices and supporting documents, along with non-cash payment documentation for invoices of VND 20 million or more;
(ii) A valid Assignment Decision on Business Trip; and
(iii) An internal policy regulating reimbursement to employees, amongst other requirements of the internal policy.
Of additional interest is that for the first time at Official Letter level, GDT has documented its approval for the use of electronic devices for recording and verifying certain travel events. Specifically, it refers to enterprises utilising GPS systems on employee’s phones for confirmations of arrival or departure for compliance with travel policies. We hope that this is leads to the tax authorities embracing further technological solutions with regards to compliance for enterprises and employees
VALUE ADDED TAX - CERTAIN BUSINESSES ARE NOT PERMITTED TO SELF PRINT INVOICES
On 9 September 2016 GDT issued Official Letter 4103/TCT-CS providing guidance on invoice printing and usage.
This Official Letter states that individuals, household businesses and enterprises which declare and pay VAT under the Direct Method are not allowed to self print invoices, and are required to purchase invoices from the Tax Department. Of interest, this Official Letter leads to film ticket, entry tickets and massage tickets also being treated as a kind of invoice, so that enterprises listed above wishing to use these tickets will need to purchase these from Tax Department as they cannot be self printed.
VALUE ADDED TAX AND TAX IMPLICATION ON TRANSFERRING LAND USE RIGHT AND PROPERTIES
On 19 September 2016 GDT issued Official Letter 4317/TCT-KK guiding VAT declarations for transfers of Land Use Rights (“LUR”) along with properties constructed on and attaching to LUR’s.
This Official Letter confirms that an enterprise which acquires LURs and constructs properties for sale will be exempt from VAT on the value of the LUR sold, however they will be subject to VAT at 10% on the value of the properties attaching to the land. Caution should be taken in determining separate values of LUR’s and properties attaching.
PERSONAL INCOME TAX - FOREIGN EXPERTS VISITING VIETNAM
On 20 September 2016 GDT issued Official Letter 4345/TCT-TNCN providing guidance on taxable income for accommodation benefits for foreign experts in terms of Personal Income Tax (“PIT”).
According to this Official Letter, where accommodation costs and other accompanied services for foreign experts are paid by a Vietnamese enterprise under an agreement, such expenditure shall be treated as a financial benefit and included in the individuals taxable income for calculating PIT.
As discussed in previous tax update publications, this expense will also be creditable for VAT provided that there is a written contract between the parties specifying that the Vietnamese side pays for accommodation cost.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager