With 2016 almost at an end, and 2017 fast approaching, now is the time for businesses in Vietnam to stop, reflect and ensure that they have 2016 truly under control and are ready to set 2017 off to a successful start.
Your finance team should be preparing estimates for full year tax liabilities. More importantly, you should be looking at what you can to reduce these as much as practical.
- Calculate and determine year-end bonuses for staff, and record these before 31 December as an accrual in your general ledger. To claim these as a tax deductable expense for your company for the 2016 year, ensure bonuses are in accordance with, and documented in line with, internal company labour rules. You should also ensure these are paid in full before finalising your annual Corporate Income Tax filings on 31 March 2017.
- Consider bringing forward payments for services, and ask to receive Red Invoices (or pay your Foreign Contractors Withholding Tax, if the services are with offshore providers), before 31 December.
Arrange Your 2016 Audit
All foreign invested companies in Vietnam must have an annual audit, and the audit report must be lodged with the tax authorities along with their annual tax finalisation by 31 March 2017 (as well as needing to be lodged with a number of other government authorities). This is a relatively tight timeframe, especially with Tet arising during this period, so ensure that you have negotiated with your audit firm and locked away your audit program to give you time to meet these deadlines.
Plan For Your 2017 Salary Changes
There are regulatory changes that will have a financial impact and that need to be included in your 2017 forecasting for salaries. These changes are on top of any standard annual salary increases for your staff.
- From 1 January 2017, the Minimum Monthly Wage increases in Vietnam (from 3,500,000 to 3,750,000 for “Zone 1” employees). This increase, however, has another effect that needs to be built into salary and cashflow planning for 2017: Unemployment Insurance payment caps (ie, the maximum salary to which Unemployment Insurance applies) are linked to the Minimum Monthly Wage. From 1 January 2017 the maximum monthly cap, above which Unemployment Insurance contributions are not required, increases to 75,000,000 from 70,000,000 (ie, 20 times the Minimum Monthly Wage).
- From 1 July 2017 the Minimum Basic Wage increases in Vietnam from 1,210,000 to 1,300,000. Although this wage is generally only applicable to government sector employees, it is also used as the base for Social Insurance and Health Insurance caps. From 1 July 2017 the maximum monthly caps, above which Social Insurance and Health Insurance payments do not apply, increase from 24,200,000 to 26,000,000 (ie, 20 times Minimum Basic Wage).
It is also worth keeping in mind that there are further changes occurring from 1 January 2018 that companies should also be planning for now, and that these will potentially have a more significant impact on your payroll costs. As currently regulated, foreign employees will be subject to compulsory Unemployment and Social Insurance contributions (at present they are only subject to Heath Insurance) from January 2018. As the Unemployment and Social Insurance combined (employee and employer elements) total up to 28% of salary, this can be a significant additional cost for employing foreign staff. Also, from January 2018, essentially all payments to employees will be taxable and subject to insurance contributions (unless explicitly excluded). This means that bonuses, allowances etc that are currently exempt from Personal Income Tax and Insurances, will become taxable and subject to Insurances.
Personal Income Tax Finalisations for Staff
Companies should plan for preparing the finalisation of the personal income tax for their staff (including foreign staff) – with the appropriate authorisation letters in place – before the 31 March deadline. Also consider whether any additional tax may be payable, and whether the employee or employer will be liable for the payment. For some staff, the finalisation will be voluntary, but it needs to be planned for appropriately.
Preparing your annual records in an appropriate format for retention is more important than many think about at the time. Tax officers, when they inspect a company’s records, look at an entire year, so records need to be prepared and archive accordingly. The chances are that when you are inspected, that the same accounting staff that prepared the records will no longer be with your company, so the records need to be complete and without exception. If in doubt, have an external review of your records to identify risks.
Matthew Lourey is Managing Partner at Domicile Corporate Services (www.domicilecs.com). Matthew is based in Ho Chi Minh City and assists foreign companies enter Vietnam, ensure ongoing compliance with Vietnamese requirements, and undertake their international reporting and similar obligations.