Our March 2019 Tax and Accounting update looks at recent Decrees, and has our regular review of recent Official Letters released by the Tax Authorities.
DECREE COVERING SCIENCE AND TECHNOLOGY ENTERPRISES - INCLUDING TAX EXEMPTIONS & REDUCTIONS
On 1 February 2019, the Vietnamese Government issued Decree 13/2019/ND-CP regulating policies for Science and Technology Enterprises (“S&T”).
The Decree stipulates the conditions and authorisations to grant S&T Certificates, preferential and supporting policies for S&T enterprises.
The Decree is applicable to enterprises specialising in scientific and technological activities, and the S&T Enterprise Certificate is the basis for implementing preferential and supporting policies for S&T enterprises.
Conditions for enterprises to obtain S&T Enterprise Certificates
To be granted an S&T Enterprise Certificate, enterprises are required to meet the following conditions:
a) Established and operating under the Enterprise Law;
b) Being able to create or apply scientific and technological results which are evaluated, appraised and recognized by competent agencies; and
c) Generating revenue from the production and sales of products developed from scientific and technological results, equating to a minimum of 30% of the total enterprise revenue.
Newly-established enterprises, operating for less than 5 years, that meet the conditions in a and b (above) can be certified as “Scientific and Technological Enterprises.”
The Departments of Science and Technology are authorized to grant the S&T Enterprise Certificates in general, except for certain cases specified in the Decree where Certificates are granted by the Department of Market Development.
Tax Incentives for S&T enterprises
S&T enterprises meeting the above requirements, are entitled to:
• CIT exemption for 4 years; and
• 50% CIT reduction for the next 9 years.
In addition, there are reductions for land rental, water surface rental and credit incentives for S&T enterprises.
The Decree is effective from 20 March 2019.
NEW DECREE AMENDING SPECIAL CONSUMPTION TAX
On 1 February 2019, the Vietnam Government issued Decree 14/2019/ND-CP adjusting and supplementing Decree 108/2015/ND-CP regarding Special Consumption Tax (“SCT”) laws.
Significant amendments in the Decree include:
• Adding further items exempted from SCT including aircraft used for the purpose of spraying pesticides, firefighting, filming, taking photos and measuring maps (Clause 1, Article 1).
• Procedures, required documents and SCT refund process for temporarily imported and re-exported goods now follow Article 34 of Decree 134/2016/ND-CP (Clause 2, Article 1).
• Procedures, required documents and SCT refund process for goods imported for production and the processing of those goods follow Article 36 of Decree 134/2016/ND-CP (Clause 2, Article 1).
• Where import declarations include both import tax and SCT to be refunded, the application for import tax refund and SCT refund are combined in one application (Clause 2, Article 1).
• Supplementing the conditions for SCT deductions (Clause 3, Article 1).
The Decree takes effect from 20 March 2019.
OFFICIAL LETTERS RELEASED
Official Letters are releases showing the Tax Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.
Work Permits and Labour Contracts for Foreign Employees
On 25 January 2019, Ministry of Labor, Invalids and Social Affairs (“MoLISA”) issued Official Letter 75/CVL-QLLD covering labour contracts for foreign employees.
According to Article 173 of the Labour Law, a Work Permit (“WP”) is valid for a maximum of 2 years. The maximum term for labour contracts when engaging foreign employees must comply with the granted WP. Otherwise, the WP’s validity will be voided (Clause 3, Article 174 in the Labour Law).
VAT and Commercial Invoices for Domestic Sale of Imported Goods with Foreign Delivery
On 25 February 2019, the Hanoi Department of Taxation (“HDT”) issued Official Letter 7334/CT-TTHT VAT and VAT invoices for the sale of imported goods to a domestic buyer with goods delivered abroad.
Where the seller sells goods to a domestic buyer and appoints the buyer to receive the goods at the foreign warehouse of the manufacturer, and the seller has sufficient documents as proof for the foreign delivery (such as import contracts with the foreign manufacturer, sales contracts with the domestic buyer with foreign delivery terms, or delivery documents including bill of lading, L/C and bank payment voucher), the applicable VAT rate is 0% (according to Clause 1, Article 9 of Circular 219/2013/TT-BTC).
In addition, where imported goods are sold to a domestic company with goods delivered abroad, the seller is to issue commercial invoices (Clause 7 Article 3 Circular 119/2014/TT-BTC).
Personal Income Tax (“PIT”) for Foreign Employees
On 21 January 2019, HDT issued Official Letter 3228/CT-TTHT providing guidelines for PIT on foreign employees.
Foreign individuals who are appointed by an offshore parent company to work at a subsidiary in Vietnam for a long period, and is determined as a tax resident in Vietnam, will be subject to PIT in Vietnam on their global income.
The subsidiary is responsible for withholding and declaring PIT for domestic income paid the foreign individual.
For income received from the offshore parent company, the individual is required to self-declare on a quarterly basis following form 02/KK-TNCN issued in Circular 92/2015/TT-BTC.
Where the individual is determined as a tax resident, they are required to finalize their PIT. If the total income is only from the Vietnamese subsidiary, they are eligible to authorize the subsidiary to finalize PIT on their behalf. However, if they receive income from both the subsidiary and the parent company, they must self-finalise the PIT.
Tax Finalisations for Company Dissolutions
On 27 February 2019, the General Department of Taxation issued Official Letter 633/TCT-CS for tax finalisation upon company dissolution.
Under the provisions of Article 16 of Circular 151/2014/TT-BTC, enterprises must lodge a tax finalization upon its dissolution. The tax authority will inspect the tax settlement of the enterprise within 15 working days from the application receipt date.
However, enterprises are exempted from tax finalization on dissolving where:
• Enterprises that pay tax at a certain rate of turnover;
• From the date of business registration until dissolution no revenue was generated and no invoices have been issued;
• Enterprises that pay tax as declared, but with an average revenue of less than 1 billion VND per year from the year last inspected to the dissolution date (subject to other compliance requirements).
Within 5 days from the receipt of required application documents, the tax authority will provide written confirmation on tax obligation fulfillment.
For further information contact:
Matthew Lourey, Managing Partner
Phan Thi Thu Thuy, Director - Accounting
Do Thi Thao, Manager - Accounting