APAC Tax Matters - July 2012
New Decrees on amendment of Value Added Tax (VAT) and Corporate Income Tax (CIT)
The Government issued Decree 121/2011/ND-CP ("Decree 121") and Decree 122/2011/ND-CP ("Decree 122") amending and supplementing some articles of Decree 123 and 124 on VAT and CIT.
Decree 121 on VAT
» Supplementing cases where organizations and individuals are not required to declare, calculate and pay VAT include:
- Tax payers in Vietnam who provide goods and services outside Vietnam, except for international transport activities where the departure and terminal ports are abroad.
- Receivables being compensation, bonuses, support funds, income from transfer of emission rights and other financial receivable.
- Organizations and individuals who are not doing business and are not registered VAT payers when selling assets, including the sale of assets that are used to guarantee loans at banks, credit institutions are not required to declare and calculate VAT
» Supplementing new objects which are not subject to VAT
- Credit granting services: issuance of credit card, domestic and international factoring
- Sale of debts
- Foreign currency trading
- Management of securities investment company, services related to registration and custody of securities at the Center for Vietnam Securities Depository, lending money to customers for purposes of deposits transactions, money advance for sale of securities, and other securities trading services as prescribed by the Ministry of Finance.
» Amendments regarding input VAT credit
- Input VAT of fixed assets, machinery and equipment of credit institutions and enterprises engaged in reinsurance, life insurance, securities trading shall not be deductible but added to the cost of the fixed assets.
- Input VAT of goods and services used for production, trading of goods and services for which organizations and individuals are not required to declare, calculate and pay VAT, is fully deductible.
Decree 122 on CIT
» Supplementing and amending other incomes
- Incomes from project transfer, transfer of rights of exploration, exploitation and processing of minerals are added to other income category.
- Reversal of provision for stock price reduction, provision for financial investments, bad debt provision, product warranty provision, salary provision are removed from other income list.
» Supplementing income exempt from CIT
- Income from the performance of scientific research and technological development contracts, income from sale of products from trial production and income from production of products made from new technologies applied for the first time in Vietnam, including income from the transfer of certificate of emission reductions (CERs), are subject to tax exemption for up to 1 year from the date of issuance of CERs.
» Supplementing the method for determination of taxable income
- Together with income from transfer of real-estate, income from transfer of projects, transfer of rights of exploration, exploitation and processing of minerals must be separately recorded for the purposes of tax declaration and payment, and shall not be used to off-set against the income or loss from other business activities.
- Where an enterprise transfers its capital and gets paid in the form of assets or other material benefits (such as shares, fund certificates) instead of cash and generates taxable income, such income is subject to CIT.
- Where joint-stock companies carry out separation, merger and acquisition, and swap shares at the time of separation, merger and acquisition and derive income, then this income is subject to CIT.
» Supplementing deductible and non-deductible expenses
- Commission paid to distributors of multi-level selling companies is not subject to the 10% cap on advertisement and promotion.
- Severance allowance fund (except for the case where enterprises are not obliged to participate in unemployment insurance as per regulations) is regarded as non-deductible expenses.
- The following expenditures are not deductible:
1. salary, wages and other payables made to employees but are in fact, not paid or paid without supporting invoices and documents as regulated;
2. bonus, life insurance expenses for employees for which the payment conditions are not stated in one of the following documents: labor contracts, labor collective agreement, financial regulations of companies, corporations and groups, bonus criteria made by Chairman of Management Board, Director General, director in accordance with the financial regulations of companies, corporations.
» Amending tax rates applicable to foreign contractors
The CIT rates calculated on revenues from sale of goods and services in Vietnam by foreign companies having or not having a permanent establishment in Vietnam (i.e. foreign contractors) are amended and supplemented as follows:
- Management service of restaurants, hotels, casinos: 10% (currently 5%)
- Rental of drilling rig: 5%
- Loan interest: 5% (currently 10%)
- Overseas reinsurance: 0.1% (currently 2%)
- Financial derivatives: 2%
The aforesaid amendments and supplements on VAT and CIT take effect from 1 March 2012 and is applicable for the 2012 tax year onwards.
New circular on VAT
On 11 January 2012, the Ministry of Finance (MOF) released Circular 06/2012/TT-BTC regarding VAT (Circular 06). It replaces Circular 129/2008/TT-BTC dated 26 December 2008 and Circular 112/2009/TT-BTC dated 2 June 2009 and takes effect on 1 March 2012.
- Now includes additional financial activities which are not subject to VAT, such as issuance of credit cards, domestic and international factoring, other credit granting services as regulated by the laws, sale of debts, foreign currencies trading;
- Included additional cases where no VAT declaration is required;
- Supplements the regulations regarding taxable price of goods which are subject to environment protection tax, real estate trading activities, services which are provided both offshore and onshore;
- Supplements the regulations regarding conditions for applying 0% VAT rate with respect to international transportation, airline and marine services;
- Supplements the regulations regarding determination of VAT payable under direct method;
- Amends the regulations regarding non-creditable input VAT of fixed assets such as machinery and equipment of credit institutions, enterprises engaged in reinsurance, life insurance, securities trading;
- Further regulates the conditions for payments via bank for input VAT creditability purposes.
New circular on Special Sales Tax (SST)
On 5 January 2012, the Ministry of Finance (MoF) introduced Circular 05/2012/TT-BTC (Circular 05) to provide guidance for implementing Decree 26/2009 and Decree 133/2011 which amends and supplements some articles of Decree 26/2009 regarding SST.
The key guidance provided in Circular 05 is summarized below:
» Objects that are subject to SST
Circular 05 provides further guidance regarding objects which are subject to SST with respect to the air conditioners which have capacity equal to or below 90,000 British Thermal Unit under which, in cases where indoor and outdoor units are sold or imported separately, they are still subject to SST like a completed product.
» Objects that are not subject to SST
Circular 05 provides detailed guidance regarding the documentation and conditions with respect to objects that are not subject to SST, such as goods manufactured and processed for export, including those sold to or processed for export processing enterprises, goods manufactured and exported or entrusted for export under economic contracts, goods brought overseas for sale at international exhibition shows etc.
» Taxable price for SST calculation
The taxable price for SST calculation is the selling price excluding SST, VAT, and environment protection tax (if any). In case the enterprises do not comply with regulated regimes on invoices and documentation, the tax authorities shall deem the revenue based on actual situation of business activities.
» SST rates
Circular 05 provides more detailed guidance with respect to the case where there is wide range of goods and services that are subject to different SST rates. Of note, the highest SST rate shall be applied if the rate for each kind of goods/services is not separately determinable.
» Creditability of SST of materials
Circular 05 provides more detailed guidance regarding the conditions as well as required documentation for the purposes of creditability of the SST paid for input materials which are used for producing goods subject to SST. Detailed illustration for each case is also provided.
Circular 05 comes into effect on 1 February 2012 and replaces Circular 64/2009/TT-BTC.
Noticeable Official Letters on VAT and FCT
Value Added Tax (VAT)
- VAT treatment on sale of debts
According to OL 1474/BTC-TCT dated 28 January 2011 issued by the Minister of Finance (MoF), if a bank or a credit institution sells debts, this activity is not subjected to VAT. On 27 December 2011, the General Department of Taxation issued OL4734/TCT-CS which further provides that the activity of debt sale performed by a business entity which is not a bank or a credit institution, shall be subject to VAT.
- VAT with respect to export services
Pursuant to OL 80/TCT-CS issued by the GDT on 9 January 2012, design and consulting services provided by a Vietnamese entity to another Vietnamese entity regarding an overseas project shall not be regarded as exported services and hence, 10% VAT will apply.
However, if the Vietnamese entity provides such services to an entity which is established overseas with respect to an overseas project, such services will be treated as exported services and subject to a VAT rate at 0%.
Foreign Contractor Tax (FCT)
Other taxable income of foreign contractors
According to OL No 4615/TCT-CS dated 19 December 2011, items such as non-refundable support, compensation, realized foreign exchange gain, foreign exchange gain on revaluation of the year-end balances of long-term debt are considered as other income of foreign contractor and subject to FCT in Vietnam.
As to the receipts from electricity, water from foreign sub-contractors, if the foreign contractors pay the electricity and utilities bills to the supplier, and then issue the VAT invoices to foreign sub-contractors in order to allocate the expenses in accordance with the supplier's price, and declare the output VAT as regulated, the foreign contractors will not be subject to FCT declaration and payment on this reimbursed amounts as there is no mark up.
FCT for on-the-spot export and import
On 31 January 2012, the MoF issued the OL 1216/BTC-TCT (OL 1216) re-confirming that the activities of on-the-spot export and import are subject to FCT in Vietnam in accordance with the OL 2321/TCT-CC dated 7 July 2011 of the GDT which takes effect on 1 January 2009.
OL 1216 also stated that if any Double Tax Agreement (DTA) has provisions otherwise, then the taxpayers have the right to apply such provisions of the DTA.
Inside July 2012 edition
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