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APAC Tax Matters - March 2012 - Vietnam - EY - China

APAC Tax Matters: March 2012Vietnam

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Value Added Tax (VAT)

Entitlement to VAT credit where enterprise is in breach of Enterprises and Investment Laws

Official Letter (OL) 13238/BTC-TCT of the Ministry of Finance (MOF) dated 4 October 2011 reaffirms that an enterprise which violates the enterprise regulations, but such violations do not result in its Business Registration Certificate being revoked such that the enterprise must cease business, will still be entitled to VAT credits and refunds. However, the VAT refund dossiers or VAT declarations shall be considered as null and void if the relevant violations lead to business dissolution.

OL 3315/TCT-KK issued on 15 September 2011 further adds the case where the VAT refund decision for the period prior to such revocation has been issued. Following this ruling, the amount shall not be refunded or the already refunded amount shall be recollected.

Invoice guidelines on real estate deals

OL 3590/TCT-CS of the General Department of Taxation (GDT) dated 10 October 2011 provides guidance on the invoices for the transfer of on-going capital contribution contracts for real estates, as follows:

  • The transferor who is a corporate entity shall issue a VAT invoice to the transferee based on the value of the transfer contract. Such VAT invoice shall be eligible for VAT credit by the transferee.
  • The real estate trading company shall not recollect the invoices previously issued to the transferor. Instead, it shall issue new VAT invoices to the transferee when the transferee makes further payments in accordance with the capital contribution schedule.

Conditions for application of VAT rate of 0%

On 16 November 2011, the MOF issued OL 15514/BTC-TCT to provide additional guidelines on the application of VAT rate of 0% as follows:

Vietnamese traders (including those with foreign invested capital) may apply VAT rate of 0% to goods exported on spot if the following four conditions are satisfied:

  • In the export/processing contract signed with the foreign trader, there is a provision clearly stating that the goods shall be delivered to a recipient in Vietnam.
  • Customs declaration certified by the Customs Office that the goods have already been delivered to the on-spot importer as instructed by the foreign party.
  • The foreign trader (the buyer) shall pay the Vietnamese trader (the seller) in a freely-converted foreign currency, and there is a document evidencing that the payment is made via the bank. Where the on-spot importer is authorized by the foreign trader to make payment to the on-spot exporter, the payment currency shall follow the local regulations on foreign exchange control.
  • Names of the foreign trader (the buyer), the on-spot importer (the recipient of goods) and place of delivery of goods are clearly stated in the export invoice or VAT invoice.

Where goods are delivered to a business entity located in duty free zone

Where foreign trader instructs that the goods are to be delivered to a business entity located in a duty free zone, these goods shall be subject to a VAT rate of 0% if the conditions mentioned in Point 1.3.d2, Section III, Part B, Circular 129/2008/TT-BTC are met. In principle, these conditions are similar to those mentioned in OL 15514/BTC-TCT.

Corporate Income Tax (CIT)

Tax deferral and tax reduction in 2011

To enable business entities to overcome difficulties and promote production and business, the Government and Prime Minister have promulgated the following tax solutions:

Type of enterprises Tax deferral/ reduction Legal basis
Small and medium enterprises
Not applicable to:
  • Enterprises classified as Grade I or Special Grade belonging to economic groups
  • Enterprises organized on the parent - subsidiary model where the parent company is not a small or medium-sized enterprise and holds more than 50% of the equity of the subsidiary company
1 year of tax deferral payment (excluding income from lottery, real estate, securities, finance, bank, insurance and business activities subject to Special Consumption Tax) Circular 52/
30% tax reduction (excluding income from lottery, real estate, securities, finance, bank, insurance and business activities subject to Special Consumption Tax) Decree 101/
Labour-intensive companies in manufacture, processing agricultural product, forest product, sea product, textiles and garments, leather and shoes, electronics components, and construction of social economic infrastructure projects 1 year of tax deferral Decision 54/
30% tax reduction (excluding income from lottery, real estate, securities, finance, bank, insurance and business activities subject to Special Consumption Tax) Decree 101/

Definitions of enterprises

  • SMEs: enterprises which satisfy the criteria on capital or employees in accordance with Decree 56-2009-ND-CP of the Government dated 30 June 2009.
  • Labor-intensive enterprises: enterprises with a total number of average regular employees in year 2011 above 300, excluding employees with a short-term contract below 3 months. For an enterprise organized on the parent company-subsidiary model, the number of employees for determining eligibility of the parent company does not include the employees of the subsidiary company.

Date of coming into effect

  • The CIT reduction shall be applicable for the provisional quarterly CIT liabilities and the 2011 CIT final liability.
  • Where an enterprise is entitled to tax incentives, the reduction shall be further applied after applying the incentives.

The payment deferral covers the provisional quarterly CIT liabilities and the 2011 CIT final liability, specifically:

Periods (2011) Provisional/ Finalization Statutory deadlines Deferral deadlines
Q1 Provisional 30 April 2011 30 April 2012
Q2 Provisional 30 July 2011 30 July 2012
Q3 Provisional 30 October 2011 30 Oct 2012
Q4 Provisional 30 January 2011 31 March 2013
2011 Finalization Finalization 31 March 2012 31 March 2013

As for enterprises with a non-calendar fiscal year, the deferral shall only be applicable for the provisional CIT liabilities of the Quarters of 2011 only.

In the case of the taxes for Quarter 1-3 that have been declared and paid, such amounts can be offset against:

  • The CIT payable of activities not entitled to the deferral
  • The CIT payable of the next period not entitled to the deferral

 Customs duties and others

Recollection of import duties on imported raw materials
On 26 September 2011, the General Department of Customs (GDC) issued OL 4686 clarifying the tax treatment in cases where taxpayers make different kinds of products from the same type of imported materials or supplies but nevertheless export only one product amongst those made. According to OL 4686, the enterprise is required to pro-rate the import duty according to the imported raw materials used for domestic consumption for re-calculation of the import duty eligible for tax refund consideration.

Re-export of fixed assets imported to form fixed assets
OL 4716/TCHQ-GSQL dated 28 September 2011 reaffirms that goods forming fixed assets already exempted from import duty, of which the usage purpose now changes or is permitted for change (for cases requiring a competent authority's permission) to the mode of re-export shall enjoy the tax exemption.

More severe penalty on unlawful quotation of goods and services in foreign currency or gold
Under Decree 95/2011/ND-CP dated 20 October 2011 of the Government, unlawful quotation of goods, services and land use right in foreign currency or gold, is subject to a penalty of VND300 million to VND500 million.

Law on Non-Agricultural Land Use Tax
The Law on Non-Agricultural Land Use Tax shall come into full force and effect as from 1 January 2012. Taxable objects include residential land in all areas and land use for business purposes, except for certain cases.

Law on Environmental Tax
This law regulates environmental tax which is a type of indirect tax collectible on a number of goods and products which, when used, adversely affect the environment. The law shall come into effect as from 1 January 2012.

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