APAC Tax Matters: November 2012


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New circulars on Corporate Income Tax (CIT) and Foreign Contractors Tax (FCT)

The Ministry of Finance (MoF) issued Circular 123/2012/TT-BTC ("Circular 123") dated 27 July 2012 and Circular 60/2012/TT-BTC ("Circular 60") dated 12 April 2012, replacing Circular 130 on CIT and Circular 134 on FCT respectively.

Circular 123 on CIT

The main contents of Circular 123 that comes into effect from 10 September 2012 and applied from the 2012 tax period onwards are generally based on the guidance provided in the previous Circular 130 and Circular 18 on CIT.

In addition to amendments stated in Decree 122/2011/ND-CP that have been updated in the July 2012 edition, there are certain additional salient points:

Additional salient points:

Determination of revenue for calculations of taxable income for some cases

Assets leasing business: Taxable revenue can be determined based on the revenue received for several years in advance. In cases where the enterprises are in the entitlement period of tax incentives, the CIT liability for each tax incentive year shall be equal to the total CIT liability of those years divided by the number of years for which the rents have been advanced.

Deductible and non-deductible expenses

Cost of damaged goods due to expiration or natural spoilage: Circular 123 has removed the requirement that in order for the cost to be tax deductible, it must be within the limit established by the company. Such cost is deductible if supporting documents are in place.

Tools, instruments, circulating packaging, etc. disqualified for being recognized as fixed assets could be amortized over the cost of production and business over a maximum period of two years.

“Other income” supplemented

Gains on revaluation of assets (not including land use rights) used for capital contribution is considered as other income in the tax period.

Gains on revaluation of land use rights used for capital contribution are allocated to a maximum of 10 years from the year in which the land use right is contributed. Enterprises are required to notify tax authorities regarding the number of years to which the gains are allocated.

Tax exempt income

In case of joint stock enterprises issued shares, the difference between the issue price and the face value shall be non-taxable.

Carry forward of losses

Circular 123 provides a clearer guidance where taxpayers may carry forward losses of previous years to subsequent years’ taxable income in quarterly tax returns.

Enterprises having losses in previous tax years (if the losses remain within the allowable carrying forward timeline) are required to carry forward losses to the corresponding profit making activities. If enterprises cannot separate losses of each activity, the enterprises must carry forward losses to the business activities entitled to tax incentives first, then the residual amount shall be carried forward to activities not entitled to tax incentives.

Tax incentives

Enterprises that are in the entitlement period of tax incentives and apply for conversion of tax period can now opt to continuously apply for the tax incentives in the conversion year (which is less than 12 months); or to apply the standard tax rate in that year and apply for tax incentives in the subsequent years.

In instances where enterprises are entitled to tax incentives due to income arising in a qualifying location, and at the same time receive income from other jurisdictions not entitled to tax incentives, said enterprises must separately calculate the income from the business activities in the area of investment entitled to tax incentives in order to be eligible for the relevant CIT incentives.

CIT rate

The CIT rate applicable to activities of prospecting, exploration and exploitation of rare and precious resources (except petroleum) in Vietnam is from 40% to 50%, depending on location.

The deemed rate applicable to pre-sales of real estate has been reduced from 2% to 1% where the method of determining expenses in accordance with progress payments cannot be identified.

Circular 60 on FCT

The Ministry has released Circular 60/2012/TT-BTC (Circular 60) to provide guidance on taxation of foreign contractors in Vietnam. With the issuance of Circular 60, Circular 134 and its amendments on FCT were effectively replaced after 45 days from the signing date of 12 April 2012.

Salient points of Circular 60 are summarized as follows:

Foreign contractors supplying goods in Vietnam in the form of on-the-spot import/export or under delivered duty paid (DDP), delivered at terminal (DAT), delivered at place (DAP) delivery terms now fall within the scope of application of FCT rules.

Out of scope of FCT application expands to include:

Foreign organizations providing professional services related to management, issuance of bonds, legal consultancy, depository agent or organizing roadshows in countries where the Vietnamese entity issues Global Depositary Receipt and international bonds.

Advertisement, marketing and training performed outside Vietnam are still not subject to FCT. However, advertisement, marketing on the internet and online training are not exempted from FCT.

Deemed FCT rates as percentage of taxable turnover are updated as follows:

Business activity Circular 60 Circular 134
Drilling 70% 5% 50% 5%
Interest   5%   10%
Reinsurance   0.1%   2%
Casinos, restaurants, hotels management 50% 10% 50% 5%
Derivatives   2%   2%
(as other)

Decree on 30% CIT exemption in 2012

On 30 July 2012, the Government issued Decree 60/2012/NĐ-CP (Decree 60) to provide guidelines for the implementation of Resolution 29/2012/QH12 and the 30% reduction of CIT payable in 2012 for small, medium enterprises and intensive-labor using enterprises in certain industries.

The CIT reduction is determined based on the CIT payable amount in the quarterly returns and the residual CIT payable amount in the annual final return. Decree 60/2012/NĐ-CP takes effect from 20 September 2012.

New Circular on tax code registration for foreign contractors

Under Circular 80/2012/TT-BTC effective from 1 July 2012, the tax authorities shall only issue tax code of ten digits to the Vietnamese party which withholds and pays FCT on behalf of foreign contractors instead of thirteen digits to each foreign contractor as provided under the previous regulation (Circular 85/2007/TT-BTC).

Import duties

Objects exempt from Import duties

Official Letter 3369/TCHQ-TXNK dated 5 July 2012 of the General Department of Customs provides that goods imported to form fixed assets of an investment project entitled to incentive(s) do not include machinery, equipment, means of transportation, etc., directly imported by a financial leasing company for leasing purposes.