Newsletter

Decree No. 20/2017/ND-CP (“Decree 20”) guiding tax management on transfer pricing (TP)

As we mentioned in our Newsletter of February 2017, on 24^th February 2017, the Government issued Decree 20 providing guidelines on tax management applied to TP, effective from 1^st May 2017.

In this newsletter, we would like to further clarify the cases in which a taxpayer is exempted from preparation and declaration of TP documentation.

1. A taxpayer will be exempted from preparation of declaration on Section III and IV under Form No. 01 in case:

–           The taxpayer has transactions only with related parties subject to Corporate Income Tax (CIT) in Vietnam.

–             The taxpayer and its related parties apply the same CIT rate and enjoy no CIT incentive.

–            The taxpayer must declare the basis for exemption in Section I and II under Form No. 01

2. A Taxpayer will be exempted from preparation of TP report (submit Form No. 01 only) in cases:

a) The taxpayer has revenue of less than VND 50 billion and the total value of its related party transactions is less than VND 30 billion.

b) The taxpayer has signed an Advance Pricing Agreement (APA) and submitted annual APA report.

For related party transactions which do not belong to the scope of APA, the taxpayer must declare prices in related party transactions as regulated in Article 10 of Decree 20.

c) The taxpayer performs simple business functions, creates no revenue and expenses from exploitation and usage of intangible assets, has the total revenue of less than VND 200 billion and achieves a ratio of earnings before interest and tax to revenue of at least:

–        5% for distribution function

–       10% for manufacturing

–        15% for processing.

In case taxpayers do not apply the ratio as regulated, they must prepare TP report.

Decree No. 44/2017/ND-CP guiding on compulsory social insurance rate contributed to the insurance fund for occupational accidents and occupational diseases 

According to the Decree, occupational accidents and occupational diseases insurance rate shall be adjusted from 1% to 0.5% of salary fund used for social insurance contribution of employees mentioned at Point a, b, c, d, dd and h of Clause 1, Article 2 of the Law on social insurance, except for housekeepers.

The rate shall be adjusted from 1% to 0.5% of basic salary for employees mentioned in Point 2, Clause 1 of Article 2 of the Law on social insurance.

For labor contracts with a term of between full of 01 month to less than 03 months, the contribution to the occupational accident and occupational disease insurance shall be compulsory from 1^st January 2018.

Decree 44 will be effective from 1^st June 2017.

Decree No. 47/2017/ND-CP guiding on basic salary for government employees and military personnel

According to the Decree No. 47/2017/ND-CP dated 24^th April 2017, basic salary will increase to VND 1,300,000 per month from 1^st July 2017. For enterprises which pay its employees based on independent salary negotiations, the basic salary is used to determine the maximum salary applied for social and health insurance calculation (at most 20 times the basic salary).

Circular No. 37/2017/TT-BTC amending Circular 39/2014/TT-BTC and Circular No. 26/2015/TT-BTC

On 27^th April 2017, the Ministry of Finance issued Circular No. 37/2017/TT-BTC (“Circular 37”) with the following notable points:

– In case an enterprise is established after 1^st June 2014, has a legal capital less than VND 15 billion, and purchases fixed assets with VAT invoice worth more than VND 1 billion, and is confirmed by the tax office directly managing the enterprise about being eligible for using self-printed invoice:

+ Within 02 working days after receiving document regarding the use of self-printed invoices from the enterprise, the tax office must comment on the enterprise’s condition to use self-printed invoices.

+ If the tax office does not answer within 2 days, the enterprise will automatically have the right to use its self-printed invoices.

– For enterprise using ordered invoices:

+ Within 02 working days after receiving document regarding the use of ordered invoices from the enterprise, the tax office must issue a notification of using ordered invoice for the enterprise.

+ If the tax office does not answer, the enterprise will automatically have the right to use its ordered invoices

An enterprise must send an invoice issuance announcement and a sample invoice to the tax office directly managing the enterprise at least 02 days before using.

Circular 37 will be effective from 12^th June 2017.

Circular No. 28/2017/TT-BTC amending Circular No. 147/2016/TT-BTC and Circular No. 45/2013/TT-BTC

On 12^th April 2017, the Ministry of Finance issued Circular No. 28/2017/TT-BTC (“Circular 28”) providing guidelines on depreciation of building complex. According to Circular 28, in case a building complex is used for business operation as well as for sale/lease, each portion of its usage must be accounted for separately, details are as follows:

– The owner enterprise must record the area used for business operation and for lease as fixed assets and depreciate such area in accordance with current regulations.

– For the area used for sales, the enterprise must not account for such as a fixed asset and is not allowed to depreciate it accordingly.

–      In case an enterprise cannot separate the areas for each purpose, it is not allowed to record the property as a fixed asset nor depreciate it.

Circular 28 came into force on 26^th May 2017 and shall be applied from the fiscal year 2016.

Official Letter No. 15764/CT-TTHT about tax policy

On 7^th April 2017, Hanoi Tax Department issued Official Letter No. 15764 about tax policy with the following main point:

In case a company receives support in cash from parent company abroad, such amount will be recorded to other income. The company must declare and pay corporate income tax on this income.

Official Letter No. 22844/CT-TTHT about foreign contractor tax (FCT)

On 24^th April 2017, Hanoi Tax Department issued Official Letter No. 22844 on FCT applied to transfer of the right to use trademarks, which was guided in Circular No. 15888/BTC-CST (Circular 15888) dated 7^th January 2016; stating that Circular 15888 will not have retroactive effect.

Official Letter No. 22857/CT-TTHT about FCT

On 24^th April 2017, Hanoi Tax Department issued Circular No. 22857, with the main point as follows:

In case a foreign contractor provides legal consulting services, market development consulting, technical consulting, and so on, to Vietnamese companies through emails, telephones, software and other internet applications, such services are subject to FCT including corporate income tax and value added tax.