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Circular No. 130/2016/TT-BTC provides guidance on the amendment of Law on value added tax (VAT), corporate income tax (CIT), and Law on tax administration

On 12^th August 2016, the Ministry of Finance issued Circular No. 130/2016/TT-BTC guiding the Decree No. 100/2016/NĐ-CP detailing on implementing the amendment of the Law on value added tax, Law on special consumption tax, and Law on tax administration and the amendments of some Circulars on taxation. As stated in Circular No. 130, there are some notable points as follows:

Value-added Tax (VAT)

Amend and supplement on the subject and project, which are eligible for VAT refund:

• A business establishment that pays VAT using credit-invoice method may offset remaining deductible VAT in a month/quarter to the next month/quarter.
• If a business establishment, which is eligible for VAT refund as prescribed in Clause 1, Article 18 of Circular No. 219/2013/TT-BTC, has a deductible VAT balance incurred before tax period of July 2016 (monthly declaration) or before tax period of 3Q 2016 (quarterly declaration), the tax authority shall refund deductible VAT balance as stipulated in regulations.
• VAT for investment project shall not be refunded and shall be offset against that of the next period in the following cases:

– A business establishment has not contributed charter capital sufficiently as registered in accordance with the law;

-Investment project of a business establishment is in a conditional area. However, the business establishment has not obtained a certificate of eligibility for conditional business or a permission for conditional business;

-Investment project has its license for conditional business or certificate of eligibility for conditional business or permission for conditional business revoked by a competent authority.

• In order to get VAT refund, a business establishment, which has both export revenue and domestic revenue, must separately record input VAT on purchases used for manufacturing of goods or services exported.

In case a business establishment cannot record VAT separately, input VAT of export activity shall be determined based on the ratio of export revenue on the total revenue for the tax period from the period succeeding the period in which tax was refunded to the current period in which tax is claimed for refund.

• After offsetting with VAT payable for goods and services for domestic consumption, if the remaining amount of deductible VAT is VND 300 million or more, the VAT amount shall be refunded. The amount of refunded VAT for goods/services export shall not exceed 10% of revenue from goods/services for export.
• The tax authority will grant a tax refund before tax inspection in case a taxpayer has not incurred any penalties of tax evasion or tax fraud for two consecutive years or the taxpayer does not pose a high tax risk according to the Law on tax administration and other regulations

Tax administration

Amend and supplement on the late payment interest rate:

• The taxpayer has to pay late payment interest at 0.03% of the tax arrears per day.

Amend and supplement on the late payment amount:

• For outstanding tax payables incurred from 1^st July 2016, the late payment interest is determined at 0.03% per day on the outstanding amount.
• For tax payable which incurred before 1^st July 2016 but still outstanding after this date, late payment interest rate is as follows:

For the period before 1^st January 2015: late payment interest rate is in according with the Law on tax administration No. 78/2006/QH11 and Law on amending and supplementing a number of articles of the law on tax administration No. 21/2012/QH13;

For the period from 1^st January 2015: the late payment interest is in according with the Law on amending and supplementing a number of articles of the law on tax administration No. 71/2014/QH13, and

From 1^st July 2016, the late payment interest is 0.03% per day.

• A number of late payment days (including holidays and day-offs as stipulated in regulations) are calculated from the following day of the tax payment deadline, the extended time for tax payment as prescribed by law on taxation, or the tax deadline stated in the notice or the decision of competent authority to the day that the taxpayer pays tax to the State budget.

Corporate income tax

Supplement Point a1 on Point a, Clause 6, Article 18, Circular No. 78/2014/TT-BTC on 18^th June 2014 issued by the Ministry of Finance providing guidelines on determining cases which are not expansion investment for the period 2009-2013 as follows:

• For the period from 2009 to 2013: the process that an enterprise used their fixed asset depreciation fund or retained earnings or their capital (within the limit of the capital that the enterprise already registered with the authority) to invest in machineries and equipments without increasing their production capacity as registered with the authority, is not considered as expansion investment.

Circular No. 133/2016/TT-BTC on some new articles of accounting regime of small and medium enterprises.

On 26^th August 2016, the Ministry of Finance issued Circular No. 133/2016/TT-BTC guiding on accounting regime of small and medium enterprises, replacing Decision No. 48/2006/QĐ-BTC on 30^th September 2006. As stated in Circular No. 133, there are some notable points as follows:

• Innovate the policy-approach
• Improve the feasibility in practice
• Separate accounting from taxation, focus on management
• Separate the way to record transactions in accounting books from the way to prepare financial statements
• Substance over form
• Get closer to the international regulations and standards
• Present more details on accounts of 111- Cash on hand, 112- Cash in bank, 121- Trading securities, 128- Held-to-maturity security investments, 131- Trade receivables, 133- Deductible VAT, 136- Inter-company receivables, 138- Other receivables, 141- Advance, 151- Goods in transit, 152- Raw materials, 153- Tools and supplies…

Besides, Circular No. 133 provides many amendments on other contents. Circular No. 133/2016/TT-BTC comes into force from 1^st January 2017.

Official Letter No. 3426/TCT-HTQT on determining permanent establishments to apply 0% VAT.

On 2^nd August 2016, the General Department of Taxation issued Official Letter No. 3426/TCT-HTQT providing guidance on determining permanent establishment to apply 0% VAT for export services. Pursuant to Clause 3, Article 2, Chapter I, Law on corporate income tax dated 3^rd June 2008 (came into effect on 1^st January 2009), permanent establishments to apply 0% VAT is determined as follows:

“3. Foreign enterprises permanent establishments are production and business establishment through which foreign enterprises conduct some or all income-generating production and business activities in Vietnam, including:

a/ Branches, executive offices, factories, workshops, means of transport, mines, oil and gas fields, or other places of extraction of natural resources in Vietnam;

b/ Construction sites, construction works, installation and assembly projects;

c/ Establishments providing services, including consultancy services through employees or other organizations or individuals;

d/ Agents for foreign enterprises;

dd/ Vietnam-based representatives, in case of representatives which are competent to conclude contracts in the name of foreign enterprises or representatives which are incompetent to conclude contracts in the name of foreign enterprises but regularly deliver goods or provide services in Vietnam.”

In case an enterprise in Vietnam provides only preparatory or auxiliary services (obtain, research and provide information related to politics, economic, social and administrative information in Vietnam) for its parent company, it does not have adequate basis to confirm its parent company has permanent establishment in Vietnam.

Official Letter No. 3572/TCT-CS on foreign contractor tax for consulting service contract

On 10^th August 2016, the General Department of Taxation issued Official Letter No. 3572/TCT-CS on foreign contractor tax policy for consulting service contract.

In case a company signs contract with a foreign contractor to purchase consulting, management and engineering services for a construction project, and the contract states that the company will pay other expenses such as air ticket, and hotel fee (other than service fee) demonstrated by supporting document, these actual expenses (regardless where the expense incur) are subject to foreign contractor tax. Foreigner who is an employee of the contractor or hired by the contractor to implement the services shall pay personal income tax in Vietnam in accordance with regulations.

Official Letter No. 53276/CT-TTHT on tax policy

On 15^th August 2016, Hanoi Tax Department issued Official Letter No. 53276/CT-TTHT on tax policy:

• In 2016, when a company is in the process of re-organization or re-structure and pays severance allowance to employees as stipulated by the Labor Code, and pays other allowance in accordance with the Decision of the Board of Management, such other allowance is considered as welfare to employees.
• The total amount of welfare expense in the year of the company is considered as deductible expenses for corporate income tax purpose if the amount does not exceed 1-month actual average salary in 2016 and has adequate document and invoices and meets the payment condition prescribed in Clause 1, Article 4, Circular No. 96/2015/TT-BTC.
• For the other allowance mentioned above, eligible document for tax purpose is Decision of Board of Management, list of employees, and allowance amount for each employee, payment vouchers with adequate signature of emloyees or payment voucher of the bank.

Official Letter No. 52631/CT-TTHT on tax policy.

On 11^th August 2016, Hanoi Tax Department issued Official Letter No. 52631/CT-TTHT on tax policy.

If a company in Vietnam pays for retirement insurance in foreign country monthly as prescribed in the labor contract with an employee and such insurance meets all requirements in accordance with Clause 2, Article 9 of Circular No. 111/2013/TT-BTC and has a copy of receipt voucher issued by an insurance organization or a confirmation of the organization that pays salary from which insurance is withheld, such allowance shall be deducted temporarily from taxable income of the employee. If the insurance above is not compulsory and does not have adequate document to prove, the insurance shall be considered as income from salary and wages of the employees and is subject to personal income tax.