NEWSLETTER JULY 2020
Tax administration
Draft Decree on 30% reduction of corporate income tax for 2020
This draft was isssued by the Government in order to detail the Resolution of the National Assembly about reducing corporate income tax (CIT). We highlighted some important points as follows:
– In case companies have the total revenue from selling goods and services in year 2020 not over VND 200 billion, the total CIT payable for 2020 shall be reduced by 30%.
– In case companies were established in October, November or December of 2019 and registered the first taxable year 2020 including months of 2019, the total revenue to apply CIT reduction shall not include revenue incurred in 2019.
– In case companies are established in October, November or December of 2020 and register the first taxable year 2021 including months of 2020, the total revenue to apply CIT reduction includes only revenue incurred in 2020.
Details of this draft can be referred at: https://www.mof.gov.vn/Dự thảo văn bản/ Chi tiết góp ý dự thảo văn bản.
Corporate income tax (CIT)
Depreciation expense of fixed assets during the manufacturing suspended period due to Covid-19
According to Official Letter No. 1930/CT-TTHT (OL 1930) issued by Hai Phong Department of Taxation on 2nd July 2020, the company is not allowed to consider the depreciation expenses of fixed assets during the manufacturing suspended period due to the influence of Covid-19 as deductible expense for CIT purpose. The treatment is applied to neither of temporary suspension due to seasonal operation less than 9 months nor of repairs, relocation, periodic maintenance less than 12 months.
Technology transfer contract must be registered for the expense to be deductible
On 10th July 2020, Long An Department of Taxation issued Official Letter No. 1911/CT-TTHT, which handles the case that the company signed contract with the parent company in Japan (in 2013) for using the technology from the parent company in the manufacturing activity, and paid the royalty fee of 1% over its monthly net sales. According to the regulations in the Law on Technology Transfer which came into force from 01st July 2018, the company must re-sign the contract with the parent company and register that contract with Long An Department of Science and Technology in order to treat the royalty fee as deductible expense for CIT purpose.
Material expense over the norm shall not be deductible
Official Letter No. 15857/CT-TTHT issued on 14th July 2020 by Binh Duong Department of Taxation handles the case that Binh Duong Customs Department, through the inspection at the company, imposed the import tax and import VAT for import goods since there is a difference between the amount of material recorded in the import/export documents/accounting book and the materials stocked in the company. In this case, the value of materials over the norm shall not be considered as deductible expense for CIT purpose.
Foreign Contractor Tax (FCT)
FCT for machine and equipment having integrated software
According to Official Letter No. 2273/CT-TTHT (OL 2273) on 13th July 2020 by Bac Ninh Department of Taxation, in case machine and equipment imported from a foreign contractor have integrated software (software embedded or integrated in the machine or equipment), the machine and equipment together with the software are subject to value added tax (VAT). Since the software embedded or integrated shall not be considered as service attached to machine or equipment, it is not subject to FCT.
Labor, salary, and insurance
The National Assembly decided not to increase basic salary from 01st July 2020
On 19th June 2020, the National Assembly decided not to adjust the basic salary for public officials, public employees, armed forces’ personnel and pension from 01st July 2020. Accordingly, companies do not need to adjust maximum salary for calculating social insurance and health insurance.
Salary for calculating social insurance for foreign employees is used to calculate union fee with rate 2%
Guidance No. 05/HD-LĐLĐ issued by Ho Chi Minh City Federation of Labor on 31st March 2020 has some regulations about union fee. Based on Article 5, Decree No. 191/2013/NĐ-CP and Clause 1, Article 2, Decree No. 143/2018/NĐ-CP, the union fee is also calculated based on salary of foreign employees who are subject to the social insurance contribution. Rate for the union fee is 2% of the salary used to calculate social insurance and is applied retrospectively for the period from December 2018 (the time when Decree 143 came into force).