Newsletter

Decree No. 82/2018/NĐ-CP (Decree 82): incentive policy on Industrial Park and Economic Zone

On 22^th May 2018, the Government issued Decree 82 with some main points about investment incentives policy applied to Industrial Parks (IP) and Economic Zones (EZ) as follows:

1. IP is eligible for incentives applicable to geographical areas listed on the list of geographical areas with difficult social and economic conditions under the investment law.
2. IP located in geographical areas with extremely difficult social and economic conditions is eligible for incentives applicable to geographical areas listed on the list of geographical areas with extremely difficult social and economic conditions under the investment law.
3. EZ is eligible for incentives applicable to geographical areas listed on the list of geographical areas with extremely difficult social and economic conditions under the investment law.
4. Beneficiaries, principles and procedures to get investment incentives of investment projects in IP and EZ shall follow the regulations of investment law.
5. The expenses incurred for construction, operation or rent of condominium apartments and social infrastructure for workers in IP or EZ shall be deductible expenses for CIT of the enterprise with investment projects implemented within these IP or EZ.

Investment projects on the construction of dwelling houses, cultural and sport and social infrastructure serving the needs of workers in IP or EZ shall enjoy incentives according to law provisions on building of social housing and relevant legislation.

Inhabitants shall be prohibited from residing in industrial parks and export processing zones. Only foreigners who work as managers, chief executive officers and experts are granted the permit for temporary stay within industrial parks and export processing zones, if necessary. The following requirements for a foreigner’s temporary residence must be satisfied:

• Temporary residence serves the business and production needs of enterprises;
• His/her families and relatives are not allowed to stay with him/her in IP or EZ;
• He/she is obliged to abide by temporary residence registration and declaration procedures stipulated in applicable regulations on entry, exit and residence of foreigners in Vietnam;
• Dwellings of foreign managers, chief executive officers and experts shall need to be separated from production and office areas and shall meet construction standards applied to housing. Enterprises shall be responsible for registering temporary residence of foreigners and shall be committed to maintaining social security and order and avoiding any adverse impact on operations of industrial parks and export processing zones.

Decree 82 comes into force from 10^th July 2018 and replaces Decree No. 29/2008/ND-CP, Decree No.164/2013/ND-CP and Decree No. 114/2015/ND-CP.

Official Letter No. 5120/BCT-KH (OL 5120): requirement for foreign investors conducting import/exports and distribution

On 28^th June 2018,

the Ministry of Industry and Trade issued OL 5120 with some main points as follows:

• According to Clause 1, Article 5 and Clause 1, Article 6 of Decree No. 09/2018/NĐ-CP dated 15^th January 2018, a foreign investor and the foreign-invested business entities are entitled to import and export rights, whole sale distribution rights after they register to perform these rights by following the Investment Law and Law on Enterprises.
• For goods which are under the list of goods to be imported, exported, distributed with required licenses or certain conditions, foreign-invested business entities can perform these rights only after they obtain such licenses or meet such conditions as prescribed.
• Decree No. 09/2018/NĐ-CP does not contain regulations about compulsory declaration for the list of goods to be imported, exported, distributed using HS code. Investors and business entities, based on their demands, business capability, financial status, the convenience of processing customs clearance procedures and other relating procedures, shall determine and declare such list of goods by HS code, by name or by chapter.
• HS code declaration for goods in the customs declaration documents must follow the regulations about customs procedures. In case of difficulties in preparing customs declaration documents, the company should contact the Ministry of Finance or Customs Department for further instructions in detail.

Official Letter No. 2171/TCT-CS (OL 2171): VAT policy on host computer rental activities

On 4^th June 2018, the General Department of Taxation issued OL 2171. This OL handles a case a company owns a host computer installed in Vietnam and rents it to a client in a foreign country. In this case, the rent service is not considered as exported service and the company should apply VAT rate of 10% for this transaction.

Official Letter No. 2351/TCT-CS (OL 2351): VAT policy on EPE performing processing service to domestic companies

On 13^rd June 2018, the General Department of Taxation issued OL 2351 guiding the case in which an EPE performs processing services to a domestic company.

According to the regulations on processing activities per Chapter VI of the Commercial Law 2005, there is no limitation for EPE to perform processing service for foreign business entities or domestic business entities. Therefore, EPE which obtained an investment registration certificate has the right to perform processing activities for domestic companies. EPE shall declare and pay VAT for revenue generated from processing activities for domestic companies. In addition, the company is required to register the VAT calculation method and VAT invoice, according to the current regulations.

Official Letter No. 2453/TCT-CS (OL 2453): clarification of VAT refund policy for the period from 01^st July 2016 to 31^st January 2018

On 20^th June 2018, the General Department of Taxation issued OL 2453 guiding on VAT refund. According to this OL, as regulated in Point 3, Clause 6, Article 1 of Decree No. 100/2016/ND-CP dated 1^st July 2016 and Clause 2, Article 1 of Decree No. 146/2017/ND-CP dated 15^th December 2017, from 01^st July 2016 to 31^st January 2018, the company which imports goods and then exports these goods cannot get VAT refund.

Official Letter No. 37304/CT-TTHT (OL 37304): tax treatments on refund and compensation paid together to foreign contractor

On 4^th June 2018, Hanoi Taxation Department issued OL 37304 which handles a case in which a company signed a share purchase contract with a foreign contractor on 26^th June 2014 and received total money from the contractor. Due to some reasons, both parties had to cancel the contract, and the company had to refund as well as to pay compensation to the foreign contractor. According to this OL, the tax treatment for these payments are as follows:

1. Foreign contractor tax (FCT):

– The money paid back to the foreign contractor is not income of the contractor. Hence, it is not subject for FCT.

– The compensation paid to the foreign contractor is subject to FCT.

+ VAT: zero VAT

+ CIT: CIT rate of 2% is applied

2. Corporate income tax (CIT):

The compensation (expense) is not corresponding with taxable income of the company and hence, is not considered as deductible expense for CIT as regulated at Article 4 of Circular No. 96/2015/TT-BTC dated 22^nd June 2015 of the Ministry of Finance.

Official Letter No. 43767/CT-TTHT (OL 43767): clarification of deductible interest expenses for corporate income tax (CIT) purpose

On 26^th June 2018, Hanoi Taxation Department issued OL 43767. This OL handles the case that the company has related party loan transactions (the parent company guarantees the company’s loans with the bank) and non-related party loan transactions (the company directly borrows from the bank). In this case, this OL states that the company shall determine the deductible interest expense for CIT purpose by following Clause 3, Article 8 of Decree No. 20/2017/NĐ-CP. The total interest expenses used in determination of deductible interest expenses is the total interest expenses regardless whether the loan is a related party transaction or not.