Newsletter

Official Letter No. 74289/CT-TTHT (OL 74289): Personal income tax (PIT) treatment of charity activities

The OL 74289 issued by Hanoi Department of Taxation on 7^th November 2018 answers an inquiry on a case where employees of a company did charity activities, such as donating gifts and money to poor people, disabled individuals and hospitals, and donation was made from employees in the form of salary deduction. This OL states that salary deduction made for charity activities should not be deducted from taxable income of employees for PIT purpose since charitable works are not performed through a charity fund which is established and is operated according to Decree No. 30/2012/ND-CP dated 12^th April 2012 for this case.

Official Letter No. 75439/CT-TTHT (OL 75439): Corporate income tax (CIT) treatment of compensation received for contract violations

On 13^th November 2018, Hanoi Department of Taxation issued OL 75439, which handles a case where Party A (the company which provides processing service) damaged some materials of Party B (the company which hires Party A for processing service) and was required to compensate the damage in accordance with the processing contract signed by Party A and Party B. In this case, this OL states that Party A shall prepare a payment voucher and Party B shall issue a receipt as guided by Circular No. 219/2013/TT-BTC. Then, Party B shall not declare nor pay VAT for the compensation received. Party B shall record the compensation received as taxable income for CIT, according to Clause 1, Article 5 of Circular No. 219/2013/TT-BTC and Clause 13, Article 7 of Circular No. 78/2014/TT-BTC issued by the Ministry of Finance.

Based on the processing contract and abovementioned documents, Party A can treat the compensation paid as deductible expense for CIT.

Official Letter 15251/CT-TT&HT (OL 15251): VAT treatment of revised lease agreements

On 14^th November 2018, Hai Phong Department of Taxation issued OL 15251, which handles a case where the company (lessor) signed a contract with another company (lessee – Company A) to lease land and infrastructure over 45 years. Since Company A was EPE, when signing this contract, the company issued a VAT invoice by applying VAT rate of 0% for the whole lease term and declared VAT as regulated by the law. This OL states as follows;

• If Company A changes its form from EPE to non-EPE entity, from the date the authority approves such change, the rental revenue of the lessor shall be taxed at 10% for VAT. Both parties shall amend the lease contract, and the lessor shall prepare an amended VAT invoice, following Clause 3, Article 20 of Circular No. 39/2014/TT-BTC (Circular 39) issued by the Ministry of Finance on 31^st March 2014. According to the amended invoice, both parties shall declare VAT as regulated by the law.
• If Company A returns a part of the leased land and infrastructure to the lessor due to reduction in the scale of the investment project, both parties shall prepare an agreement to determine the deduction of lease fee. Then, the lessor shall prepare an amended invoice following Clause 3, Article 20 of Circular 39. According to the amended invoice, both parties shall declare VAT as regulated by the law.

Official Letter No. 15540/CT-TNCN (OL 15540): PIT tax policy on foreign workers working under a foreign contractor contract

On 22^nd November 2018, Hai Phong Department of Taxation issued OL 15540. According to this OL, when foreigners work in Vietnam under foreign contractor contracts and receive income in the form of salary and wages from a foreign contractor, the foreign contractor is required to register and declare PIT, pay and finalize the PIT of foreign workers, according to Circular No. 111/2013/TT-BTC issued by the Ministry of Finance.

If a company in Vietnam signs the contract with the foreign contractor and declare and pay PIT of foreign employees on behalf of the foreign contractor, the company in Vietnam may treat PIT as deductible expenses for CIT purpose by stating clearing in the contract that PIT responsibility is born by the company in Vietnam.