Newsletter

Official Letter No. 18044/CT-TT&HT (OL 18044): VAT requirement for disposed materials

On 3^rd October 2018, Binh Duong Department of Taxation issued OL 18044, which handles the case that a company no longer uses materials in stock and intends to dispose these materials. If the materials are imported materials and were not subject to VAT according to Clause 4, Circular No. 219/2013/TT-BTC issued by the Ministry of Finance dated 31^st December 2013, when changing the purpose of using these materials, the company should declare and pay VAT for imported goods to the customs office where the company registered the customs declaration form. If the materials which will be disposed are domestically purchased materials, the company should issue VAT invoice which states the sales price, VAT tax rate for each kind of materials and must declare and pay VAT, according to regulations at Circular No. 219/2013/TT-BTC. If the tax office inspects the sales price of disposed materials and concludes that the sales price is not reasonable as compared to the market price of the materials at the time of disposal, the tax office shall assess the reasonable sales price for disposed materials according to Article 25 of Circular No. 156/2013/TT-BTC issued by the Ministry of Finance on 06^th November 2013.

Official Letter No. 19391/CT-TT&HT (OL 19391): VAT treatment for services provided to EPE

On 30^th October 2018, Binh Duong Department of Taxation issued OL 19391, which handles the case that a company signs a contract with an EPE to provide factory lease service and sewage treatment service and to receive the electricity fee on behalf of the electricity supplier. This OL states that when receiving the payment, the company should issue a VAT invoice as follows:

If the factory that the company leases to the EPE is located in the area which is stated in the IRC of the EPE, the factory rental expense shall be subject to VAT rate of 0% if it is conformable with the regulations shown at Clause 2, Article 9 of Circular No. 219/2013/TT-BTC issued by the Ministry of Finance.

For the sewage treatment service for EPE, VAT tax rate of 0% will be applied if it is conformable with Clause 2, Article 9 of Circular No. 219/2013/TT-BTC issued by the Ministry of Finance.

If the contract between the company and the EPE states that the company pays the electricity fee to the supplier on behalf of an EPE, the company is required to issue a VAT invoice with the same price and same VAT rate as shown in the VAT invoice issued by the supplier. The Company shall state in the invoice, “receive electricity fee from client”. It is the fee that the company pays to the supplier on behalf of an EPE, so the company shall not declare it in the VAT deduction form and shall not record it as deductible expense for CIT purpose.

Official Letter No. 13827/CT-TT&HT (OL 13827): Personal income tax (PIT) treatment on payment to employees when terminating a labor contract

On 11^th October 2018, Hai Phong Department of Taxation issued OL 13827. According to the case of this OL, due to the economic difficulties, the company negotiates to terminate the labor contract (definite-term and indefinite-term labor contract) with some employees. In this case, PIT treatments for the payment to employees when terminating the labor contract are as follows:

• For the wages, bonus, payment for unused annual leaves, allowance (except for the allowance regulated at Point b, Clause 2, Article 2 Circular No. 111/2013/TT-BTC issued by the Ministry of Finance on 15^th August 2013): the company shall withhold PIT from the abovementioned income using the partially progressive tariff, according to Clause 2, Article 7 of Circular No. 111/2013/TT-BTC.
• Severance allowance paid to the employees by the company according to the regulations in the Labor Code and Law on social insurance is not taxable for PIT purpose. If the company pays the allowance to the employees higher than the allowance regulated in the Labor Code and Law on social insurance, the payment over the regulated allowance needs to be included in the taxable income for PIT calculation and PIT withholding amount shall be calculated using the partially progressive tariff before paying to the employees.
• The financial allowance that the company pays to former employees according to the internal regulations or the negotiations between the company and the employees after terminating the labor contracts: if the payment amount is VND 2,000,000 or more, such payment (the entire payment) is subject to 10% of PIT withholding requirement.

Official Letter No. 14271/CT-TNCN (OL 14272): PIT for individuals working in the economic zone

On 23^rd October 2018, Hai Phong Department of Taxation issued OL 14271, which clarifies that 50% PIT reduction for employees working in the economic zone is not valid.

According to Decree No. 29/2008/NĐ-CP dated 14^th March 2008, about administration in industrial zone, export processing zone, economic zone, individuals having income from wages and remunerations, regardless of Vietnamese or foreign employees working in the economic zone, shall receive 50% deduction from the calculated PIT.

On 10^th July 2018, Decree No. 82/2018/NĐ-CP dated 22^nd May 2018 about the administration in the industrial zone and economic zone came into force and replaced Decree No. 29/2008/NĐ-CP dated 14^th March 2008. Hence, there are no regulations about PIT reduction for employees working in the economic zone. Therefore, individuals having income from wages and remunerations shall follow the regulations about PIT..

Official Letter No. 14285/CT-TT&HT (OL 14285): tax treatment of interest abatement

On 24^th October 2018, Hai Phong Department of Taxation issued OL 14285, which handles a case that the company has a loan from parent company, annually records the interest expense payable and treat such expenses as deductible expense for CIT purpose. Due to economic recession, on 31^st December 2017, the parent company decided to waive the company to pay interest expense incurred before 01^st January 2016. In this case, this OL states that the company shall decrease interest expense payable and record it to other income in the tax period 2017.

According to Law on tax administration, FCT is incurred when the company pays the interest to the parent company. In this case, since the company does not pay or offset the interest payable with the parent company, the company does not incur FCT from this abatement of interest payment.

Official Letter No. 4037/TCT-CS (OL 4037): VAT tax rate for international transportation service

On 17^th October 2018, the General Department of Taxation issued OL 4037, which regulates that the international transportation, including passenger transportation, baggage transportation, cargo transportation from Vietnam to oversea, or from oversea to Vietnam, or between 2 foreign countries. are subject to VAT rate of 0%, if the transaction is conformable with the regulations about international transportation stated at Article 9, Circular No. 219/2013/TT-BTC issued by the Ministry of Finance on 31^st December 2013.

Decree No. 143/2018/NĐ-CP (Decree 143): law on social insurance for employees who are foreign citizens working in Vietnam

On 15^th October 2018, the Government issued Decree 143/2018/NĐ-CP providing guidance for the implementation of Social Insurance obligations for foreign employees working in Vietnam.

Foreign employees working in Vietnam shall be required to participate in the compulsory social insurance program if they have work permits or practicing certificates issued in Vietnam and indefinite-term labor contract or definite-term labor contract for at least 1 year with employers in Vietnam.

Employees who are assigned by the parent company to work for the company in Vietnam, according to regulation at Clause 1 Article 3 of the Decree No. 11/2016/NĐ-CP dated 3^rd February 2016, which provides the details of some articles of the Labor Code regarding foreign employees working in Vietnam, shall be excluded from the participation in the compulsory social insurance as provided.

Contribution requirement from January 1^st 2022:

Employees contribute 8% of their monthly salaries to the retirement and death benefit fund.

Employers, on a monthly basis, make a contribution, according to the employees’ salary and calculation formula shown below:

+ 3% of the employee’s salary to the sickness and parental benefit insurance fund;

+ 0.5% of the employee’s salary to the occupational accident and disease benefit fund;

+ 14% of the employee’s salary to the retirement and death insurance benefit fund.

Decree 143 shall be in effect from December 01^st 2018.