Newsletter

New Decree on enterprise registration

On 14 September 2015, the Government issued Decree No. 78/2015/NĐ-CP, providing guidance on enterprise registration.

Highlights are the following:

• This decree provides guidance on necessary documents and procedures for registration of enterprises and business households. This decree also clarifies authorities in charge of business registration.
• Processing time of enterprise registration decreases from 5 working days to 3 working days. Newly established electric registration process is expected to reduce the time spent for registration by individuals, enterprises and authorities.
• Notification process on the usage of seal design of enterprises, branches and representative office is improved in order to give enterprises convenience and to raise the Vietnam’s “Starting a business index” which is assessed by an international organization.
• This decree provides additional regulations to cope with Law No. 68/2014/QH13 (Law on Enterprise) and Law No. 67/2014/QH13 (Law on Investments) which are applied to enterprises established and operating under the investment license (or investment certificate) and business registration certificate.

Decree No. 78/2015/NĐ-CP becomes effective as of 1 November 2015. This decree replaces Decree No. 43/2010/NĐ-CP and Decree No 05/2013/NĐ-CP.

Decision to establish transfer price inspection departments

On 1 September 2015, General Department of Taxation (GDT) issued Decision No. 1574/QĐ-TCT and Decision No. 1575/QĐ-TCT which provide guidance regarding to tasks and duties of the transfer price inspection departments. These transfer price inspection departments’ work under the Tax Inspection Department of GDT and provincial tax departments, including Hanoi, Ho Chi Minh, Binh Duong, and Dong Nai.

Detailed tasks and duties of the transfer price inspection departments are the following:

• Making annual transfer price inspection plan in accordance with the regulations.
• Obtaining required dossiers to inspect transfer price from the Tax Inspection Department of GDT, Tax Examination Department and districts’ tax departments.
• Implementing technical process (process before the actual inspection), transfer price inspection process and tax administrative tools to assess appropriateness of transfer price set by the company.
• Collecting information from enterprises which are related parties of each other in order to determine tax liabilities.
• Performing transfer price inspection as required by the Tax Inspection Department, Tax Examination Department, districts’ tax departments, superior tax authority and other authorized government departments.
• Recommending handling methods to organization and individuals who violated the laws and such violations were detected through a transfer price inspection.
• Urging organization and individuals who violated tax laws to pay tax and penalties in accordance with determination made by the tax officers.
• Co-operating with functional departments under Provincial Tax Department and other functional agencies in inspecting the transfer price.
• Proposing to and receiving support directly from the GDT in the transfer price inspection process.
• Providing information and conclusion after inspection to the related functional department to coordinate tax administrative proceedings.
• Verifying and resolving allegations of tax violations which relate to transfer pricing.
• Playing an important role in the settlement of bilateral agreements related to transfer price under double tax avoidance agreements.
• Participating in the settlements of Advance Pricing Agreements (APA) and inspecting the compliance of APA after such APA was signed as required by the superior tax authority or authorized government departments.
• Reporting and assessing the quality of transfer price inspection.
• Providing recommendation to improve the quality of transfer price inspection.
• Preparing training material and providing transfer price training for tax officers.
• Being responsible in maintaining technical and legal documents which are related to tasks and duties of the department.

Official Letter on job loss allowance

On 21 September 2015, the Ministry of Labor Invalids and Social Affairs issued Official Letter No. 3772/LDTBXH-LDTL on job loss allowance.

This Official Letter confirms that it is considered in compliance with Law No. 10/2012/QH13 (Labor Law) when the company pays the job loss allowance for 2 months’ salary or more to terminated employees whose work period used for the job-loss allowance calculation (after deduction of the duration the employee received benefits from the unemployment insurance) is less than 12 months, in case labor contract gets terminated due to merging, consolidating, splitting or separating of an enterprise or a cooperative.

The following regulations are the basis for this conclusion stated in the Official Letter.

In accordance with paragraph 1, article 45 of Labor Law: “In case of merging, consolidating, splitting or separating an enterprise or a cooperative, the succeeding employer shall continue employing the existing workforce and modify and supplement the labor contracts; If the existing workforce cannot be fully employed, the succeeding employer shall elaborate and implement a labor utilization plan in accordance with Article 46 of Labor Law”

In accordance with paragraph 3, article 45 of Labor Law: “In case of dismissing an employee due to merging, consolidating, splitting or separating an enterprise or a cooperative, the employer shall pay a job-loss allowance to the employee in accordance with Article 49 in Labor Code”.

Pursuant to article 49 of Labor Law:

“An employer shall pay a job-loss allowance to an employee who loses his/her job under Article 44 or 45 of this Code and has worked regularly for the employer for 12 months or longer. The job-loss allowance is equal to 1 month’s wage for each working year, but must not be lower than 2 months’ wage. The working period used for the calculation of job-loss allowance is the total time during which the employee actually works for the employer minus the time during which the employee benefits from unemployment insurance in accordance with the Law of Social Insurance and the working period for which the employer has paid a severance allowance to the employee. The wage used for the calculation of job-loss allowance is the average wage in accordance with the labor contract during 6 months preceding the time the employee loses his/her job.”

Official Letter on value added tax (VAT) refund

On 21 September 2015, the GDT issued Official Letter No. 3865/TCT-KK providing guidance on VAT refund.

This Official Letter informs that the enterprises are not eligible for VAT refund if they:

• Engage in trading and/or manufacturing of goods and services which are subject to business conditions as prescribed by Law on Enterprises and Law on Investment, and
• Have not received operation license for business lines which are subject to business conditions prescribed per Law on Enterprises and Law on Investment.

The following regulations are the basis for this conclusion stated in the Official Letter.

Pursuant to paragraph 7 of Official Letter No 10492/BTC-TCT dated 30 July 2015:

“7. Enterprises which are not eligible for VAT refund include:

– Enterprises engaging in trading and/or manufacturing of goods and services which are subject to the business conditions, but failing to meet such conditions prescribed by Law on Enterprises and Law on Investment.”

Pursuant to paragraph 1, article 8 of Law on Enterprises:

“Article 8: Obligation of enterprises

1. Satisfy the conditions when engaging in the business lines subject to business conditions as prescribed by the Law on Investment; maintain the fulfillment of such conditions throughout the business operation”

Official Letter on tax treatment of expenditure relating to employees’ welfare

On 29 September 2015, GDT issued Official Letter No. 4005/TCT-CS on expenditure relating to employees’ welfare.

This official letter concludes that expenditures on the employees’ welfare are deductible expenses for corporate income tax (CIT) purpose if the following conditions are met.

• There are adequate supporting documents as prescribed in paragraph 1, article 6 of Circular No. 78/2014/TT-BTC.
• The total expenditures claimed for CIT deduction is the lesser of actual cost incurred in the tax year or actual average 1 month’s salary.

Besides, VAT paid on these expenditures which are considered as deductible for CIT will be deductible for CIT if they meet the conditions to be deductible VAT as prescribed in VAT regulations.

The following regulations are the basis for this conclusion stated in the Official Letter.

In accordance with paragraph 1, article 6 of Circular 78/2014/TT-BTC dated 18 Jun 2014, deductible and non-deductible expenses for purpose of calculating taxable income of CIT is as follows;

“1.Except expenses specified in paragraph 2 of this Article, enterprises may deduct all expenses that fully satisfy the following conditions

• Actual expenses arising in relation to production and business activities of enterprises;

• Expenses with adequate legal invoices and supporting documents;

• For goods or services with invoices valued at VND 20 million or more (VAT-inclusive prices) each, there must be non- cash payment documents;”

In accordance with article 1, part 1 of Circular 151/2014/TT-BTC in 10^th October 2014:

Point 2.31, paragraph 2 Article 6 of Circular No. 78/2014/TT-BTC is amended and supplemented as follow:

“Expenditures that are not relevant to assessable revenue, excluding:

Expenditures on the employees’ welfare: expenditures on employees’ family occasion; expenditures on holiday allowance or treatment support; expenditures on professional training; expenditures on supporting employees’ families affected by natural disasters, hostilities, accidents, illness; expenditures on providing reward for employees’ children due to their educational achievements; expenditures on allowances for traveling during holidays of the employees and other welfare expenditures. The total expenditures incurred in the tax year must not exceed actual average 1 month’s salary”

In accordance with paragraph 1, article 14 of Circular No. 219/2013/TT-BTC dated 31 December 2013, rules for deducting input VAT is as follows:

“Input VAT on goods and services serving the manufacture or sale of goods/services subject to VAT shall be deducted in full, including non-refundable input VAT on damaged goods…”