Annual Vietnam Tax Update

Transcription

1 Annual Vietnam Tax Update June 2017

2 Agenda Current tax environment landscape Key changes in the tax regulations Q&A 1

3 Current Tax Environment Landscape 2

4 Vietnam continues to grow Vietnam s GDP is expected to grow over 6% per year till 2025, one of the fastest growing economies in the region Vietnam s GDP versus ASEAN countries 2016 Indonesia 932 Thailand Philippines 305 Malaysia 297 Singapore 297 Vietnam Myanmar Cambodia Laos GDP growth 2016 (%) 5.0% 2.9% 6.9% 4.2% 2.0% 6.2% 8.6% 6.9% 7.4% Indonesia Thailand Philippines Malaysia Singapore Vietnam Myanmar Cambodia Laos GDP forecast from % 4.5% 2.7% 6.0% 5.8% 6.2% 6.6% 6.6% Expected to grow above 6.0 per cent per year 7.6% USD billion 0.0% 2.0% 4.0% 6.0% 8.0% In percentage Source: Economic Intelligence Unit and Economywatch 3

5 A Stable Economy The government shifted from a high growth strategy to one that would bring macroeconomic stability % Real GDP growth and inflation rate in Forecast f 2018f 2019f 2020f Real GDP Growth rate Inflation rate Vietnam Dong 25,000 24,000 23,000 22,000 21,000 20,000 19,000 18,000 Exchange rate against USD (Average) 21,189 21,909 20,859 21,017 20,649 22,317 22,801 23,331 23,690 23, Note: GDP growth (% real change per annual Inflation rate (% change per annum; average) Source: Economic Intelligence Unit, GSO 4

6 Exports Performed Strongly While the United States and China continue to lead export and import trading with Vietnam, trading activities with other nations such as South Korea and Japan, have seen significant growth in the past 5 years. USD Billion Exports, imports and trade balance in Vietnam Exports Imports Source: KPMG s analysis based on GSO data 5

7 Exports Performed Strongly While the United States and China continue to lead export and import trading with Vietnam, trading activities with other nations such as South Korea and Japan, have seen significant growth in the past 5 years. Top imported goods by Vietnam Machinery, instrument, accessory 2. Textile fabrics 3. Iron, Steel 4. Plastic materials 5. Auxiliary materials for textile, garment, leather, footwear 6. Petroleum oil, refined 7. Articles of plastics 8. Parts and accessories for motor 9. Animal fodder and materials 10.Motor vehicles, assembled Top exported goods by Vietnam Telephones and their parts 2. Textile, sewing products 3. Computers, electronic products and parts 4. Footwear 5. Other machinery, instrument, accessories 6. Seafood 7. Wood and wooden products 8. Means of transport and equipment 9. Coffee 10.Bags, pockets, wallets, suitcases, hats and umbrellas Source: KPMG analysis based on GSO data 6

8 Discovering the Consumer Society A young population and rapid adoption of modern technology make Vietnam an exciting market for consumer/retail-focused customers 62.3% Together with rising disposable incomes, a golden demographic structure and higher living standards have set Vietnam apart as one of the most attractive investment destinations in Asia 7

9 Discovering the Consumer Society A young population and rapid adoption of modern technology make Vietnam an exciting market for consumer/retail-focused customers Vietnam personal disposable income in Projected Vietnam healthcare expenditure % 6.2% 7.0% 7.2% 7.1% 7.2% 7.4% 7.3% 7.3% 7.3% 7.3% 8% USD Billion USD billion Stable growth at 7.3% of total GDP % 4% 2% 0% % GDP Healthcare spending Healthcare spending (% of GDP) 8

10 FDI Important Drivers of Growth Vietnam's participation in FTAs and the TPP process has helped it attract investment from abroad. USD Billion Registered And Disbursed FDI Registered New Registered FDI By Sectors In 2016 (USD, Billion) Other 2.20, 20% Manufacturing, 0.70, 6% Electronics 4.05, 36% Top 5 Countries for New FDI In 2016 (USD, Billion) Others, % South Korea, 7.0, 29% Real Estate, 1.13, 10% TMT, 1.25, 11% Textile, 1.94, 17% Taiwan, 1.86, 8% China, 1.87, 8% Source: General Statistics Office, and Foreign Investment Agency Ministry of Planning and Investment Japan, 2.58, 11% Singapore, 2.4, 10% 9

11 Tax environment landscape Plans for Vietnam s 2017 socio-economic development 6.7% Gross Domestic Products (GDP) growth rate < 4% Consumer Price Index (CPI) Focus on attracting hi-tech investment projects 6%-7% Export turnover increase 3.5% Trade deficit (Resolution 23/2016/QH14 dated 10/11/2015) Review current laws to comply with international commitments, FTAs 10

12 Tax environment landscape 2017 State Budget Revenue VND1,212,180 billion vs. VND1,014,500 billion Increased by 19% State-owned enterprises 13% 24% Foreign invested enterprises Private industries 15% 3% 7% 6% 16% 16% Collection relating to land and houses Personal income tax Collection from crude oil Collection from export and import activities Other sources Source: Resolution No. 27/2016/QH14 Challenged by oil price reduction, CIT rate cuts, import duty rate cuts, and business failures 11

13 Tax environment landscape Current State Budget Balance situation 1,600,000 1,400,000 1,200,000 1,000, , , , , (planned) Revenue Expenditures Source: Ministry of Finance, General Statistics Office of Vietnam The gap between State Budget revenue and expenditures is increasing over the year and the Government is facing a constant fiscal deficit 12

14 Tax environment landscape Key measures to meet 2017 State Budget Revenue Key measures: Not propose/ issue new policies that reduce collections, except where an existing international commitment requires Enhance tax audits, transfer pricing review, tax fraud inspections, stricter control on VAT refunds Provide amendments to important tax laws Action plans by the tax authority: Increase domestic taxes collection by 7-8% to cover the budget deficit due to crude oil price collapse and tariffs reduction under international commitment Establish Transfer Pricing Audit Division in GDT and Ha Noi, HCM, Dong Nai, Binh Duong; Capital Transfer Tax Audit Division in Ha Noi, HCM Perform more thorough, detail-oriented, and rigorous audit in transfer pricing and capital transfer in 2017 Determine the list of tax audit target in 2017 (Resolution 01/NQ-CP dated 01 January 2017) 13

15 Tax environment landscape Government s support and development of businesses up to 2020 Issue a Resolution on tax relief measures for businesses Reduce CIT for SMEs Allow offsetting profits from real estate business with losses from ordinary business activities Reduce 50% of PIT for laborers working in certain industries (hi-tech information technology, hi-tech application in agriculture, agricultural processing, etc.) The Government s target up to 2020: one million enterprises in Vietnam private businesses contributes 48-49% of annual GDP Reduce land lease fees, road tolls, BOT fees Amend CIT regulation to extend the scope of deductible expenses Adjust regional minimum salary and social insurance mechanism Amend the current laws and regulations to reduce cost for businesses (Resolution 35/NQ-CP dated 16 May 2016) 14

16 Key changes in tax regulations 15

17 Corporate Income Tax (CIT) 16

18 Summary of CIT Incentive No. Conditions (fields and location) 1 Projects in specially difficult locations specified by Government; Hi-tech; biotech, specific supporting industries; Important infrastructure projects, socialized projects in education, sporting, health care. Large manufacturing projects (investment capital of VND6,000billion; number of labor Projects of manufacturing or processing agricultural products in difficult locations Software production, environment protection 2. Projects in difficult locations, manufacturing of agricultural machinery and equipment, high quality steel. 3 Projects of manufacturing or processing agricultural products in normal locations CIT Incentive Tax rate of 10% for 15 years or for whole life for special projects CIT Exemption: 4 years 50% CIT Reduction: 5year to 9 years Tax rate of 17% for 10 years Exemption: 2 years Reduction: 4 years Tax rate of 15% for whole life 4 Investment projects in industrial zones Exemption: 2 years Reduction: 4 years 17

19 Summary of CIT Incentive concepts Investment/Capital contribution NIP EIP RAME Entitled to incentive Satisfy of 3 conditions Not satisfy 1 of 3 conditions Apply the original incentive Choose to apply the new incentive or the original incentive Apply the original incentive 18

20 CIT incentives - NIP, EIP and RAME CIT incentives - NIP, EIP and RAME Update New investment project ( NIP ) (Circular 78, Circular 96) Investment projects with an Investment License or Investment Certificate prior to 1 January 2014 but are still in the investment stage, neither generating revenue, nor commencing operations, are subject to tax incentives applicable to a NIP. Previously, to qualify for CIT incentives as a NIP, the projects required an amended Investment Certificate from 1 January Practical issues: No licence Amended licence Increase capital/capacity of an existing project but enable the existing project to qualify large project 19

21 CIT incentives - Additions of fixed assets General terms Expansion Investment Project ( EIP ) Regular addition of machinery and equipment ( RAME ) newly introduced terms EIPs: entitled to incentives, including rates and exemption/reduction EIPs: no incentives EIPs from 2014: entitled to incentives RAME: introduced, same incentives as OP from RAME : clearer definition; & incentives applied for EIPs: reduced incentives only exemption/reducti on EIPs before 2014: entitled to incentives from 2015 onwards 20

22 CIT incentives for RAME during : OL 4769 / Circular 96 Regular investment activities need to satisfy two conditions: It is funded by one of the independent sources; and It will not increase the registered business capacity. Entitlement (even where a tax claw back decision has been issued/or when in the process of tax appeal): same CIT incentives of the original project; amendment of the past CIT declaration is allowed Overpaid tax to be offset against the CIT payable in the following tax periods/refunded Fixed assets depreciation fund; OR Profit-after-tax for reinvestment; OR Within registered investment capital Regular investment activities 21

23 CIT Incentives Special packages Supporting Industrial products (subject to conditions under Law 71/2014) 10% rate for 15 years; years of exempt / reduction Income from agricultural processing activities (not trading) 0%, 10% or 15% rate for whole project life 22

24 Allocation of taxable income for tax incentive application No. Method Applicable cases 1. Separate accounting records All cases 2. Revenue ratio Different business activities 3. Expense ratio Different business activities 4. FA ratio (historical cost) Expansion Investment Projects with tax incentive 5. FA ratio OR Investment capital ratio Expansion Investment Projects without tax incentives 23

25 CIT Incentives Special treatments CIT incentives also apply to income from deposit interest and lending interest based on location condition In case a company is entitled to CIT incentives based on location condition, said CIT incentives shall also apply to income generated from business activities within such incentive location, including interest from a definite term deposit at a bank, and lending interest derived from such a location. (Official Letter 2351/TCT-CS dated 30 May 2016) Tax incentives in case of acquiring assets of another project: A taxpayer acquiring assets of a project is eligible to inherit the associated CIT incentives and does not qualify to enjoy CIT incentives as an NIP (Official Letter No. 5391/TCT-CS dated 23 November 2016) 24

26 CIT Incentives Special treatments CIT incentives for two accounting-dependent projects with different CIT incentive schemes Where a taxpayer has two accounting-dependent projects enjoying two different CIT incentive schemes, the taxable income of each project must be separately determined. Allocation of CIT payable based on the expense ratio is not applicable in this case. (Guidance to 2016 CIT finalization GDT s website) Preferential CIT rates for project located in industrial park / economic zones A project located in the industrial park / economic zones without being physically located in a difficult / special difficult eco-socio area is not entitled to a preferential CIT tax rate (OL 292/TCT-DNL dated 23 January 2017) CIT incentives for agricultural and fishery processing activities A company generating income from agricultural and fishery processing is not entitled to multi-cit incentive schemes simultaneously (OL 3091/BTC-TCT dated 8 March 2017) 25

27 Deductible expenses An expense will be deductible for CIT purpose if it meets all of the following conditions: Invoices Input invoices must be compliant with Invoice regulations Related to business Goods/services purchased must be related to business activities Payment Non-cash payment documents for goods and services with value of VND20 mil or more 26

28 Non-deductible expenses - Materials Expenses Damaged goods Content Circular 96 relaxed the documentary requirement (not require official explanation; confirmation of authorities). Only need a summary confirmed by authorized representative of the Company Practical issue: Loss of materials Loss of materials before production. In practice may be treated as not relevant to business and hence not deductible. 27

29 Non-deductible expenses - depreciation Expenses Depreciation expense Content Without any papers proving that they are owned by enterprises (except fixed assets from financial lease- purchase) Depreciation of fixed assets that have been fully depreciated Company's fixed assets are temporarily NOT in use during the year Depreciation expenses of its cars having 9 seats or less and having original cost of more than 1.6 billion/car Claimed depreciation for any fixed assets which were not placed in its site Unused land in the year Depreciation of building complex Where a company owns a building complex which is utilised for both normal operation and for leasing/sales purposes, such a company is required to separate the areas that are for operation/leasing and sales purposes, and is neither allowed to record the fixed assets nor claim depreciation for sales area. Circular 28/2017/TT-BTC) Practical issues: Capitalisation of interest Timing Renovation or repair Matching with revenue/accounting adjustment when low capacity 28

30 Non-deductible expenses employment cost Expenses Wages and salaries of the founders, members of the Board of Directors Wages, bonuses, life insurance premiums for employees Content Who are not directly involved in directing production and business. Not specified in one of the following dossiers: labor contract; collective labor agreement; financial regulations of the company, corporation or group; reward regulations issued by the chairman of the Board of Directors, general director or director under the financial regulations of the company or corporation. Business trips Not specified in one of the following dossiers: labor contract; collective labor agreement; financial regulations of the company, corporation or group Severance allowance Severance allowance paid for employees from 2009 onwards 29

31 Non-deductible expenses Interest expense Expenses Content Interest expense of borrowings for investment in other enterprises is deductible Interest expenses Unclear practical issues: Total interest expenses incurred in the tax period, which are deductible should not exceed 20% of taxpayer s net profit before interest, taxes, depreciation and amortization (EBITDA). Unregistered medium and long term offshore loans with SBV Accrual interest of loan from parent company - pending final position, temporarily deductible Cash account exceeds the loan - unclear explanation requirement. 30

32 Non-deductible expenses - Others Expenses Accrued expenses Content Accrued expenses will normally not deductible for CIT purposes as they are not paid and supported by legitimate invoices, except for some specifically cases. Foreign exchange losses Foreign exchange losses due to revaluation of accounts other than payable accounts are not deductible for CIT purposes Donation expenses Donation expenses not met the conditions under Circular 78 Donation for educations Donation for medical/health care services Donation for recovery from natural disasters Donation for house building for the poor Donation for scientific research => Challenge of supporting documents 31

33 Principles for deductibility of RPTs expenses RPTs not in line with the nature of independent transactions shall be deemed as non-deductible expenses, including: Expenses paid to a related party that does not conduct any business activities relating to the taxpayer s business activities; Expenses paid to the related party that conducts business activities, however its scale of assets, number of employees and functions performed are not corresponding with the value of business transactions and the income that such related party receives from the taxpayer. Expenses paid to related parties who do not have the rights to and responsibilities for the assets, goods and services provided to taxpayer; and Expenses paid to related parties which are residents of a country or jurisdiction that does not collect corporate income tax, and do not contribute to revenue generating nor added values to taxpayer s business activities. 32

34 Principles for deductibility of RPTs expenses Service expenses are considered as deductible expenses if: The provided services have economic, financial and commercial value and directly benefit taxpayer s production or business activities; Intra-group services are determined as rendered under similar conditions where independent parties are willing to pay for such services; The service fee is calculated based on the arm s length principle and sufficient supporting documents are available. Cases where service expenses are considered as non-deductible: Expenses incurred from services which are only used for the purpose of generating benefits and values to other related parties; Services which benefit related parties shareholders; Services received as a result of a group membership; Expenses added to services supplied by a third party when the related party act as middleman without adding value. Loans between related parties Total interest expenses incurred in the tax period, which are deductible should not exceed 20% of taxpayer s net profit before interest, taxes, depreciation and amortization (EBITDA). 33

35 Principles for deductibility of RPTs expenses Recently the tax authorities have requested companies to: Provide details of expenses paid to related parties and relevant supporting documents; Make self-assessment and amend CIT returns to pay additional CIT in accordance with the rules provided under Decree 20. What companies should do: While waiting for MOF s further guidance, review all the RPTs expenses and relevant supporting documents to assess the risks in accordance with Decree 20; Consider the possibility that the Company is required to amend CIT returns to adjust non-deductible expenses as provided in Decree 20 to avoid the 20% penalty; Prepare arguments and supporting documents to explain with the tax authorities under a tax audit/inspection. Consider the impact of double taxation possibility and opportunities of double taxation avoidance. 34

36 Value Added Tax (VAT) 35

37 Strict rules and limit on VAT refund Up to 30 June 2016 From 1 July 2016 (*) Important notes Accumulated input VAT of a consecutive 12 month or 4 quarter period Refundable Nonrefundable Accumulated input VAT incurred before 1 July 2016: Refund or not refund? Investment project (accumulated input VAT of VND300m or more, after offsetting with VAT payable of the existing project if any) Export sales (accumulated input VAT of export is VND300m or more, limited at 10% export revenue) Refundable Refundable 1. Charter capital is fully contributed as scheduled; or 2. Meet all conditions if engaging in conditional business activities Refundable Refundable 1. Comply with customs procedure 2. Not applicable to import for export (*) Amended Tax Law 106/2016/QH13 and Circular 130/2016/TT-BTC, effective from 1 July

38 VAT Special treatments 0% VAT on exported services Services to serve the process of manufacturing goods for export: developing sample goods, choosing material sources and suppliers, and supervising production process of Vietnamese partners (Resolution 89/NQ-CP dated 16 May 2016) The MOF is considering classifying Reclassify export service more aggressively as: - Only service directly associated with the manufacturing process of export goods is subject to 0% VAT; - Other service (e.g. quality control, goods classifying, goods quality supervision, etc.) is subject to 10% VAT (Draft ruling on export services) 37

39 VAT Special treatments No VAT adjustment is required if taxable price of Special Consumption Tax (SCT) is adjusted for SCT re-assessment purposes (OL 2820/TCT-CS dated 23 June 2016) VAT treatment of Intellectual Property transfer of use right vs. ownership: Transfer of ownership: Not subject to VAT Transfer of use right: 10% VAT on a VAT credit method; or 5% VAT on a VAT deemed method Authorising the payment for a goods and services purchase by an employee, which is settled with an individual credit card, is considered as non-cash payment method (Official Letter No. 5465/TCT-KK dated 25 November 2016) 38

40 VAT Special treatments Invoice usage for on-the-spot export activity: From 1 January 2014 to 30 September 2014: a VAT invoice shall be used; From 1 October 2014 onwards: a commercial invoice shall be used. (Official Letter No /BTC-TCT dated 25 November 2016) If a company has not declared the accumulated input VAT as a VAT refund item in the June 2016 VAT return, or the quarter II 2016 VAT return, and the company has carried forward creditable input VAT into the July 2016 VAT return or the quarter III 2016 VAT return, such a company is not eligible to claim a VAT refund. (Official Letter No. 373/TCT-KK dated 6 February 2017) 39

41 VAT Special treatments In case a branch uses the headquarters bank account to settle payments in accordance with the scope of authorisation, and the branch has notified its customers, and the sales contracts or annexes of the sales contracts clearly mention this authorised payment method, the customers are still allowed to credit the related input VAT. (Official Letter No. 1224/TCT-CS dated 31 March 2017) In case a project management office of a foreign contractor dissolves and accumulated input VAT which has not been fully credited, the project management office is entitled to a VAT refund. (Official Letter No. 1221/TCT-CS dated 27 March 2017) 40

42 VAT Special treatments If the investment is not implemented in accordance with the investment law (i.e. investment registration), input VAT will not be refundable. (Official Letter No. 2386/TCT-DNL dated 12 June 2017) 41

43 Special Consumption Tax (SCT) 42

44 SCT taxable price SCT-liable goods sold by Manufacturer/Importer to the independent trading companies Decree 108 (Up to 30 June 2016) 7% price cap rule (SCT taxable price not more than 7% lower than the average selling price of trading companies) Decree 100 and Circular 130 (From 1 July 2016) SCT taxable price selling price of Manufacturer/importer SCT-liable goods sold by Manufacturer/Importer to the related trading companies SCT taxable price selling price of Trading company 7% price cap rule Definition on related party relationship between a manufacturer, an importer and trading company a parent company, subsidiary company or affiliate companies of the same parent company, under Law on Enterprise parent/subsidiary/ affiliate companies of the same parent company Related if an enterprise holds directly or indirectly at least 20% investment capital of investors of other enterprise 43

45 SCT calculation Imported SCT liable goods Before 01 January 2016 (Circular 05/2012/TT-BTC) SCT was only declared and paid one (1) time at the import stage From 01 January 2016 (Circular 195/2015/TT-BTC) SCT is declared and paid two (2) times: at both the import stage (provisionally); and domestic sales The provisional SCT amount paid at the import stage will be offset against SCT liability at the domestic sales to calculate SCT payable amount of such imported goods 44

46 SCT Special treatments The taxable price for SCT calculation is exclusive of the trade discount In case a company offers a trade discount to its customers, the price on which SCT is calculated shall be exclusive of the trade discount. If an adjusted invoice is issued to customers that qualify for the trade discount, the SCT declaration shall be required to be amended to decrease the SCT payable accordingly. (OL 5355/BTC-CST dated 25 April 2017) Credit of SCT at the import stage Where a taxpayer incurs SCT at the import stage and cannot fully claim SCT credit, the taxpayer is allowed to record the remaining SCT as a deductible expense for CIT calculation. Previously, under the provision of Circular 195 and Circular 130, the taxpayer could only claim a CIT deduction for the remaining SCT if it is unable to be credited as a result of an objective reason and an event of force majeure. (Circular 20/2017/TT-BTC dated 6 March 2017) 45

47 Foreign Contractor Tax (FCT) 46

48 FCT - VAT on trademark use right Official Letter No /BTC-CST dated 7 November 2016 of the Ministry of Finance Where a foreign party allows a Vietnamese party to use their trademark for selling purpose considered as the transfer of right to use trademark subject to FCT Transfer of the trademark use right is subject to 10% (where the taxpayer declares VAT on a deduction method) or 5% (where the taxpayer declares VAT on a deemed method) Where the taxpayer has declared the transaction as not being subject to VAT prior to 7 November 2016, adjustment shall not be required. (OL 15888/BTC-CST dated 7 November 2016, OL 3833/BTC-CST dated 24 Mar 2017) 47

49 Special FCT treatments VAT on the transfer charge for money remittance to overseas Transfer charges that a foreign bank earns for money transfers leaving Vietnam to be received overseas are not subject to FCT. (OL 731/TCT-DNL dated 06 Mar 2017) FCT on capital assignment and securities transfer in a joint stock company ( JSC ) Where a foreign corporate investor assigns the capital in a public JSC: FCT shall include 0.1% on the proceeds from securities transfer; Where a foreign corporate investor assigns the capital in a non-public JSC, FCT shall be 20% on the net gain from the capital transfer. (Official Letter No. 664/TCT-CS dated 1 March 2017) 48

50 Special FCT treatments FCT for sales transactions in bonded warehouses If a Vietnamese company enters into a sales contract with a foreign company and the delivery of goods is carried out at a bonded warehouse rented by the seller in Vietnam, then the foreign company is liable for FCT in Vietnam. The Vietnamese company is responsible for withholding, declaring and paying FCT on behalf of the foreign contractor. If two foreign entities enter into a sales contract with each other and the delivery of goods is carried out at a bonded warehouse in Vietnam, then the foreign company that earns income the sales is liable for FCT. (Official Letter 2389/TCT-CS dated 1 June 2016) If two foreign entities enter into a sales contract with each other and the goods are stored in a bonded warehouse in Vietnam but the delivery of goods is outside Vietnam, then FCT will not be applied. (Official Letter 2303/TCT-CS dated 1 June 2017) 49

51 Special FCT treatments Official Letter No. 1368/TCT-CS dated 4 April 2016: Selling goods to Vietnam under the trading term to deliver goods at bonded warehouses A bonded warehouse is a physical location within the Vietnamese territory rather than a border gate for tax treatment. Therefore, if the foreign party sells goods under the term to deliver goods at a bonded warehouse, such foreign party is subject to Vietnamese FCT. Official Letter 982/TCT-CS dated 14 March 2016: Foreign exchange rate for FCT calculation purposes When a foreign contractor earns taxable revenue in foreign currencies, the buying foreign exchange rate announced by the commercial bank where the foreign contractor maintains its bank account in Vietnam shall be used to convert such revenue to Vietnam Dong for FCT calculation purposes. 50

52 Personal Income Tax (PIT) and labour policies 51

53 Reduction of compulsory insurance contribution Compulsory SI contribution is reduced 0.5% From 1 June 2017, the employer s contribution to the fund for work accident and occupational disease insurance will be reduced from 1% to 0.5% (i.e. total contribution by the employer reduces from 22% to 21.5%). (Decree 44/2017/ND-CP dated 14 Apr 2017) Compulsory UI contribution is proposed to reduce 0.5% The Government agrees with the proposal to lower the UI contribution rate of the employers portion from 1% to 0.5%. If ratified by the National Assembly, this reduction shall be applied from the ratification date to 31 December (Resolution 34/NQ-CP dated 7 Apr 2017) Proposal to extend the compulsory SI scheme to expatriates working in Vietnam Under the Draft Decree, effective from1 Jan 2018, foreigners working in Vietnam (i.e. with a work permit, or practicing license/certificate) would be required to participate in Vietnam s compulsory SI scheme. The prevailing SI contribution rate is 17.5% for the employer and 8% for the employee (Draft Decree guiding SI contribution for foreigners working in Vietnam) 52

54 Reduction of compulsory insurance contribution Compulsory SI contribution is reduced 0.5% From 1 June 2017, the employer s contribution to the fund for work accident and occupational disease insurance will be reduced from 1% to 0.5% (i.e. total contribution by the employer reduces from 22% to 21.5%). (Decree 44/2017/ND-CP dated 14 Apr 2017) Increase of base salary to VND1,300,000 per month From 1 July 2017, the base salary shall be VND1,300,000 per month. For companies remunerating its employees based on the contractual agreement, the base salary shall be used to determine the cap of salary subject to compulsory social insurance and health insurance contributions (i.e. capped at 20 times the base salary). (Decree 47/2017/ND-CP dated 24 April 2017) 53

55 Tax Treaty 54

56 Tax Treaty implementation Treaty Abuse avoidance more aggressive interpretation and treatment Substance over form principle challenge if the main purpose of contracts/agreements is to qualify for tax treaty exemption/reduction The applicant is not the actual beneficial owner of the income Back-to-back loans/ licensing/ technical services agreements Re-negotiation of Tax Treaties (French, Dutch) with important provisions 55

57 Aggressive PE exposure Very aggressive view on Permanent Establishment in recent cases Defining the existence of a place of business, fixed and carrying out business operation through a fixed place of business Specific cases determined as constituting a PE Sales of goods/services via dependent agents Sales of goods via bonded warehouse Provision of services/ labor service provision Sale of goods via on the spot import/export RO involve in contract negotiation/implementation 56

58 Development of the US-VN DTA Resolution 29/NQ-CP dated 24 February 2017: Vietnam Government ratifies the US- Vietnam DTA. The DTA will take effect only when the US also ratifies it. From the US side, the Senate Foreign Relations Committee shall hold a hearing and report its recommendation on the DTA to the full Senate for a floor vote. 57

59 Tax Administration 58

60 Interest on late payment of taxes 01 January July 2016 The first 90 th days: 0.05%/day From day 91: 0.07%/day 0.05%/day 0.03%/day (Law 78/2006/QH11 and Law 21/2012/QH13) (Law 71/2014/QH13) (Circular 130/2016/TT-BTC) 59

61 Tax audit and inspection Directive 20/CT-TTg dated 17 May Prime Minister to ban overlapping inspections at companies: Audit and inspection shall be carried out for once every year only, without duplication and overlap It is not permitted to carry out the inspection and auditing of the issues and contents that the competent authorities have concluded and handled previously. 60

62 Law on supporting SMEs SMEs include enterprises which have the average number of employees contributing social insurance of no more than 200 and meet one of the following two criteria: Total capital shall not exceed VND100 billion (around USD4.4 million); Total revenue of the preceding year shall not exceed VND 300 billion (around USD13.2 million). Support measures: Support with credit access: Gain easier access to credit and credit guarantee via SME Credit Guarantee Funds and SME Development Fund. Support with tax: Enjoy a CIT rate lower than the standard rate within a certain time limit. Support with accounting: Apply a simpler accounting system and tax administrative procedures. Reduction of the price of land rent for SMES (except for foreign invested SMEs and Stateowned SMEs) Support with implementation of technology, expanding the market; iformation, counselling and legal support; support in human resources development 61

63 Q&A Q&A 62

64 Contact us Ta Hong Thai Partner, Head of Corporate Tax Services Tel: (ext 8240) HP: E: Phan Hoai Nam Senior Manager, Tax Services Tel: (ext 8964) HP: E: 63

65 Thank you kpmg.com.vn kpmg.com/app 2016 KPMG Limited, KPMG Legal Limited, KPMG Tax and Advisory Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name and logo are registered trademarks or trademarks of KPMG International.