LABOUR UPDATE. enterprises to. Labour Code which was. provided they. to do so. are licensed. changes to. the original. and Maternity leave for

Transcription

1 Newsletter Tax, Audit, Accounting and Legal Update Newsletter, June Amendedd Labour Code Additional Tax Reliefs for Enterprises and Individuals Approved New Circular on Foreign Contractor Tax Implementation of Export Processing Enterprises (EPEs) rights on Export and Import Draft Ordinance on Foreign Exchange Control

2 LABOUR UPDATE Amendedd Labour Code On 18 June 2012, National Assembly of Vietnam approved amended Labour Code which will be effectivee from 1 May The amended Labour Code provides fundamental changes to original Labour Code which was firstly introduced since The original Labour Code was amended several times by National Assembly of Vietnam in 2002, 2006, and We highlight following notable changes of amended Labour Code: Maternity leave for female employees will increase to 06 months with full payment from social insurance fund. Maternity leave could be taken by employees prior to birth date, but such prior leave is capped at 02 months and balance leave of 04 months will be taken after birth date. This leave entitlement is also applicable to female employees who are on maternity leave during 1 May Standard work hours are still capped at 08 hour per day and 48 hours per week. In case of overtime work, maximumm overtime work hours must not exceed 30 hours per month and 200 hour per year. The Government will provide list of specific businesses that can organize maximum overtime work hours of 300 hours. Wages for employees are clearly defined in amended Labour Code. Wages for employees will include fixed salaries, allowances, and or payments. The amendedd Labour Code accepts enterprises to provide "labour supply" or labour outsourcing to or enterprises provided y are licensed to do so. The maximumm term of foreign employees work permit is reduced to 02 years. Work permit exemption for foreign employees working in Vietnam for less than 03 months only applicable to those come to Vietnam for provision of services or those come to Vietnam to deal with complicated technical problems which may affect or already affected business activities of enterprises that Vietnamese specialists and foreign specialists currently in Vietnam are unable to handle. It is expected thatt Government will issue or amend about 20 decrees or more to provide detail guidance of amendedd Labour Code. Please contact our advisor if you need any clarification or information. Public holidays will increase to 10 days, covering Vietnamese/Lunar New Year of 05 days, New Year s Day of 1 day, Liberation Day of 1 day, Hung Kings Commemoration of 1 day, International Labour Day of 1 day, and National Day of 1 day.

3 TAX UPDATE Additional Tax Reliefs for Enterprises and Individuals Approved In addition to recent welcomed postpone of payments of Value Added Tax for April, May and June 2012 and payments of Corporate Income Tax, National Assembly of Vietnam passed a Resolution on 21 June 2012 approving additional fiscal stimulus measures for both enterprises and individuals in Vietnam. We highlight key tax reliefs as follows: Personal Income Tax ( PIT ) Individual taxpayers having assessable employment income or business income subject to PIT at first threshold of 5% ( assessablee income does not exceed VND5 million) is exempted from PIT from 1 July 2012 to 31 December We note that assessable income is taxable income less allowable deductions which comprisess taxpayers compulsory insurances at different rates, deductions for family circumstances (VND4 million/month and VND1.6 million/dependant/month), and ors acceptablee deductions, if any. Corporate Income Tax ( CIT ) A 30% reduction of CIT payable in 2012 is furr allowed for Small and Medium Enterprises (SMEs) and labour intensive enterprises. This reduction of CIT payable is not applicable to SMEs which are engaged in businesses of lottery, real estates, securities, finance, banking, insurance, manufacturing goods and services subject to Special Consumption Tax. New Circular on Foreign Contractor Tax ( FCT ) On 12 April 2012, Ministry of Finance of Vietnam issued Circular 60/2012/TT-BTC providing guidance on tax obligations (commonly called as Foreign Contractor Tax or FCT ) for foreign organizations or individuals doing business in Vietnam or having ir income derived from Vietnam. Notable highlights of Circularr 60/2012/TT-BTC include: Circular 60/2012/TT-BTC defines applicable entities as foreign contractors or foreign sub-contractors (commonly called as foreign contractors. The applicable entities include foreign organizations (irrespectivee of wher or not y have permanent establishments in Vietnam) or individuals (irrespective of wher or not y are tax residents in Vietnam) doing business in Vietnam or having ir income derived in Vietnam. Circular 60/2012/TT-BTC furr includes following foreign organizations or individuals as applicable entities: (i) foreign organizations or individuals supply goods in Vietnam in form of on-site export and have ir income derived in Vietnam ( this point excludes processing of goods and export of processed goods to foreign organizations or individuals); (ii) foreign organizations or individuals supply goods to Vietnam with International Commerce Terms (INCOTERM) delivery of DDP (Delivered Duty Paid), DAT (Delivered at Terminal), and DAP (Delivered at Place); and (iii) and foreign Internet advertiserss or marketers, and online trainers.

4 Circular 60/2012/TT-BTC continues to place an obligation to organizations in Vietnam to handle filing and payments of FCT, unlesss foreign contractors register and follow Vietnamese Accounting System ( VAS ) Method or Hybrid Method which enables m to pay FCT on ir own accounts. FCT is defined as those taxes applicable to foreign contractors include deemed Value Added Tax ( VAT ) and deemed Corporate Income Tax ( CIT ) for foreign organizations, and deemed Value Added Tax ( VAT ) and Personal Income Tax ( PIT ) for professional foreign individuals. Or taxes may be applicable to foreign contractors. Circular 60/2012/TT-BTC re-confirms cases that are not subject to FCT. They include following cases: o Pure purchases or supplies by foreign organizations or individuals to organizations and individuals in Vietnam. o Foreign organizations and individuals having incomes derived in Vietnam from services which are provided and consumed outside Vietnam. o Specific servicess provided by foreign organizations and individuals: (i) repairing services for means of transportation (aircrafts, aircrafts engines and spare parts, or vessels/ /ships) and machinery and equipment (including ocean cables and transmission devices), irrespective of wher or not materials or replaced spare parts are provided; (ii) advertisement and marketing (except those provided via Internet); (iii) promotion of investment and commerce; brokerage for sales of goods and services outside Vietnam; (iv) training services (except online training services); (v) sharing of international postage or telecommunicationn charges for services provided outside Vietnam, or lease of foreign transmission cables or satellite broadband. Circular 60/2012/TT-BTC still allows FCT to be calculated at taxable turnover at different VAT and CIT rates. If contract/agreement provides with different business activities and respective prices, FCT with different rates can be calculated based on taxable turnover of each activity as per contract/agreement. If contract only provides lump sum price for different business activities, highest FCT rate will apply. The taxable turnoverr is defined in Circular 60/2012/TT-BTC as total amount of income received by foreign contractor, ncluding reimbursements or payments made by Vietnamese contacting parties on behalf of foreign contractor. However, taxable turnover excludes: o The taxable turnover for calculation of deemedd VAT is total gross (or grossed up) turnover which excludes VAT (if any) paid by importers for imported goods; o The taxable turnover for calculation of deemedd CIT is total gross (or grossed up) turnover which excludes deemed VAT; and o Where foreign contractor subcontracts part of contractual works/servicess to a legal entity in Vietnam or a foreign contractor paying taxes under VAS Method or Hybrid Method in Vietnam (this subcontracting must be compliant with contract signed by foreign contractor), taxable turnover for calculations of deemed VAT and deemed CIT shall excludes value of contractual works/services performed by such a legal entity or foreign contractor.

5 Circular 60/2012/TT-BTC provides following deemed VAT and CIT rates: Business Activity Ratio (%) of Value Added on Ratio (%) of CIT on Taxable Turnover Taxable Turnover Services, lease of machinery and 50% (to be applied by equipment, oil rigs, and insurance 5% Drilling services for petroleum projects 70% (to be applied by It seems that rate of 5% will apply Trading (Distribution, supplies of VAT, if any, is paid by goods, materials, machinery, and importers in Vietnam equipment in Vietnam) Construction and installation with 30% (to be applied by supplies of materials, and/or machinery and equipment Construction and installation 50% (to be applied by without supplies of materials, and/or machinery and equipment Transportation, production, or or 30% (to be applied by business activities 1% Management servicess for hotels, restaurants, and casinos Transferr of securities, re-insurancee to foreign insurers, and commissions for re-insurance to foreign insurers Lease of aircrafts, engines and spare parts of aircrafts, and vessels It seems that rate of 50% will apply (to be applied by VAT exempt It seems that rate of 50% will apply (to be applied by 10% 0.1% Derivatives Interest income Royalties VAT exempt It seems that VAT is exempt for loans from foreign credit/banking institutions only, and that loans from non- credit/banking institutions are subject to VAT. The Ministry of Finance will confirm this VAT treatment soon. VAT exempt 5% 10%

6 Circular 60/2012/TT-BTC still allows a foreign contractor to follow Hybrid Method to pay normal VAT in same way with companies in Vietnam and deemed CIT provided foreign contractor: (i) has permanent establishment in Vietnam (or foreign contractor is a resident in Vietnam); (ii) has business presence in Vietnam for 183 days or more by virtue of contract execution; and (iii) applies accounting books as per guidance of Ministry of Finance. Circular 60/2012/TT-BTC is effective from 27 May 2012 and replaces Circular 134/2008/TT-BTC,, Circular 197/2009/TT- BTC, and Circularr 64/2010/TT-BTC of Ministry of Finance on FCT. Only contracts or agreements signed and executed on effective date of 27 May 2012 will apply provisions of new circular on FCT and those contracts or agreements signed and executed prior 27 May 2012 will apply previous regulations on FCT with some specific exceptions. We suggest clients review contracts or agreements to ensure tax compliance as well as to take best advantages of new circular. You may contact our professionals at last page of this newsletter for support and advice. Implementationn of Export Processing Enterprises (EPEs) rights on Export and Import On 20 February 2012, Official Letter 736/ /TCHQ-GSQL was issued by General Department of Customs to provide instruction on implementation of EPEs rights on export and import. The Letter confirms that EPEs exporting or importing goods to/from foreign countries to implement its right on export and import have to complete customss procedures and follow tax policies on export and import for commercial goods in accordance with commercial contracts for non-epes (pursuant to Article 3, Law on Export and Import Duties and clause 7, Article 45, Circular 194/ /2010/TT-BTC dated 06 December 2010 of Ministry of Finance) ). Those procedures and tax policies are exempted for exported goods when such EPEs purchase goods from non EPEs. In case EPEs implement rights on export and import to selll goods to or EPEs instead of exporting to foreign countries, customs procedures are implemented in accordance with regulations applied for transaction of goods between non-epes and EPEs as regulated in point d, clause 3, Circular 194/ /2010/TT-BCT. In case EPEs implement right of export of goods to foreign countries but make delivery in Vietnam, customs procedures are implemented in accordance with regulations applicable to on-site export as long as conditions for on-site in Article 15, Decree 154/2005/ND- CP dated 15 December 2005 of Government are export and import as stipulated satisfied.

7 FOREIGN EXCHANGE UPDATE Draft Ordinance on Foreign Exchange Control On 12 May, State Bank of Vietnam released a Draft Ordinance amending a number of articles in Ordinance on Foreign Exchange to collect public opinion. Major changes proposed in Draft Ordinance include: The Draft proposed increased restrictions on use of foreign currencies in Vietnam. Not only are transactions, payments, price listings and advertisements in foreign currency prohibited, but also quotations, use of foreign currencies in determining prices and referencee to prices in foreign currencies in contracts will be prohibited. This would be a significant tightening of restrictions on using foreign currencies in Vietnam. Only enterprises established under Law on Enterprises, credit institutions and foreign bank branches can borrow from overseas. Cooperatives and individuals are no longer permitted to borrow from foreign lenders. The Draft is expected to be finalized later this year. This is one of newsletters from ECOVIS STT Vietnam to update latest developments/reforms in legal, tax and investment environment in Vietnam. The information and analysis or comments herein are of generic nature and are not intended to be nor should it be relied upon as a substitute for a professional advice for particular situation.

8 ECOVIS STT Vietnam Audit and Assurance International and Local Taxation Accounting and Business Process Outsourcing Business Start-up Assistance Advisory Operations and Management Consulting Hanoi Office 18 th Floor, C Land Tower, 156 Xa Dan II Dong Da District, Hanoi, Vietnam Phone: Fax: hanoi@ecovis.com Ho Chi Minh City Office Unit 11, 14 th Floor, Vincom Center 72 Le Thanh Ton Street, District 1 Ho Chi Minh City, Vietnam Phone: Fax: hochiminh@ecovis.com Contact us Audit and Assurance Partners Mr. Nguyen Thanh Trung Cell: +84 (0) trung.nguyen@ecovis.com Ms. Nguyen Viet Nga Cell: +84 (0) nga.nguyen@ecovis.com Ms. Vu Thi Thanh Tam Cell: +84 (0) tam.vu@ecovis.com Tax & Business Advisory Services Partners Mr. Le Viet Tho Cell: +84 (0) tho.le@ecovis.com Mr. Le Quang Phi Cell: +84 (0) phi.le@ecovis.com