Tax trends in Vietnam a 2016 update

Transcription

1 Tax trends in Vietnam a 2016 update Hoang Phan Tax Partner March 2016

2 Agenda Vietnam Taxation on Foreign Investment Overview Tax audit trends Vietnam Tax Highlights of 2015 Corporate Income Tax Value Added Tax Foreign Contractor Withholding Tax Transfer Pricing Potential Future Changes Q&A 2

3 Vietnam - Taxation on Foreign Investment Overview 3

4 Vietnam at a glance 2015 GDP (USD bil) 204 GDP per capita (USD) 2,200 GDP growth (%) 6.68 Export turnover (USD bil) Import turnover (USD bil) CPI by end of Dec 2015 (%) 0.63 Cumulative FDI as of Dec 2015 (USD bil) 22.7 Labor force (mil) Minimum wage (USD per month) Population (mil) 91.7 Area (km 2 ) 330,000 4 (Sources: General Statistics Office of Vietnam)

5 Vietnam General Investment and Tax introduction Vietnam Government generally favors foreign investment. Sustained inflows of foreign direct investment into manufacturing => propelled exports in recent years. Foreign companies may apply for a variety of business incentives, including in the form of tax exemptions and reductions. Viet Nam dong was devaluated against the US dollar three times in the first 8 months of 2015, by 1% each time, to support the competitiveness of exports. Source: Asian Development Bank 5

6 Vietnam Tax Law System Law National Assembly Decree Government Circular Ministry of Finance Official Rulings (a form of case law) Tax authorities 6

7 Vietnamese Tax Overview Direct Tax Indirect Tax Corporate Income Tax Value Added Tax Personal Income Tax Import/Export Tax Foreign Contractor Withholding Tax * Special Consumption Tax 7

8 Budget collection status of Actual 2015 tax collection: USD44.15b - achieved 108.6% targeted budget Targeted tax collection of 2015: USD40.65b State Budget Tax collection status Tax collection target for 2016: USD45.26b, circa 102.5% of 2015 actual 8

9 Tax audit trends 9

10 Action plan for 2016 Exceed budget by 113.4% to compensate reductions of oil price and customs duties from effective Free Trade Agreements (FTAs) and TPP Tax reform achievements Significant pressures Focus all resources on tax audit and bad debt collections Further amend tax procedures and processes Pressures Actions 10

11 2016 tax audit focus: risk-based approach Enterprise with signs of TP issues (especially FDIs) Enterprises which have not been audited for long time Enterprises with large amounts of VAT refund Enterprises engaged in the industries: E-commerce, textile and garment, telecom, electricity, medicare, automobile, electronics, food and beverage, steel, oil and gas, real estate. Focusing on several typical enterprises and industries Enterprises with high tax risk Enterprises entitled to incentives 11

12 Violation treatments from a tax inspection Penalties Interest penalty: 18.25%/year if late for less than 90 days, or at least 25.55%/year if late for more than 90 days, and 20% of under-declared amount; or Tax fraud 100% to 300% of under-declared amount Statue of limitation: 10 years for tax collection, 5 years for penalty Other possible consequences Likely fail to apply granted tax incentives Classified as High-risk taxpayer with more frequent tax audits Additional tax cost (i.e. PIT, FCWT, other fines, etc.) Non creditable under declared input VAT Harm to the taxpayer s reputation if being announced to public Draw tax authority s attention moving forward Negative tax history record Disadvantage to lodge further request to authorities for applying any preferable treatments 12

13 Vietnam - Taxation on Foreign Investment Highlights 13

14 Corporate Income Tax 14

15 CIT rate /01/ /01/ % 22% 20% i. Standard tax rate: 22% from 2014 and 20% from 2016 ii. iii. iv. Applied (maybe separately) to: Original project Investment expansion Incentivized rates: 10% (for 15 years, may be extended up to 30 years) 17% Tax holidays Up to 4 years exemption Up to 9 years 50% reduction v. Basis of tax incentives: Industry Location Capital investment Labor-intensity 15

16 CIT incentives for NEW projects from 2015 Mega project (*) Highest incentives scheme from 2015 (10% in 15 years, 4- year exemption, 9- year reduction) (*) Must satisfy: i. Investment capital of VND12,000 billion ii. Disbursement within 5 years iii. Have license and use certified technology New investment projects included in the list of industrial products prioritized for development 16

17 CIT incentives for business expansion Prior to 2007 Tax incentive applicable to project lifetime No tax incentive available 2015 Tax incentives available to business expansion and reassessment of tax incentive of previous business expansion in the period from Tax concession applicable to business expansion 2014 Tax incentives available to business expansion from

18 Some notable issues Tax authorities adopt somewhat strict approaches in relation to deductible expenses: - Actually incurred - Business-related - Supporting documents - Not in the list of non-deductible Promotion Charges from overseas related Co Key items Employmen t, Welfare expenses Accruals, especially bonus Payments over VND 20 mil without bank transfer 18 18

19 Value Added Tax 19

20 Some notable VAT issues Common VAT rate: 10% Concession rate: 5% Exported goods & services: 0% Exempt (no input credit) Deduction method: for input credit, payments via bank for amount > 20 mil VAT refund may sometimes be restrained due to funds restriction 20

21 Zero-rating VAT exported services Unclear definition of exported services causes many debates. Based on case-by-case private rulings. HCMC Tax Department (a key Tax office) verbally stated that the test of exported service would likely be based on the place of service performance, i.e. inside Vs. outside Vietnam, rather than place of service consumption (with the specific exception of the QA service for exported goods). 21

22 Foreign Contractor Withholding Tax 22

23 FCWT Regime Foreign persons/organizations doing business or having business income in VN without legally registered presence: Foreign services provided into Vietnam Interest and royalties paid from Vietnam Goods (including machinery) imported into Vietnam requiring supplier to deliver, install, train, or provide free warranty Deloitte Deloitte Vietnam & Touche Company LLP Limited

24 Scope of application From 1/10/2014: FCWT is imposed on income derived from the following activities performed by foreign individuals and organizations: Supply of goods under Incoterms where sellers bear risks after the goods are brought into Vietnam Goods supply, services provision in which such overseas parties (i) are still the owners of the goods or (ii) are responsible for distribution, advertisement, marketing s expenses, or (iii) have power to set prices of goods and service; or (iv) hire Vietnamese organizations to conduct a part of the distribution service or other services relating to the supply of goods in Vietnam. Contracts signed by foreign entity but negotiation and signing process is performed through a Vietnamese entity on behalf of foreign party Perform the import, export and distribution rights in Vietnam market 24

25 Tax regime * We note that the tax authority has recently argued that the royalty should be subject to 5% VAT if the royalty if paid for usage right only (instead of ownership). This is still a controversial issue 25 No. Business lines CIT rate VAT rate 1 Service 5 % 5 % 2 Loan interest 5 % Exempt 3 Royalty 10% Exempt or 5% * 4 M&E rental 5% 5% 5 Trading 1% Exempt 6 Provision of M&E associated with services performed in Vietnam: - Value of each portion cannot be separated - Value of each portion can be separated Goods Service 7 Construction, installation inclusive of raw materials, M&E Construction, installation exclusive of raw materials, M&E 2% 1% 5% 3% Exempt 5% 8 Transportation 2% 3% 9 Restaurant, hotel and casino management services 10% 5% 10 Manufacturing, other business activities 2% 2% 11 Transfer of securities 0.1% Exempt 2% 2% 3% 5%

26 Transfer of trademark use rights OL 53638/BTC-TCT dated 14/08/2015 from Hanoi Tax Dept. Transfer of trademark use right (without transferring the ownership of trademark): subject to 5% VAT under FCWT regime OL 3159/CT-TTHT dated 15/04/2015 from HCM Tax Dept. Transfer of trademark use right (without transferring the ownership of trademark): subject to 5% VAT under FCWT regime Transfer of trademark use right along with its ownership: VAT free. 26

27 Transfer Pricing 27

28 Recent trends in transfer pricing audit Aggressive attitude in audit activities 1 Establish TP audit teams from 01 Oct 2015 in 4 major locations (Hanoi, HCMC, Dong Nai, and Binh Duong) 2 Advance Pricing Agreement 3 28

29 Potential future changes 29

30 Some potential changes Proposed thin capitalization rules, intended from 2016, restricting tax deductibility of loan interests to D/E ratio: 5:1 for manufacturing companies 4:1 for companies in the other sectors. Tax authority preparing guidance in applying the Base Erosion and Profit Shifting (BEPS) initiative of OECD in Vietnam. Courts are at early stage of being a venue for tax dispute resolution. Starting court action has also lead to the tax department backing down. 30

31 Q&A 31

32 Speaker Biography 32

33 Biography Hoang Phan Hoang has almost 20 years of experiences in tax, finance and business advisory services to the needs of multinational businesses operating in Vietnam in a wide variety of industry such as real estate, banking and financial services, manufacturing, telecom, services, etc. Hoang has participated in various tax due diligence support projects for big M&A deals, as well as comprehensive tax advisory for structuring projects in Vietnam. Tax Partner Deloitte Vietnam Tel: + 84 (8) hoangphan@deloitte.com Hoang has comprehensive experiences in corporate tax compliance and tax planning advisory works for MNCs operations in Vietnam. Hoang actively contributed to the contributions of comments/ recommendations to Ministry of Finance regarding draft tax regulations via Vietnam Business Forum, VTCA etc. 33

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