Vietnam New Foreign Contractor Tax Regime 2009

Transcription

1 Vietnam Sptlight NEWSLETTER Special Editin # Vietnam New Freign Cntractr Tax Regime 2009 Vietnam

2 As a cnsequence f the new Law n Value Added Tax and Law n Crprate Incme Tax with effective frm 1 January 2009, the Ministry f Finance n 31 December 2008 issued a very imprtant tax regulatin: Circular N. 134/2008/TT-BTC ( Circular 134 ) guiding the taxatin regime applicable t freign cntractrs and freign subcntractrs ( Freign Cntractrs ) ding business in Vietnam r having incme derived frm Vietnam. repair f means f transprtatin (aircraft, aircraft engines, aircraft spare parts, sea-ging vessels), machinery, equipment (including cnnecting cables, transmissin equipment), with r withut replacing spare parts theref. advertising and marketing. investment and trade prmtin. Circular 134 will be effective after 15 days (but t be applied retractively frm 1 January 2009) since it is gazetted, and replaces Circular 05/2005/TT-BTC dated 11 January 2005 n FCT n the same tax regime and Circular 16/1999/TT-BTC dated 4 February 1999 f the Ministry f Finance n freight tax applicable t the business activities f gds transprtatin by seaging vessels f freign shipping cmpanies carrying n transprtatin business in Vietnam. Briefly, the abve withhlding tax regime (scalled Freign Cntractr Tax (FCT)) represents a cmbinatin f Value Added Tax (VAT) and Crprate Incme Tax (CIT), which may cmprehensively apply t any payment made by a cmpany in Vietnam t an ffshre cmpany (except t ffshre individual prfessinals) carrying ut business in Vietnam nt under any direct investment frms prvided in the Vietnamese laws. Belw are the salient pints f Circular 134: Exclusins further defined Circular 134 nw explicitly prvides that the fllwing cases that are nt subject t FCT: pure supplies f gds by freign rganizatins and individuals t verseas prts r Vietnam brder gates which must NOT be accmpanied by any services (e.g. installatin, warranty) perfrmed in Vietnam. services rendered t Vietnamese rganizatins r individuals but perfrmed/cnsumed utside Vietnam such as: brkerage fr sale f gds. training. sharing freight (paid freight) fr internatinal pst and telecmmunicatins services perfrmed utside Vietnam; lease f transmissin lines and satellite bands frm verseas. In line with the abve principle, Circular 134 als specifies that the taxable value fr the calculatin f VAT and CIT fr frwarding services and internatinal lgistics des nt include internatinal transprtatin fees paid t air and sea carriers. Applicable Taxes FCT shall cmprise tax elements as fllws: Crprate Freign Cntractrs: FCT will cmprise Value Added Tax (VAT) and Crprate Incme Tax (CIT). Individual Freign Cntractrs: VAT and Persnal Incme Tax (PIT). Tax Methds (i) Vietnamese Accunting System ( VAS ) Methd A Freign Cntractr has an ptin t (but nt an bligatin) register the use f VAS, enabling it t pay VAT under the credit methd and CIT n its prfits/net incme, if the fllwing criteria are met: having a PE in Vietnam, r being a tax resident f Vietnam; and 2

3 the cntractual terms f business in Vietnam lasting frm 183 days r mre frm the date the cntract cmes int frce. Within 20 days frm the date f signing the cntract, the Vietnamese cntractual party must send a ntice t the lcal tax ffice regarding the Freign Cntractr s use f the VAS Methd. Circular 134 further requires that where a Freign Cntractr (which registered the use f VAS and pays VAT under the credit methd and CIT n its prfits/net incme fr a cntract) signs a new cntract in Vietnam during the executin f the existing cntract, it must fllw the same VAS Methd fr the new cntract. In additin, it is required that nce the Freign Cntractr used the VAS Methd fr ne specific cntract, it must fllw this methd fr ther cntracts if they are within the same perid, irrespective f whether r nt the ther cntracts meet the required cnditins fr VAS Methd. (ii) Withhlding Methd If a Freign Cntractr des nt use the VAS Methd, it shall pay FCT under the Withhlding Methd, i.e. VAT under the direct methd and CIT n a deemed percentage f taxable turnver (see deemed rates belw). Cnsequently, the Vietnamese cntractual party shall register with the lcal tax authrities regarding its regulatry psitin t withhld and pay FCT n behalf f the Freign Cntractr, within 20 days frm the date f signing the cntract. (iii) Hybrid Methd - Remved Unlike the ld FCT regime, it is imprtantly nted that the Hybrid Methd is nw remved. The Hybrid Methd used t be an effective VAT arrangement fr Freign Cntractrs wh can register the VAS, enabling it t pay VAT under the credit methd but pay CIT under the deemed percentage f taxable turnver. Nevertheless, Circular 134 des nt prvide any guidance n hw t administer the Freign Cntractrs wh are using the Hybrid Methd fr existing cntracts with reference t the ld FCT regime. Tax Rates Value Added Tax We highlight belw the key changes in the value added percentages cmpared t the ld FCT regime with respect t FCT under the Withhlding Methd: The specific rate fr the trading activity is n lnger available; and Leasing f machinery/equipment and insurance businesses are nw classified and taxed as services. As a default practice f the tax authrities, Circular 134 reiterates that when a Freign Cntractr carries ut cmbined activities/businesses, including cnstructin, installatin services, and supply f machinery, equipment, and materials, the value f each business must be segregated and VAT paid accrdingly. If the cntract fails t prvide separate value f each business, the VAT taxable turnver shall be determined n the entire cntract value, at the highest deemed value added rate, where applicable (e.g. maximum 30% fr a cntract f supplying machinery, equipment attached with installatin, trial running, warranty, maintenance etc.) In particular f imprted gds (e.g. machinery and equipment) assciated with installatin, cmmissining, warranty, maintenance etc., if the separate value fr the imprted gds and the assciated services are stated in the cntract, the taxable turnver fr the calculatin f deemed VAT shall nly include value f the assciate services, and des nt include the value f the imprted gds (e.g. machinery, equipment), if the VAT has been paid fr the imprted gds at the stage f imprt. Last but nt least, Circular 134 still cnfirmed that the VAT prtin as part f the FCT paid is treated as input VAT fr the Vietnamese cntractual parties. 3

4 Crprate Incme Tax Circular 134 still cnfirmed that the taxable amunt fr the calculatin f CIT prtin shall nt include the respective VAT prtin. The deemed CIT rates are nw expanded t include many new types f taxable incme, as illustrated in the table belw: Business activities Trading activity including distributins and supplies f gds, raw materials, supplies, machinery and equipment attached with services rendered in Vietnam Services, lease f machinery and equipment and insurance Old FCT Regime New FCT Regime 1% 1% 5% 5% Cnstructin 2% 2% Other prductin r business activities and transprtatin (including sea and air transprtatin) Lease f aircrafts, aircraft engines, aircraft spare parts and sea-ging vessels 2% 2% N/A 2% Reinsurance N/A 2% Securities transfer N/A 0.1% Lan interest 10% 10% Ryalties 10% 10% Incme frm lease f machinery, equipment, and means f transprtatin is nw treated as incme fr service activities fr the calculatin f 5% deemed CIT. Under the ld FCT regime, it was treated ryalties and taxed at 10% deemed CIT. Tax Administratin Unlike the ld FCT regime, prcedures and dcumentatin fr FCT declaratins and payments are nt prvided in Circular 134 (except the Tax Declaratin Frm fr freign carrier cmpanies). The relevant prcedures and dcumentatin are referred t the relevant guidance f the Law n Tax Administratin. Ntes t the abve table: Wrds r parts in bld are new business activities which are subject t FCT in Circular 134, including reinsurance, securities investments, lease f aircrafts, aircraft engines, aircraft spare parts and sea-ging vessels. This is a guide frm Mazars STT Vietnam t update the latest develpments in tax and investment envirnment in Vietnam. The infrmatin and analysis r cmments herein are f the generic nature and are nt intended t be nr shuld it be relied upn as a substitute fr a prfessinal advice fr particular situatin. 4

5 Mazars STT Vietnam Audit Tax Accunting Payrll Transactin Services Market Entry Audit & Assurance Partners Mr. Jean-Marc Deschamps Mr. Nguyen Thanh Trung Cell: +84 (0) Tax & Business Advisry Services Partners Mr. Le Viet Th Cell: +84 (0) Mr. Le Quang Phi Cell: +84 (0) Hani Office Suite B352, 27 Ly Thai T Street Han Kiem District, Hani, Vietnam Tel: Fax: cntac-hani@mazars.vn HCMC Office 2 nd Flr, Dng Khi District 1, H Chi Minh City, Vietnam Tel: Fax: cntact-hcm@mazars.vn 5