Tax Newsletter July 2013
Table of Contents: NEW DOCUMENTS New Decree guiding the implementation of the Law on Tax Administration Temporary guidance on the implementation of the amended Law on Tax Administration effective from 1 July 2013 Temporary guidance on Customs procedures under the Amended Law on Tax Administration from 01 July 2013 Guidance on the implementation of the amended Law on Personal Income Tax ( PIT ) 3 3 3 3 GUIDING DOCUMENTS Value Added Tax ( VAT ) Adjustment of information on invoices with refunded VAT Guidance on late submission of the report on invoice useage Corporate Income Tax Treatment on interest expense in case having sufficient balance of cash or deposits at the bank Foreign Contractor Withholding Tax ( FCWT ) Guidance on the method of FCWT filing Personal Income Tax ( PIT ) Guidance on PIT filing in case of hypothetical tax (Hypo tax) PIT on dividends PIT declaration for individuals receiving salary income overseas and in Vietnam Import Export Duty Payment of export duty prior to customs clearance Customs duty exemption applies to goods imported for incentivized investment projects Temporary guidance on customs procedures for goods placed in a bonded warehouse Guidance on adjusting the Duty Free List before importing Imposition of Import duty due to non-compliance for goods not used pursuant to registered purpose under the import duty exemption list Guidance on import procedures of tax-exempted goods for the Project Management Unit (PMU) 5 5 5 5 6 6 7 7 7 7 8 8 9
NEW DOCUMENTS New Decree guiding the implementation of the Law on Tax Administration On 22 July 2013, the Government issued Decree 83/2013/ND-CP ( Decree 83 ) providing guidance for a number of articles under the Law on Tax Administration and the amended Law on Tax Administration. Decree 83 shall take effect starting from 15 September 2013 and replace Decree 85/2007/ND-CP dated 25 May 2007 and Decree 106/2010/ND-CP dated 28 October 2010, which provides detailed implementation of the Law on Tax Administration. Details of notable content in Decree 83 were updated in our Tax Alert on 31 July 2013. Temporary guidance on the implementation of the amended Law on Tax Administration effective from 1 July 2013 While waiting for the issuance of formal legal regulations to the amended Law on Tax Administration, the Ministry of Finance ( MoF ) issued Official Letter 8355/BTC-TCT dated 28 June 2013 to the local tax departments in order to provide guidance on the application of certain articles coming into effect from 1 July 2013 under the amended Law. Details of notable content in Official Letter 8355 were updated in our Tax Alert on 15 July 2013. Temporary guidance on Customs procedures under the Amended Law on Tax Administration from 01 July 2013 Subsequent to the enactment of the amended Law on Tax Administration No. 21/2012/QH13 dated 20 November 2012, effective from 1 July 2013, the Ministry of Finance issued Official Letter No. 8356/BTC-TCHQ dated 28 June 2013 ( OL 8356 ) providing temporary guidance to all provincial customs departments for the implementation of certain customs issues stipulated under the amended Law. Details of notable content in Official Letter 8356 were updated in our Tax Alert on 5 July 2013. Guidance on the implementation of the amended Law on Personal Income Tax ( PIT ) After the Government issued Decree 65/2013/ND-CP dated 27 June 2013, in order to implement regulations which are effective from 01 July 2013 of the amended Law on PIT before the issuance of a guiding Circular, the Ministry of Finance issued Official Letter 8817/BTC-TCT dated 8 July 2013 to provide temporary guidance on the implementation of the amended Law on PIT. Notable changes in the amended Law on PIT shall be implemented starting from 1 July 2013 regarding the family circumstance deduction, residency test, and insurance premiums, and withholding tax rates applicable to individuals with or without labor contracts of less than 3 months. Details of the main content in Official Letter 8817 were updated in our Tax Alert on 16 July 2013. 3
GUIDING DOCUMENTS Value Added Tax ( VAT ) Adjustment of information on invoices with refunded VAT According to Article 18, Circular 153/2010/TT-BTC, when either the buyer or the seller discovers an error on the invoice, if VAT has been not yet declared, both parties can make a report to recall the erroneous invoice and subsequently issue a new invoice. For the case where VAT has been declared, both parties need to make a report of the error and the seller shall issue an adjusted invoice. When an enterprise has input VAT invoice with wrong currency, and the local tax department has issued a VAT refund, the enterprise and the seller shall make a report to recall and destroy the erroneous invoice and then issue a new invoice. The tax department shall base on this guidance and settle on a case by case basis. The above is the content under Official Letter No. 2381/TCT-CS issued by the General Department of Taxation dated 26 July 2013. Guidance on late submission of the report on invoice useage On 17 July 2013, the General Department of Taxation issued Official Letter No. 2289/TCT-CS responding to several concerns in relation to invoices. Accordingly, if enterprises submit the report on invoice usage in a timely manner, but then discover errors and submit a replacement report prior to inspection by the tax authority, it shall not be considered as a late submission. In the case where enterprises have multiple late submissions throughout quarters in one year, the local tax authority shall penalize pursuant to each wrongful act. Corporate Income Tax Treatment on interest expense in case having sufficient balance of cash or deposits at the bank On 26 July 2013, the General Department of Taxation issued Official Letter No. 2389/TCT-CS guiding the deductibility of interest expense whilst the enterprise still has sufficient balance of cash or deposits at the bank, as follows: Interest expenses arising during the investment/operation phase are treated as cost/deductible expenses for CIT purposes, in the case where an enterprise pays interest expense and fulfils the following criteria: Having sufficiency of invoices and supporting documents under the regulations; Serving the purposes of production and business activities; Being interest of neither capital contribution nor outstanding balance of charter capital and not over the regulated cap; and
If the enterprise successfully explains and proves that the outstanding sufficient balance of cash or deposits at the bank at the time of borrowing is planned for certain uses, the tax authorities shall examine and find such explanation and proof reasonably acceptable. Foreign Contractor Withholding Tax ( FCWT ) Guidance on the method of FCWT filing On 21 June 2013, the General Department of Taxation issued Official Letter 2038/TCT- KK providing guidance on the method of FCWT filing as belows: Article 17, Circular 60/2012/TT-BTC dated 12 April 2013 by the Ministry of Finance guiding the FCWT liabilities regulates: Foreign contractors and foreign subcontractors who implement one of the three methods regulated under Chapter II, Circular 60 shall continue applying the already-chosen method until the end of the contract. Accordingly, in the case where a Vietnamese party registers to the tax authority to file FCWT under the deemed method on behalf of foreign contractor A, i.e. VAT payment directly based on the added value, CIT payment based on the deemed rate of turnover, the Vietnamese party shall continue applying this filing method until the end of the contract (i.e. the validity of contract is from November 2012 to November 2013). For project office of the foreign contractor A being granted a ten-digit tax code dated 9 April 2013 (the valid period of former contract), it is allowed to file under the hybrid method, i.e. VAT payment under the credit method and CIT payment based on the deemed rate of turnover. The aforementioned guidance is a new point in the application of FCWT filing methods pursuant to Point 2, Article 17 of Circular 60/2012/TT-BTC. This previously applies to the case that a foreign contractor who currently files FCWT under one of the three methods and continues entering into new contracts in Vietnam when the former one is not yet concluded, shall file FCWT under the same method as for the former contract. Personal Income Tax ( PIT ) Guidance on PIT filing in case of hypothetical tax (Hypo tax) On 16 July 2013, the General Department of Taxation issued Official Letter No. 2267/TCT-TNCN ( OL 2267 ) to provide PIT guidance on hypothetical tax ( hypo tax ) for foreign individuals who are tax residents of Vietnam. The foreign individual mentioned in OL 2267 currently is a Vietnamese tax resident who pays PIT both in Vietnam and in the United States, and is entitled to the tax equalization policy of the employer. Specifically, the individual receives a monthly fixed income after tax in the US. The hypo tax will then be used against the 5
tax liabilities in the US and Vietnam in the taxable year. Thus, the foreign individual who is a tax resident of Vietnam receiving net income, i.e. excluding tax under his/her labor contract or agreement, and hypo tax has been deducted from his income before payment of the net amount to him, shall have his assessable income determined as the amount actually received, excluding the hypo tax (NET income). The NET income shall be grossed up to arrive at the Vietnamese taxable income as regulated. For foreign-sourced income, if the individual has already declared and paid corresponding PIT under the foreign PIT regulations, he/she would be allowed to deduct PIT paid overseas against the PIT liabilities in Vietnam as long as the deductible amount and supporting documents are in accordance with the prevailing regulations. For this case, the individual is not allowed to deduct hypo tax from PIT payable in Vietnam. PIT on dividends On 16 July 2013, the General Department of Taxation issued OL 2269/TCT-TNCN guiding the PIT on income from capital investment and transfer of shares in joint stock companies. Pursuant to Point 3, Section II, Part A of Circular 8/2008/TT-BTC, the Company is responsible for withholding 5% PIT on income from capital investment before paying devidends to individuals. Accordingly, in case the Company pays dividends to employees by annual savings interest calculated on the holding shares, such interest is also subject to PIT on income from capital investment. If the Company does not pay dividends but instead buys back shares from employees at par value plus savings interest, such income shall be treated as income from transfer of shares. If individual transferees have not registered to apply the flat tax rate of 20% on assessable income, the tax rate of 0,1% on the transfer price shall be applied per each share transfer.. In that case, transfer price = [par value + savings interest] x number of shares. PIT declaration for individuals receiving salary income overseas and in Vietnam Under the guidance of Official Letter No. 216/TCT-TNCN by the General Department of Taxation dated 2 July 2013, Vietnam tax residents receiving salary income in Vietnam and overseas, the PIT in relation to income received in Vietnam shall be withheld by the Vietnamese companies, declared and paid in accordance with Form 02/KK-TNCN. The PIT in relation to income paid overseas shall be declared directly to the tax authority by individuals in accordance with Form 07/KK-TNCN on a monthly basis. At the end of the year, individuals shall proceed with direct PIT finalization with the tax authority and credit the tax paid overseas. 6
Import Export Duty Payment of export duty prior to customs clearance On 11 July 2013, the GDT issued Official Letter No. 3817/TCHQ-TXNK providing guidance on the deadline for payment of export duty. Particularly, pursuant to Clause 3, Article 2 of the Law on Tax Administration, which was amended and supplemented by Clause 11, Article 1 of the amending and supplementing Law on Tax Administration No. 21/2012/QH13 (effective from 01 July 2013) and Official Letter No. 8356/BTC-TCHQ dated 28 June 2013 by the Ministry of Finance, exporters are requested to settle export duty prior to customs clearance or the release of goods. In the case where tax payable is guaranteed by a credit institution, the goods could be cleared or released, but also trigger late payment penalties to taxpayers from the date of customs clearance or release until the deadline for payment as regulated under Article 106 of this Law. The guarantee period is confined to thirty days from the registration date of customs declarations. Customs duty exemption applies to goods imported for incentivized investment projects In accordance with Article 101, Circular 19/2010/TT-BTC, organizations and individuals, which carry out entrusted imports, or win a bid to import goods (at import duty-exclusive prices under the entrusted contracts or the bid decisions) for cases entitled to an import duty exemption under Clause 7 to Clause 18 of this Article, they shall enjoy the import duty exemption for the contemplated goods. Therefore, if the import dossiers or win bidding document is not clear on the pricing, (with vs. without import duty), such dossiers shall not fulfil the required procedures to enjoy the import duty exemption. Above is the content of Official Letter No. 3931/TCHQ-TXNK dated 16 July 2013 of the General Department of Customs. Temporary guidance on customs procedures for goods placed in a bonded warehouse Further to Official Letter No. 8356/BTC- TCHQ dated 28 June 2013 by the Ministry of Finance guiding on advanced determination of code, dutiable value and payment deadline under the amended Law on Tax Administration, in order to provide temporary guidance on Point 2, Section I of this Law to municipal customs departments, the General Department of Customs issued Official Letter No. 3937/TCHQ-GSQL dated 16 July 2013: 1 Goods from overseas placed in bonded warehouses for exporting to another country: Goods owners or bonded warehouse owners (if authorized) have to proceed with customs declaration under the temporary importing mode, calculate and pay duty before placing the goods into the warehouse, and later perform a customs declaration under the re-exporting mode to take the goods out of the warehouse. 7
Customs procedures of temporary import and re-export mode shall be processed at the border gate customs departments, while taking the goods in and out of the bonded warehouse shall be performed at the Customs Departments in charge of the bonded warehouse. 2 Goods from overseas placed in a bonded warehouse for transporting into Vietnam (except for goods prohibited from transporting into Vietnam under Point b, Article 55 of Circular 19/2010/TT-BTC): Goods owners or bonded warehouse owners (if authorized) have to present the bonded warehouse leasing contract with a clear stipulation that goods are placed in bonded warehouse for importing into Vietnam or lodge an official letter committing that goods are placed in bonded warehouse for transporting into Vietnam. The Head of Customs Departments in charge of the bonded warehouse shall base on the business activities of the bonded warehouse owners and the nature of the goods (i.e. materials, supplies, machineries and equipment from overseas placed in the bonded warehouse for importing or transporting into Vietnam for further processsing and manufacturing activities) in order to make a decision on the appropriate customs procedures, relating to either placing goods in bonded warehouse for importing into Vietnam or for re-exporting to another country. Official Letter 3937 shall no longer be valid upon the issuance of official guidance by the Ministry of Finance at later stage. Guidance on adjusting the Duty Free List before importing Pursuant to Clause, Article 102 of Circular 19/2010/TT-BTC dated 6 December 2010 of the Ministry of Finance: "In the case where the Duty Free List which was registered for the whole project or for each category, works, combinations or lines is erroneous or needs to be adjusted, the customs declarants are allowed to adjust the list based on proper and sufficient supporting documents to prove that the supplementation or adjustment is appropriate to the project. Such adjustments must be performed prior to the importation of goods. Thus, in the case where enterprises meet conditions prescribed in Clause, Article 102, any adjustments for the Duty Free List shall be accepted. Above is the content of Official Letter No. 3972/TCHQ-TXNK dated 17 July 2013 of the General Department of Customs. Imposition of Import duty due to noncompliance for goods not used pursuant to registered purpose under the import duty exemption list Pursuant to Article 10, Circular 19/2010/TT-BTC dated 06 December 2010 issued by the Ministry of Finance, within 5 days after the completion of the importation of goods which are entitled to tax exemption in line with the tax-exemption list registered with customs offices, companies are required to finalize the import and usage of the contemplated goods with customs 8
departments. In the case where goods are not used pursuant to the registered purposes, meaning a failure to apply the import duty exemption, such goods shall be subject to customs declaration, duty payment and late payment penalty (if any). According to Article 69, Decree 108/2006/ND- CP, the investor is required to carry out relevant procedures for liquidating investment projects upon the termination. Similarly, in the case where the contemplated goods are not used pursuant to the registered purposes, meaning a failure to apply the import duty exemption, companies are required to declare import duty and might be subject to late payment penalty (if any). Otherwise, the customs authorities shall impose tax liability and collect corresponding tax payment and late payment penalty (if any). The above is guidance under Official Letter No. 02/TCHQ-TXNK dated 17 July 2013 issued by the General Department of Customs. Guidance on import procedures of tax-exempted goods for the Project Management Unit (PMU) Clause 2, Article 102, Circular 19/2010/TT- BTC dated 6 December 2010 stipulated that Organizations and individuals using goods (e.g. project owners, shipyard owners) shall register the lists of goods entitled to import duty exemption. Accordingly, the project owners need to register the list of goods entitled to import duty exemption with the customs authorities. Based on the lists of goods exempted from import duty registered by the project owners, the PMU shall conduct customs procedures to import such goods. When conducting customs declaration, apart from customs dossiers as regulated under Article 11 and Arcile 102 of Circular 19/2010/TT-BTC, the PMU is requested to submit one (01) original power of attoney or one (01) notarized copy from the project owners. The power of attoney must clearly state the rights and obligations of the authorizers and authorized parties. For customs declaration purposes, the name and tax code of the importers shall be filled with information of the project owners; the name and tax code of authorized person box shall be fiiled in with information of the PMU, and seal stamped in customs declaration shall be done by the PMU. The above is guidance under Official Letter 979/BTC-TCHQ dated 29 July 2013 issued by the Ministry of Finance 9
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