Vietnam Pocket Tax Book 2020 - PwC

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VietnamPocket TaxBook 2020www.pwc.com/vn

PwC - Vietnam Pocket Tax Book 2020ContentsTaxation General overview6Corporate Income Tax Tax rates Tax incentives Calculation of taxable profits Non-deductible expenses Losses Administration Profit remittance7Transfer Pricing Related party definition TP methodologies TP declaration forms TP documentation TP audits Substance over form principle Intercompany services charges 20% of EBITDA cap on interest deductibility Advance pricing agreements12Foreign Contractor Tax Scope of application FCT payment methods Double taxation agreements16Capital Assignment Profits Tax21Value Added Tax Scope of application Goods and services not subject to VAT Exempt goods and services Tax rates Exported goods and services VAT calculation methods Discounts and promotions Goods and services used internally Administration Refunds22Invoicing Tax invoices E-invoices29PwC3

PwC - Vietnam Pocket Tax Book 20204Special Sales Tax Taxable price Tax credits Tax rates31Natural Resources Tax33Property Taxes34Environment Protection Tax35Import and Export Duties Rates Calculation Exemptions Refunds Export duties Other taxes potentially imposed on imports Customs audit36Personal Income Tax Tax residency Tax year Employment income Non-employment income Non taxable income Foreign tax credits Tax deductions PIT rates Administration40Social, Health and UnemploymentInsurance Contributions45Other Taxes47Tax Audits and Penalties48Accounting and Auditing49Appendix I – Double Taxation Agreements52PwC Services in Vietnam55Contacts57PwC

PwC - Vietnam Pocket Tax Book 2020A summary of Vietnam taxationThe information in this booklet is based on current taxation regulations andpractice including certain legislative proposals as at 31 December 2019.This booklet is intended as a general guide. Where specific transactionsare being contemplated, definitive advice should be sought.PwC5

PwC - Vietnam Pocket Tax Book 2020TaxationGeneral OverviewMost business activities and investments in Vietnam will be affected by thefollowing taxes: Corporate income tax; Various withholding taxes; Capital assignment profits tax; Value added tax; Import duties; Personal income tax on Vietnamese and expatriate employees; and Social insurance, unemployment insurance and health insuranceoicontributions.There are various other taxes that may affect certain specific activities,including: 6Special sales tax;Natural resources tax;Property taxes;Export duties;Environment protection tax; andLand rental fee.PwC

PwC - Vietnam Pocket Tax Book 2020Corporate Income Tax (“CIT”)Tax RatesEnterprises (generally companies) are subject to the tax rates imposedunder the CIT Law. The standard CIT rate is 20%. Companies operating inthe oil and gas industry are subject to CIT rates ranging from 32% to 50%depending on the location and specific project conditions. Companiesengaging in prospecting, exploration and exploitation of certain mineralresources are subject to CIT rates of 40% or 50%, depending on theproject’s location.Tax IncentivesTax incentives are granted to new investment projects based on regulatedencouraged sectors, encouraged locations and the size of the projects.Business expansion projects (including expansion projects licensed orimplemented during the period from 2009 to 2013 which were not entitledto any CIT incentives previously) which meet certain conditions are alsoentitled to CIT incentives from 2015. New investment projects and businessexpansion projects do not include projects established as a result of certainacquisitions or reorganisations.The sectors which are encouraged by the Vietnamese Governmentinclude education, health care, sport/culture, high technology,environmental protection, scientific research and technologydevelopment, infrastructural development, processing of agriculturaland aquatic products, software production and renewable energy.New investment or expansion projects engaged in manufacturingindustrial products prioritized for development are entitled to CITincentives if they meet one of the following conditions:i. the products support the high technology sector; orii. certain products which support the garment, textile, footwear,0uelectronic spare parts, automobile assembly, or mechanical sectors.Locations which are encouraged include qualifying economic andhigh-tech zones, certain industrial zones and difficult socio-economicareas.PwC7

PwC - Vietnam Pocket Tax Book 2020Large manufacturing projects (excluding those related to themanufacture of products subject to special sales tax or those exploitingmineral resources) are entitled to CIT incentives as follows:Projects with total capital of VND6,000 billion or more, disbursedwithin 3 years of being licensed, meeting either of the followingcriteria:i.minimum revenue of VND10,000 billion/annum by the 4th yearwwwof operation; orii.head count of more than 3,000 by the 4th year of operation.Projects with total capital of VND12,000 billion or more, disbursedwithin 5 years of being licensed and using technologies appraised inaccordance with relevant laws.From 1 January 2016 onwards, the two common preferential rates of 10%and 17% are available for 15 years and 10 years respectively, starting fromthe commencement of generating revenue from the incentivised activities.The duration of application of the preferential tax rates can be extended incertain cases. When the preferential rates expire, the CIT rate reverts tothe standard rate. The preferential rate of 15% will apply for the entireproject life in certain cases. Certain socialised sectors (e.g. education,health) enjoy the 10% rate for the entire life of the project.Taxpayers may also be eligible for tax holidays and reductions. Theholidays take the form of an exemption from CIT for a certain periodbeginning immediately after the enterprise first makes profits from theincentivised activities, followed by a period where tax is charged at 50% ofthe applicable rate. However, where an enterprise has not derived taxableprofits within 3 years of the commencement of generating revenue from theincentivised activities, the tax holiday/tax reduction will start from the fourthyear of operation. Criteria for eligibility for these holidays and reductionsare set out in the CIT regulations.Additional tax reductions may be available for companies engaging inmanufacturing, construction and transportation activities which employmany female staff or ethnic minorities.From 1 January 2018, certain incentives, including a lower CIT rate aregranted to small and medium enterprise (“SMEs”) (various criteria apply inorder to be considered an SME).8PwC

PwC - Vietnam Pocket Tax Book 2020A resolution on CIT policies to support and develop SMEs has been draftedfor consideration which proposes to lower the CIT rate applicable to SMEsto 15%-17% and provide various tax holidays, e.g. exemption from CIT forthe 2 years beginning immediately after establishment of SMEs.Tax incentives which are available for investment in encouraged sectors donot apply to other income earned by a company (except for income whichdirectly relates to the incentivised activities such as disposal of scrap),which is broadly defined.Calculation of Taxable ProfitTaxable profit is the difference between total revenue, whether domestic orforeign sourced, and deductible expenses, plus other assessable income.Taxpayers are required to prepare an annual CIT return which includes asection for making adjustments to accounting profit to arrive at taxableprofit.Non-deductible ExpensesExpenses are tax deductible if they relate to the generation of revenue, areproperly supported by suitable documentation (including bank transfervouchers where the invoice value is VND20 million or above) and are notspecifically identified as being non-deductible. Examples of non-deductibleexpenses include:Depreciation of fixed assets which is not in accordance with theprevailing regulations;Employee remuneration expenses which are not actually paid, or arenot stated in a labour contract, collective labour agreement or companypolicies;Staff welfare (including certain benefits provided to family members ofstaff) exceeding a cap of one month’s average salary. Non-compulsorymedical and accident insurance is considered a form of staff welfare;Contributions to voluntary pension funds and life insurance foremployees exceeding VND3 million per month per person;Reserves for research and development not made in accordance withthe prevailing regulations;Provisions for severance allowance and payments of severanceallowance in excess of the prescribed amount per the Labour Code;PwC9

PwC - Vietnam Pocket Tax Book 2020Overhead expenses allocated to a permanent establishment (“PE”) inVietnam by the foreign company’s head office exceeding the amountunder a prescribed revenue-based allocation formula;Interest on loans corresponding to the portion of any charter capital notyet contributed;Interest on loans from non-economic and non-credit organisationsexceeding 1.5 times the interest rate set by the State Bank of Vietnam;Certain interest exceeding the cap of 20% of EBITDA. Recently, it hasbeen proposed to ease the deductibility cap from 20% to 30% ofEBITDA;Provisions for stock devaluation, bad debts, financial investment losses,product warranties or construction work which are not made inaccordance with the prevailing regulations;Unrealised foreign exchange losses due to the year-end revaluation offoreign currency items other than accounts payable;Donations except certain donations for education, health care, naturaldisaster or building charitable homes for the poor or for scientificresearch;Administrative penalties, fines, late payment interest; andService fees paid to related parties that do not meet certain conditions.For certain businesses such as insurance companies, securities tradingand lotteries, the Ministry of Finance provides specific guidance ondeductible expenses for CIT purposes.Business entities in Vietnam are allowed to set up a tax deductibleresearch and development fund to which they can appropriate up to 10%of annual profits before tax. Various conditions apply.LossesTaxpayers may carry forward tax losses fully and consecutively for amaximum of five years.Losses arising from incentivised activities can be offset against profits fromnon-incentivised activities, and vice versa. Losses from the transfer of realestate and the transfer of investment projects can be offset against profitsfrom other business activities. Carry-back of losses is not permitted. Thereis no provision for any form of consolidated filing or group loss relief.10PwC

PwC - Vietnam Pocket Tax Book 2020AdministrationProvisional quarterly CIT returns are no longer required. Enterprises areinstead required to make quarterly provisional CIT payments based onestimates. If the provisional quarterly CIT payments account for less than80% of the final CIT liability, any shortfall in excess of 20% is subject to latepayment interest (currently as high as 11% per annum), applying from thedeadline for payment of the Quarter 4 CIT liability.Final CIT returns are filed annually. The annual CIT return must be filedand submitted not later than the last day of the third month after the fiscalyear end. The outstanding tax payable must be paid at the same time.Where a taxpayer has a dependent accounting unit (e.g. branch) in adifferent province, a single CIT return is required. However, manufacturingcompanies are required to allocate tax payments to the respectiveprovincial tax authorities in the locations where they have dependentmanufacturing establishments. The basis for allocation is the proportion ofexpenditure incurred by each manufacturing establishment over the totalexpenditure of the company.The standard tax year is the calendar year. Companies are required tonotify the tax authorities in cases where they use a tax year (i.e. fiscal year)other than the calendar year.Profit RemittanceForeign investors are permitted to remit their profits annually at the end ofthe financial year or upon termination of the investment in Vietnam. Foreigninvestors are not permitted to remit profits if the investee company hasaccumulated losses.The foreign investor or the investee company is required to notify the taxauthorities of the plan to remit profits at least 7 working days prior to thescheduled remittance.PwC11

PwC - Vietnam Pocket Tax Book 2020Transfer PricingDecree 20/2017/ND-CP was enacted on 24 February 2017 and came intoeffect on 1 May 2017. A guiding Circular 41/2017/TT-BTC was enacted on28 April 2017 and also came into effect in May 2017.Decree 20 and Circular 41 are based generally on concepts and principlesfrom the Transfer Pricing Guidelines of the Organisation for EconomicCooperation and Development (“OECD”) and the Base erosion and Profitshifting (“BEPS”) Action Plan.Vietnam’s transfer pricing (“TP”) rules also apply to domestic related partytransactions.Related Party DefinitionThe ownership threshold required to be a “related party” under Decree 20is 25%. Decree 20 removed the previous related party definition of twoentities having transactions between them accounting for more than 50% oftheir sales or purchases.TP MethodologiesThe acceptable methodologies for determining arm’s length pricing areanalogous to those espoused by the OECD in the Transfer PricingGuidelines for Multinational Enterprises and Tax Administrations, i.e.comparable uncontrolled price, resale price, cost plus, profit split andcomparable profits methods.TP Declaration FormsCompliance requirements include an annual declaration of related partytransactions and TP methodologies used, and a taxpayer confirmation ofthe arm’s length value of their transactions (or otherwise the making ofvoluntary adjustments). Decree 20 requires that the TP method appliedmust ensure that there is no decrease of tax liabilities to the state budget,which could imply that no downward adjustments are allowed. Decree 20contains a TP declaration form which requires disclosure of detailedinformation, including segmentation of profit and loss by related party andthird party transactions.12PwC

PwC - Vietnam Pocket Tax Book 2020Furthermore, taxpayers are required to make declarations of informationcontained in the local file and master file. This implies that this informationshould be available before the TP declaration forms are submitted to thetax authorities. The TP declaration forms must be submitted together withthe annual CIT return within 90 days from the fiscal year end date.Decree 20 gives the tax authorities the power to use internal databases forTP assessment purposes in cases where a taxpayer is deemednon-compliant with the requirements of Decree 20.Taxpayers engaged in related party transactions solely with domesticrelated parties could be exempt from the requirements to discloseinformation on such transactions in the TP declaration forms, where bothparties have the same tax rate and neither party enjoys tax incentives.TP DocumentationCompanies which have related party transactions must also prepare andmaintain contemporaneous TP documentation. Decree 20 introduces athree-tiered TP documentation approach to collect more tax-relatedinformation on multinational companies’ business operations,specifically, master file, a local file and country-by-country report(“CbCR”). The three-tiered TP documentation has to be prepared beforethe submission date of the annual tax return, which gives taxpayers just90 days (from the fiscal year end date) to complete the year’s TPdocumentation.If the taxpayer’s ultimate parent resides in Vietnam and has worldwideconsolidated revenues in the fiscal year of over VND18,000 billion, theultimate parent company in Vietnam is responsible for preparing andsubmitting the CbCR. However, if the ultimate parent is outside Vietnam,the Vietnamese entity is responsible for obtaining a copy of the ultimateparent company’s CbCR and submitting this upon request by the taxauthorities.A taxpayer is exempt from preparing TP documentation (but not all otheraspects of the Decree) if one of the following conditions is met:has revenue below VND50 billion and total value of related partytransactions below VND30 billion in a tax period; orPwC13

PwC - Vietnam Pocket Tax Book 2020concludes an advance pricing agreement (“APA”) and submits annualAPA report(s); orhas revenue below VND200 billion, performs simple functions andachieves at least the following ratios of earnings before interest and taxto revenue from the following business: distribution (5%), manufacturing(10%), processing (15%).TP auditsThere has been a marked increase in the number of transfer pricing auditsperformed in recent years, with these adopting an increasinglysophisticated approach, often challenging the validity of comparables citedin TP documentation.Substance over form principleDecree 20 emphasises the need for closer scrutiny of all related partytransactions to ensure that value creation is actually generated fromintra-group transactions. The substance over form principle is especiallyrelevant to CIT deductibility and TP documentation must support suchrelated party transactions.Intercompany service chargesDecree 20 provides various criteria for the tax deductibility of intercompanyservice charges, notably, a taxpayer needs to demonstrate that theservices provide commercial, financial and economic value, and provideevidence of the reasonableness of the service charge calculation method.A tax deduction will not be allowed for intercompany service charges wherethe direct benefit or additional value to the taxpayer cannot be determined,such as duplicated services, shareholder costs.20% of EBITDA cap on interest deductibilityDecree 20 introduces a 20% EBITDA cap on the tax deductibility of totalinterest costs. Whilst Decree 20 is the guiding tax regulation applicable toassociated enterprises, it appears that the 20% EBITDA cap could beapplied to interest on both related party and third party loans.14PwC

PwC - Vietnam Pocket Tax Book 2020Advance Pricing Agreement (“APA”)Taxpayers have the option to enter into unilateral, bilateral or multilateralAPAs with the tax authorities. The GDT has been in negotiations with thecompetent authorities of various overseas jurisdictions to conclude the firstbilateral APAs for several taxpayers.PwC15

PwC - Vietnam Pocket Tax Book 2020Foreign Contractor Tax (“FCT”)Scope of ApplicationForeign contractor tax is applied to foreign organisations and individualsundertaking business or earning income sourced from Vietnam on thebasis of agreements with Vietnamese parties (including foreign ownedcompanies). FCT is not a separate tax, and normally comprises acombination of Value added tax (“VAT”) and CIT, or Personal income tax(“PIT”) for income of foreign individuals.Payments subject to FCT include interest, royalties, service fees, leasesrentals, insurance premiums, transportation fees, income from transfers ofsecurities, and from goods supplied within Vietnam or associated withservices rendered in Vietnam.Certain distribution arrangements where foreign entities are directly orindirectly involved in the distribution of goods or provision of services inVietnam are subject to FCT – e.g where the foreign entity retainsownership of the goods, bears distribution, advertising or marketing costs,is responsible for the quality of goods or services, making pricing decisions,or authorises/hires Vietnamese entities to carry out part of the distributionof goods/provision of services in Vietnam.Cases where FCT is exempt include pure supply of goods (i.e. where theresponsibility, cost and risk relating to the goods passes at or before theborder gate of Vietnam and there are no associated services performed inVietnam), services performed and consumed outside Vietnam and variousother services performed wholly out

Intercompany services charges 20% of EBITDA cap on interest deductibility . This booklet is intended as a general guide. Where specific transactions are being contemplated, definitive advice should be sought. . and 17% are available for 15 years and 10 years respectively, starting from .

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