Problems relating to Trade and Investment on Vietnam
14. Taxation Systems |
|||
Issue |
Issue details |
Requests |
Reference |
| (1) Foreign Contractor Tax Levied upon Foreign Contractors Providing Service in Vietnam Domestic Market | - Where domestic transportation is carried out at the cost of foreign enterprises under the D terms (such as DDP (delivered duty paid) DAP (delivered at place)), GOV levies foreign contractor tax (FCT) of 1% on the total sales amount. It restricts the FFEs activities. - Introduction of foreign contractor tax (FCT) levied upon enterprises purchasing capital equipment from overseas for domestic distribution in Vietnam heavily burdens the end users (purchaser of production equipment). (Note) From webpage: PCT (comprising of CIT and VAT) is levied upon income gained from contracts with individual persons or corporations in Vietnam. |
- It is requested that GOV repeals the FCT. - It is requested that GOV reviews FCT to make it applicable only to production equipment currently not readily available in Vietnam. |
- Circular No.134/2008/TT-BTC - Circular No.60/2012/TT-BTC - Nil |
| (Action) - On 12 April 2012, Circular No. 60/2012/TT-BTC "Guidance on Tax Obligation applicable to the Foreign Entities, Individuals Who Are In Business or Have Income Derived from Vietnam", a new guideline, was promulgated. Foreign contractor tax (FCT) is levied upon profits gained by the economic activities between individuals and organisations not domestically incorporated in Vietnam and Vietnamese individuals and legal entities. This Guidance has added to the taxable transactions "On-The-Spot Export/Import Transactions", inclusive of DDP, DAT, DAP. As a result, in increasing cases, deemed tax of 1% is withheld against the amount described on the contract (namely, import declaration amount) upon Japanese corporations exporting under DDP, DAT, DAP terms (INCOTERMS). To foreign contractors, on top of the income tax paid in the country of residence, levy of corporate income tax in Vietnam in the name of FCT amounts to "Double Taxation". The Circular No. 60 provides: "Foreign business organizations having or not having Vietnam-based permanent establishments; Foreign business individuals being resident or non-resident objects in Vietnam" (Article 1). GOV's tax levy upon Japanese corporations without permanent establishments in Vietnam is in conflict with Japan-Vietnam Tax Treaty. In increasing cases, Japanese enterprises as a business routine are shifting from INCOTERMS (DDP, etc.) to ex-works (EXW) term. (25 September 2013 JETRO Business News) |
|||
| (2) Tax Levied upon External Provision Of Service | - Ministry of Finance Circular No. 60/2012TT-BTC promulgated in 2014 makes taxable commissions earned on sales/purchase of fixed property ("agency commissions"), irrespective of the location of the service provision. Despite Vietnam Japan tax treaty, such agency commissions have become taxable. The firm in concern receives commission from its customer (a business entity) in consideration for its sales agency activity in Japan. To receive the tax refund, it must file tax refund request by appointing tax consultant at cost. The firm has requested its accounting office to gather more information in detail. | - Prior to promulgation of this Circular regulation in 2012, agency commission earned outside Vietnam was not taxable. It is requested that GOV takes step to revert to its former tax collection scheme (or else exclude from taxable items), agency commissions earned inside industrial zones. | - Circular60/2012TT-BTC |
| (3) Double Levy of Personal Income Tax upon Personnel staying for a Short Term providing Services | - GOV demands payment of personal income tax (PIT) for stay in Vietnam on business purposes even for a single day commensurate with the period of stay in Vietnam. In addition, should such stay in Vietnam per year exceed 183-days, PIT becomes payable in Vietnam for the entire annual income of the same year (namely, in addition to the PIT paid in Japan, PIT is doubly collected in Vietnam.) - Under law on personal income tax (law on PIT), PIT becomes payable by all foreigners working in Vietnam or salaries from work performed in Vietnam. However, according to law on PIT, the definition is ambiguous for the terms "businesses / services in Vietnam" (for example, "on short-term business trip", "in the advisory capacity", "attendance in conference", etc.). Law on PIT compels all enterprises in Vietnam to declare personal income of individual foreigner 7-days before the start of their work. It is difficult for enterprises in Vietnam to collect the required PIT information. - Despite the wage payment takes place for an employee, whose wage is paid in Singapore, on shortage business trip to Vietnam, GOV collects PIT in Vietnam. - While GOV requires withholding of PIT on external employees on short business trip to Vietnam, it is impossible to obtain wage information from external employers should such applicant works under unrelated outside employers. |
- It is requested that GOJ takes step to approach GOV that it observes the terms of the tax treaty including the PIT in Vietnam. - It is requested that GOV: -- reviews laws and regulations, which do not accommodate the practical circumstances and -- amends the Law on PIT so that the employers of the external employees are responsible for filing withholding tax returns. |
- Article 26, Law on Personal Income Tax - Circular No. 119/2014/TT-BTC on amendment of Circular No. 111/2013/TT-BTC - Law on Personal Income Tax - Implementation of Law on PIT |
| (4) Abrupt Tax Examination Without Notice | - After the extremely long absence of 16-years, general department of taxation (GDT) conducted tax audit, quite out of the blue. | - It is requested that GDT conducts its tax audit in every two (2) years. | - Law on Tax Administration 2006 & revised in 2012 - Circular 156/2013/TT-BTC by MOF |
| (5) Frequently Amended Nebulous Procedures of the Tax Accounting System | - Due to the inadequacy of legislative maintenance, its interpretation varies frequently by officer in charge. In addition, on occasions, it takes more than a few months before the official interpretation of law is finally released. Enterprises operating in Vietnam must risk additional tax levy, should they be compelled to act before the release of official interpretation or should change in legislative interpretation arise by replacement of officials in charge. - Ambiguous taxation scheme, its complex procedures and abrupt changes. |
- It is requested that the Japan business association in Vietnam establishes a forum to exchange information among Japanese affiliated enterprises, accounting offices, etc. - It is requested that GOV: -- establishes a mechanism to distribute the latest information, and -- puts into operation such mechanism. - It is requested that GOV streamlines the procedures. |
|
| (6) Excessive burden upon Enterprises for the stringent control of Added Value Tax Invoices | - Invoices and delivery slips on value added tax: enterprises must issue at least two kinds of documents for each delivery to dealers of products (motorcycles, cars, and parts thereof), totaling about 100,000/month in the number of invoices, and sales sips, as proof of the sales transaction for each shipment. Enterprises must prepare at least 2-types of documents (invoices/sales slips), each in this huge volume. It is prepared for the purpose of reconciling the huge volume of paperwork with taxation for payment of value added tax (including special sales tax). | - Sales slips or similar documents are used for respective dissemination. Value added tax invoices may be issued once a month to avoid any change(s) in the taxable amount. It is requested that general department of taxation (GDoT) devises a more simplified method that allows more accurate management of the taxable amount. | - Circular no. 39/2014/TT-BTC dated 31/3/2014, article 16, point 1 and point 2 - Decree no. 51/2010/ND-CP dated 14/5/2014 and decree no. 04/2014/ND-CP dated 17/1/2014 |
| (7) Nebulous Base of Foreign Contractors Tax | - Application base of foreign contractors tax is ambiguous. In the transactions with overseas' enterprises (including headquarters in Japan) tax base is set higher for provisions of "only technical service" than "technical service, including procurement and delivery of machinery and equipment", namely, the lower tax rate applies on transactions that include delivery of machinery and equipment. On the other hand, in practice, in many cases, GOV applies higher tax rates even on transactions including delivery of machinery and equipment by regarding the transaction as "only technical service". | - It is requested that GOV levies correct tax rates in accordance with legislative provisions. | - Foreign Contractors Tax in Vietnam |
| (8) The Tax Base Scheme of Special Consumption Tax on Knock Down Parts | - SCT (special consumption tax): completely built up (CBU) car tax is levied on CIF prices, while knock down parts on wholesale prices. | - It is requested that GOV takes step to amend taxable price of special consumption tax. | - Law on Special Consumption Tax 2008 & revised in 2014; Circular 05/2012/TT-BTC by MOF |
| (Action) - GOV envisages amending special consumption tax on passenger cars (seating 9-persons or less): engine displacement 3,000cc-4,000cc: SCT going rate from 60%=>90%, 4,000cc-5,000cc: 60%=>110%, 5,000cc-6,000cc: 60%=>130%, 6,000cc or more: 60%=>150%, a substantial raise, while reducing the going 45% down to 20-40%. |
|||
| (9) Nebulous Transfer Price Taxation System (TPTS) | - While a member firm is anxious to increase export to Vietnam from Japan by offering competitive prices, so doing is curbed by the risk of consequences under transfer price taxation system, which negatively affects its competitive edge. | - It is requested that GOV clearly identifies what constitutes "reasonable margin" such as the markup rates. | - Law on Tax Administration 2006 & revised in 2012 - Decree 82/2013/ND-CP by Gov - Circular 156/2013/TT-BTC by MOF - Circular 201/2013/TT-BTC by MOF |
| (10) Double Tax Risk under TPTS | - Particularly under TPTS, due to the inconsistent rules in each country, its interpretation varies. The member firm is faced with the risk of double taxation as a group of companies. | - It is requested that GOV and GOJ work toward developing the World Standard TPTS (in the form of Guidelines, for example). | |
| (11) Insufficient Deduction of Expenses on Welfare and Environmental Protection | - Insufficient deduction of expenses on welfare and environmental protection (1) One month cap on welfare expense (deduction of welfare expense portion of wage in excess of 1-month is disallowed). Consequently, it does not amount to encouraging enterprises that genuinely endeavour to improve the livelihood of their employees. (2) Expenses (for planting trees for the purposes of environmental protection) are not deductible. This shows GOV does not encourage this activity, while the problems on the environmental issues spread worldwide. |
- It is requested that GOV: (1) removes one month's cap on average wage for welfare expense to make it deductible in full and (2) makes fully deductible expenses incurred for environmental protection, the same as expenses incurred for education, charity donation, sponsorship, etc. |
- Decree no. 91/2014/ND/CP issued on 1/10/2014; article 1, point 4 - Circular no. 219/2013/TT-BTC dated 26/12/2013, chapter 2, article 9, point 2.n |
<<BACK |