Acclime’s April 2019 Tax and Accounting update covers some recent Circulars on E-invoices and using foreign labour, together with our regular review of recent Official Letters released by the Tax Authorities.
On 21 March 2019, the Ministry of Finance released a draft circular providing guidelines for implementing Decree 119/2018/ND-CP on E-invoices. Although currently only a draft, this provides assistance to enterprises in understanding E-invoice implementation. Some key elements of the draft circular are as follows:
- Enterprises must issue E-invoices when selling goods and/or providing services, regardless of the value of each transaction.
- The seller must issue E-invoices for goods and services used for promotions and advertising, as sample goods, for gifts, as an exchange or for paying wages to employees (except for goods circulated internally and for further production processing).
The draft Circular lists the type of E-invoices covered by the regulations, including VAT invoices, sales invoices, and other invoices covering electronic stamps, tickets, receipts and goods delivery notes (Article 5). However, commercial invoices for export goods are not mentioned.
E-invoice Registration Guidelines:
- Enterprises register via the web portal of the General Department of Taxation for using E-invoices (with or without verification code from the Tax Authority) via Form No. 01 in Decree 119/2018/ND-CP.
- The Tax Authority will send notification on registration within 1 working day from the lodgement date.
- From 1 November 2018 to 31 October 2020, enterprises which have not been notified by the Tax Authorities to use E-invoices can continue using paper invoices according to Decree 51/2010/ND-CP and Decree 04/2014/ND-CP.
- If the Tax Authorities request to convert but the enterprise does not yet met the IT infrastructure conditions, it may continue using paper invoices according to Decrees 51/2010/ND-CP and 04/2014/ND-CP. However, the enterprise must send invoice information to the Tax Authority following Form No. 03 in Decree 119/2018/ND-CP at the time of submitting VAT declarations.
Circular 18/2018/TT-BLDTBXH – Managing Foreign Labour Working in Vietnam
The Ministry of Labour, Invalids and Social Affairs (“MoLISA”) recently released Circular 18/2018/TT-BLDTBXH guiding implementation of several articles in Circular 40/2016/TT-BLDTBXH, which provides guidelines for managing foreign labour working in Vietnam. Significant changes in the Circular include:
Notification & return of expired Work Permits:
Removing the requirement of returning the expired Work Permits of employees to MoLISA (Clause 8, Article 9).
Adjusting the report on the demand for foreign labour
- Form No. 1 (Report on the demand for foreign employees) – changing the information required regarding intended working location and form of working arrangements (ie. Labour contract, internal mobility, service provided under contract, and others in accordance with Clause 1, Article 2 of Decree 11/2016/ND-CP).
- Form No. 2 (Report on changing the demand for foreign employees) – changing the information required in Form No. 1 as above.
Competent Authority for granting Work Permits for an enterprise has headquarters and representative offices/branches located in different cities/provinces
Where the employer has its head office in a province/city, with representative offices and/or branches in other provinces/cities, it can choose to submit applications (for Work Permits, renewals or exemptions) and the report on the demand for foreign labour either at MoLISA or the Department of Labour, Invalids and Social Affairs. However, applications/reports are required to be consistently lodged at the same authority as chosen (Clause 2, 3 and 4, Article 9). This Circular was effective from 18 December 2018
Official letters released
Official Letters are releases showing the Tax Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.
Payments Received by a Representative Office from Vietnamese Customers on Behalf of the Foreign Parent Company
On 13 March 2019, the State Bank of Vietnam issued Official Letter 1521/NHNN-QLNH providing guidelines where a foreign parent company requests its Representative Office in Vietnam to receive payments from Vietnamese customers on its behalf.
According to Article 30 of Decree 07/2016/ND-CP, foreign Representative Offices are only allowed to conduct communication, market research, trade promotion, and not to undertake business activities in Vietnam to generate income.
In addition, Circular 16/2014/TT-NHNN (“Circular 16”) dictates which entities can receive VND or foreign currencies in Vietnam. As a Representative Office is a foreign entity that cannot undertake business activities it cannot receive VND from commercial transactions, and domestic transactions cannot be undertaken in foreign currencies.
Therefore, a Vietnamese Representative Office is not allowed to collect payments to its VND bank account from Vietnamese customers under direction from the foreign parent company.
Criteria for Determining Foreign Individuals Subject to Social Insurance
On 18 March 2019, MoLISA issued Official Letter 1064/LDTBXH-BHXH regarding the criteria for determining which foreign individuals are subject to Social Insurance.
According to the Official Letter, foreign individuals are required to contribute to Social Insurance when they meet the following criteria:
- Having a Work Permit, Practice Certificate or Practice License in Vietnam;
- Having a labour contract of at least 1 year with an employer in Vietnam;
- Not be at retirement age (60 for men and 55 for women); and
- Not being internal labour (including managers, executives, experts and technical workers that work for an overseas enterprise, and were hired for at least 12 months by the overseas entity before being assigned to work in a commercial presence in Vietnam).
VAT on Gifts for Customers and PIT on Welfare for Employee Relatives
On 26 March 2019, the Hanoi Department of Taxation issued Official Letter 11505/CT-TTHT providing guidelines on VAT on gifts for clients and PIT on welfare for employee relatives.
Where the Company purchases goods as gifts for its clients, it is required to issue VAT invoices, declare and pay VAT as if it was selling the goods. The prices for VAT purposes are the selling prices of the same or equivalent goods at the time of providing the gifts.
The input VAT on goods used as gifts for clients:
- Will be deductible if they are used for production and business activities subject to VAT and meet the conditions prescribed in Clause 10, Article 1 of Circular 26/2015/TT-BTC.
- Will not be deductible if they are used for production and business activities that are not subject to VAT, according to Clause 7, Article 14, Section 1, Chapter III of Circular 219/2013/TT-BTC.
For welfare expenses for employee relatives, if they are in accordance with the provisions at Point g, Clause 2, Article 2 of Circular 111/2013/TT-BTC, Clause 5, Article 11 of Circular 92/2015/TT-BTC and Clause 4 Article 3 of Circular 25/2018/TT-BTC, they are exempted from PIT for the employees.