Guidance on tax registration for digital based businesses and adjustment area for foreign contractors.

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Guidance on tax registration for digital based businesses and adjustment area for foreign contractors

On 3 December 2020, the Ministry of Finance released Circular 105/2020/TT-BTC detailing the subjects of tax registration; structure of the tax code and tax registration documents, forms and procedures in accordance with the Law on Tax Administration 38/2019/QH14 and Decree 126/2020/ND-CP.

Further to the clarification on tax obligations of foreign organisations and individuals operating e-commerce and digital based business activities that generate income from Vietnam in the Law on Tax Administration 38/2019/QH14, and the Decree 126/2020/ND-CP, this new circular delineates a guideline in regard to tax registrations for these subjects.

In particular, new provisions in Article 4, Clause 2, Point e and Point g of the Circular, have supplemented the list of entities subject to tax registration, including:

  • Foreign suppliers that do not have a permanent establishment in Vietnam and have e-commerce business, digital-based business and other services with an organisation or individual in Vietnam (hereafter referred to as Foreign Suppliers).
  • Commercial banks, providers of intermediary payment services or organisations and individuals authorized by Foreign Suppliers which are responsible for declaring, withholding and paying taxes on behalf of Foreign Suppliers.

In addition, the process of tax registrations for foreign contractors and sub-contractors (hereinafter referred to as “Foreign Contractors”) which cover (i) Foreign organisations which have no legal status in Vietnam, and (ii) Foreign individuals independently doing business in Vietnam in accordance with Vietnamese law, that have income arising in Vietnam or tax obligations in Vietnam, have also significant changed as outlined in the following sections.

Note: This article will focus on the highlights and additions/adjustments covering the guidance for Foreign Suppliers and Foreign Contractors, therefore please refer to the circular for more details and other guidance.

1.  Structure and use of tax code

Foreign Suppliers and Foreign Contractors, under the Circular, can either (i) self-register with Tax Authority (often, but not limited to, when they have an establishment or a representative in Vietnam), or (ii) have an organisation/individual declaring and paying tax on their behalf where they don’t have an establishment in Vietnam (hereafter referred to as Appointed Taxpayers)

  1. For Foreign Suppliers and Foreign Contractors self-registering tax:

According to Article 5, Clause 3, Point d and Point “đ”:

    • Foreign Contractors registering tax directly, shall be issued with a 10-digit tax code under each contract.
    • Foreign Suppliers which have not previously been issued with a tax code in Vietnam when undertaking direct tax registration with a Tax Authority will obtain 10-digit tax code. Foreign suppliers use the issued tax identification numbers to:
      • Directly declare and pay tax;
      • Provide tax codes to organisations or individuals in Vietnam authorized by Foreign Suppliers, or
      • Provide tax codes to commercial banks, organisations providing intermediary payment services to withhold, pay and declare on behalf of the Foreign Suppliers.
  1. For Appointed Taxpayers (which are responsible for withholding and declaring tax on behalf of Foreign Suppliers and Foreign Contractors)

According to Article 5, Clause 3, Point e:

Appointed Taxpayers are granted a 10-digit tax code (“tax code paid on behalf”) to declare and pay tax on behalf of the Foreign Suppliers and Foreign Contractors. In addition, the Foreign Contractors shall be issued 13-digit tax code based on the 10-digit tax code paid on behalf (with additional 3 digits as suffix) to confirm fulfillment of contractor tax obligations in Vietnam.

We are awaiting further guidance on the use of the additional 13-digit tax code by the authorities, however we understand it is a control process for the fulfillment of tax obligations.

Where the Appointed Taxpayers change their tax registration information, suspend operations, or continue operating ahead of time, invalidate their tax identification numbers and restore their own tax identification numbers, the tax code paid on behalf will be updated appropriately by the Tax Authority according to the taxpayer’s information and tax code status. Taxpayers are not required to submit dossiers (as prescribed in Chapter II of this Circular) for tax code paid on behalf.

2.  Procedures and required documents for initial tax registration

  1. For Foreign Suppliers and Foreign Contractors self-registering tax:
    • According to Article 7, Clause 5 of this circular, Foreign Suppliers undertaking the initial tax registration will follow the procedures in accordance with the prevailing Circular of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration. (currently refers to Circular 156/2013/TT-BTC)
      • Foreign Contractors undertake the initial tax registration directly with the Tax Department where the Foreign Contractors are located/based and receive the 10-digit tax code. According to Article 7, Clause 4, the tax registration dossier includes:
      • Tax registration form, according to form No. 04-DK-TCT, enclosed with this Circular.
      • List of foreign contractors and foreign subcontractors prepared according to form No. BK04-DK-TCT enclosed with this Circular (if any).
      • Copy of Executive Office Registration Certificate; or a similar document issued by a competent authority (if any)
  2. For Appointed Taxpayers

Appointed Taxpayers submit the initial tax registration documents to line management office of taxation. The registration dossiers are detailed for each category as following:

    • For commercial banks, and providers of intermediary payment services, organisations or individuals, authorized by Foreign Suppliers: the dossier represents a registration return according to form No. 04.1 -DK-TCT, enclosed with this Circular. (Article 7, Clause 6, Point c)
    • For Appointed Taxpayers which undertake the tax registration on behalf of Foreign Contractors, the dossiers include:
        • Tax registration form, prepared according to form No. 04.1-DK-TCT, enclosed with this Circular; and
        • List of foreign contractor contracts which are paying tax through the Vietnamese Appointed Taxpayers, according to form No. 04.1-DK-TCT-BK.

General notes:

Deadline for initial tax registration

Related to the initial tax registration procedures, the Law on Tax Administration 38/2019/QH14, Article 33, Clause 2 has prescribed that the deadline for initial tax registration is 10 working days from the date of:

  • Arising responsibility to withhold tax and pay tax on behalf, for Appointed Taxpayers
  • Signing a contract for Foreign Contractors declaring and paying tax directly with the Tax Authority
  • Arising Personal Income Tax obligations
  • Arising other obligations to the state budget

Validity of existing tax code

Taxpayers that have obtained the tax code before the effective date of this Circular can continue using their granted tax code (according to Article 24, Clause 1 of this circular).

This circular takes effect on 17 January 2021, replacing Circular 95/2016/TT-BTC, and Article 9 of Circular 156/2013/TT-BTC.

Last updated on January 8, 2021

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