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June 2024 Tax Updates: Resolution on VAT reduction and recent changes.

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June 2024 tax updates: resolution on vat reduction and recent changes

This June 2024 publication of our Tax and Accounting Updates focuses on the Vietnamese Government’s approval of the proposal to develop a Resolution on VAT reduction until the end of 2024, instructions for submitting reports on foreign labour employment in the first 6 months of 2024 in Ho Chi Minh City and our regular review of recent Official Letters released by the tax authorities.

Approval of the proposal to develop a resolution on VAT reduction until the end of 2024

On 28 May, the Government issued Resolution 81/NQCP on the proposal to develop a draft Resolution of the National Assembly on VAT reduction. The draft Resolution will reduce the VAT rate by 2%, applicable to groups of goods and services currently subject to a tax rate of 10% (to 8%), except for the following groups of goods and services: Telecommunications, information technology, financial activities, banking, securities, insurance, real estate business, metal production and production of prefabricated metal products, mining industry (excluding coal mining), coke production, refined petroleum, production of chemicals and chemical products, goods and services subject to special consumption tax. The period of application of the 2% VAT reduction prescribed above is from 1 July 2024 to 31 December 2024.

Instruction for submitting reports on foreign labour employment in the first 6 months of 2024 in Ho Chi Minh City

The Department of Labour, War Invalids and Social Affairs of Ho Chi Minh City issued Official Letter 12725/SLDTBXH-VL-ATLD on the implementation of reports on foreign labour employment in the first 6 months of 2024, and reminders about the conditions for foreign employees to work in Vietnam.

Instructions for submitting reports

The Department requests employers to report on employment of foreign employees according to the provisions of Article 6 of Decree 152/2020/ND-CP, specifically as follows:

  • Report form: Form No. 07/PLI in the appendix issued with Decree 70/2023/ND-CP.
  • Reporting period data: foreign employees’ data from 15 December 2023 to 14 June 2024.
  • Report submission period: from 15 June 2024 to 5 July 2024.
  • Submission form: organisations access the Google Form at: https://forms.gle/kNqRgsH42Vu4evwj8 or scan the QR code in the Official Letter to access the Report on foreign labour employment and send reports online to the Department of Labour – Invalids and Social Affairs (through the Department of Labour Safety) including foreign employees’ data and a signed, red-stamped copy of the report (PDF file).

Conditions for foreign individuals working in Vietnam

Conditions for foreign individuals working in Vietnam according to Article 151 of the 2019 Labour Code are as follows:

  • Foreign employees working in Vietnam must meet the following conditions:
    • Be 18 years of age or older and have full civil act capacity
    • Have professional qualifications, technical skills, work experience; healthy in accordance with the regulations of the Minister of Health
    • Not serving a sentence or has not had his/her criminal record expunged or is being prosecuted for criminal liability according to the provisions of foreign law or Vietnamese law
    • Have a Work Permit issued by an authorized government agency of Vietnam, except for the cases specified in Article 154 of the 2019 Labour Code
  • The duration of the labour contract for foreign employees working in Vietnam must not exceed the duration of the Work Permit. When employing foreign employees to work in Vietnam, the two parties may agree to enter into multiple fixed-term labour contracts.
  • Foreign employees working in Vietnam must comply with Vietnamese labour laws and are protected by Vietnamese law, except where international treaties to which the Socialist Republic of Vietnam is a member have other provisions.

Instructions for submitting reports

Conditions for employing foreign individuals to work in Vietnam according to Article 152 of the 2019 Labour Code are as follows:

  • Enterprises, agencies, organisations, individuals, and contractors are only allowed to recruit foreign workers to work in managerial, executive, expert, and technical positions that Vietnamese workers cannot meet according to production and business needs.
  • Enterprises, agencies, organisations, and individuals must explain their labour needs and obtain written approval from an authorized government’s agency before recruiting and employing foreign individuals to work in Vietnam.
  • Before recruiting foreign individuals to work in Vietnam, contractors must specifically declare the job positions with professional qualifications, technical skills, work experience, and working time that require foreign individuals to perform the bidding package and obtain written approval from an authorized government’s agency.

Official Letters Released

Official Letters are releases delineating the Tax and other Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.

Tax determination on interest-free loans

On 10 May 2024, the Hanoi Department of Taxation issued Official Letter 27296/CTHN-TTHT addressing the taxation aspects related to interest-free loans. Below are the key points:

Related party transactions:

  • When a parent company provides a loan to its subsidiary at a 0% interest rate (i.e., no interest), this transaction is considered a related party transaction.
  • The parent company is required to adjust the price and profit margin of the loan transaction, following the guidelines outlined in Clause 1, Article 8 of Decree 132/2020/ND-CP. This adjustment is necessary for the declaration and calculation of Corporate Income Tax (CIT).

Tax determination:

If an enterprise that is not a credit institution engages in lending activities without interest or at a lower interest rate than the prevailing market rate for the same term and scale, it becomes subject to tax imposition.

Loan interest converted into capital contribution:

In situations where the company converts loan interest into capital contribution due to a capital transfer made by a limited partner of the company, the individual or organisation transferring the capital contribution must fulfil their obligations regarding Personal Income Tax (PIT) or CIT as applicable.

Deduction for payments with e-wallets

On 20 May 2024, the Hanoi Tax Department issued Official Letter 29273/CTHN-TTHT regarding the payment of expenses using e-wallet services.

E-wallet is recognized as a valid payment method akin to traditional banking transactions, in accordance with Clause 3, Article 15 of Circular 219/2013/TT-BTC (as amended and supplemented by Article 1 of Circular 173/2016/TT-BTC).

In practical terms, if a company utilizes an e-wallet service provided by a payment intermediary unit licensed by the State Bank for purchasing goods, andsimultaneously adheres to the stipulations outlined in Clause 1, Article 10 of Circular 26/2015/TT-BTC and Article 1 of Circular 173/2016/TT-BTC, it is eligible to declare input VAT deduction.

Furthermore, the cost of acquiring goods through an e-wallet, when it aligns with the conditions specified in Clause 1, Article 4, and is not fall under non-deductible expense under Clause 2, Article 4 of Circular 96/2015/TTBTC, can be considered as deductible expenses during the calculation of CIT.

Income from exchange rate differences for enterprises entitled to tax incentives

On 2 May 2024, the General Tax Department issued Official Letter 1794/TCT-CS on income from exchange rate differences for enterprises entitled to tax incentives.

Accordingly, exchange rate differences arising during the period directly related to the revenue and expenses of the enterprise’s main production and business activities shall be included in the expenses or income of the enterprise’s main production and business activities.

Where an enterprise has an investment project that enjoys CIT incentives due to meeting the conditions for investment incentive sectors, the income from the investment incentive sectors and income such as exchange rate differences directly related to the revenue and expenses of the incentive sectors shall also enjoy CIT incentives.

Deduction for house rent for non-resident foreign employees

On 23 April 2024, the Hanoi Tax Department issued Official Letter 23289/CTHN-TTHT regarding accommodation costs for non-resident foreign employees.

As per the provisions outlined in Point d.1, Clause 2, Article 11 of Circular 92/2015/TT-BTC, when a company pays house rent on behalf of a foreign employee who is not a tax-resident in Vietnam, the house rent must be included in their taxable income. However, it should be based on the actual amount paid by the employer, but it should not exceed 15% of the total taxable income arising in Vietnam (excluding house rent, electricity, water, and accompanying services).

For foreign employees who are non-tax resident in Vietnam, the applicable tax rate is 20% (as specified in Article 18 of Circular 111/2013/TT-BTC).

 

For more information on tax updates and other compliance requirements for businesses operating in Vietnam, follow our monthly releases on the website and social media channels at vietnam.acclime.com.

Updated on June 17, 2024
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