In this April 2020 publication of our Tax and Accounting Updates we focus on recent releases from tax and labour authorities that are positioned to support businesses impacted by the COVID-19 crisis in Vietnam. We also include our selected review of recent Official Letters released by relevant authorities.
Notable COVID-19 related releases that we cover below, include:
- Decree 41, providing deferral of VAT and CIT payments for many companies for 5 months, deferral of VAT & PIT for household businesses, and deferral of annual land rent payments for those renting from the State;
- Deferral of certain Social Insurance payments for employers significantly impacted by COVID-19;
- Deferral of Trade Union contribution payments for employers significantly impacted by COVID-19;
- Guidance on the reduction of hours/salary or termination of staff for employers impacted by COVID-19
- Draft Resolution to increase the monthly personal deduction for PIT purposes, and monthly dependent allowance
Decree 41, providing tax deferrals for businesses impacted by COVID-19
On 8 April 2020, the Vietnam Government issued Decree 41/2020/ND-CP deferring certain payments for Value Added Tax (“VAT”), Corporate Income Tax (“CIT”), Personal Income Tax (“PIT”) and Government Land Rent for selected taxpayers, to support businesses in Vietnam impacted by COVID-19.
Implementation and eligible beneficiaries of the Decree covers the following:
1. Deferral of CIT payments
Eligible companies are able to defer the their 2019 final CIT payment (which was in fact due at the end of March 2020) for 5 months, and will also be able to defer their 2020 Quarter 1 and Quarter 2 CIT provisional payments for 5 months from their existing due dates. Where companies have already made their 2019 final tax payment, which was due at the end of March 2020, they can request an offset of this amount against other taxes due – allowing them to essentially defer this payment although it has been remitted already. To make an adjustment request, companies will need to use Form C1-11/NS from Circular 84/2016/TT-BTC issued by the Ministry of Finance.
2. Deferral of VAT payments
Eligible Taxpayers can defer VAT payments, so that Quarter 1 and Quarter 2 payments can be deferred for 5 months (for quarterly payers), and March, April, May and June 2020 payments can also be deferred for 5 months for (monthly payers). Note that lodgements are still required to be performed on time, and the exemption excludes VAT for imports).
3. Household businesses & individuals – VAT & PIT deferrals
The annual VAT and PIT payments due for 2020 for Household Businesses and Individuals can be deferred until 31 December 2020.
4. Land rental deferrals
Taxpayers with direct land lease contracts from the State can defer 2020 annual land rental payments for 5 months, from 31 May 2020.
5. Applicable taxpayers
- Taxpayers involved in production activities covering:
- agricultural, forestry and fisheries sectors;
- production and processing of food, textile & garments, and footwear;
- production of wooden, metal, paper, plastic and rubber products;
- production of electronic products, computers and optical products;
- automobile manufacturing; and
- construction sector
- Taxpayers operating in service sectors covering:
- transport sector and associated supporting activities;
- accommodation and catering services;
- travel agents, tour businesses and support services related to tour promotion and organization;
- training and education;
- medical and social assistance activities;
- real estate businesses;
- artists, recreational activities, sport activities, museums and cinemas; and
- labour and employment services
- Taxpayers engaged in the production of industrial products supporting the development of Vietnam and other key mechanical products (following previous guidelines released by the Government on Supporting Industry development, and Mechanical Engineering development)
- Small and micro enterprises defined by regulations of the Law on Supporting Small and Medium Enterprises. The definitions include:
- Enterprises in the fields agriculture, forestry, fisheries, construction and industrial sectors with no more than 100 staff, and turnover no more than VND 50 billion or total capital not more than VND 20 billion and
- Enterprises in the fields of commerce and services with no more than 50 staff, and turnover no more than VND 100 billion or total capital not more than VND 50 billion.
- Credit institutions and foreign bank branches effected by COVID-19, as determined by the State Bank of Vietnam.
6. Implementation & access to deferrals
Taxpayers wishing to take advantage of the tax deferrals in this Decree using the form attached to this Decree, and which needs to be submitted no later than 30 July 2020. Submission can be made electronically or in paper form.
The Decree took effect on 8 April 2020.
Deferral of social insurance contributions for retirement and death funding for selected organisations
To implement orders of the Government indicated in the Directive 11/CT-TTg in supporting businesses in Vietnam which are significantly impacted by COVID-19, the Ho Chi Minh City Department of Labour, Invalids and Social Affairs (“DoLISA”) issued Official Letter 553/BHXH-QLT on 23 March 2020 guiding the deferral of Social Insurance contributions to the Retirement and Death Fund (one of the three funds that together comprise the compulsory Social Insurance contributions, and which requires a contribution of 14% from the employer and 8% from the employee) for selected enterprises. Note: Other similar Official Letters have been released from various Departments on the same basis.
Enterprises operating in passenger transport, tourism, textiles, accommodation, restaurants and other sectors that are facing difficulties due to COVID-19, and meet one of the following conditions:
- having 50% of the total of employees temporarily cease working as the enterprise could not arrange sufficient work; or
- experiencing damage of more than 50% of the total value of assets caused by the epidemic (excluding land values).
Payment Deferral Period
Eligible enterprises can defer these Social Insurance payments until the end of June 2020. By the end of June 2020, if COVID-19 is still not “under control”, and the enterprises continue to request for deferral, payments can be extended until December 2020.
During the deferral period, enterprises are still required to remit the balance of the Social Insurance contributions (for Sickness and Maternity, and for Labour Accidents and Occupational Diseases), Health Insurance contributions, and Unemployment Insurance contributions. These contributions total 10% of salaries, (comprising a 7.5% contribution from the employer and a 2.5% contribution from the employee).
Application Process for Deferrals
Enterprises are to notify DoLISA of the total number of employees participating in Social Insurance that temporarily cease working, or to deal with Finance authorities to determine the value of damage of property against recorded values.
Enterprises are to submit dossiers to DoLISA following delivery note 600a, together with documents from a competent agency certifying the eligibility for deferring payments to the Retirement and Death Fund.
Deferral of trade union contributions for selected enterprises
On 18 March 2020, the Vietnam General Confederation of Labour issued Official Letter 245/TLD regarding deferral of Trade Union contributions for selected enterprises.
According to the Official Letter, enterprises that have 50% of the total number of employees temporarily cease working, can defer their Trade Union contributions until the end of June 2020. There will be further consideration to extend deferrals until the end of December 2020 should the epidemic not be controlled.
Guidance for the payment of salaries to employees during cessation of work due to COVID-19
On 30 March 2020, the Hanoi Federation of Labour issued Official Letter 198/LDLD providing guidance for implementation of salary payments for employees, in accordance with Labour Laws, who cease working due to COVID-19.
The following are the highlights of the Official Letter:
Temporary Suspension or Reduction in Available Work
Where employees must stop or reduce working due to:
- quarantine at the request of authorities;
- companies (or divisions) ceasing operations due to a blockade; or
- companies having difficulty in material sourcing or operating in markets that lead to the temporary suspension of operations,
and if they cannot arrange sufficient work for employees, the salaries of employees during this suspension period must comply with Clause 3, Article 98 Labour Code. These salaries are to be agreed by employer and employee, but cannot be lower than the regional minimum wage as set by the Government. Note: Salary reductions require consent from employer and employee, and cannot be undertaken unilaterally by the employer.
If a prolonged suspension period affects the ability to pay salaries by the employer, then employers and employees may agree to suspend the labour contract without salary, or to pay a part of salary (according to Article 32 of the Labour Code). This agreement must be made in writing with employees. Note: Contract suspensions or salary reductions require consent from employer and employee, and cannot be undertaken unilaterally by the employer.
Termination by Redundancy
Where companies need to reduce its production scale or cease operations, in conjunction with the Trade Union, it is to develop and implement labour employment plans, followed by the unilateral termination of labour contracts with employees (according to Article 38 and Article 44 of the Labour Code).
In these cases, the enterprises must pay severance allowances to employees (according to Article 49 of Labour Code), and the Trade Union can guide employees to complete procedures for unemployment insurance (if any). Note: This process does not require employee consent, but does require specific notice periods, processes and payouts. Payouts are dependent on length of tenure.
Draft resolution on increasing personal deduction and dependent deductions for personal income tax
On 2 March 2020, the Ministry of Finance released a Draft Resolution to increase personal deductions and dependent deductions for PIT, to increase the take-home salaries for employees.
Specifically, the Draft Resolution proposed to:
- Increase personal deductions from 9,000,000 VND per month to 11,000,000 VND per month (equivalent to 132,000,000 VND total allowance on an annual basis); and
- Increase dependent deductions from 3,600,000 VND per month to 4,400,000 VND per month, for each dependent.
These deductions reduce income subject to PIT for employees.
The Draft Resolution proposes that these changes are applicable for the 2020 tax year. If PIT has been withheld by way of calculations using the current deduction levels (ie, 9,000,000 VND for personal deductions and 3,600,000 VND for dependent deductions) for months during the year, the annual 2020 PIT benefit will be available upon personal tax finalisation for the year.
Official letters released
Official Letters are releases showing the Tax and other Authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.
Payment on behalf of offshore parent company
On 10 March 2020, the Hanoi Department of Taxation (“HDT”) issued Official Letter 10335/CT-TTHT regarding the issuing of VAT invoices when a Vietnamese company receives or makes payments on behalf of its offshore parent company.
Where a Vietnamese company agrees to pay on behalf of its offshore parent company for air tickets and accommodation expenses for employees of the parent company assigned to work in Vietnam, the VAT invoices must be issued to the parent company. When collecting payments, the Vietnamese company only prepares receipts. VAT invoices are not required.
If the vendor has issued VAT invoices to the Vietnamese Company, they should request suppliers to recall and re-issue the invoices to the parent company. If the supplier refuses, the Vietnam company must issue VAT invoices to the parent company when receiving the payments.
Employees’ authorisation to finalise their PIT in case they are internally transferred within a group
On 20 March 2020, the Hanoi Department of Taxation issued Official Letter 13120/CT-TTHT regarding employee authorisations for their annual PIT finalisation where they are transferred within a Group.
According to Clause 1, Section II of Official Letter 801/TCT-TNCN on 2 March 2016, employees that are transferred between enterprises in the same group or corporation, between parent company and subsidiaries, or between head office and its branches during the year, are eligible to authorise the current company for their annual PIT finalisation.
Accordingly, where a company engages in labour contracts with employees who are transferred from its subsidiary, they can authorise the current company to finalise their annual PIT for all income earned during the year, including those earned at the subsidiary.
Capital gains tax when the offshore parent company of an FDI enterprise in Vietnam transfers its ownership
On 2 March 2020, the General Department of Taxation issued Official Letter 866/TCT-CS regarding tax declaration of a Vietnam company for shares transferred of its offshore parent company.
According to Clause 2, Article 14 of Circular 78/2014/TT-BTC, a foreign corporate investor (that does not operate under Vietnamese Investment Law and Enterprise Law) transfers its ownership to another investor and a gain arises on the transfer, the transaction is subject to capital gains tax in Vietnam.
Accordingly, if the investor of the offshore parent company transfers its underlying ownership of an FDI company in Vietnam to another foreign investor, this will be considered as “indirect transfer of ownership”. Therefore, the FDI enterprise in Vietnam is required to declare and pay on behalf of the foreign investors for the capital gains tax corresponding to the number of shares owned by the parent company.