This June 2020 publication of our Tax and Accounting Updates looks at a Resolution increasing personal and dependent deductions for Personal Income Tax (PIT), Official Letter clarifying the application of deferrals for Corporate Income Tax (CIT) and Value Added Tax (VAT) for 2020, and discussion of the release of the Vietnam – EU Free Trade Agreement , along with our regular review of recent Official Letters released by the Tax Authorities.
Resolution increasing personal and dependent tax deductions
On 2 June 2020, the Standing Committee of the National Assembly released Resolution 954/2020/UBTVQH14 on implementing reductions in PIT for Vietnamese taxpayers for the 2020 tax year, as part of the effort to stimulate the economy.
Accordingly, the personal deduction increases from VND 9,000,000 to VND 11,000,000 per month and dependent deductions for each family dependent increase from VND 3,600,000 to VND 4,400,000 per month.
The Resolution takes effect for payrolls from 1 July 2020.
Official Letter clarifying implementation of tax deferrals in Decree 41
On 20 May 2020, the Ministry of Finance issued Official Letter 5977/BTC-TCT on implementing the policies to defer Value Added Tax (“VAT”) and Corporate Income Tax (“CIT”) as contained in Decree 41/2020/ND-CP.
Accordingly, as the requirements for dossiers and procedures for the extensions/deferrals were stipulated in the Decree, taxpayers were able apply the Decree immediately it took effect without waiting for a guiding circular. However, the Ministry of Finance issued this Official Letter to clarify contents related to the extension for payments of VAT and CIT in Article 3 of Decree No. 41/2020/ND-CP as follows:
- CIT payment extension:
- The remaining CIT payable for 2019 tax finalisation can be deferred, but the maximum deferred value must not exceed 20% of the total tax payable for the full 2019 tax year.
- Where a taxpayer has a financial year different from the calendar year, the deferred tax payment deadline would be determined in accordance with the taxpayer’s financial year.
- Where additional tax payables arise for the 2019 tax year due to additional adjustments, these must be submitted to the tax authority before the extended deadline.
- Where tax payables resulting from tax inspections are released before the extended deadline, the payment is still deferred, provided it does not exceed the above 20%.
- The extension period is 5 months from the deadline of CIT finalisation for the 2019 tax year.
- VAT Payment extension:
- VAT payment extensions also apply to the VAT payable by a head office along with the VAT due in other provinces or related to inter-provincial construction businesses.
- The State Treasury is not reducing VAT (within the deferral period) from payments for construction works funded by the State Budget, or payments from the State Budget for capital construction works of ODA-funded projects subjected to VAT, where contractors are eligible for VAT payment extensions.
Vietnam-EU free trade agreement ratified
On 8 June 2020, the National Assembly of Vietnam ratified the Vietnam – EU Free Trade Agreement (“EVFTA”), which will move to eliminate 99% of tariffs between the two parties, and takes effect from July 2020.
Upon its implementation and entry into force in July, the European Union will immediately eliminate import duties for approximately 85.6% of tariff lines and will gradually eliminate 99.2% of tariff lines over the next seven years. Consequently, Vietnam will also immediately eliminate import duties for approximately 48.5% of tariff lines and will gradually eliminate 98.3% of tariff lines over the next 10 years.
Vietnam remains one of the world’s fastest-growing economies and is the EU’s second-largest trading partner in Southeast Asia. Two-way trade between Vietnam and the EU totalled $56 billion last year per the General Statistics Office, and together with Singapore are the only Southeast Asian countries to sign a free trade agreement with the EU.
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.
Air ticket offices in Vietnam for foreign airlines are subject to foreign contractor tax
On 23 April 2020, the Hanoi Department of Taxation issued Official Letter 26326/CT-TTHT on tax declaration for Ticket Offices of foreign airlines in Vietnam.
According to Item b5, Clause 1, Article 13 of Circular 103/2014/TT-BTC from the Ministry of Finance, where a foreign airline has a Ticket Office in Vietnam, the income of the foreign airline arising in Vietnam is subject to Foreign Contractor Tax (“FCT”). The Ticket Office is responsible for declaring and paying FCT on a quarterly basis following Point c, Clause 3, Article 20 of Circular No 156/2013/TT-BTC (“Circular 156”) from the Ministry of Finance, and the Ticket Office is not required to submit an annual tax finalisation.
Where a foreign airline is eligible for tax exemption or reduction under a Double Tax Treaty between Vietnam and another country, a complete dossier of documents for the tax exemption or reduction must be lodged with the tax authorities to be able to apply the treaty under the guidance at Point c.2, Clause 3, Article 20 of Circular 156. Tax authorities are not required to certify that foreign airlines are eligible for tax exemption or reduction.
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