This July 2019 publication of our Tax and Accounting Updates looks at the new Law on Tax Administration, Decree for implementing CPTPP tariff commitments, and our regular review of recent Official Letters released by the Tax Authorities.
New law on tax administration approved by national assembly, effective 1st July 2020
In June 2019, the Vietnamese National Assembly adopted a new Law on Tax Administration 38/2019/QH14, which is effective from 1 July 2020 (other than some specific matters which are effective from 1 July 2022). The Law is in parts more of a general overview of policy intentions, and will require subsequent Decrees and Circulars to provide substance and implementation.
Key Elements Introduced in the Law
- A focus on anti-avoidance principals, transfer pricing substance, and international co-operation;
- A new E-commerce focus, with obligations for the State Bank of Vietnam to develop mechanisms for Vietnamese commercial banks to withhold taxes at source for e-commerce payments to foreign parties;
- Changes to e-tax and e-invoice implementation for certain taxpayers;
- Significant changes to tax administrative procedures giving more certainty to taxpayers; and
- Additional powers for authorities for tax enforcement, including powers to prevent individuals from leaving Vietnam if tax obligations are not fulfilled.
We look forward to seeing subsequent Circulars and Decrees to detail the implementation of the Law prior to 1 July 2020.
Decree on preferential tariffs for implementing the CPTP
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), consists of 11 member countries, including Australia, Canada, Japan, Mexico, Singapore, New Zealand, and Vietnam. The CPTPP initially entered into force on 30 December 2018 and took effect in Vietnam from 14 January 2019.
On 26 June 2019, the Vietnamese Government issued Decree 57/2019/ND-CP covering preferential tariffs for implementing commitments in the CPTPP for the period from 14 January 2019 to 31 December 2022.
The Decree is initially applicable to goods exported to, or imported from, the initial 6 ratifying member countries of the CPTPP including Australia, Canada, Japan, Mexico, Singapore, New Zealand (“the 6 member countries”). Some key points of the Decree include:
Preferential export tariffs
Criteria: To be eligible for preferential export tax rates, exported goods must have import documents and customs declarations (translated copies in English or Vietnamese where the language used on the declaration is not English) showing the destination is one of the 6 member countries.
Procedures: At the time of customs declaration, exported goods will be subject to standard tariffs. Within 1 year from the date of the declaration, exporters are to lodge documents confirming entitlement to preferential export tax rates, and to apply for a tax refund.
Goods not covered by the Decree: Items not covered by the preferential export tariff as stipulated in Appendix I of the Decree will be subject to a tax rate of 0% when exported to the 6 member countries.
Preferential import tariffs
Imported goods entitled to preferential tax rates must:
- be included in the tariff indicated in Appendix II of the Decree; and
- be imported into Vietnam from the 6 member countries, or from the non-tariff area of Vietnam imported into the domestic market. (Products imported through third countries can maintain their origin where requirements of the Decree are met.)
- meet the regulations on origin of goods and having documents certifying its origin under the provisions of the CPTPP.
The specific tax rates for each type of goods are regulated separately for 4 periods: 2019, 2020, 2021, and 2022.
Appendix I – Preferential export tax rates
Appendix II – Preferential import tax rates, and preferential import tax rates for used cars under import quotas
The Decree took effect from 26 June 2019. For goods exported or imported from 14 January 2019 to the effective date of the Decree, those goods eligible for preferential tariffs and where tax was already paid at a higher rate, can have the surplus refunded by the Customs office.
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.
Exchange rate for converting foreign currency salaries, for insurance calculations, for the second half of 2019.
On 2 July 2019, the Ho Chi Minh City Insurance Office issued Official Letter 1460/BHXH-QLT on the exchange rate to convert foreign currency salaries for the last six months of 2019.
According to the Official Letter, the exchange rate for converting salary received in USD during the last six months of 2019, and applicable from 1 July 2019, is 23,054 VND/USD, an increase of 229 VND compared to the previous rate. This exchange rate is applied for calculating insurance contributions where salaries in labour contracts are stated in USD.
Official Letter adjusting import tax exemptions on raw materials for on-the-spot export goods
Previously Official Letter 5826/TCHQ-TXNK was issued on 5 October 2018 by the General Department of Customs (“GDC”) stated that if a Vietnamese enterprise sells products produced from imported materials to a foreign purchaser, and it is nominated to deliver these products to another party in Vietnam for their on-the-spot export, import tax exemptions do not apply to the materials.
After issuing Official Letter 5826, several companies affected by this guidance submitted petitions to the Prime Minister and Government agencies. On June 25, 2019, GDC issued Official Letter 4138/TCHQ-TXNK to replace the guidance in Official Letter 5826.
The replacement Official Letter states that where enterprises sell products, produced from imported materials, to a foreign purchaser and it is designated by the foreign purchaser to deliver these products to another enterprise in Vietnam, in the form of on-the-spot export, the enterprise is exempted from import taxes on raw materials consumed.
Taxation of foreign contractor income derived from ‘deposit interest’ and ‘exchange rate differences’
On 13 June 2019, the Hanoi Department of Taxation issued Official Letter 45559/CT-TTHT covering taxes on bank deposit interest and exchange rate differences of Foreign Contractors.
Under the provisions of Clause 3, Article 7 of Circular 103/2014/TT-BTC, income from “deposit interest” and “other income under the provisions of law” of foreign contractors arising in Vietnam is subject to Corporate Income Tax (“CIT”). In addition, according to Clause 2, Article 5 of Circular 96/2015/TT-BTC, gains from exchange rate differences is considered as “other income”.
Accordingly, where foreign contractors who are apply the deduction method for VAT and calculate CIT on the percentage of revenue, generate income from bank deposit interest and earn gains from exchange rate differences from foreign currency transactions (as guided in Clause 2, Article 5 of Circular No. 96/2015/TT-BTC), this income is subject to foreign contractor tax (essentially, CIT). Foreign contractors will declare this CIT under the guidance at Point c, Clause 4, Article 20 of Circular 156/2013/TT-BTC.