Vietnam’s Ministry of Finance (MoF) has introduced a draft circular to replace paper bills with electronic invoices from the start of 2018. The new draft will replace Decree No.51/2010/ND-CP and Decree No. 04/2014/ND-CP on invoices for the sale of goods and services to facilitate the implementation of electronic invoices (e-invoices). Invoices already printed will be allowed until 2018.
Tax & Accounting
Vietnam’s Ministry of Finance has recently introduced a draft of amendments to various taxes such as Value Added Tax, Special Consumption Tax, Corporate Income Tax, Personal Income Tax, and Natural Resources Protection Tax. The tax hikes aim to increase tax contributions and reduce public debts. The government has allowed public feedback and will then submit it to the Ministry of Justice. The amendments will be submitted to the Government in September for final approval.
Tax officials in Ho Chi Minh City have sent tax demands to 13,500 Facebook retailers, urging online businesses to declare earnings and submit their taxes. As per the law, online retailers earning more than VND 100 million (US$4,400) a year are required to declare taxes. Taxes are required to be submitted to the municipal and trade department of the city. This move aims to target only long-term and unregistered business. With the e-commerce industry thriving, the government hopes that the taxation of online transactions will reduce the city’s tax losses.
This edition of Tax, Accounting, and Audit in Vietnam, updated for 2017, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in Vietnam in order to effectively manage and strategically plan their Vietnam operations.
Taxation permeates business transactions in Vietnam, and a strong understanding of tax liabilities enables foreign investors to maximize the tax efficiency of their foreign investment while ensuring full compliance with all tax laws and regulations. This guide overviews taxes for businesses and individuals and discusses accounting and audit in the Vietnam business context.
Firms engaged in technology transfer in Vietnam are expected to receive tax incentives according to a recent draft amendment of the Law on Technological Transfer. Tax incentives will be applicable on the import of machinery, equipment, materials, and means of transport that are not manufactured in Vietnam, and used for research and development (R&D) activities, technological innovations, and technology transfer within Vietnam. The amendment is expected to take effect on July 1, 2017.
Vietnam’s General Department of Taxation has asked local tax authorities to inspect foreign-owned retailers for tax avoidance through transfer pricing or profit shifting. The authorities will be auditing corporate tax, VAT, personal income tax, and foreign contractor tax for the period 2012-2016. Along with the direct and indirect taxes, the department is also planning to monitor franchising or ownership transfer of foreign retailers for unpaid taxes.
As per a new draft law on tax support for small and medium enterprises (SMEs), only profitable SMEs will be eligible for reduced taxes. The draft law does not provide the details of reduced level with respect to the current corporate income tax, but industry experts believe the reduction to be 1 percent for medium enterprises, 2 percent for small enterprises, and 3 percent for micro enterprises compared to current taxes. Although the tax cuts will reduce the State budget revenues, it will lead to the growth of new small businesses that will offset lower tax earnings.
By: Dezan Shira & Associates
Editor: Maxfield Brown
Prior to transferring profits back to their home markets, foreign companies maintaining operations and taking in revenue in Vietnam must fulfill certain annual compliance requirements. These involve a statutory audit, audited financial statements, and tax finalization filings. Annual compliance procedures are not only required by law but are also a good opportunity to conduct an internal financial health check.
Pursuant to compliance, all foreign-invested entities are required to have their annual financial statements audited by an independent auditing firm. Statutory audits in Vietnam are performed in accordance with the Vietnam Standards on Auditing while financial reporting must be conducted in accordance with Vietnamese Accounting Standards (VAS). Standards in Vietnam can often differ significantly from those utilized in a company’s home market and should, therefore, be studied closely to ensure that all aspects of reporting and review are in compliance. During this process, the manner in which reporting and review are conducted should also be considered in the context of any and all reporting and finalization requirements that a company may have in its home market.
Audited financial statements and tax finalization filing must be done within 90 days from the end of each financial year. After fulfilling these obligations, and giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad. It should be noted that annual compliance for ROs is different from that for other foreign-invested entities. An RO is required to report on its activities to a local department of trade prior to the last working day of January of the following year.
As part of the reporting process, all of the applicable forms outlined below should be submitted in relation to the operations of a given company. The company will also be required to file forms related to any corporate income tax (CIT) incentives that are claimed or other deductions that the company has utilized during the fiscal year.
Late payment and tax evasion penalties
A taxpayer who pays tax later than the deadline is to pay the outstanding tax amount plus a fine equal to 0.03 percent of the tax amount for each day the payment is late. Taxpayers that make incorrect declarations, thereby reducing taxes payable or increasing refundable tax amounts are to pay the full amount of the under-declared tax or return the excess refund, and will also pay a fine equal to 20 percent of the under-declared or excess refunded tax amounts together with a fine for late payment of the tax. A taxpayer that commits acts of tax evasion or tax fraud is liable to pay the full amount of tax and a fine between one and three times the evaded tax amount.
Optimizing annual compliance
While Vietnam is one of ASEAN’s rising stars, the nation is also stuck with among the most complex and time-consuming tax systems within the region. Although many aspects of taxation can be complex, annual finalization places a particularly significant burden upon many investors. To the credit of Vietnam’s government, there have been substantial improvements to the compliance process in recent years, however, there is still significant room for improvement. On top of this, the swiftly maturing nature of tax and compliance have and will continue t0 add to a degree of uncertainty in the years to come.
To maintain compliance with Vietnamese law, and ensure that profits can be remitted without issue, it is advisable for companies to direct any and all inquiries to Vietnam’s Ministry of Finance or professional service firms operating within the country. Both parties will be able to clarify the nature of prevailing compliance and often can provide a level of practical nuance that is not available within legislation or official guidance that has been issued to date.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.
Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.
Following a general trend of convergence with Base Erosion Profit Shifting (BEPS) guidelines within the Association of South East Asian Nations (ASEAN), Vietnam has introduced groundbreaking transfer pricing rules with significant implications for companies conducting related party transactions. Announced February 24, changes outlined under Decree No.20/2017/ND-CP are set to become effective May 1, replacing previously standing guidance stipulated in Circular No. 66/2010/TT-BTC.
Broadly speaking, transfer pricing (TP) rules focus on the monitoring and regulation of transactions between entities deemed to be related to one another, through the ownership of one company by the other. Often, TP regulations are used to prevent companies from utilizing inflated or deflated transaction costs as means of minimizing tax exposure.
For foreign companies choosing to incorporate subsidiaries in Vietnam, the many benefits that these corporate profiles afford often come with the added cost of exposure to TP regulation and compliance. However, with a firm understanding of regulations, it will be possible to understand the law and to ensure compliance effectively.
Given the rapidly changing nature of transfer pricing regulation in Vietnam, it is of utmost importance that investors employ stringent monitoring of Vietnamese legislation and direct questions to the Ministry of Finance or professional service firms operating within the country.
By Alexander Chipman Koty
Established in 1998, Hanoi’s Hoa Lac High-tech Park (HHTP) was Vietnam’s first high-tech park and is currently the country’s largest. While Vietnam has over 190 industrial parks and plans to increase this number to 500 by 2020, HHTP is one of only three national-level high-tech parks, alongside Saigon High-tech Park and Danang High-tech Park. The HHTP was created with the intention to become Vietnam’s leading high-tech industry cluster for manufacturing, research and development, and innovation.
Due to start-up difficulties and incomplete infrastructure, the park initially struggled to attract high profile investors. However, Vietnam has rapidly industrialized since the park’s establishment, becoming a leading recipient of foreign direct investment and an increasingly prominent electronics manufacturer. As a result, the HHTP has become equipped with higher quality infrastructure, and is beginning to fulfill its promise as a tech hub. While Ho Chi Minh City has pulled ahead as Vietnam’s most popular area for investment, Hanoi can be particularly advantageous for operations with supply chains in China due to the city’s proximity to the border.