COVID-19: How to Implement Decree 41 on Deferring Tax Payments
- Vietnam issued Decree 41 to defer payments on tax and land fee rentals to address the impact of COVID-19.
- The Decree applies to companies, individuals, and business households, particularly SMEs, to enhance their cash flow shortages.
- Investors should seek help from qualified local advisors to understand how to take advantage of Decree 41 while remaining compliant.
As COVID-19 disrupted supply chains and battered global economies, the Vietnamese government issued several incentives to counter the impact of the pandemic including license fee cuts, financial incentives for employers and employees, and the deferral of tax payments.
On April 8, the government issued Decree 41/2020/ND-CP on extending the deadlines of tax and land rental fee payments for companies, individuals, and business households (taxpayers) affected by COVID-19. Although not specified, the main purpose of Decree 41 is to allow small and medium-sized businesses (SMEs) defer several regulatory obligations to help enhance their cash flow shortage due to the economic effects of COVID-19.
We highlight some important points of Decree 41.
Who is eligible?
- Taxpayers who have production activities in the industry of agriculture, forestry and aquaculture; food production and processing; textile; costume production; production of leather and related products; production of wood and of products of wood and cork, except for furniture; production of products of straw and plaiting materials; production of paper and paper products; production of rubber and plastics products; production of other non-metallic mineral products; production of basic metals; machining; treatment and coating of metals; manufacturing of electronic products, computer and optical products; manufacturing automobiles and other motor vehicles; production of furniture; construction;
- Taxpayers who have business activities of transportation and storage; accommodation and catering services; education and training; health services and social support services; real estate activities; labor service and employment activities; travel agency, tour operator and support services related to advertising and organizing tours; art, entertainment and creation; libraries, archives, museum, and other cultural activities; sport, recreation; cinema;
- Taxpayers who manufacture products belonging to the list of prioritized supporting industries; manufacturing of key mechanical products;
- Small and micro-enterprises; and
- Credit institutions and branches of foreign banks that provide support to their customers in accordance with the State Bank of Vietnam (SBV) during the COVID-19 pandemic.
How are the deadlines for tax payments extended?
Eligible taxpayers are granted a specific extension of tax payments of which details are as follows:
Value-added Tax (VAT) (Except VAT on import)
A five-month deferral of VAT payment shall be granted to eligible taxpayers, specifically:
Corporate Income Tax (CIT)
A five-month deferral of CIT payment for the following tax period shall be granted to eligible taxpayers, specifically:
If a business has already paid outstanding CIT in the 2019 finalization, it is allowed to offset CIT with other payable taxes.
The deadline for payment of land lease for the first period of 2020 will be deferred for five months from May 31, 2020.
What are the procedures for the extension of tax payments?
It is important to note that the tax deferral is not applied automatically, rather the eligible taxpayers must prepare and submit an application for tax and land rent deferral (either electronically or other methods) to the managing tax authority for their consideration.
The deadline for submitting a tax and land lease deferral application is July 30, 2020. Any submission after this date will be considered overdue and will be subject to rejection by the tax authorities.
Taxpayers will be responsible for doing a self-assessment of their eligibility for deferment of tax payments and tax authorities do not have to inform businesses whether their application is accepted.
If taxpayers are found to be ineligible for deferment of tax and land lease payments in future tax audits, they will be subject to interest penalties for late payments by tax authorities.
Therefore, businesses should maintain enough evidence to justify their eligibility to mitigate the risks of any future tax payments and interest penalties. Firms are advised to seek professional advice to ensure they can take advantage of Decree 41 but also remain compliant.