At a glance...

This is a periodic summary of new rulings and other legal documents,

including some in draft form, relating to tax, customs and legal

developments in Vietnam. Please read on for an overview of some

trending issues in Vietnam and how they may impact your business.

PwC Vietnam NewsletterQuarter 2, 2019

www.pwc.com/vn

www.pwc.com/vn

Contents

1 New regulations

effective or issued

in Quarter 2, 2019

2 Some draft

regulations

released in

Quarter 2, 2019

3 Some interesting

rulings issued in

Quarter 2, 2019

4 PwC NewsBriefs

issued in Quarter

2, 2019

Contents

Content Page

The EU – Vietnam Free Trade Agreement signed

Vietnam’s preferential export and import tariffs for the

implementation of CPTPP pact

1. New regulations effective or issued in Quarter 2, 2019

• New basic salary from July 2019

• New Law on Competition

• New list of imported goods for which customs procedures must

be carried out at border-gate checkpoint

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5

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2. Some draft regulations released in Quarter 2, 2019

• Draft circulars on customs procedures and customs valuations

• Draft amendments to the Labour Code

• Draft Resolution providing guidance on tax incentives for Small

and Medium Enterprises (SMEs)

• Simplified procedures for life insurers

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Contents

Content Page

3. Some interesting rulings issued in Quarter 2, 2019

• Dividends are taken into account to calculate EBITDA to

determine tax deductible interest

• Withholding tax treatment of goods imported for distribution in

Vietnam

• Capital gains tax on indirect transfers

• PIT exemption for expatriates working for a RO

• New guidance on import duty exemptions for materials used for

production of in-country exported goods

• A RO cannot receive payments on behalf of its foreign head

office

• Calculation of severance allowance must include probation

period

• CIT incentives for new investment projects that manufacture

prioritised supporting products

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4. PwC NewsBriefs issued in Quarter 2, 2019 13

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In addition to the EVFTA, an

investment protection agreement (i.e.

the EVIPA) was also signed.

The above regulations are expected to

encourage trading activity as well as

investment between Vietnam and the

EU. Companies may wish to

reconsider their supply chain model to

benefit from these changes.

A raft of implementing regulations &

changes will follow to put these

agreements into effect.

After a long period of negotiation, the

Free Trade Agreement between the EU

and Vietnam (i.e. the EVFTA) was finally

signed in Hanoi on 30 June.

The two parties have not announced the

date when the EVFTA will come into

effect, but when it does, 65% of the

import duties levied on EU goods

imported into Vietnam will be eliminated,

while the remainder will be reduced

gradually and ultimately abolished over

a period of up to 10 years.

71% of the import duties levied on

Vietnam’s exports to the EU will be

terminated immediately.

According to the Council of the

European Union, trade in goods

between the EU and Vietnam is already

worth almost EUR50bn a year and trade

in services almost EUR4bn.

Welcome to our quarterly newsletter.

We kick off this edition with a look at

2 developments on the fast developing

international trade / FTA front – the long awaited

and much anticipated signing of the EVFTA, and

some new regulations implementing Vietnam’s

commitments under the CPTPP.

The EU – Vietnam Free Trade Agreement signed

71%of the import duties levied

on Vietnam’s exports to the

EU will be terminated

immediately.

Vietnam’s preferential export

and import tariffs for the

implementation of CPTPP pact

5

At the time of

exportation, a

Vietnamese exporter

must submit an

export customs declaration with

On 26 June 2019, the Prime Minister

ratified Decree 57/2019 providing

Vietnam’s preferential export and import

tariffs for the implementation of the

CPTPP free trade agreement.

These CPTPP preferential export and

import tariffs for Vietnam are applicable

to goods exported to or imported from

CPTPP member states, including

Australia, Canada, Japan, Mexico, New

Zealand, and Singapore.

Decree 57/2019 was issued on 26 June

2019 while the CPTPP has been in effect

in Vietnam since 14 January 2019. Thus,

for exported and imported shipments

which were registered with Customs from

14 January 2019 up to the effective date

of the Decree, if they qualified for the

application of the preferential tariffs

prescribed in the Decree and were

subjected to a higher duty rate, the

exporter-of-record and importer-of-record

of such shipments can claim a duty

refund.

Another notable point in Decree 57 is the

Customs treatment in terms of the

preferential export tariffs applicable to

exported goods. In order to be eligible for

the preferential export tariffs, the

exported goods must be accompanied

with relevant transport documents and

import customs declarations showing that

the destination of the goods is one of the

CPTPP member states.

and pay the relevant export duty amount

to Customs if the exported goods are

subject to export duty. Within one year

from the registration date of the export

customs declaration, the Vietnamese

exporter can submit a copy of the

transport document and a copy of the

import customs declaration prepared by

the importer in the importing country

connected to the Vietnamese exported

shipment in order to apply for the CPTPP

preferential export tariffs. The exporter will

then need to submit an amendment

declaration to the initial export customs

declaration and claim a duty refund.

the exported

goods must be

accompanied with

relevant transport

documents and

import customs

declarations

the standard export tariffs

New basic salary from July 2019

The government issued Decree 38/2019 dated 9 May to officially raise the

basic salary from 1 July 2019.

The basic monthly salary will be increased from VND1,390,000 to

VND1,490,000.

Decree 38 governs the pay of state officials, state employees and armed

forces’ personnel. However, this basic salary is also used to calculate the

contribution and payments of compulsory social insurance (SI) and health

insurance (HI).

As SI and HI contributions are capped at 20 times the basic salary, the capped

salary for these purposes will accordingly increase from VND27.8m to

VND29.8m.

The capped salary for unemployment insurance contributions (which are

capped at 20 times of the regional minimum salary) remains unchanged for

Hanoi and HCMC at VND83.6m.

New Law on Competition

The new Law on Competition No. 23/2018/QH14 came come into effect this

July. Please refer to the link below for a summary of changes under this new

law.

https://www.pwc.com/vn/en/publications/2018/180726-pwc-vietnam-legal-

newsbrief-loc.pdf

New list of imported goods for which customs procedures must be

carried out at border-gate checkpoint

The Prime Minister approved Decision 23/2019 on 27 June providing a list of

goods for which import customs procedures must be performed at the import

checkpoint customs office. The list includes cigarettes, cigars, liquors, beers,

automobiles, high-capacity scooters, airplanes, yachts, air conditioners not

exceeding 90,000 BTU and some other categories of goods.

Decision 23 will take effect on 1 September 2019 and replaces Decision

15/2017.

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1. Some regulations effective or issued in Quarter 2, 2019

2. Some draft regulations released in Quarter 2, 2019

Draft circulars on customs

procedures and customs

valuations

The MoF has recently released the

following:

• A draft circular amending Circular

39/2018 and Circular 38/2015 on

customs procedures applicable to

exports and imports. Various

aspects of customs procedures

will be updated, including customs

dossier registrations, customs

dossier inspections, and customs

inspection and supervision

measures.

• A draft circular to amend and

supplement Circular 39/2015 on

the customs values of exported

and imported goods. The draft

legalizes the customs valuation

methods applied for exported

goods, which were introduced in

Circular 39/2018. An interesting

point is the requirement for

supporting documents to be

submitted to Customs proving that

a special relationship between the

seller and the buyer does not

affect the price of the imported

goods.

These draft circulars have been

circulated to companies for

comments.

Draft amendments to the Labour

Code

The National Assembly is scheduled

to finalise and pass draft

amendments to the Labour Code

around the end of 2019, which

should come into effect 1 January

2021.

Some key proposed changes are

highlighted below:

• There would be a new approach

to determine a labour contract

(LC). An agreement with a title

other than “labour contract”, but

containing scope of work, salary,

management, administration and

supervision shall be considered

an LC. The aim of this change is

to keep the Code updated with

new employment practices in

Industry 4.0, e.g., the workforce of

Grab/Uber, etc.

• The draft Code for the first time

recognizes labour contracts made

in electronic form (i.e. contracts

made under the form of a data

message established in

accordance with the Law on E-

transactions) as a type of written

LC.

• A probationary period can be up to

six months for “managers” as

defined in the Law on Enterprises,

including the chairman of a

members’ council/board of

management and the (general)

directors of a company. Currently,

the maximum probationary period

is 60 days.

• An employee will have the right to

unilaterally terminate a LC without

any reason, but he/she must

comply with the requirements for

giving notice (i.e., 45-day notice

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notice for an indefinite term LC,

30-day notice for a one- to three-

year term LC, three-day notice for

a seasonal LC). Moreover, in

some specific cases (e.g. the

employee is not assigned to the

correct job as agreed in the LC,

the employee is maltreated/

sexually harassed or where a

pregnant employee must cease

working on doctor’s advice),

employees may unilaterally

terminate their LC at any time

without giving notice.

• Overtime work can be up to 400

hours/year in special cases

(currently 200 hours/year for

normal cases and 300 hours/year

for “special” cases).

• Besides an “employees’

representative organisation” (i.e.

Trade Union), a “Committee for

cooperation between employees

and employers” would be required

to be established. This Committee

would be established for the

purpose of conducting dialogue at

the work place (periodical and

upon request). Certain enterprises

would be required to have such a

Committee.

• An enterprise with various

branches in different locations is

not required to register Internal

Labour Rules (“ILR”) with

respective local labour authorities,

and can instead just send the

valid/registered ILR to these

authorities [for notification

purposes].

• Suggested increase of retirement

ages gradually until reaching 62

years old for male employees and

60 years old for female employees

(currently these ages are 55 for

ladies and 60 for gents).

Draft Resolution providing

guidance on tax incentives for

Small and Medium Enterprises

(SMEs)

Although the Law on SMEs

stipulating tax incentives for SMEs

took effect 1 January 2018, it does

not clearly indicate the preferential

tax rates, but instead refers to other

tax laws for guidance. Accordingly, in

order for SMEs to enjoy preferential

tax rates, they must wait for the

amendment of relevant tax laws,

such as the Law on CIT and VAT.

Therefore, the Ministry of Finance

developed a draft resolution on a

number of CIT policies to support

SMEs, including the following:

• CIT is exempted for two years

starting from the first year of

generating taxable revenue for

new enterprises established by

business households or

individuals.

• A preferential tax rate of 15%

applies to enterprises that have

annual revenue under VND3bn

and an average number of

employees participating in the

state social insurance scheme of

no more than 10.

• A preferential tax rate of 17%

applies to enterprises having

annual revenue from VND3bn to

VND50bn and an average number

of employees participating in the

state social insurance scheme of

no more than 100.

The Resolution, if approved, is

expected to take effect from 1

January 2020. This is a positive

development, provides much clearer

guidance for SMEs.

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Simplified procedures for life

insurers

The Ministry of Industry and Trade

recently issued Decision 25/2019

which takes effect from 1 October

2019 amending Decision No. 35/2015

to abolish the registration

requirements for life insurance

standard contracts and general terms

and conditions with the consumer

protection authority.

Specifically, the new Decision

proposes removing "life insurance"

from the list of essential goods and

services subject to the "standard

contracts and general conditions"

registration requirements under the

Law on Consumer Protection.

Accordingly, life insurers will only need

to register their life insurance products

with the MOF's Insurance Supervisory

Authority under the Law on Insurance

Business. This would help simplify

administrative compliance

requirements for insurance

companies.

3. Some interesting rulings issued in Quarter 2, 2019

Dividends are taken into account to

calculate EBITDA to determine tax

deductible interest

This clarifies how the EBITDA cap

introduced in the transfer pricing

Decree 20 will be calculated - this is

a positive confirmation for holding

companies.

(OL 1315/TCT-DNL dated 10/04/2019

issued by the GDT)

Withholding tax treatment of goods

imported for distribution in Vietnam

The Ho Chi Minh City tax department

issued guidance to a pharmaceutical

company which imports pharma

products from an overseas supplier

under a distribution agreement. The

Vietnamese company also receives

various support from the overseas

supplier for conducting promotion,

marketing and advertising activities in

Vietnam. Accordingly, the Vietnamese

company is required to withhold FCT

at 1% from payments made to the

overseas supplier.

It appears that the tax authorities are

becoming more stringent in applying

this rule, which was first introduced

more than 5 years ago from now.

Companies should review their goods

importation arrangements and

contracts to identify any exposure to

withholding tax under these

provisions.

(OL 624/CT-TTHT dated 21/01/2019

issued by Ho Chi Minh City tax

department)

Capital gains tax on indirect

transfers

We see more local tax authorities now

seeking to tax indirect transfers –

essentially this is where an overseas

holding company of a Vietnamese

company - or its parent(s) higher up

an ownership structure - are

transferred, but the ownership of the

Vietnam company remains

unchanged. In a recent example, the

Hanoi tax department has indicated its

intention to do just this.

In the case in point, two entities in

France agreed to transfer a target

company in France. The target owns

70% of a Vietnamese company.

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In the case in point, two entities in

France agreed to transfer a target

company in France. The target owns

70% of a Vietnamese company.

The Hanoi TD concluded that the

seller is subject to CGT in VN in

relation to the Vietnamese sourced

income from this transfer, regardless

of the location where the sale took

place.

The Vietnamese entity was held

responsible for the CGT filing in this

regard. However, no guidance on

how the CGT liability should be

calculated was provided.

Again, this is a practical case of a

long standing change in the tax law

now being implemented in practice.

Companies and investors who have

made such indirect transfers are

advised to consider their position.

(OL 44290/CT-TTHT dated

10/06/2019 issued by Hanoi tax

department)

PIT exemption for expatriates

working for a representative office

(“RO”)

It is common for expatriates who are

working for an RO in Vietnam but

who are not permanently stationed

here to claim PIT relief under a

relevant tax treaty.

Broadly, the following criteria in the

“Dependent personal services”

article under a treaty must be

satisfied for a PIT exemption to be

claimed:

(i) The expatriate must be able to

prove tax residency in the overseas

jurisdiction concerned; and

(ii) The expatriate must spend less

than 183 days in Vietnam in the

calendar year concerned; and

(iii) The remuneration is paid by or

on behalf of an employer who is not

a tax resident in Vietnam; and

(iv) The remuneration is not borne

by a permanent establishment (“PE”)

or a fixed base which the employer

has in Vietnam.

OL 855 examines the last two tests.

Specifically, the tax authority

considers whether the RO is the

“deemed employer” of the expatriate

(i.e. condition (iii)) and whether the

non-resident employer (i.e. the

overseas head office) has a

permanent establishment (“PE”) in

Vietnam (i.e. condition (iv)).

Deemed employer

During the Vietnam assignment, the

RO manages and supervises the

expatriate. The RO also provides

working facilities to the expatriate.

Therefore, the RO shall be deemed

as the employer of the expatriate

and condition (iii) failed.

PE risk

Where the RO is engaged in

activities which go beyond being

preparatory and auxiliary in nature

and contribute to the company’s

profits, such as negotiating,

concluding contracts, marketing,

advertising, sales promotion,

aftersales services provision, etc.,

the RO will constitute a PE of the

overseas head office in Vietnam.

If the expatriates and RO fall within

these situations, the expatriates

shall be deemed as having

remuneration paid by a resident in

Vietnam and/or remuneration borne

by a PE of the expatriate in Vietnam.

Therefore, the PIT exemption claim

will be denied.

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Based on this strict assessment of

conditions, such DTA claims might

be more challenging. In order to

apply for PIT exemption under a

DTA, more investigation should be

taken to protect against the risk of

being deemed an employer and/or a

permanent establishment, and thus

having PIT clawed back, plus

interest & penalties, in a subsequent

tax audit.

(OL no. 855/TCT-HTQT dated 28

February 2019 issued by the GDT)

New guidance on import duty

exemptions for materials used for

production of in-country exported

goods

On 25 June, the GDC issued an OL

no. 4138/TCHQ-TXNK to provincial

Customs Departments on import

duty exemptions for imported

materials used in the production of

in-country exported goods.

This replaces the GDC's previous

guidance, which stipulated that in-

country exportation did not meet the

definition of exportation activity

specified in the Law on Commerce

and, hence, import duty exemptions

would not be available for materials

imported for the production of in-

country exported goods. This had

caused much concern – see our

NewsBrief in the link below for

details.

https://www.pwc.com/vn/en/publicati

ons/news-brief/190107-ol4138.html

This is a welcome development and

resolves concerns raised by the

previous guidance. No measures,

however, are set out for companies

which may have been charged

import duties under the previous

guidance.

(OL no. 4138/TCHQ-TXNK dated 25

June 2019 issued by the GDC)

A representative office ("RO")

cannot receive payments on

behalf of its foreign head office

According to Article 30 of Decree

07/2016, foreign ROs are only

allowed to conduct liaison activities,

market research and trade

promotion, and not undertake

business activities in Vietnam that

generate income.

On such basis that the RO can not

carry out any business activities, OL

1521 rules that a RO is not permitted

to receive any payments from

Vietnamese companies on behalf of

its overseas head office.

(OL 1521/NHNN-QLNH dated

13/03/2019 issued by SBV)

Calculation of severance

allowance must include probation

period

OL 113 confirms that for labour

contracts entered into and effective

before 1 May 2013 (the effective

date of the 2012 labour code) that

include an agreement on probation

period, if those contracts are

terminated after the effective date of

Decree 148/2018 (i.e. 15 December

2018), the total working period for

calculating/paying

severance/retrenchment allowance

includes the probationary period.

Companies should note this change

to ensure that the calculation of the

compulsory allowances are in line

with regulations.

(OL 113/QHLDTL-CSLD dated 27

February 2019 of MOLISA)

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CIT incentives for new investment

projects that manufacture

prioritised supporting products

Profits from new investment projects

that produce prioritised supporting

products are entitled to a 10% CIT

rate for 15 years, a tax exemption for

four years followed by a reduction of

50% of CIT payable in the following

nine years.

If an expanded investment project of

a company has already enjoyed CIT

incentives under other incentive

programs for a certain period, such

period must be deducted from the

period for which incentives can be

claimed for producing prioritised

supporting products.

(OL 1667/TCT-CS dated 25/04/2019

issued by the GDT)

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10%CIT rate can be applied to

profits from new investment

projects that produce prioritised

supporting products for 15 years

A

4. PwC NewsBriefs issued in

Quarter 2, 2019

Please refer to the following links to download our NewsBriefs issued in the

second quarter.

• Guidance and Clarification on Social Insurance for Foreigners - 06

May, 2019

https://www.pwc.com/vn/en/publications/news-brief/190506-si-

foreigners.html

• New Circular amending Value added tax (“VAT”) regulations - 14 May,

2019

https://www.pwc.com/vn/en/publications/news-brief/190514-circular-18.html

• Decision No. 18/2019/QĐ-TTg on the importation of used equipment

and production technology - 15 May, 2019

https://www.pwc.com/vn/en/publications/news-brief/190515-decision-

18.html

• Government boosts minimum basic salary from July 2019 - 20 May,

2019

https://www.pwc.com/vn/en/publications/news-brief/190520-decree-38.html

• Announcement of new online tax system – 23 May, 2019

https://www.pwc.com/vn/en/publications/news-brief/190523-etax.html

• Corporate Governance and Internal Audit – Towards the International

best practices – 19 June, 2019

https://www.pwc.com/vn/en/publications/other-newsbrief/170711-decree-

71.html

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Contact us

Nguyen Thanh Trung

Tax Partner

Tel: +84 28 3824 0103

Mobile: +84 903 003 847

Email: nguyen.thanh.trung@pwc.com

This publication has been prepared for general guidance on matters of

interest only, and does not constitute professional advice. For further

information, please reach out to us.

Richard Irwin

Tax Partner

Tel: +84 28 3824 0117

Mobile: +84 903 037 751

Email: r.j.irwin@pwc.com

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Nguyen Huong Giang

Tax Partner

Tel: +84 24 3946 2237

Mobile: +84 979 001 783

Email: n.huong.giang@pwc.com

Ho Chi Minh City Office Hanoi Office