S & S NEWS LETTER FOR 2010 OCTOBER Part 1. S & S Auditing and Consulting Co.,Ltd. CURRENT TAX LAWS

S & S NEWS LETTER FOR 2010 OCTOBER

Part 1

S & S Auditing and Consulting Co.,Ltd

.

CURRENT TAX LAWS


I. Introduction of the Vietnam current system of tax laws and policies

II. New issues in the 2009-2010 TAX POLICIES

III. Q&A

Contents


PART I

THE VIETNAM CURRENT SYSTEM OF TAX LAWS AND POLICIES


1. License tax2. Import, export duties3. Value added tax4. Special consumption tax5. Enterprise income tax6. Personal income tax7. Natural resources tax (royalties)8. Land and housing tax (currently, tax is only imposed on

lands, is not on houses)9. Agricultural land use tax10.Charges for land use, land rent11. Fees, charges (288 types)

CURRENT TAX LAWS AND POLOCIES


1. LICENSE TAX

Is imposed annually on business entities (half of the annual amount of tax shall be paid if the business is started in the second half of the year);

Has the nature of registration, for business control purpose Does not depend on the turnover or efficiency of business; Is considered as a deductible expense when determining

enterprise income tax


LICENSE TAX - TAXPAYERS

Independent business entities Dependent business establishments (branches, shops) that

register with tax offices and is granted with 13 digit tax identification number;

Individuals, groups of individuals who do business; Individuals with assets for rent.


LICENCE TAX- RATE FOR A YEAR

Economic entities (classified according to level of capital)

Registered capita! Rate

Grade 1 Over 10 billions dong 3.000.000 dong

Grade 2 5 to 10 billions dong 2.000.000 dong

Grade 3 2 to 5 billion dong 1.500:000 dong

Grade 4 Less than 2 billion dong 1.000.000 dong


LICENCE TAX- RATE FOR 1 YEAR

Individuals, groups of individuals: tax according to income

Grade Monthly average income Rate

1 Over 1.500.000 dong 1.000.000 dong

2 Over 1 million to 1.5 million dong 750.000 dong

3 Over 750.000 to 1 million dong 500.000 dong

4 Over 500.000 to 750.000 dong 300.000 dong

5 Over 300.000 to 500.000 dong 100.000 dong

6 300.000 dong or lower 50.000 dong


IMPORT, EXPORT DUTY

Are indirect taxes imposed on imported, exported goods Are regulated by the partner countries when Vietnam participates in

the international and regional trade agreements Are subject to the tariff reduction according to the committed

schedules Are different rates according to the Agreements (MFN tariff

schedule, preferential tariff schedule, special tariff schemes of ASEAN, ASEAN + China, Japan, Korea, India, Australia, New Zealand)


IMPORT, EXPORT DUTY - LEGAL DOCUMENTS

Law on import, export duties (.revised,) dated 14/06/2005 Decree 149/2005/ND-CP dated 15/12/2005 providing detailed

implementation of Law on import, export duties Related Decrees No. 66/2002/NO-CP dated 01/7/2002; No.

12/2006/ND-CP dated 23/01/2006; No. 108/2006/ND-CP dated 22/9/2006; No. 85/2007/ND-CP dated 25/5/2007 on tax administration; No. 29/2008/ND-CP dated 14/03/2008 on industrial zones, export processing zones, economic zones; Decision No. 33/2009/QD-TTg dated 02/03/2009 of the Prime Minister on the financial regime for economic border gates


Circular No. 79/2009/TT-BTC dated 20/04/2009 guiding the implementation on customs procedures, customs inspection, import-export duties and tax administration for imported, exported goods

IMPORT, EXPORT DUTY - LEGAL DOCUMENTS


GOODS SUBJECT TO IMPORT- EXPORT DUTIES

Goods imported, exported through Vietnam border gates including those imported, exported through gates of inland, waterway, railway transportation, international post, through seaports, airports and places of customs procedures as specified by competent State agencies.

Goods are transferred from domestic market to non tariff zone and from non tariff zone to domestic market.

Other exchanged, traded goods which are considered as imported, exported goods


BASIS FOR IMPORT- EXPORT CALCULATION

Goods which are subject to ad valorem rates: Actual amount of imported, exported goods; Dutiable value (the circular provides 6 methods of valuation); Rates specified in the tariff schedule.

Goods which are subject to specific rates: Actual amount of imported, exported goods; Specific rate is applied to one unit of goods. Currently, this

rate is only applied to the used passenger car with less than 24 seats


IMPORT DUTIES – 3 TYPES OF RATES

Preferential rates (MFN): are applied to goods imported from countries, territories with MFN treatment in the trading relations with Vietnam (WTO members). The schedule was promulgated with Circular No. 216/2009 of the Ministry of Finance dated 12/11/2009 and other revised Circulars.

Specially preferential rates: are applied to specific goods as regulated in Circulars of the Ministry of Finance.

Common rates: are of 150% preferential rates.


PREFERENTIAL TREATMENT OF IMPORT DUTIES

Tariff schedule of CEPT/AFTA: ASEAN - Decision No. 36/2008 dated 12/6/2008, Decision No. 73/2008/ dated 5/9/2008 of the Minister of Finance (period 2008 - 2013)

Tariff schedule ACFTA: ASEAN + China - Decision No. 111/2008/QD-BTC dated 18/11/2008 (period 2009 - 2011).

Tariff schedule AKFTA: ASEAN + Korea - Decision No. 112/2008/QO-BTC dated 18/11/2008 (period 2009 - 2011)

Tariff schedule AJFTA: ASEAN + Japan - Decision No. 83/2009/TT-BTC dated 28/4/2009 (period 2008 - 2012)

Tariff schedule AANFTA: ASEAN + Australia & New Zealand - Circular No. 217/TT-BTC dated 17/11/2009 (period 2010 -12)

Tariff schedule AIFTA: ASEAN + India - Circular No. 58/2010/TT-BTC dated 16/4/2010 (period 2010 - 12)


SUPPLEMENTARY IMPORT, EXPORT DUTIES

Beside the import, export duties as mentioned above, if goods are imported excessively into Vietnam with subsidies, dumping or discrimination against the Vietnam exported goods, then the anti-dumping, countervailing tax or safeguard measures shall be applied.

The above supplementary taxes shall be applied in accordance with relevant legal documents.


TAX DECLARATION, PAYMENT

Principles of tax declaration, payment are applied according to Article 4, Decree 85/2007/IMDCP dated 25/5/2007 of the Government guiding the implementation of Law on tax administration

Tax documents are customs declaration and documents provided in Circular No. 79/2009 of the Ministry of Finance

Time for tax payment Exported goods: 30 days after submitting customs declaration Imported goods: upon the receipt of goods; within 30 days,

within 275 days or longer subject to type of goods and taxpayers' records on law compliance


INCENTIVES – IMPORT, EXPORT DUTIES EXEMPTION, REDUCTION

Decree 149/2005/NO-CP dated 8/12/2005 provides 18 cases of tax exemption (Article 16) and 3 cases of tax exemption consideration (Article 17)

Enterprises with investment projects which import goods for implementing investment projects in preferential sectors or projects in difficult, especially difficult socio-economic conditions

List of areas, sectors which are specified in the Decree 149/2005. In cases other than those specified in Decree 108/2006, a letter should be sent to the customs office where customs declaration is filed.


IMPORT DUTY EXEMPTION FOR ENTERPRISES WITH INVESTMENT PROJECTS

Enterprises which have investment projects in sectors, ares or investment preference as specified in Decree 108/2006 are exempted from import duties in respect of the imported goods regulated from subparagraph 6 to subparagraph 18, including:

Equipment, machinery, specialized means of transport used in the technological line certified by the Ministry of Science and technology; means of transport for carrying workers including cars of 24 seats or more

Spare parts, components, accessories for uniform assembling or uniform use with equipment, machinery, specialized means of transport;

Raw materials, materials used for manufacturing equipment, machinery in technological line or to manufacture spare parts, components, accessories for uniform assembling or uniform use with the above mentioned equipment, machinery.

Construction materials which can not be produced domestically.


IMPORT, EXPORT DUTIES REFUND

Goods which have been subject to import duties but are under supervision of customs offices and are now re-exported

Goods which have been subject to import, export duties but are not actually imported or exported or are imported, exported in smaller amount

Goods which have been imported for manufacturing exports shall be entitled to import duty refund in proportion of the actual exports

Goods which have been subject to import duties but then are exported Goods which are temporarily imported for re-export, are temporarily

exported for re import Goods which have been exported but should be re-imported into

Vietnam Goods which have been imported but should be re-exported


IMPORT, EXPORT DUTIES REFUND

Machinery, equipments, means of transport of contractors which have been brought into VN and been subject to import duty, when re-exported, shall be entitled to import duty refund in proportion with the use period.

For goods imported, exported though international express delivery if the service providing enterprises have paid tax for goods owners, but are not able to deliver the recipients and have to re-export, re-import, shall be entitled to tax refund

Mistakes in tax filing, calculation, payment (including mistakes by both enterprises or customs offices) shall be entitled to tax refund if the mistakes are within period of 365

Goods which have been subject to import, export duties but the are exempted according to the decisions of competent State agencies


IMPORT, EXPORT DUTIES RECOVERY

Goods which have been duty exempted, but are then changed for another use purpose, except cases of transfer to the exempted persons as regulated in Decree 149/2005

In cases where enterprises or customs offices make mistakes in tax declaration, calculation, payment, they have to pay the tax deficiency within period of 365 days from the date of mistake identification.

If tax evasion, tax fraud are identified, the tax shall be recovered with the time limit of 5 years from the date of identification (date when State competent authorities sign decisions for tax recovery).


3- VALUE ADDED TAX (VAT)

Is an indirect tax which is imposed on the consumption of goods, services within the economic territory

Has nature: tax is collected at the later stage (output tax) and tax paid at the earlier stage is refunded (input tax) (the tax credit regime);

Taxpayers transfer tax into the selling price for the purchaser of goods and services;

High risk if invoices regulations are not complied.


VAT- TAXABLE PERSONS

Goods, services which are imported into Vietnam; are manufactured, exchanged, consumed in Vietnam (except 25 groups which are not subject to tax);

For the VAT exempted person: tax is not imposed at the stage where tax is exempted, but input tax is not credited

In special cases as regulated in Government agreement, the VAT input will be refunded for exempted cases (ODA projects).


VAT- TAXPAYERS

Entities, individuals producing, trading goods, services in all stages: imports, production, supply.

Entities, individuals, agencies which make payments to foreign entities, individuals that are non-residents of Vietnam for purchasing services accompanied with goods shall pay VAT according to the law on contractors' tax

Purchasers of goods which were previously subject to tax exemption but are now used for another purpose (e.g.. Goods of diplomatic agency, foreign non-government organization...)


VAT REFUND

Tax refund shall be allowed in cases where: Taxpayers apply the credit method and have positive input tax

during 3 consecutive months (the input tax has not been totally credited);

Newly established businesses in the investment period. Refund is allowed on annual basis

Businesses with the accumulated amount of 200 million dong; Businesses with the input VAT of exported goods, services which

is of 200 million dong or more. Refund is allowed on monthly basis.


VAT REFUND

Businesses are entitled to VAT refund if upon ownership transformation, enterprise transformation, merger, consolidation, separation, split, dissolution, bankruptcy or operation termination, they have an overpaid value-added tax amount or have some input value-added tax amount not yet fully credited

ODA programs, projects shall be subject to refund of the VAT paid for goods, services purchased in Vietnam.

Refund of the VAT paid when purchasing goods, services in Vietnam for the use by persons under the Ordinance on diplomatic exemption privileges.

Refund is made according to the decision by the competent agency as provided by the law.


4- SPECIAL COMSUMPTION TAX (SCT)

Is an indirect tax applied for purpose of directing production, consumption, regulating income, bringing revenue for state budget.

Is imposed at stage of importation or the first stage of domestic sales (not imposed at trading stage or on exported goods).

The rates are high, the tax base is narrow, the SCT is imposed on goods and services of which the consumers are high income earners or of which the use causes adverse impact on society, environment


SPECIAL COMSUMPTION TAX

SCT taxpayers: Entities, individuals producing, trading goods, services which

are subject to SCT Importers of goods which are subject to SCT Basis for calculation: Quantity, price and rate. For the goods, services produced domestically, taxable price

is SCT, VAT exclusive price (imputed net selling price ) For the imported goods, taxable price = GIF + import duty


SPECIAL CONSUMPTION TAX

From 01/01/2010: SCT taxable price for beer include the value of the cans.

The tax office shall determine taxable price in the case where goods sold by manufacturers to traders at the price of 10% lower than the selling price of traders.

Goods produced under the cooperation between manufacturer and the label, trade mark owner: SCT is the VAT exclusive selling price of the label, trade mark owner.


5. ENTERPRISE INCOME TAX (EIT) NEW ISSUES

1. Taxpayers

2. Taxable income

3. Exempted income

4. Deductible expenses for determining taxable income

5. Tax rates

6. Tax incentives

7. New policies


EIT - TAXPAYERS

Enterprises established under Vietnamese law; Business households have changed to pay tax according to the personal income tax since 2009

Enterprises established under foreign laws with or without Vietnam-based permanent establishments;

Organizations established under the Law on Cooperatives; Non-business units established under Vietnamese law; Other organizations engaged in income-generating production and business activities despite the fact that they are not known as enterprises

Private enterprises pay EIT, then the enterprise owner shall not have to pay tax on the business income;

Farms belonged to individuals shall be under the scope of personal income tax law; Farms belonged to cooperatives or enterprises shall be under the scope of enterprise income tax law.


TAXABLE INCOME

Taxable incomes include income from goods and service production and business activities and other incomes;

Other incomes cover income from the transfer of capital or real estate; income from the right to own or use assets; income from the transfer, lease or liquidation of assets; income from interests, loans or foreign currency sales; refund of provisions; recovery of bad debts already written off; collection of payable debts of unidentifiable creditors; omitted income from previous years' business activities, and other incomes, including income generated from production and business activities outside Vietnam


EXEMPTED INCOME (7 ITEMS)

1. Income from cultivation, husbandry and aquaculture of organizations established under the Law on Cooperatives.

2. Income from the application of technical services directly for agriculture.

3. Income from the performance of contracts on scientific research and technological development, trial products and products turned out with technologies applied for the first time in Vietnam.

4. Income from enterprises' goods and service production and business activities exclusively reserved for disabled, detoxified and HIV-infected laborers. The Government shall specify criteria and conditions for the determination of enterprises exclusively reserved for disabled, detoxified and HIV-infected laborers.


EXEMPTED INCOME (7 ITEMS)

5. Income from job-training activities exclusively reserved for ethnic minority people, the disabled, children in extremely disadvantaged circumstances and persons involved in social evils.

6. Incomes divided for capital contribution, joint venture or association with domestic enterprises, after enterprise income tax has been paid under the provisions of this Law.

7. Received financial supports used for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam (if not used for the right purpose, the tax shall be recovered at the rate of 25%).


DEDUCTIBLE EXPENSES FOR DETERMINING TAXABLE INCOME

Enterprises are entitled to deduction of all expenses which fully meet the following conditions:

a. They are actually paid expenses related to production and business activities;

b. They are accompanied with adequate invoices and documents as prescribed by law

The under law documents list non deductible expenses; items which are not listed shall be understood as deductible


EIT RATES

Standard rate 25% Preferential rates 10% and 20% with time limit; Preferential rate 10% for the whole period applied to enterprises

operating in education-training, vocational training, healthcare, cultural, sports and environmental domains (which meet the conditions regulated by the Government)

Special rates (from 32% to 50%) for oil and gas exploration, exploitation projects.


EIT INCENTIVE

Incentives for attracting investment: Time bound preferential rates for newly set up enterprises

under investment projects in geographical areas with extreme socio-economic difficulties or sectors where investment is highly encouraged;

Time bound tax exemption, reduction for certain income of certain persons.

Special incentives in certain period will be provided in accordance with requirement of socio economic development


EIT INCENTIVES

Rate of 10% for 15 years, exemption for period up to 4 years, reduction of 50% for period up to 9 years will be provided to newly set up enterprises under investment projects in geographical areas with extreme socio-economic difficulties, economic zones or hi-tech parks; newly set up enterprises under investment projects in the domains of high technology, scientific research and technological development, development of the State's infrastructure works of special importance or manufacture of software products;

In special cases where investment with large scale and high technology is needed to be attracted, the period for tax incentives might be extended (at the maximum of 15 years).


EIT INCENTIVES

Newly set up enterprises under investment projects in geographical areas with socio-economic difficulties are entitled to the tax rate of 20% for ten years, the tax exemption up to 2 years and 50% tax reduction up to 4 consecutive years

Agricultural service cooperatives and people's credit funds are entitled to the tax rate of 20%.

Incentives for newly established enterprises operating in industrial zones have been abolished since 01/01/2009


TRANSITION TO NEW POLICIES

Enterprises which enjoy EIT incentives under Enterprise Income Tax Law dated 17/6/2003 may continue enjoying those incentives for the remaining duration under Enterprise Income Tax Law dated 17/6/2003; in case EIT incentives, including tax rate incentives and tax exemption and reduction duration, are lower than the tax incentives specified in this Law, the tax incentives under this Law apply for the remaining duration.

Enterprises which are entitled to tax exemption or reduction duration under Enterprise Income Tax Law dated 17/6/2003 but have no taxable income yet, the tax exemption or reduction duration will be counted under this Law and from the date this Law takes effect.


6- PERSONAL INCOME TAX

Separate document is provided


PART II

New issues in the tax policies of the period 2009- 2010


NEW ISSUE SINCE 01-01-2009

Value added tax Special consumption tax Enterprise income tax Personal income tax Foreign contractor tax


VALUE ADDED TAX – LEGAL DOCUMENTS

Law on Value added tax No. 13/2008/QH12 dated 03/6/2008 Decree no 123/2008/ND-CP dated 08/12/2008 provides

guidance on the implementation of some articles of the Law on Value added tax

Circular No. 129/2008/TT-BTC dated 26/12/2009 of the Ministry of Finance

Circular No. 131/2008yTT-BTC dated 26/12/2008 providing guidance on VAT according to the Preferential import duty schedule (HS Nomenclature)


VALUE ADDED TAX – NEW ISSUES (SINCE 2009)

1. To broader tax bases

2. To change tax rates

3. To change provisions on tax credit, refund


1. TO BROADERN VAT BASES

New articles are subject to VAT: Survey - mapping, geological exploration belonging to basic

survey of the State, (rate 10%) Activities of cultural, exhibition, sport, gymnastics, art

performance, film producing, importing, distributing and presenting film, (rate 5%)

Machinery, equipment and specialized means of transport which form part of a technological line and construction supplies which have not yet been domestically manufactured and which need to be imported to form fixed assets of enterprises (rate 10%)


II. 2- CHANGES IN TAX RATE

International traffic, goods and services directly supplied for international traffic are subject to 0% with input tax refund (before these activities are VAT exempted).

More articles are subject to the rate of 10%, more articles are changed from 5% to 10%:


3 - TAX CREDIT, REFUND (from 01/01/2009)

Exported natural resources, minerals are exempted from VAT → All natural resources, minerals when exported are not eligible for input tax credit.

If there are errors in declaring input tax, the supplementary declaration is allowed for maximum period of 6 months from the date of the invoice (2 months more are allowed)

New conditions for VAT filing, credit and refund: via bank payment receipts are required for goods and services which have value from 20 million dong or more for each transaction


VIA BANK PAYMENT IS REQUIRED

Total value of goods, services each time according to the invoice is 20 million dong or more.

In case value of purchase from a supplier is lower than 20 million dong but purchases are made many times a day and total value of all purchases in the day is higher than 20 million dong, if there is no via bank payment receipt, the input VAT credit shall not be allowed

Clearing is considered as via ban payment for input tax credit.


... VIA BANK PAYMENT IS REQUIRED

Goods, services purchased on installments which have value from 20 million dong or more: bases for declaring input tax credit are commitments in the contracts, VAT invoices and via bank receipt. When the time for payment as stipulated in the_ contract does not expire, credit is allowed. If the time of payment expires, but there are no via bank payment receipt amendment in input tax declaration is required for credit purpose.


ENTERPRISE INCOME TAX (EIT)

Legal documents Law on Enterprise Income Tax no 14/2008/QH12 dated

03/6/2008 Decree no 124/2008/NĐ-CP dated 11/12/2008 Circular no 130/2009/TT-BTC dated 26/12/2008 Circular no 134/2008/TT-BTC dated 31/12/2008 of Ministry of

Finance providing guidance on the tax applied to foreign organizations, individuals which conduct business in Vietnam or derives income in Vietnam (contractor tax)


EIT-NEW ISSUES (6)

1. Scope of application

2. Deductible expenses for determining taxable income

3. Setting up of enterprises' scientific and technological development funds

4. Place for tax payment

5. EIT for real property transfer

6. EIT tax incentives


EIT-NEW ISSUES (6)

1. Scope of application: Only applied to entities which conduct production, business

activities Business individuals have changed to pay personal income

tax (PIT)

2. Deductible expenses when determining taxable income Provides 31 non deductible expenses (or deductible with

limitation) The other expenses which are not listed shall be understood

as deducted Some expenses should be noticed


(NEW ISSUE 2) DEDUCTIBLE EXPENSES

Fixed assets depreciation: (i) Enterprises should register methods for depreciation, determine the rate of accelerated depreciation and change the rate according to the regulation by Ministry of Finance; (ii) Upon the capital contribution, merge, acquisition, division, change in type of business the enterprise receiving fixed assets shall be allowed to calculate depreciation according to the revalued historical cost; (iii) Deductible expenses do not include depreciation with respect to fixed assets with historical value exceeding VND 1.6 billions with respect to vehicles with 9 seats and less; depreciation with respect to civil aircrafts, yachts which are newly registered for use from 1/1/2009 (except those specially used for passengers, goods transportation for business purposes).


DEDUCTIBLE EXPENSES

Bonus: amount or bonus to be paid is not limited but conditions for bonus should be paid

Salary and other payables: should be paid before 31/3 of the following year, except cases where enterprises make a salary provision for the consecutive following year (provision is not allowed to exceed 17% of the salary fund.

Clothing for employees is not allowed to exceed VND1.5m per employee per year (in kind) or VND1m (in cash)

Bonus for innovation should be provided in the Rule/Regulation


DEDUCTIBLE EXPENSES

Payment for electricity, water in cases of renting houses, places for business but the enterprise is not a contract's party: list of payments according to form 02/TNDN together with the payment vouchers

Provisions are allowed and deductible for: provision for decline in inventories, loss of financial investment, bad debt, provision for guarantee of products, assembling projects according to the regulations by Ministry of Finance


EIT- NEW ISSUES

3. Setting up of enterprises' scientific and technological development funds Source of making fund: from before tax income (up to 10%

of annual taxable income). Fund should be used up within 5 years Within 5 years from the date of its establishment, if the fund

or 70% of the fund has not been used up, the enterprise shall have to re-pay the corresponding CIT and interest at the rate of 1 year treasury bond for 2 years.

If the fund has not been used for proper purpose, the enterprise shall have to re-pay the corresponding OT and interest arising from such CIT at the rate of 0.05 per day


EIT-NEW ISSUES

4. Places for tax payment Enterprises shall pay tax at places where they are

headquartered. In case an enterprise has a dependent cost-accounting

production establishment operating in a province or centrally run city other than the place of its headquarters, the payable tax amount shall be calculated based on the ratio of expenses between the place where the production establishment is located and the place where the enterprise is headquartered.

The ratio of expense shall be based on the previous year ratio The headquarter pays tax but receipts are made separately for

treasury agencies


EIT-NEW ISSUES

5. Income from real property transfer: progressive rate is abolished Income from transferring real properties include income from

transferring land use right, land renting right, income from releasing land by enterprises operating in real property business in according to provisions of land code, regardless the released land attached with infrastructure facilities, construction works or not.


EIT for income from real estate transfer

If expenses related to turnover can be determined, the EIT shall be calculated and temporarily paid on the basis of turnover minus expenses

If expenses related to turnover have not been determined, the temporary payment is of 2% of turnover on cash basis

Rate is 25%; if an enterprise is enjoying tax preferences, then income from transferring real properties shall not be enjoyable to BIT preferences and loss from transferring real properties (if any) shall be accounted separately without offsetting against the profits derived from other businesses


EIT - New issues

6. EIT incentives: simpler and narrower scope To abolish the rate of 15%, abolish the incentives for newly

established enterprises in industrial zones (except in areas with difficult, especially difficult conditions).

To narrow the industries, sectors for preferential treatment (as listed in Decree 124/2008).

To retain preferential rates of 10%, 20% and the time for tax exemption, reduction applied to areas with difficult, especially difficult conditions and special sectors.

The tax exemption is calculated from the year where income is made (from the fourth year if there are losses in many years).

To abolish the tax incentives for expansion of investment


CONTRACTOR TAX-NEW ISSUES

Circular of Ministry of Finance no. 134/2008 dated 31/12/2008 , Circular no. 197/2009 and Circular no. 64/2010 Providing clearer the scope of application Providing in details cases that are not subject to tax Providing in details withholding rates Abolishing Circular no. 16/1999/TT-BTC dated 04/02/1999 of

the Ministry of Finance providing freight tax for foreign shipping companies operating in Vietnam


SCOPE OF APPLICATION

Contractor tax includes VAT, EFT, PIT Organizations, individuals doing business in Vietnam who make

payment for purchasing services from foreign organizations, individuals (including services attached to goods) shall be responsible for:

Paying VAT for the services consumed in Vietnam (pay output VAT and is entitled to input VAT credit)

Withholding the EIT/PIT of the foreign contractors to pay to the State budget (withholding from amount paid overseas).


CONTRACTOR TAX IS NOT APPLIED TO

1. Foreign organizations or individuals conducting business in Vietnam in accordance with the Law on Investment, the Law on Petroleum or the Law on Credit Institutions.

2. Foreign organizations or individuals supplying goods to Vietnamese organizations or individuals not associated with services provided in Vietnam, in the following forms:


CONTRACTORS TAX IS NOT APPLIED TO

3. Services supplied and consumed outside Vietnam.

4. Repair of machinery, equipment, means of transport outside Vietnam

5. Services performed outside Vietnam such as advertising, marketing, trade and investment promotion, brokerage, training;

6. Freight sharing for international post and telecommunication according to the Ordinance on post and telecommunication between Vietnam and foreign countries in which these services are performed; Services for renting transmission line and satellite from foreign countries


EIT payment extension for 2010 (to stimulate investment, consumption, solve difficulties for enterprises)


EXTENSION FOR 2010 EIT PAYMENTS

In 2010: EIT payment is extended for 3 months (in 2009, EIT is extended for 9 months)

Applied to small and medium enterprises which meets criteria of capital or employees as regulated in paragraph 1 Article 3 Decree no. 56/2009/NĐ-CP dated 30/6/2009 of the Government on supporting the small and medium enterprises (SME) development.


CRIRERIA FOR MEDIUM ENTERPRISES 2010

Total capital: 100 billion dong or lower for enterprises in agricultural, forestry, fishery, industrial and construction sectors; 50 billion dong or lower for enterprises in trading and services sectors.

Total employee Y.300 employees or lower for enterprises in agricultural, forestry, fishery, industrial and construction sectors; 100 employees or lower for enterprises in trading and services sectors.


PERSONAL INCOME TAX 2009

PERSONAL INCOME TAX

(PIT)


PERSONAL INCOME TAX 2009

Legal documents which have been introduced up to the second quarter of 2010

Main contents


1 - PERSONAL INCOME TAX – LEGAL DOCUMENTS

Law no. 04/2007/QH 12 dated 21/11/2007 Decree no. 100/2008/ND-CP dated 8/9/2008 Circular no. 84/2008/TT-BTC dated 30/9/2008 Circular no. 62/2009/TT-BTC dated 27/3/2009 amending Circular

no. 84/2008 Circular no. 160/TT-BTC dated 12/8/2009 providing guidance on

the PIT exemption in 2009 according to the National Assembly's Resolution.


PERSONAL INCOME TAX – LEGAL DOCUMENTS

Circular no. 160/TT-BTC dated 12/8/2009 providing guidance to the PIT exemption in 2009 according to the National Assembly's Resolution

Circular no. 161/TT-BTC dated 12/8/2009 providing guidance to the PIT for a number of cases of transfer, receiving inheritance, gift in the form of immovable property.

Circular no. 02/2010/TT-BTC amending Circular no. 84/2008 Circular no. 20/2010/TT-BTC providing guidance on the

amendment of PIT administrative procedures Circular no. 37/2010/TT-BTC guiding PIT credit receipts which

are printed from computers


2 - PIT – MAIN ISSUES

Taxpayer Taxable income Exempted income Tax reduction Calculation of tax, family allowance Tax administration


WHO HAS TO PAY PIT?

Residents: have to pay tax for the income deriving in Viet Nam and outside VN (global income)

Non-residents: have to pay tax for the income deriving in Viet Nam

Residents are individuals who meet one of the two conditions: Being present in Vietnam from 183 days or more in a calendar

year or in 12 consecutives months counting from the first date of his/her presence in Vietnam

Having a place of habitual residence in Viet Nam (having a house or renting a house to live for 90 days or more).


TAXABLE INCOME (10)

1. Income from business

2. Income from wages, salaries

3. Income from capital investment

4. Income from capital transfer

5. Income from transfer of real estate

6. Income from won prizes

7. Income from copyright

8. Income from commercial franchising .'i-

9. Income from inheritance (for certain assets which are subject to registration for use)

10. Income from gifts


INCOME FROM SALARIES AND WAGES

Includes all items received from employers in monetary or non-monetary forms:

1. Salaries, wages and amounts of similar nature

2. Subsidies, allowances excluding those subsidies, allowances mentioned bellows.

3. Remuneration received as brokerage commissions, payments for participation in researches, projects; royalty, teaching; cultural performance, arts, sports..., and other services. Cont. ->


INCOME FROM SALARIES, WAGES

4. Money received from participating in professional associations, business associations; board of directors; enterprise control boards, project management units, management councils, business councils and other organizations.

5. Other benefits in monetary or non-monetary benefits other than salaries and wages paid by employers to or on behalf of taxpayers. The benefits are only calculated as personal income when beneficiaries are identified (Circular 62 dated 27 March). These benefits include:


BENEFITS INCLUDED IN SALARIES AND WAGES

House rents, charges for electricity, water and associated services (house rents are the actual amounts paid but do not exceed 15% of total house rent exclusive income)',

Insurance for employees which employers are not obliged to purchase under law;

Membership fees provided to individuals (membership cards for golf club, sports, art club with specific names of individuals on the cards

Payments, gifts for individuals in the form of healthcare, entertainment, recreation, beauty care services, consultancy services

Other benefits provided on holidays, festivals,...


BENEFITS INCLUDED IN SALARIES AND WAGES

Expenses for individuals for using consultancy services, hiring servants for domestic work.

Other benefits which employers pay for employees consistent with the law (excluding the presumptive expenses for stationery and telephone, working expenses and uniforms at the rate specified in Circular 62 dated 27/3/09)

Monetary or non-monetary bonuses on a monthly, quarterly, annual or one-off basis, thirteenth month Tet bonus and so forth (including bonuses in the form of securities)

The allowances for mid-shift meals which exceed the regulated amount (these allowances will not be included in the taxable amount if the businesses prepare the meals or the allowances are within


ALLOWANCES, SUBSIDIES THAT ARE NOT INCLUDED IN TAXABLE INCOME

Allowances paid under legal provisions on preferential treatment of persons with meritorious services;

Defence or security allowances; Hazard or danger allowances for persons working in branches,

occupations or jobs at places where exist hazardous or dangerous elements; allowances for attraction of labourers to work in certain branches or in certain regions specified by law

Allowances for sudden difficulties, allowances for labourers having labour accident or suffering from occupational disease, lump-sum maternity or child adoption allowances; allowances for working capacity loss, lump-sum retirement allowances, monthly survivorship allowances, severance and job loss allowances specified in the Labour Code, other allowances paid by the Social Insurance


ALLOWANCES, SUBSIDIES THAT ARE NOT INCLUDED IN TAXABLE INCOME

Allowances for combat of social evils as specified by the law; List of allowances, subsidies which are deducted when determining taxable income : according to the guiding documents by the competent authorities.

One-off subsidies for foreigners who come to reside in Vietnam according to the level specified in the labour contract or the agreement between employers and employees.

The return ticket paid by the employer for employees who are foreigners for travelling on holiday to home country once a year.

School fees for children of foreigners who go to primary and secondary school in Vietnam and the fees paid by employer according to the labour contract and school fee receipt.


BONUSES THAT ARE NOT INCLUDED IN TAXABLE INCOME

Monetary awards attached to titles bestowed by the State including monetary awards attached to emulative titles and all forms of commendations and rewards as prescribed in the law on rewards and commendations,

Monetary awards attached to State honorary titles comprising title of "Heroic Vietnamese Mother", titles of heroes of the people's armed forces, titles of heroes, titles of People's Teacher, Doctor, Artist and so forth.

Monetary awards attached to national and international awards recognized by the State of Vietnam.

Monetary awards for technical improvements, inventions and innovations recognized by competent State authorities.

Monetary awards for detecting and reporting breaches of law to competent State authorities


PIT-EXEMPT INCOMES (14)

1. Incomes from transfer of real estate between spouses; parents and their children; adoptive parents and their adopted children; fathers-in-law or mothers-in-law and daughters-in-law or sons-in-law; grandparents and their grandchildren; or among blood siblings.

2. Incomes from transfer of residential houses, rights to use residential land and assets attached to residential land received by individuals who have only one residential house or land plot each.

3. Income from the value of land use rights of individuals who are allocated land by the State.

4. Incomes from receipt of inheritances or gifts that are real estate between spouses, parents and their children; adoptive parents and their adopted children; fathers-in-law or mothers-in-law and daughters-in-law or sons-in-law; grandparents and their grandchildren; or among blood siblings


PIT-EXEMPT INCOMES

5. Incomes of households and individuals directly engaged in agricultural or forest production, salt making, aquaculture, fishing and trading of aquatic resources not yet processed into other products or preliminarily processed aquatic products.

6. Incomes from conversion of agricultural land allocated by the State to households and individuals for production.

7. Incomes from interests on deposits at credit institutions or interests from life insurance policies.

8. Incomes from foreign exchange remittances.9. Wages paid for night shift or overtime work, which are higher than

those paid for day shifts or prescribed working hours in accordance with law.

10. Retirement pensions paid by the Social Insurance.


PIT- EXEMPT INCOMES

11. Incomes from scholarships, including. Scholarships granted from the state budget; Scholarships granted by domestic and foreign organizations under their study promotion programs.

12. Incomes from indemnities paid under life insurance policies, non-life insurance policies, compensations for labour accidents, compensations paid by the State and other compensations as provided for by law.

13. Incomes received from charity funds licensed or recognized by competent state agencies and operating for charity, humanitarian or non-profit purposes.

14. Incomes received from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.


PIT REDUCTION

Taxpayers who face difficulties caused by natural disasters, fires, accidents or severe diseases and affecting their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts. •

The amount of tax payable as the basis for a consideration of reduction of tax, shall comprise: personal income tax already paid or already deducted on items of assessable income in accordance with the flat rate and personal income tax payable on income from business and on income being salary.


PIT CALCULATION

To determine the types of taxable income for applying the relevant shedule of rate : Salaries, wages and business income derived by

residents are entitled to allowances (compulsory insurance, family allowances, humanitarian donation) the balance after deducting allowances is subject to the partially progressive rates;

The other types of income derived by residents and income derived by non-residents are subject to tax each time when income arises


FAMILY ALLOWANCES

Is the amount deducted from their taxable incomes before tax calculation

Includes 2 parts: (i) Reduction for a taxpayer himself/herself, which is VND 4 million/month; (ii) Reduction for each dependant of a taxpayer, which is VND 1.6 million/month given from the month the taxpayer's obligation to nurture the dependant arises.

Applies to business income and income from salaries, wages of residents. The family allowances for dependant are calculated if the individuals register taxes and have TIN.

Each dependant is entitled to allowance in the income of one taxpayer in the tax year. The allowance is given in the month where the obligation to nurture arises


FAMILY ALLOWANCES

In case several taxpayers share a dependant they are obliged to nurture, they shall reach agreement on registration of this dependant for family allowance for one among them.

The taxpayer shall declare the number of dependant and be responsible before the law for this declaration.

Registration for dependant: form 16/DK-TNCN should be used. If the dependant do not live together with the taxpayers, form 21a , 2ib/XN-TCNN (promulgated with Circular No 62 dated 27/3/2009) should be used.


BUSINESS INCOME AND INCOME FROM SALARIES, WAGES

Reduction for charity or humanitarian donations: Resident individuals who earn incomes from business activities, salaries or wages enjoy their charity or humanitarian donations deductible from their taxable incomes, including:a. Donations to organizations or establishments that care for or

nurture children in special plights, disabled people and helpless elderly people;

b. Donations to charity funds, humanitarian funds or study promotion funds which operate according to Decree 148/2007/NDD-CP dated 25/9/2007 for humanitarian, charity, study promotion purpose


PARTIALLY PROGRESSIVE TARIFF

Tax grade

Taxed income per year (million dong)

Taxed income per month (million dong)

Tax rate (%)

1 Up to 60 Up to 5 5

2 Between over 60 and 120 Between over 5 and 10 10





7 Over 960 Over 80 35


INCOME SUBJECT TO FLAT RATES

1. Incomes from capital investment

2. Incomes from capital transfer

3. Income from transfer of real properties

4. Income from won prizes

5. Royalties

6. Incomes from commercial franchising.

7. Incomes from inheritances (for certain asset that are subject to registration)

8. Incomes from gifts


FLAT RATES

Taxed income per year

(VND million)

Tax rate

(%)

a. Incomes from capital investment (dividends, interest) 5

b. Incomes from royalties, commercial franchising (the part exceeding 10 million dong/payment)

5

c. Incomes from won prizes (the part exceeding 10 million dong/payment)

10

d. Incomes from inheritances, gifts (the part exceeding 10 million dong/payment)

10


FLAT RATES

Taxed income per year

(VND million)

Tax rate

(%)

e. Incomes from securities transfer (net income) 20

f. Incomes from securities transfer (selling price) 0,1

g. Incomes from transfer of real estate (net income) 25

h. Incomes from transfer of real estate (transfer price) 2


PIT ADMINISTRATION

Registration Tax withholding Tax filing


PIT ADMINISTRATION- REGISTRATION

An individual with taxable income being salary shall lodge his or her file for tax registration with the income-paying entity. Individuals with other taxable income items shall lodge their files for tax registration with the Tax Department where they reside (E-REGISTRATION NOW IS ALLOWED).

Entities and individuals paying taxable incomes shall make tax registration with tax offices in order to be granted tax identification numbers for the entities and their staff

Individuals with a number of income sources such as from business, salary and other taxable income items may select the place to lodge their files for tax registration either at the income-paying entity or body/ or at the Tax Department in the locality where they conduct business.


PIT ADMINISTRATION - TAX WITHHOLDING

Tax withholding: The income-paying organizations and individuals deduct payable tax amounts from incomes of taxpayers before paying incomes.

Tax withholding for SALARIES, WAGES: Individual with a labour contract and who was employed on a

long term and stable basis: tax shall be deducted on a monthly basis. The income-paying entity shall calculated the tax withheld on the basis of the amount of income, the registered family allowances and the progressive tax rate.

Other individuals with income of 500.000 dong/payment or more: tax withheld at the rate of 10% (TT so 62/2009)


PIT ADMINISTRATION -TAX FILING

Monthly tax declaration is applicable to income-paying organizations which have total monthly withheld tax amount of VND 5 million or higher: the declaration should be no later than the 20th of the following month

Quarterly tax declaration is applicable to income-paying organizations which have total monthly withheld tax amount of less than VND 5 million: the declaration should be no later than the 30th of the first month of the following quarter

Declaration form : Circular 84/2008 . From 2010 according to the form issued in Circular 20/2010


PIT ADMINISTRATION - TAX FINALIZATION

TAX FINALIZATION is applied to the income-paying organizations which withhold tax of employees: Finalize with tax offices on the amount of PIT that should be

withheld, the amount actually withheld, the amount actually paid to the State budget and the amount carried forward.

Before that the final amount of tax of each employee should be determined (conduct the tax finalization for each employee )

Form for tax finalization: Circular 84/2008 and 20/2010 (applied to tax period 2009)


TAX FINALIZATION

Income-paying organizations will, on behalf of their employees, declare the final tax in respect of the income that organizations have paid to the employees. The forms for authorization are provided on the website.

Individuals who are residents having many sources of income (salaries, business income) shall declare the final tax with tax offices when the amount of tax to be paid is higher than the amount already withheld or when they request for tax refund or tax offset in the following period.

Documents

S & S NEWS LETTER FOR 2010 OCTOBER Part 1. S & S Auditing and Consulting Co.,Ltd. CURRENT TAX LAWS