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Tax Newsletters

Circular 03/2021/TT-BTC guidance on Corporate Income Tax (CIT) reduction, exemption for technology and science enterprises.

On January 11, 2021, the Ministry of Finance issued Circular No. 03/2021/TT-BTC ("Circular 03") on CIT reduction, exemption for technology and science enterprises specified in Decree No. 13/2019/ND-CP of the Government.

According to Circular 03, objects which are applied, include technology and science enterprises as prescribed in the Law on Science and Technology. In case the enterprise which has a branch directly under them does independent accounting, if the branch meets the requirements of Circular 03, it will also be eligible for being applied tax incentives.

Circular 03 also emphasises the condition to apply tax incentives that the annual revenue from trading products, production activities which is formed from technological and scientific results, reaches a minimum rate of 30% of the enterprise’s total annual revenue (in which the total annual revenue is the total revenue from service, business and production activities, the revenue from financial activities and other income of the enterprise).

The duration and level of preferential CIT reduction, exemption are specified as follows:

* Tax exemption for 04 years and 50% reduction of payable tax amount for the next 9 years;
* If the enterprise has not had taxable income for the first 3 years, the incentive will start from year 4;
* If the enterprise's revenue does not meet the rate of 30% mentioned above during the year, the incentives will not be applied, but it will be deducted from the period of receiving CIT incentives;
* If the enterprise is receiving other CIT incentives and is later granted the certificate of a high-tech enterprise, the period of receiving the high-tech CIT incentive will subtract the time for CIT reduction, exemption in which the enterprise receives according to other preferential conditions;
* If the enterprise has taxable income but the time of business and production activities which are exempt from or reduced tax for the first year is less than 12 (twelve) months, the enterprise may choose to receive tax reduction, tax exemption immediately in that first year or register with the tax office the period of the commencement of tax reduction, tax exemption in the following year.

Please see the attached file for detailed information

Contractor tax policy on the expense of equipment and machinery installation

Dispatch No. 1452/CT-TTHT issued by Hanoi Department of Taxation on January 12, 2021

In case the company in Vietnam signs a contract to purchase equipment and materials with a foreign contractor ("FCT"), in which the foreign party provides equipment, machinery, and services for commissioning, installation, manufacturing and contract which can separate equipment, machinery, the value and other services, thus the FCT for "services related to the provision of commissioning, installation, and manufacturing services that the seller appoints experts to perform in Vietnam” is calculated according to the ratio of taxable turnover as follows:

* Corporate Income Tax (CIT): the rate for CIT calculation which is applicable to machinery and equipment installation, is 2%; the rate which is applicable to other services, is 5%;

* Value Added Tax (VAT): the rate for VAT calculation which is applicable to service industries, is 5%

Please see the attached file for detailed information

Guidance on Value Added Tax (VAT) for transfer of investment projects.

Dispatch 4433/TCT-CS issued by the General Department of Taxation on October 21, 2020 providing guidance on the VAT policy applicable to transfer activities for an investment project.

In accordance with current regulations, a case of transferring an investment project with the purpose of producing and trading VAT-liable goods, services is not required to declare and pay VAT. However, the current regulations don’t clearly state the case of transferring an investment project with the goal of both producing, trading VAT-liable goods & services and producing, trading goods & services that are not subject to VAT.

Accordingly, Dispatch 4433/TCT-CS stipulates that in case the Company can’t separate the part of the investment project to manufacture VAT-liable products from the part of the investment project to manufacture products which are not subject to VAT, the Company must declare and pay VAT for transfer activities for an investment project at the rate of 10%.

Please see the attached file for detailed information

Tax policy on quarantine costs for expatriates due to Covid-19 pandemic

Dispatch 5032/TCT-CS issued by General Department of Taxation on November 26, 2020

Corporate Income Tax (CIT):

* Hotel expenses are included in deductible expenses when calculating CIT if the labour contract states clearly that the company is responsible for paying housing rental to employees.

* Air ticket cost is included in deductible expenses when calculating CIT if conditions for travelling allowances are met.

* Cost of COVID-19 test is considered as welfare expenses directly paid to employees and included in deductible expenses for CIT calculation if conditions for welfare expenses are met.

Personal Income Tax (PIT):

The above hotel costs, airline tickets and testing costs are considered as benefits that expatriates are entitled to should be included in taxable income of PIT.

Dispatch 97748/CT-TTHT dated November 10, 2020 by Hanoi Department of Taxation and Dispatch No. 2220/CT-TTHT dated July 6, 2020 of Bac Ninh Department of Taxation stipulate specifically as follows:

CIT:

According to Hanoi Department of Taxation, in case the Company pays the quarantine cost for expatriates who come to Vietnam during the pandemic, this expense is considered as welfare expense and shall be recorded according to the average monthly salary limit of one month if it meets the conditions in Article 4 of Circular 96/2015/TT-BTC.

Dispatch of Hanoi Department of Taxation as mentioned above is consistent with the dispatch of Bac Ninh Department of Taxation.

PIT:

According to Dispatch of Bac Ninh Department of Taxation, hotel expenses paid by the company during the time expatriates performs compulsory quarantine are not included in their taxable income of PIT.

However, according to Dispatch of Hanoi Department of Taxation, if on the document of these expenses for quarantine, the name of entitled expatriates is stated clearly, it must be included in the taxable income of PIT.

It can be seen that General Department of Taxation and local Tax Departments are having inconsistent views regarding the cost of compulsory quarantine for foreign workers. Therefore, enterprises need to consider the actual situation in order to comply with tax regulations, avoid false declaration.

Please see the attached file for detailed information