VAT And Corporate Income Tax Changes In Vietnam

Vietnam has recently announced some changes over VAT and Corporate Income Tax. Companies operating in this country should take note of the changes and stay compliant with the regulations.

The Vietnamese government has released Circular No. 25/2018/TT-BTC, revising and supplementing the existing circulars on value added tax (VAT), corporate income tax and personal income tax. Article by Jack Nguyen, TMF Group.

If you are operating in Vietnam, below are the changes that may affect your company, effective from 1 May 2018.

Value Added Tax (VAT)

  • Companies importing goods for export are entitled to VAT refund
  • The value of the natural resources and minerals used to process export products do not include expenses for transportation from the place of exploitation to the processing plant

In the scenario where tax payers provide goods and services for both domestic sales and export, they are required to record input VAT for import activities separately. Separating records of input VAT for import sales can be a time-consuming and an expensive activity for tax payers. If they fail to record the input VAT separately, tax payers can use the percentage of import sales over total sales from the last tax refund period to determine the VAT refund amount for this period. Hence, the circular will come as a relief for many companies in Vietnam.

Nonetheless, tax payers can claim a VAT refund for any specific period, (not necessarily a full fiscal year but a quarter, a year or more than a year), provided that the amount totals at least VND300m.

For example, if the VAT claim for year 2017 is VND120m, and the percentage of the import sales revenue against total sales revenue of last tax refund period was 60%, the refundable VAT claim of year 2017 would be VND72m.

Corporate and individual income tax

When a capital transfer occurs between companies, the receiving party must review the remaining value of fixed asset to ensure it meets the requirements of fixed assets under the regulation in Vietnam.

Fixed assets must meet the following conditions:

  • they must guarantee or promise economic benefit in the future
  • the value of the asset is reliably identified, and the value before tax is at least VND30m
  • the durability of the asset must be longer than one year

The total deductible amount for voluntary pension funds, pension insurance, and life insurance for corporate income tax is capped at VND3m per month if:

  • the condition and level of the insurance is stated in one of the following documents: labour contract; collective labour agreement; finance policy;  bonus policy issued by the chairman, general director, or director in accordance with the company’s finance policy.
  • the enterprise fulfils the compulsory insurance liability for employees

For corporate income tax, welfare expense which is capped at one month salary excludes life insurance and voluntary pension insurance for staff, it is capped at VND3m per person each month.