1. Taxation VN

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TAXATION

Learning Objectives

• LO 1-1: Explain concept, nature and characteristics of

taxation.

• LO 1-2: Analyze functions and roles of taxation in the

market economy.

• LO 1-3: Distinguish and recognize direct taxes and

indirect taxes.

• LO 1-4: Describe components and construction

principles of a tax law.

Concept of Taxation

• Taxation is an very important financial tool attached to the existence and development of any state.

• All countries in the world use tax instruments to participate in the implementation of their functions and duties.

• Taxation affects all activities of organizations and individuals in society.

✓ “Things as certain as death and taxes, can be more firmly believed”

(Daniel Defoe, 1726, The Political History of the Devil).

✓ “In this world nothing can be said to be certain, except death and taxes” (Benjamin Franklin, The Works of Benjamin Franklin, 1817).

Concept of Taxation (cont.)

• Generally, tax is an amount paid by organizations and individuals for governments to cover their expenditures therefore taxation is associated with the existence and development of the state

• Theoretically, citizens can get a certain number of benefits from the government for taxes they have paid However, the value of certain benefits from the government that a citizen can receive does not correspond to the amount of tax they have to pay

Nature of Taxation

• Tax expresses economic relations between states and organizations and individuals in society

• States, with their power, engage redistribution of total gross domestic product (GDP) in order to create the state budget funds to meet states’ needs of expenditure

• The state authority is the political and social basis leading to the birth of taxation

Characteristics of Taxation

1)Mandatory:

• Taxation represents the relationship between states and organizations and individuals

• States are political institutions having the supreme power in issuance of tax laws and enforcement of organizations and individuals to have to implement their tax duties

• States can not rely on the willingness of taxpayers Human being has known tax evasion since appearance of taxation in order to pay the minimum tax

Characteristics of Taxation (cont.)

2)Taxes are not directly refundable:

• Through taxes, income from organizations and individuals to be transferred to the state.

• States reserve the right to use tax revenue for the common benefits of society.

• Theoretically, the slogan "Taxation is the obligations and rights of citizens" should not be interpreted in view of exchange of equal value.

Characteristics of Taxation (cont.)

3)Taxes used for public expenditures:

• The explanation of U.S Supreme Court “A tax is not an assessment of benefits It is, as we have said, a means of distributing the burden of the cost of government The only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and

safeguarded by the devotion of taxes to public purposes” (Available

at https://supreme.justia.com/cases/federal/us/301/495/case.html) • Clearly public expenditure is very meaningful to society Meanwhile,

Role of Taxation

1)A tool to mobilize financial resources to meet governments’ needs of expenditures:

• The fundamental purpose of taxation is to finance government expenditure This is the most important role, associated with the history of taxation.

➢paying salaries for civil servants;

➢funding long term projects such as construction of schools, hospitals, roads, etc.

Role of Taxation (cont.)

2)A tool to regulate the macro social economics:

Tax policies:

➢ contribute to orient domestic investment, attracting foreign investment, in line with the social economic development strategy of a state

➢ encourage or restrict business activities, contributing to

establishment of the balance relationship between supply and demand of goods or services and the impact on the market balance ➢ contribute to implement states’ foreign economic policies in each

Role of Taxation (cont.)

3)A tool to regulate income and implement social equality:

Tax policies:

➢intervene the process of distributing income and social wealth, limiting the big gap of living standards and income among people classes in the society.

Classification of Taxes

• Direct Taxes

➢ are levied on the income or profits of a person or an organization who pays them, rather than on goods or services.

➢ create a clear sense and common reaction of taxpayers They are the final tax burden and all that taxpayers have to suffer For direct taxes, taxpayers are those who incur taxes.

➢ depend on society’s income → less stable than indirect taxes.

➢ tend to be progressive tax and fair vertically People with higher incomes will have to pay more income taxes This progressive highlights fairness of direct taxes than indirect taxes.

Classification of Taxes (cont.)

• Indirect Taxes

➢ are levied on goods or services

➢ considered as a sum of the value added to the selling price of goods and services that consumers must pay Though consumers are people who incur taxes, sellers are those who are statutory to pay taxes

➢ cause little reaction to taxpayers than direct taxes since they not incur taxes Indirect taxes incur when consumer activities should take place

➢ more stable than direct taxes Even in depressed economic conditions, essential needs must still be met

Components of A Tax Law

1)Name of tax law:

• should be short and pointed out the object and scope of such taxes as these are the two issues that concern taxpayers first.

2)Taxable objects:

• include goods, services, income or assets The name of the taxes are often derived from taxable objects such as personal income tax, corporate income tax, VAT, etc.

Components of A Tax Law (cont.)

3)Non-taxable objects:

• are goods, services, income or property which are listed in the list of non-taxable objects specified by a tax law.

4)Taxpayers:

• are organizations (including organizations authorized to collect taxes) and individuals who have responsibility to pay taxes according to law.

Components of A Tax Law (cont.)

5)Tax determination bases:

• Each tax has tax calculation base.

• Tax bases include the quantity of goods / services, unit price, unit, taxable income, etc.

Components of A Tax Law (cont.)

6)Tax rates: rates or amounts, which is calculated on the basis of tax revenue ▪ types of tax rates:

Absolute tax rate Proportional tax rate Progressive tax rate Regressive tax rate

▪ defined by an

absolute figure;

▪ stable over a long time, simple, easy to calculate;

▪ vulnerable to be

backward, not really fair in regulating income of taxpayers

▪ also referred to as a flat tax; ▪ assesses the same tax rate to

taxpayers regardless of tax calculation bases;

▪ stable, simple, easy to calculate, popularly used, not affected by market prices

▪ taxable incomes are not regulated really fair

▪ is a tax rate specified as a percentage and increases with the increase of tax bases;

→ tax rate schedule will be more levels;

▪ regulate income of tax objects fairly;

▪ complex and not easy to calculate, often cause confusion of high taxes;

▪ kinds: partly progressive tax rates and fully progressive tax rates

▪ is a decreasing ladder tax rate while increasing tax bases.;

▪ unfair because

Components of A Tax Law (cont.)

7)Tax exemption, tax reduction:

• substantially are taxes payable but left to taxpayers.

• totally different from non-taxable cases stipulated in a tax law.

• assist to create fairness in regulating income between organizations and individuals, assisting for taxpayers who have difficulty in doing business.

• allow states use tax instruments flexibly, helping tax policies to access to specific cases.

Principles of Taxation

1) Fairness/Justice: Tax should be levied fairly so that:

✓ The same amount is paid by persons or entities that are equal in earnings or wealth (horizontal equity).

✓ The contribution in tax should increase as the taxable income increases (vertical equity).

2) Convenience:

✓ Under normal circumstances, a taxpayer should not undergo undue difficulty to pay tax.

Principles of Taxation (cont.)

3) Certainty:

✓ A good tax system is one where the taxes are well understood by the payers and collectors.

✓ The time and reason of payment as well as the amount to be paid by an individual should be well documented and certain or known.

4) Economical:

✓ The administrative cost of collecting taxes should be kept as low as possible to both the collecting agent and the taxpayer.

Principles of Taxation (cont.)

5) Simplicity:

✓ The type of tax and the method of assessment and collection must be simple enough to be understood by both the taxpayers and the collectors.

✓ Complicated taxes lead to disputes, delays, corruption, avoidance and high costs of collection in terms of time and resources.

6) Ability to Pay:

Tax System in Vietnam

▪ Current tax policies of Vietnam:

LO 1-5: Understand Vietnamese tax system.

✓ Law on Valued Added Tax ✓ Law on Agricultural Land Use Right

✓ Law on Excise Tax ✓ Law on Non-Agricultural Land Use

right

✓ Law on Export and Import Duties ✓ Law on Royalties

✓ Law on Corporate Income Tax ✓ Law on Environmental Protection

Tax

✓ Law on Personal Income Tax ✓ Business License Tax (converted to

Tax System in Vietnam (cont.)

▪ Structure of Vietnamese Tax System:

Constitution National Assembly (NA)

Laws, Ordinances, Resolutions of NA’s Standing Committee

National Assembly, Standing Committee of

National Assembly

Decrees, Decisions Government,

Prime Minister Circulars, Decisions,

Tax System in Vietnam (cont.)

▪ Structure of Vietnamese Tax System: Ministry of Finance

General of Customs General Department of Taxation

Customs Departments Border Customs Offices

Tax Offices

Tax Departments

• State companies • Foreign capital

companies • Ltd, Sole

proprietorships • Small companies

TAXATION

References

• Law on fees and charges No.97/2015/QH13 issued by National Assembly on 25 November 2015, effective from January 01, 2017.

• Decree 139/2016/ND-CP dated 04 October 2016 on regulations for license fees, effective from January 01, 2017.

Learning Objectives

• LO 2-1: Explain concept, characteristics and role of license

fees.

• LO 2-2: Identify payers and exemption from license fees.

• LO 2-3: Define bases and rates of license fees.

Concept and Characteristics of License Fees

• Business license tax (converted to license fee from 2017) is a

direct tax and usually quotas which are levied on the business license of enterprises and households.

• License fee is collected annually. • Simplicity:

➢License fee is a specific amount.

➢Declare only one time at establishment.

Role of License Fees

• Help the state control over the whole of business entities at their establishment or at the beginning of the year.

• Mobilize contributions of business entities from the beginning of the year in order to meet the state’s needs of expenditures while taxes have not generated revenue.

License Fee Payers

• License fee payers are organizations and individuals engaging in production and trade of goods/services, except for exemption cases, including:

1 Enterprises which are established under the regulations of law

5 Other organizations which have their trade/production activities

2 Organizations which are established under the Law on Cooperatives

6 Branches, the representative offices of

organizations specified in 1, 2, 3, and (if any)

3 Public service providers which are

established under the regulations of law

7 Individuals, groups of individuals and

households that have their trade/production activities

4 Business organizations of the political organizations, the social – political

organizations, the occupational – social organizations and people's armed units

Exemption from Licensing Fee

1 Individuals, groups of individuals and households engaging in business with annual revenues of less than or equal to VND 100 million

The annual revenue is the total assessable revenue with regard to personal income tax in accordance with regulations of law on personal income tax

2 Individuals, groups of individual and households engaging in irregular business or business without fixed location

3 Individuals, groups of individual and households producing salt

Exemption from Licensing Fees (cont.)

5 Commune cultural post offices and press agencies (printed, radio, television and online newspapers)

6 Branches, representative offices and business locations of the cooperatives that have direct technical service activities in service of agriculture

License Fee Bases

▪ License fee bases of organizations:

➢ the charter capital written in the certificate of business registration; or in the certificate of enterprise registration; or in the charter of the cooperatives;

➢ the investment capital written in the certificate of investment registration or decision on investment policies (where there is no charter capital)

➢ If the economic organizations change their capital, the ground for

determining the rate of licensing fees is their capital of the year

preceding the year of calculation of licensing fees

➢ In case the capital is in foreign currency, it shall be converted into VND

applying the buying rate of banks or credit institutions where the payers

open their accounts at the time they make payment to the state budget

License Fee Bases (cont.)

▪ License fee bases of individuals, groups of individuals and households:

➢ total assessable revenues with regard to personal income tax in accordance with regulations of law on personal income tax.

➢ If their revenue is changed, the ground to determine the amounts of licensing fees is the revenue of the year preceding

the year of calculation of licensing fees.

➢ In case these payers engaging new business within the year, the revenue used to determine the amount of license fees shall be

License Fee Rates

▪ Rates of annual licensing fees for organizations as follows:

Charter capital / investment capital License fees for the whole year

> VND 10 billion 3,000,000 VND / year

≤ VND 10 billion 2,000,000 VND / year

Branches, representative offices, business premises, public service providers, other business entities

License Fee Rates (cont.)

▪ Rates of annual licensing fees for individuals, groups of

individuals and households as follows:

Annual revenues License fees for the whole year

Revenues > VND 500 million 1,000,000 VND / year

VND 300 million < Revenues ≤ VND 500 million 500,000 VND / year

License Fee Rates (cont.)

• Payers found their business within the first six months: pay license fees for the whole year

• Payers found their business within the last six months: pay 50% of license fees for the whole year

• Payers without declaration of license fees must pay the license fees for the whole year, irrespective of the time of detection which is in the first months or the last months

Example 1

Thanh Cong Corporation was established in Jan 10, 2017, having the head office in 10 Nguyen Trai, Dist 1, HCMC, its charter capital VND billion, its tax code: 0312251145 In Feb 15, 2017, the company opened two dependent branches:

1) Thanh Cong Corporation – Binh Duong Branch, located at 105 Tran Hung Dao, Thu Dau Mot, Binh Duong

2) Thanh Cong Corporation – Cho Lon Branch, located at 15 Hai Thuong Lan Ong, Dist.5, HCMC

The company intends to increase its charter capital to VND 12 billion in August 2017

Required: Calculate the license fees Thanh Cong has to pay for 2017 and

Solution of Example 1

• : Charter capital Rate License Fees

Year 2017

Head office (established in 10 Jan 2017) billion 2,000,000 2,000,000

Branch in HCMC 1,000,000 1,000,000

Branch in Binh Duong 1,000,000 1,000,000

Total license fees payable in 2017 4,000,000

Year 2018

Head office (capital increased) 12 billion 3,000,000 3,000,000

Branch in HCMC 1,000,000 1,000,000

Branch in Binh Duong 1,000,000 1,000,000

Declaration of License Fees

▪ Declaration of license fees of organizations:

LO 2-4: Grasp declaration and payment of license fees.

➢ Declare only one time at establishment, no later than the last date of the month in which the business commences;

➢ Payers have dependent units in the

same provinces with the taxpayers’ head offices then the taxpayers must submit license fee declaration dossiers; if in other provinces, the dependent units must submit themselves the license fee declaration dossiers to the direct taxation agencies

➢ Payers have newly formed companies but having not engaged in business, they must submit the license fee declaration dossiers within 30 days from the date of registration certificate or certificate of registration for branch operation issued ➢ Payers have changes of factors as the

Declaration of License Fees (cont.)

▪ Declaration of license fees of organizations (cont.):

• Form of License Fee Declaration: see the form attached.

• Taxpayers can use the software HTKK of General Department of Taxation to complete the form.

• Taxpayers can also make the License Fee Declaration online at

Declaration of License Fees (cont.)

▪ Declaration of license fees of individuals, groups of individuals, households:

➢ Payers which pay fixed taxes are not required to pay license fees The tax authority shall determine the amount of license fee for each business premises according to database of their total revenues

➢ Payers leasing real estate that declare only one time upon every lease contract:

✓ If the lease contract lasts multiple years, license fees shall be paid annually corresponding to number of years which the payers declare payments of value-added tax and personal income tax

✓ If the payers declare lump-sum payments of value-added tax and personal income tax with respect to the lease contract which lasts multiple years, they shall pay the amount of license fee for one year

Payment of License Fees

• Deadline for license fee payment for both organizations and

individuals / households is on 30 January every year;

• For newly established organizations, it shall be the deadline for submitting license fee declaration dossier.

Example 2

Use data in Example 1.

Required:

1) Prepare License Fee Declaration for Thanh Cong Corporation in 2017 and 2018.

Solution of Example 2

1) Prepare License Fee Declaration for Thanh Cong Corporation in 2017 and 2018 dossiers:

✓ Thanh Cong Corporation (Head office): First time Declaration dated 31 Jan 2017;

✓ Thanh Cong Corporation (Head office): First additional Declaration dated 28 Feb 2017;

✓ Thanh Cong Corporation – Binh Duong Branhch: First time Declaration dated 28 Feb 2017;

✓ Thanh Cong Corporation (Head office): Second additional Declaration dated 30 January 2016

Solution of Example 2

2) Identify the deadlines to submit the declaration dossiers and amounts and deadlines to pay the fees

Deadlines to submit the dossiers

Deadlines to pay the fees

Amounts payable Year 2017

Thanh Cong Corporation (Head office),

First time Declaration 31-Jan-17 31-Jan-17 2,000,000

Thanh Cong Corporation (Head office),

First additional Declaration 28-Feb-17 28-Feb-17 1,000,000 Thanh Cong Corporation – Binh Duong

Branch, First time Declaration 28-Feb-17 28-Feb-17 1,000,000

Year 2018

Thanh Cong Corporation (Head office),

First time Declaration 30-Jan-18 30-Jan-18 4,000,000

Thanh Cong Corporation – Binh Duong

TAXATION

REFERENCES

• Law on export and import duties No.107/2016/QH13 dated 06 April 2016, effective from September 01, 2016.

• Decree 134/2016/ND-CP dated 01 September 2016, effective from September 01, 2016.

• Circular 38/2015/TT-BTC dated 25 March 2015, effective from April 01, 2015.

LEARNING OBJECTIVES

• LO 3-1: Explain concept, characteristics and role of export and import duties (EID).

• LO 3-2: Identify goods to incur export and import duties and goods not to incur export and import duties.

• LO 3-3: Recognize taxpayers of Vietnamese export and import duties.

• LO 3-4: Define tax calculation methods, taxable price and tax rate of Vietnamese export and import duties.

INTRODUCTION OF EXPORT IMPORT DUTIES

• EID is an indirect tax, levied on goods permitted to cross-border trade by countries or groups of countries, formed and associated with operation of international trade

• Characteristics:

✓ A less stable tax;

✓ Having a direct impact on the prices of imported and exported goods, causing negatively affect on the prices of domestic goods or services, which can destabilize the economy

✓ Having a significant impact on a country's international trade and economic growth

INTRODUCTION OF EXPORT IMPORT DUTIES (CONT.)

• Roles:

➢A source of revenue for the state budget, particularly in developing countries.

➢Establishment of tariff barriers to protect domestic goods. ➢Contribute to the control and regulation of imports to

TAXABLE OBJECTS

1 Goods exported and imported through Vietnam’s border and

checkpoints Free trade zone means an economic

zone located within Vietnam’s territory, established in accordance with law, having a definite geographic boundary, and separated from the outer area by hard fences in order to facilitate customs inspection and customs control by the customs authority and relevant agencies with regard to exports and imports, inbound and outbound vehicles and passengers; the trading relationship between the free trade zone and the outside area is consider exportation and importation

2 Goods exported from the domestic market into

free trade zones; goods imported from free trade zones into the domestic market

3 Goods indirectly exported-imported; goods

exported and imported by enterprises exercising their right to export, import, or distribute

4 Goods of an export processing enterprise which exercises its rights to export, import or distribution

NON-TAXABLE OBJECTS

1 Goods in transit.

2 Goods that are humanitarian aid or grant aid.

3 Goods exported from a free trade zone to abroad; goods imported from abroad to a free trade zone and used within such free trade zone; goods transported from one free trade zone to another.

TAXPAYERS

1 Owners of exports and imports

2 Entrusted exporters and importers

3 Individuals carrying exports or imports when entering and leaving Vietnam, sending or receiving goods through Vietnam’s border and border checkpoints Taxpayers’ guarantors and other entities authorized to pay tax on behalf of

taxpayers, including:

✓ Customs brokerage agents in case authorized by the taxpayer to pay export and import duties;

✓ Providers of postal services or international express mail services paying tax on behalf of taxpayers;

✓ Credit institutions or other organizations that provide guarantee or pay tax on behalf of taxpayers;

QUICK CHECK

1 FUSEN Company located in Linh Trung processing zones specializes to produce clothes Its activities are as follows:

- Imported materials abroad to produce clothes.

- Exported these clothes to foreign countries thereafter.

Are materials and clothes subject to export and import duties? 2 Tan Phu Company authorizes to Binh Tan Corporation to

TAX BASES AND TAX CALCULATION METHODS

• Export

EID calculation methods

Goods subject to an ad valorem duty

Goods subject to a specific

duty

EI

D ba

ses

Quantity Taxable value

Tax rate

GOODS SUBJECT TO AD VALOREM TAX RATES

• Formula to calculate a tax amount payable:

1 Quantity of exports or imports:

✓ The quantity of exports or imports used as a tax base is the actually exported or imported quantity of each goods items specified in customs declarations

✓ Note: If the actual exported or imported quantity of goods is different from that indicated

in the commercial invoice due to the characteristics of the goods in compliance with the

delivery and payment conditions stated in the goods sale and purchase agreement, the payable export tax or import tax amount shall be determined on the basis of the value

actually paid for the exports or imports and the tax rate of the goods item concerned.

𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑎𝑥, 𝑖𝑚𝑝𝑜𝑟𝑡 𝑡𝑎𝑥

𝑝𝑎𝑦𝑎𝑏𝑙𝑒

= 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡𝑠 𝑜𝑟

𝑖𝑚𝑝𝑜𝑟𝑡𝑠

× 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑢𝑛𝑖𝑡

𝑜𝑓 𝑔𝑜𝑜𝑑𝑠

× 𝑇𝑎𝑥 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑔𝑜𝑜𝑑𝑠 𝑖𝑡𝑒𝑚

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2 Taxable value:

✓ Taxable value must be converted into VND based on the buying exchange rate in the form of wire transfer announced by the Headquarter of Vietcombank at the end of Thursdays (or the day before if Thursday is a public holiday).

✓ This exchange rate will be published on the website of the General Department of Customs.

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

• Example 3.1:

A&Y Company imported raw tobaccos with the quantity of 1,000 tons and price of $100/ton, the tolerance ±2% In the invoice, it showed 1,000 tons x $100/ton = $100,000.

When they were imported, the customs authority checked and confirmed their weight of 1,020 tons, instead of 1,000 tons.

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.1 Taxable value for exported goods:

✓ is the selling price of goods delivered to the exporting checkpoint in Vietnam (FOB or DAF price), excluding international insurance (I) and international freight (F) costs

✓ The selling price at the exporting checkpoint is the price specified in the sale contract or commercial invoices and related documents of the shipment

✓ Example 3.2: Tan Phu Corp exports goods subject to export duties, with the FOB price of USD10,000 What is the taxable value of these goods? $10,000 × taxable exchange rate

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2 Taxable value for imported goods:

✓ is the buying price of goods at the first importing checkpoint (CIF

price), determined sequentially according to the following methods:

a) Method 1: Transaction value;

b) Method 2: Transaction value of identical imported goods; c) Method 3: Transaction value of similar imported goods; d) Method 4: Deductible value;

e) Method 5: Computed value;

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.a) Method 1: Transaction value method

✓ Taxable value for imported goods is determined according to transaction value ✓ Transaction value is the actual or future payment for imported goods after

being adjusted, including:

➢ Buying price on the commercial invoice;

➢ The amounts payable by the buyer but not included in the buying price on the commercial invoice such as advance, deposit for the production, trade, transport and insurance of goods; indirect payments to the seller (for example: amounts that the buyer pays to a third party at the request of the seller; or amounts paid by offsetting debts);

➢ The additions and reductions

The additions and reductions:

➢ The additions: the sale commission costs, the brokerage fees; The costs of packing associated with imported goods; The packaging costs; the aid; the copyright fees and the license fees; the transportation costs and any costs relating to the transportation of imported goods to the first importing checkpoint, The insurance cost of the imported goods at the first importing checkpoint ➢ The reductions: the costs for the activities arisen

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.a) Method 1: Transaction value method (cont.)

✓ Notes: The transaction value will be applied if all of the following conditions are satisfied:

➢ The buyer is unrestricted the right to dispose of or use the goods after the importation;

➢ Price or the sale of goods does not depend on the conditions or the payment but the fact that they can not help determine the value of goods subject to customs valuation

➢ After reselling, transferring or using the imported goods, the buyer is not required to additionally pay any sum from the money collected from the disposal of the imported goods;

➢ The buyer and the seller have no special relationship; if any, such relationship does not affect the transaction value

A seller and a buyer are regarded as ina special relationshipin any of the following cases:

➢ Both of them are employees or one is an employee and one is the director of another enterprise;

➢ Both of them are general partner contributing capital to the same business that is legally recognized;

➢ One of them is a person hiring the other; ➢ One has the power to control the other; ➢ They are both controlled by a third party; ➢ They both control a third party;

➢ They have any of the following family ties: husband and wife, parents and children recognized by law, grandparents and grandchildren with consanguinity, aunts/uncles and nephews/nieces, siblings, brothers/sisters-in-law;

➢ A third person owns, controls or holds at least 5% of the voting shares of both parties;

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.a) Method 1: Transaction value method (cont.)

✓ Example 3.3:

Tan Phu Corp imports goods subject to import duties, with the CIF price on the invoice of $10,000; no other costs and no special relationship between the company and the seller What is the taxable

value of these goods? $10,000 × taxable exchange rate

If the company imports goods with FOB price of $10,000; paying freight cost of $1,000, insurance of $400 and agency costs of $200

What is the taxable value of these goods? ($10,000 + $1,000 + $400 +

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.b) Method 2: Transaction value method with identical imported goods:

✓ If the taxable value could not be determined based on the transaction value, the taxable value of the imported goods is determined according to the transaction value of the identical imported goods Conditions for choosing identical / similar imported goods:

1 They shall be exported to Vietnam on the same day or within 60 days before or after the date of exportation of the goods receiving customs valuation

2 They shall be at the same commercial level and in the same quantity as the ones of the imported goods receiving customs valuation;

3 In case there is not any imported goods specified in point 2, imported goods with the same commercial level but different quantity may be chosen and the transaction value of the identical/similar imported goods shall be adjusted to having the same quantity as the imported goods receiving customs valuation;

4 In case there is not any imported goods specified in points (2) and (3), imported goods with different commercial level but the same quantity may be choosen and the transaction value of the identical/similar imported goods shall be adjusted to being at the same commercial level as the imported goods receiving customs valuation;

5 In case there is not any imported goods specified in points (2), (3) and (4), imported goods with different commercial level and quantity may be choosen and the transaction value of the identical/similar imported goods shall be adjusted to the same commercial level and quantity as the ones of the imported goods receiving customs valuation; The identical/similar imported goods shall have or be

adjusted to have the same distance and mode of transport as the ones of the imported goods receiving customs valuation

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.c) Method 3: Transaction value method with similar imported goods:

✓ If the taxable value could not be determined by using the methods and 2, the taxable value of the imported goods shall be determined based on the transaction value applicable to the similar imported goods

✓ The similar imported goods shall receive the approval of the customs authority for customs valuation according to the transaction value and have the same trading condition and condition of time of exportation as the ones of the imported goods receiving customs valuation as prescribed in method

✓ Conditions for choosing similar imported goods: the same as identical

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.d) Method 4: Deductible value method:

✓ If the taxable value could not be determined by using the methods 1, 2, 3, the taxable value of the imported goods shall be determined by the deductible value-based method

✓ The deductible value is based on the unit selling price of imported goods, identical or similar imported goods on Vietnam’s inland market after deducting the reasonable expenses and profits obtained from selling them

The selling prices are determined according to the following rules:

➢The actual selling price of such goods on Vietnam’s market;

➢The importer and the inland buyer not have a special relationship; ➢The selling price level shall be determined according to the highest

sales and shall be sufficient to form the unit price;

➢Goods shall be brought into market (wholesaled or retailed) on the earliest day after the importation and within 90 days (calendar days) after the day on which such goods are imported

Deductions to be made from the unit selling price:

➢Costs of transport and insurance and expenses for other activities relating to the transport of goods after their importation;

➢Taxes, charges and fees payable in Vietnam upon the importation and sale of the imported goods on Vietnam’s inland market;

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.e) Method 5: Computed value method:

✓ If the taxable value could not be determined by using the methods 1, 2, 3, 4, the taxable value of the imported goods shall be determined according to the computed value

✓ The computed value of imported goods includes:

➢ The direct expense for producing the imported goods: the cost price or value of raw materials, expense for the manufacturing or other processing for producing the imported goods;

➢ General expenses and the profits from the sale of goods of the same class or category as those of imported goods receiving valuation and made in the exporting country for selling to Vietnam;

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

2.2.f) Method 6: Fall-back method

✓ If the taxable value could not be determined by using the methods 1, 2, 3, 4, 5, the taxable value of the imported goods shall be determined by the fall-back method.

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

3 Tax rate

✓ Export duty rate of each article is specified in the Export Tariff

➢ Where goods are exported to countries or territories having an agreement on concessional export duties with Vietnam, such agreement shall apply

✓ Import duty rates include preferential rates, special preferential rates, and ordinary rates:

➢ Preferential rates applicable to imports originating from countries or territories which grant Most Favored Nation (MFN) treatment in trade relations with Vietnam; ➢ Special preferential rates are applicable to

imports originating from countries or territories that have an agreement on special preferential import duties with Vietnam;

➢ Ordinary rates are applicable to imports originating from countries or territories which not grant MFN treatment or special import tax preferences to Vietnam

+ Ordinary import duty rates are stipulated in the Ordinary Import Tariff

+ For goods which are not specified in the Ordinary Import Tariff, the uniformly

GOODS SUBJECT TO AD VALOREM TAX RATES (CONT.)

• Example 3.4:

Product A has preferential import tax rate of 20%.

GOODS SUBJECT TO SPECIFIC TAX

• Tax calculation method of specific duties:

• Tax calculation method of mixed duties:

• Vietnam is applying specific duties for used passenger cars under seats with capacity cylinder of less than 1,500cm3 and passenger cars from 10 to 15 seats (including

driver) Used passenger cars under seats (including driver) with capacity cylinders over 1,500cm3 are applied mixed duties.

• Used cars are cars registered for at least months in foreign countries (but not exceeding years) and running at least 10,000 km overseas by the time of arrival at port of Vietnam

𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑎𝑥, 𝑖𝑚𝑝𝑜𝑟𝑡 𝑡𝑎𝑥

𝑝𝑎𝑦𝑎𝑏𝑙𝑒

= 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡𝑠 𝑜𝑟

𝑖𝑚𝑝𝑜𝑟𝑡𝑠

× 𝐿𝑒𝑣𝑒𝑙 𝑜𝑓 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑡𝑎𝑥 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑜𝑓 𝑔𝑜𝑜𝑑𝑠

× 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑒𝑥𝑐ℎ𝑎𝑛𝑔𝑒

𝑟𝑎𝑡𝑒

𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑎𝑥, 𝑖𝑚𝑝𝑜𝑟𝑡 𝑡𝑎𝑥 𝑝𝑎𝑦𝑎𝑏𝑙𝑒

GOODS SUBJECT TO SPECIFIC TAX (CONT.)

A Used Car under seats included a driver

Cylinder capacity (dung tich xi lanh) Specific tax

Under 1,000 cm3 $5,000

From 1,000 cm3 to under 1,500 cm3 $10,000

From 1,500 cm3 to under 2,500 cm3 X + $5,000

From 2,500 cm3 to up X + $15,000

X = taxable value of a used car × tax rate of a new car (%)

A Used Car from 10 to 15 seats included a driver

Cylinder capacity (dung tich xi lanh) Specific tax

Under to 2,000 cm3 $9,500

From 2,000 cm3 to 3,000 cm3 $13,000

DUTY DECLARATION

• Export and import duties are taxes to be declared and paid on each occasion of export and import.

• Time for tax calculation is the date of registration of customs

DUTY PAYMENT DEADLINE

• Duties on exports and imports have to be paid before customs

clearance or release

• Where a credit institution provides guarantee for the amount of tax

payable, customs clearance or release shall be granted

➢ However, late payment interest shall be paid for the period from the date of customs clearance or release to the tax payment date

➢ The guarantee period shall not exceed 30 days from the day on which the customs declaration is registered

➢ If the taxpayer fails to pay tax and late payment interest by the end of the guarantee period, the guarantor shall fully pay tax and late payment interest on behalf of the taxpayer

• Taxpayers given priority as prescribed by the Law on Customs shall pay tax on the customs declarations granted customs clearance or release in the month by the 10th of the next month.

DUTY EXEMPTION

1

1 Grant of duty exemption to goods of foreign entities enjoying diplomatic immunity and privileges (Article 5);

2 Duty-free allowances for luggage of inbound and outbound passengers (Article 6);

3 Exemption of duties on belongings (Article 7);

4 Exemption of duties on gifts (Article 8); Exemption of duties on goods traded

among border residents (Article 9);

6 Exemption of duties on goods imported for further processing and processed exports (Article 10);

7 Exemption of duties on goods exported for processing and processed imports (Article 11);

8 Exemption of duties on goods imported for manufacture of domestic exports (Article 12);

9 Exemption of duties on temporarily imported goods and temporarily exported goods (Article 13);

10 Exemption of duties on imported fixed assets of entities eligible for investment incentives (Article 14);

11 5-year exemption from import duties on raw materials, supplies and components (Article 15);

See details in the Decree No 134/2016/ND-CP

DUTY EXEMPTION (CONT.)

1

12 Exemption of duties on imports serving petroleum activities (Article 16);

13 Exemption of duties on imports serving ship building and sea-going vessels for export (Article 17);

14 Exemption of duties on plant varieties, animal breeds, fertilizers and plant protection substances (Article 18);

15 Exemption of duties on imports

serving scientific research and

technological development (Article 19);

16 Exemption of duties on imports serving national defense and security purposes (Article 20);

17 Exemption of duties on imports serving education (Article 21) ;

18 Exemption of duties on goods

manufactured, processed, recycled or assembled in a free trade zone (Article 22);

19 Exemption of duties on imported raw materials, supplies and components for manufacture or assembly of medical equipment (Article 23);

DUTY EXEMPTION (CONT.)

1

20 Exemption of duties on raw materials, supplies and components imported

for manufacture or information

technology products, digital contents or software (Article 24);

21 Exemption of duties on goods

imported for environmental

protection purposes (Article 25);

22 Exemption of duties on imports serving money printing and minting (Article 26);

23 Exemption of duties on goods

imported for non-trading purposes (Article 27);

24 Exemption of duties on goods

exported or imported for social welfare, recovery from a disaster, epidemic or other special incidents (Article 28);

25 Exemption of duties on exports or imports under an international treaty, goods of low values and goods sent by express delivery service (Article 29) ;

DUTY EXEMPTION (CONT.)

Example 3-5:

Suppose Tan Phu Company receives an outsourcing contract of shirts from ABC Company (a foreign company) To implement this contract, Tan Phu has to import sewing machines and raw materials from ABC After producing shirts, Tan Phu punctually exports to return these shirts and sew machines to ABC with the correct material consumption level as registered

Does Tan Phu Company pay import and export tax? Explain

• Sewing machines and raw materials imported from ABC Company are

exempted import tax.

DUTY REDUCTION

• Duties on exports and imports under customs supervision shall be reduced if the goods are damaged or lost because of inevitable causes.

➢ The damage or loss is verified by a competent organization. ➢ The level of reduction shall be proportional to the loss of

goods.

DUTY REFUND

1 Exported goods already paid export tax but are re-imported are entitled to export tax refund and are not required to pay import tax (Article 33)

2 Imported goods already paid import duties but are re-exported are entitled to import duty refund and are not required to pay export tax (Article 34)

3 Temporarily imported machinery, equipment, tools, vehicles already paid import duties are entitled to import tax refund when they are re-imported (Article 35)

4 Refund of duties on goods initially imported for business operation and already paid import duty but eventually used for manufacture of exports (Article 36) Refund of import duty or export duty in case of no imports or exports; refund

of overpaid export or import duty; no refund for cases of minimum duty amount (Article 37)

DUTY REFUND (CONT.)

• Example 3-6: Tan Phu Company produces clothing for export, production data are as follows:

- Importing 15,000 meters of materials for producing shirts (for domestic sale) , the import tax was paid VND 300 million

- Using 10,000 meters of materials imported to manufacture 5,000 shirts

- Exporting 4,500 shirts from 5,000 shirts produced What is the amount of import tax refunded?

Import tax per material meter (m): 300 million / 15,000m = VND20,000/m Meters per shirt produced: 10,000m / 5000 shirts = 2m/a shirt

A BIG EXAMPLE

Following are data from A Company in December 2016:

Following are data from Vinatex Company in December 2016:

1 Exporting 50,000 products C, the selling price at the exporting checkpoint on the commercial invoice and foreign trade contract was US$ 79.2/unit (CIF price), I & F fees at 10% of FOB price Receiving 50,000 products D for the

entrusted export service, the selling price at the exporting checkpoint on the commercial invoice and foreign trade contract was US$ 60/unit (FOB price), entrusted export commission at 2% of the selling price

3 Exporting 10,000 products C to an

enterprise located in an export

processing zone for use as raw material for production, the selling price under the commercial invoice and foreign trade contract at the border gate of the export processing zone of US$ 20/unit Importing 80,000 products A, the

purchase price at the importing

checkpoint on the commercial invoice and foreign trade contract was US$ 30/unit (FOB price), I & F at 10% of the

purchase price at the exporting

A BIG EXAMPLE (CONT.)

Following are data from A Company in December 2016:

5 Importing a new car, the purchase price at the first importing checkpoint of Vietnam on the commercial invoice and foreign trade contract was US$ 15,000 (CIF price) Vinatex had to pay interest (simple interest) at 1% per month for the month late payment which was stipulated in the contract

6 Importing a second-hand car of 12 seats, cylinder capacity of 4,000cm³, the purchase price at the first importing checkpoint of Vietnam was US$ 20,000

7 Receiving 30,000 products E for the entrusted import service, the purchase price at the first importing checkpoint of Vietnam on the commercial invoice and foreign trade contract was US$ 40/unit (CIF price), entrusted import commission at 2% on the purchase price

8 Importing 1,000 products B from an enterprise located in an export processing zone, the purchase price at the export processing zone's border gate under the commercial invoice and the contract was US$ 30/unit

* Additional data:

✓ Vinatex sufficiently has contracts, valid export import documents and bank payment vouchers for its import and export activities;

✓ All of the goods are imported from countries which grant Most Favored Nation (MFN) treatment in trade relations with Vietnam;

✓ Import tax rates according to the Preferential Tariff: Cars: 70%; Product E: 5%; Product A: 25%; Product B: 20%;

✓ Export tax rates: Product C, D: 1%;

✓ Specific import tax on used cars of 12 seats, cylinder capacity of 4,000cm³: US$ 17,000 / car;

✓ Foreign exchange rate: 20,600VND/US$

Required: Calculate the export and import tax

TAXATION

References

• Law on excise No.27/2008/QH12 dated 14 November 2008, effective from April 01, 2009

• Law on excise No.70/2014/QH13 dated 26 November 2014, effective from January 01, 2016

• Law No.106/2016/QH13 dated 06 April 2016, effective from July 01, 2016

• Decree 108/2015/ND-CP dated 28 October 2015, effective from January 01, 2016

• Circular 195/2015/TT-BTC dated 24 November 2015 guiding the Decree No 108/2015/ND-CP dated October 28, 2015, effective from January 01, 2016

Learning Outcomes

• LO 4-1: Understanding concepts, characteristics and roles of excise tax.

• LO 4-2: Specify goods and services subject and not subject to current excise tax of Vietnam.

• LO 4-3: Recognise taxpayers of Vietnamese current excise tax.

• LO 4-4: Define tax calculation methods, taxable prices and tax rates of Vietnamese current excise tax.

Overview of Excise Tax

• Concept:

✓ Excise tax or Special Consumption Tax (SCT) is an indirect tax, imposed on special goods and services which are not encouraged to be consumed in terms of social benefits

✓ Used to regulate incomes of income classes when consuming high-end, expensive goods/services

✓ First applied in the Netherlands in the 17th century, in the UK in 1643 and the United States in 1791

✓ A common tax in many countries nowadays, but special goods and services are not the same between countries, depending on their cultural characteristics, economic growth rates and income levels of the population

Overview of Excise Tax (cont.)

• Characteristics:

✓ Goods/services subject to SCT are those which are usually non-essential, luxurious, harmful to health and the environment and limited to consumption ✓ SCT has very high tax rates, which increase the selling price of goods/services,

causing great payment pressure on consumers, altering or restricting their consumption behavior → a huge impact on the orientation of consumers’ behavior

✓ SCT is only levied at the stage of production or importation, not at the circulation stage to avoid tax overlapping

✓ A list of goods/services subject to SCT depends on states’ policies in regulation and guidance of consumption in each period of socio-economic development ✓ SCT is the additional tax for other indirect taxes to reduce the regression of

Overview of Excise Tax (cont.)

• Roles:

Taxable Objects

• Merchandise:

a) Cigarettes, cigars and other tobacco preparations used for smoking, inhaling, chewing, sniffing or keeping in mouth;

b) Liquor; c) Beer;

d) Under-24 seat cars, including cars for both passenger and cargo transportation with two or more rows of seats and fixed partitions between passenger holds and cargo holds;

e) Two- and three-wheeled motorcycles of a cylinder capacity of over 125 cm3;

f) Aircraft, yachts;

g) Gasoline; h) Air-conditioners of 90,000 BTU or less; i) Playing cards; j) Votive gilt papers and votive objects

LO 4-2: Specify goods and services subject and not subject to current

Taxable Objects (cont.)

• Services:

k) Dance halls

l) Massage parlors and karaoke bars;

m) Casinos; prize-winning video games, including jackpot and slot games and games on similar machines;

n) Betting;

o) Golf business, including the sale of membership cards and golf playing tickets;

Non-taxable Objects

• Goods from (a) to (j) are not subject to SCT in the following cases:

✓ Exported goods (see details in Article 3, Circular 195/2015/TT-BTC)

➢ Goods directly exported by the manufacturer or processor, including goods sold to or processed for export processing companies, except for passenger cars under 24 seats sold to export processing companies;

➢ A manufacturer of goods subject to SCT that temporarily exports and re-imports goods under a license for temporary export and re-import is not required to pay SCT during the period over which import and export duties are exempt and has to pay SCT when selling such goods

➢ Goods exported for sale or exported by an entrusted business establishment under an economic contract signed with foreigners

Non-taxable Objects (cont.)

• Goods from (a) to (j) are not subject to SCT in the following cases:

✓ Imported goods (see details in Article 3, Circular 195/2015/TT-BTC)

i Humanitarian aid, grant aid, gifts; ii Goods transited through Vietnam;

iii If temporarily imported goods are re-exported within the period over which import duties are exempt according to regulations of law on export and import duties, SCT on the re-exported goods shall not be paid;

iv Goods temporarily imported to attend a fair or exhibition and re-exported within the period over which import duties are exempt;

v Personal belongings of foreign entities given diplomatic immunity according to

regulations of law on diplomatic immunity; vi Hand luggage within the tax-free allowance

of Vietnamese people and foreigners when passing through a Vietnam’s checkpoint;

vii Imported goods for sale at tax-free shops as prescribed by law;

viii Goods imported from abroad into a free trade zone, goods sold to a free trade zone from

Non-taxable Objects (cont.)

• Goods from (a) to (j) are not subject to SCT in the following cases:

✓ Other cases: (see details in Article 3, Circular 195/2015/TT-BTC)

➢ Aircraft, cruise ships used for passenger transport, cargo transport, and tourism services, and aircraft serving national defense and security purposes ➢ Under-24 seat cars designed by manufacturers to be used as ambulances,

prisoner transport vehicles, hearses; vehicles for inspection and control of radio frequencies; armored mobile adjustable ramp systems; mobile video production vehicles; vehicles designed to carry both seated and standing passengers and capable of carrying 24 people or more, cars running within amusement parks and sport centers and exempt from registration and banned from public roads, other specialized vehicles, vehicles exempt from registration, and vehicles banned from public roads

Examples

E

Example 4-1: In August 2015, Sabeco exports 100,000 cartons of beer 333 with FOB price of USD15/carton Are total exported cartons subject to excise tax? NO

Example 4-2: Da Lat Company produces 2,000 bottles of Da Lat wine for exhibition in USA During the exhibition, the company sells 500 bottles to customers who visit the exhibition Are 500 bottles of Da Lat wine subject to excise tax? NO

Example 4-3: Hai Binh Export Import Company (Vietnam) signed an export contract of 10,000 bottles of Binh Tay liquor with a foreign partner (USA) Hai Binh bought this number of bottles from Binh Tay Company (Vietnam) which produces Binh Tay liquor

- If Binh Tay Company sells 10,000 bottles of Binh Tay liquor to Hai Binh and Hai Binh exports all of these bottles to USA Are this number of bottles subject to excise tax? NO

Taxpayers

1 Organizations and individuals that manufacture, import goods and provide services subject to SCT, including:

1.1 Business organizations established and registered in accordance with the Law on Enterprises and the Law on Cooperatives

1.2 Business organizations of political organizations, socio-political organizations, sociopolitical-professional organizations, social organizations, socio-sociopolitical-professional organizations, the people’s armed forces, and other organizations

1.3 Foreign-owned enterprises and foreign parties to business cooperation under the Law on Investment; foreign entities doing business in Vietnam without establishing legal entities in Vietnam

1.4 Individuals, households, groups of independent businesspeople, and other entities engaged in manufacturing, business, import

2 Exporters that buy goods subject to SCT from their manufacturers for export but eventually sell them domestically When selling goods, such exporters must fully declare and pay SCT

Taxable Price

▪ For both home-made goods and imported goods sold domestically:

LO 4-4: Define tax calculation methods, taxable prices and tax rates of

Vietnamese current excise tax

The selling price of goods are imposed by manufacturers or importers If it does not correspond with the typical transaction price in the market, tax authorities shall impose tax according to the Law on tax administration

✓ The taxable price is the selling price excluding the excise tax, environment protection tax (if applicable) and value added tax:

Taxable price

Selling price excl VAT

-Environment

protection tax (if any) + Excise tax rate

=

Example 4-4: Saigon Tobacco Corporation produces cigarettes and sells 10,000 boxes x VND 91,800/box exclusive of VAT Excise tax rate of cigarettes is 70% Calculate excise taxed price of 10,000 boxes of cigarettes

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ With regard to bottled beer, if a deposit for the bottles has been paid, the manufacturer and customers make quarterly statements of the deposit, the deposit on the unrecovered bottles must be included in the revenue subject to SCT

Example 4-5: Sabeco manufactures and trades beer, alcohol and beverages In July 2016, they sold 5,000 beer cartons x 12 bottles/carton Sales price was VND 160,000 per beer carton (exclusive of an empty bottle’s price) Deposit amount was VND 1,000 per empty bottle and 800 empty bottles were not backed to the company Excise tax rate of bottled beer is 60% Calculate excise taxed price of beer bottles consumed in July 2016

+ The deposit on the unrecovered bottles in the period: 800 bottles x VND 1,000 = VND 800,000 + Excise taxed price of bottled beer consumed in July 2016 = (5,000 cartons x VND 160,000 + VND

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ For processed goods, taxable prices are selling prices imposed by the hiring entity or selling prices of products of the same or similar type at the time of selling exclusive of VAT, environmental protection tax (if any) and SCT

Example 4-6: Binh Thuan Company had an outsourcing contract of 5,000 boxes of cigarettes with Saigon Tobacco Corp with the outsourcing price of VND 30,000/ box Excise tax rate of cigarettes is 70%, selling price excluding VAT of VND 120,000 per box, at Saigon Tobacco Corp

Required:

1) Who pays excise tax of cigarettes? Binh Thuan Company

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ For goods sold under deferred payments or instalments, taxable prices are selling prices exclusive of VAT, environmental protection tax (if any), and SCT of those goods sold normally, exclusive of deferred payment or instalment interests

Example 4-7: Toyota Vietnam sells automobile via methods:

+ If a buyer buys cars with -year installment, the selling price exclusive of VAT is VND 950M per car

+ If a buyer pays 100%, the selling price exclusive VAT is VND 800M per car In September 2016, Toyota Vietnam sold 50 cars, of which 10 cars under installment sale Excise tax rate is 40% Calculate excise taxed price of 50 cars

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ Regarding goods used for exchange, internal use, gifting, sales promotion, taxable prices are taxable prices of goods of the same or similar type at that time

Example 4-8: On 15 May 2016, Sabeco used 800 cartons of beer 333 to gift its customers At that time, the selling price exclusive of VAT was VND 160,000 per carton of beer 333 Excise tax rate of beer is 60% Calculate excise taxed price of 800 cartons of beer 333

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ Where an exporter buys goods subject to SCT from a manufacturer and

sell them domestically instead of exporting, the taxable price is the domestic selling price exclusive of SCT, environmental protection tax (if any), and VAT

Example 4-9: Hai Binh Import–Export Company bought 20,000 Binh Tay liquor bottles from Binh Tay Company, with the buying price exclusive of VAT at VND 30,000 per bottle in order to export However, Hai Binh only exported 18,000 bottles and 2,000 bottles were sold in the country with the selling price of VND 40,000 per bottle exclusive of VAT Excise tax rate of liquor is 60%

1) Who pays excise tax?

2,000 bottles sold domestically are subject to SCT and Hai Binh is the taxpayer

1) Calculate excise taxed price of liquor bottles

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ If the manufacturer or importer of the goods incurring the excise tax sells such goods through

dependent accounting units, the price on which

excise tax is chargeable shall be the selling price

that such dependent accounting units impose If the manufacturer or importer sells the goods

through dealers that adopt the manufacturer’s or

importer’s recommended selling price and gain only

commission(s), the taxable price shall be the

manufacturer’s or importer’s recommended price

that include commission(s)

The manufacturer

or importer is

associated with a trader as stated in this Article when an enterprise directly or indirectly holds at least 20% of the owners' holding in

the other

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically: ✓ If the manufacturer or importer of the goods is

superior, as a parent enterprise, or inferior, as a subsidiary enterprise, or equivalent, as a subsidiary enterprise under the same parent enterprise, to traders purchasing the former’s goods on which special excise tax is chargeable, the taxable price shall not be lower, by over 7%, than the monthly average price at which the traders directly purchasing the manufacturer's or importer's goods sell such goods The same ratio also applies if traders are associated with each other

If the manufacturer’s or importer’s taxable price is lower by over 7% than the trader's average selling price, tax authorities shall

define the taxable

price according to the

laws on tax

Taxable Price (cont.)

▪ For both home-made goods and imported goods sold domestically:

✓ If the manufacturer or importer establishes various intermediary

traders that are engaged in a parent – subsidiary relationship, are

Taxable Price (cont.)

▪ For services:

✓ Taxable prices are service prices imposed by the service provider, exclusive of VAT and SCT

Taxable

price =

Service price excluding VAT + Excise tax rate

Taxable Price (cont.)

▪ For services:

✓ For casino and electronic casino games, taxable prices are the revenue from the casino or electronic casino games, exclusive of the prizes given to players, which equals (=) the amount collected from payers at the counter before playing minus (-) the amount of prizes given to players

✓ For betting business, taxable prices are the

revenue from selling

betting tickets minus (-) prizes given to players (exclusive of VAT)

Example 4-10: On June, Phu Tho Racetrack sold 15,000 tickets of horse racing betting with the selling price of VND 10,000/ticket including excise tax and VAT Among 15,000 tickets sold, 100 tickets had prizes, each prize was VND 100,000 Excise tax rate of horse racing is 30%, VAT 10% Calculate excise taxed price of horse racing

Revenues including SCT & VAT = 15,000 tickets x VND 10,000 – 100 tickets x VND 100,000 = VND 140M

Taxable Price (cont.)

▪ For services:

✓ For discotheque, massage and karaoke business, taxable prices are the revenue exclusive of VAT from services provided within the discotheque, massage, and karaoke business, including revenues from food and drink and associated services e.g showering, sauna in a

massage establishment Example 4-11: Queen Bee Discotheque had sales in

June as follows:

+ Sales of dance activity:

+ Sales of food and drink: VND 800 million + Sales of serving activity: VND 300 million + Sales of other activities: VND 500 million

Excise tax rate of discotheque field is 40% Calculate excise taxed price of this discotheque (0 + 800M + 300M + 500M) / (1+40%) = VND 1,142.86M

✓ For lottery business, taxable

prices are the revenue

Taxable Price (cont.)

▪ For imported goods:

✓ Taxable price of imports is determined as follows:

✓ The import-duty calculation price is determined under the Law on export import duty For imported goods eligible for import duty exemption or reduction, the taxable price is exclusive of the exempted or reduced import duty amount

Taxable price = Import-duty calculation price + Import duty

Example 4-12: ABC Company imported one 4-seat car with CIF of $20,000/car Import duty rate of cars is 70% Taxed exchange rate announced at the time is VND22,000/USD Calculate excise taxed price of the car

$20,000 x 22,000 + $20,000 x 22,000 x 70% = VND748M

Example 4-13: ABC Company imported one 4-seat car with import-duty calculation price was VND 800M, import duty rate of cars was 70%, import duties was reduced by 20% Calculate excise taxed price of the car

Tax Calculation Method

▪ Formula to calculate an excise tax payable:

Excise tax payable

= Excise taxed

price

× Excise tax rate

✓ Taxable prices of goods/services are inclusive of surcharges (if any) imposed by manufacturers or sellers

✓ Taxable prices are expressed as VND Where a taxpayer earns revenue or fixes a taxable price in a foreign currency, it must be converted into VND at the applicable exchange rate in accordance with the Law on tax administration and its instructional documents

Tax Calculation Method (cont.)

▪ Time for determination of excise tax:

✓ For goods: the time of earning revenue is the time of transferring the right to own or use the goods to the buyer, whether the payment is collected or not;

✓ For services: the time of earning revenue is the time of completion of service provision or issuance of the invoice for service provision buyer, whether the payment is collected or not;

Tax Calculation Method (cont.)

▪ Tax rate

✓ specified for each type of goods and services, the highest rate is 150%, the lowest is 5% (See Table of excise tax rate in the next slides)

Table of Excise Tax Rate

✓ HNo. Goods/services Tax rates (%)

No. Goods/services Tax rates

(%)

I Goods Cars having fewer than 24 seats

1 Cigarettes, cigars, and other products derived from tobacco plants (From 01/01,2017 to 31/12/2017)

70 a) Passenger cars having seats or fewer, except for those in Points 4dd, 4e, and 4g in this Table

From January 01, 2018 75 Of a cylinder capacity not exceeding 1,500 cm3 40

2 Alcohol From January 01, 2018 35

a) Alcohol with ABV ≥ 20o 60 Of a cylinder capacity exceeding 1,500 cm3but

not exceeding 2,000 cm3

45

From January 01, 2018 65 From January 01, 2018 40

b) Alcohol with ABV < 20o 30 Of a cylinder capacity exceeding 2,000 cm3but

not exceeding 2,500 cm3

50 From January 01, 2018 35 Of a cylinder capacity exceeding 2,500 cm3but

not exceeding 3,000 cm3

55

3 Beer 60 From January 01, 2018 60

From January 01, 2018 65 Of a cylinder capacity exceeding 3,000 cm3but

not exceeding 4,000 cm3

Table of Excise Tax Rate (cont.)

✓ H

No. Goods/services Tax rates (%)

No. Goods/services Tax rates (%) Of a cylinder capacity exceeding 4,000 cm3but

not exceeding 5,000 cm3

110 dd) Car running on both gasoline and electricity or bioenergy, the proportion of gasoline does not exceed 70% of total energy used

70% of tax rates applied to the same types of cars in Points

4a, 4b, 4c, and 4d

Of a cylinder capacity exceeding 5,000 cm3but

not exceeding 6,000 cm3

130 Of a cylinder capacity exceeding 6,000 cm3 150

b) Passenger cars having 10 – 16 seats, except for those in Points 4dd, 4e, and 4g

15 e) Cars running on bioenergy 50%of tax rates applied to the same types of cars in Points

4a, 4b, 4c, and 4d

c) Passenger cars having 16 – 24 seats, except for those in Points 4dd, 4e, and 4g

10 d) Cars used for both passenger and cargo

transport, except for those in Points 4dd, 4e, and 4g

15

Of a cylinder capacity not exceeding 2,500 cm3 15 g) Cars running on electricity

Of a cylinder capacity exceeding 2,500 cm3but

not exceeding 3,000 cm3

20 Passenger cars having seats or fewer 15

Table of Excise Tax Rate (cont.)

✓ HNo. Goods/services Tax rates (%)

No. Goods/services Tax rates (%) Passenger cars having 16 – 24 seats Air conditioners not exceeding 90,000 BTU 10 Cars for transport of both people and goods 10 10 Playing cards 40 Motorhome without capacity discrimination 70 11 Votive papers 70

From January 01, 2018 75 II Services

5 Motorcycles, motor tricycles of a cylinder capacity exceeding 125 cm3

20 Dancing club business 40

6 Aircraft 30 Massage, karaoke business 30

7 Yacht 30 Casino business, electronic casino game

business

35

8 Gasoline Betting business 30

a) Gasoline 10 Golf course business 20

b) E5 gasoline Lottery business 15

Tax Declaration

▪ Responsibility to declare excise tax:

✓ Declarations of SCT shall be submitted to the supervisory tax authority by the taxpayers that produce, process, and/or sell goods/services subject to SCT, the exporters that buy goods at SCT-exclusive prices for export and eventually sell them on the domestic market

✓ If the taxpayer manufactures goods subject to SCT and sells goods via its branches, stores, agents, etc., the taxpayer must declare SCT on all these goods The aforementioned branches, stores, agents, etc are not required to declare SCT, but a copy of the sales statement, which is sent to the taxpayer, must be sent to the supervisory tax authority

Tax Declaration (cont.)

▪ Tax declaration period:

✓ SCT declarations shall be submitted monthly;

✓ SCT on the exports that are eventually sold domestically shall be

declared whenever it is incurred

▪ Deadline for submitting tax declaration:

✓ the 20th of the month succeeding the month in which SCT is incurred

▪ A declaration dossier consists of:

✓ A SCT declaration (form 01/TTDB);

✓ A list of invoices for goods and services subject to SCT (form

01-1/TTDB);

Tax Refund

▪ Cases entitled to a tax refund:

✓ Goods temporarily imported and re-exported: refunded amount corresponding to the quantity of goods actually re-exported;

✓ Goods are materials imported for manufacturing or processing of goods for export: refunded amount corresponding to the quantity of materials used for manufacturing or processing of goods that have been actually exported;

✓ When making a terminal tax statement upon merger, division, separation, dissolution, bankruptcy, ownership transfer, lease of state-owned enterprises that have paid SCT excessively, SCT refund may be claimed;

✓ The refund is decided by a competent authority;

✓ Tax refund is required under an international agreement to which Vietnam is a signatory; ✓ Paid SCT is higher than SCT payable

Tax Deduction

• Taxpayers that produces liable goods from SCT-liable raw materials may have SCT amounts already paid on raw materials deducted upon the determination of SCT amounts payable at the stage of production

• The deductible SCT amount is equivalent to the SCT amount of raw materials used for the production of SCT-liable goods sold

• Formula to determine SCT deductible upon SCT declaration:

Excise tax payable

= SCT payable on SCT-liable

goods ex-warehoused for

sale in a period

- SCT amount already paid on raw materials purchased

which are equivalent to volumes of ex-warehoused goods for sale in the period

Example 4-14: In a tax declaration period, ABC Company has the following operations:

+ It imports 10,000 liters of liquor and already paid SCT amount of VND 250 million upon importation (based on the receipt of excise tax payment at the stage of importation)

+ It ex-warehouses 8,000 liters to produce 12,000 bottles of liquor + It sells 9,000 bottles of liquor, the

excise tax amount payable for these 9,000 bottles is VND 350 million Required: Calculate SCT payable in the period

Excise tax amounts deducted = (250M / 10,000 liters) x (8.000 liters / 12.000) x 9.000 bottles = VND 150M

Tax Deduction (cont.)

• Taxpayers of SCT-liable goods shall be entitled to deduct SCT amounts already paid at the importation stage when determining SCT amounts payable on goods sold domestically • Deductible SCT amount is equivalent to the SCT amount of the SCT-liable imported

goods sold after import and must not exceed the SCT on goods sold domestically

• In cases where SCT amounts are not fully deducted due to force majeure events, taxpayers shall include the remaining SCT after deduction in expenses when calculating corporate income tax

Tax Reduction

• Taxpayers that produce excise taxable goods and face difficulties caused by natural disasters or unexpected accidents are entitled to tax reduction

• The tax reduction level shall be determined based on the actual extent of damage caused by natural disasters or unexpected accidents but must neither exceed 30% of the payable tax amount in the year the damage occurs nor exceed the balance between the value of damaged assets and the received compensation (if any)

A Big Example

• Taxpayers

Sale data of Company X specializing in production of wine below 20o in June 201X are as follows:

1.Sold on account to J&P Trading Company 6,000 bottles of wine, the selling price excluding VAT of VND 23,400/bottle ABC would pay the purchase in August 201X according to the commercial contract 2.Used 1,000 bottles of wine to exchange with

Company B to get the materials and give 50 bottles of wine to Company B as the gift

3.Sold at retail 2,000 bottles of wine with the selling price excluding VAT of VND 25,200/bottle

4.Delivered to the agent 4,000 bottles of wine, the agent sold at the fixed price excluding VAT of VND 24,000/bottle under the contract signed with Company X; the agent commission at 5% of the selling price excluding VAT

5.Directly exported 5,000 bottles of wine with the selling price at the exporting checkpoint of Vietnamese at VND 30,000/bottle

6.Sold 800 bottles of wine to enterprises in industrial zones with the selling price excluding VAT of VND 24,600/bottle

7.Received cash for the sale of 2,000 bottles of wine last month, VND 55 million of which the output VAT VND million

Required: Determine the excise tax payable of

Company X in June 201X? Additional data:

- By the end of June 201X, the agent sold 90% of the delivered wine and returned the remainder to Company X

- Excise tax rate of wine below 20o is 25%.

TAXATION

References

1. Law on VAT No.13/2008/QH12 dated 03 June 2008;

2. Law No.31/2013/QH13 dated 19 June 2013 on

amendments and complements of VAT;

3. Law No.71/2014/QH14 dated 26 November 2014 on

amendments and complements of VAT;

4. Law No.106/2016/QH14 dated 06 April 2016 on

amendments and complements of VAT;

5. Decree 209/2013/ND-CP dated 18 December 2013;

References (cont.)

7. Decree 12/2015/ND-CP dated 12 February 2015;

8. Decree 100/2016/ND-CP dated 01 July 2016;

9. Circular 219/2013/TT-BTC dated 31 December 2013;

Learning Objectives

• LO 5-1: Understand concept, origin, characteristics and role of VAT.

• LO 5-2: Specify goods/services subject and not subject to current VAT of Vietnam.

• LO 5-3: Recognize taxpayers of current VAT of Vietnam.

• LO 5-4: Define VAT calculation method, tax base and tax rate of current VAT of Vietnam.

Definition

• Value-added tax (VAT) is an indirect tax, levied on the value

added of goods/services in the process from production,

trading and consumption.

• Value added is the value that producers/traders create more

for their products/services based on the inputs of the previous stage such as materials, goods, services, etc.

History and Development of VAT

• VAT appeared first in France in 1954.

• In Asia VAT became the common tax: South Korea (1977), the Philippines, Japan (1988), Thailand (1992).

• Nowadays, there are more than 130 countries applying this tax.

Characteristics

• A regressive tax

• Wide scope and objects of tax collection, few and low rates but

greater revenues for the state budget

• Avoid tax overlapping VAT is only levied on the added value of goods and services of all stages of production and business Therefore, the total tax collected in the period will be equal to the amount of tax calculated according to the selling price to the final consumer (Example for illustration)

Role of VAT

• Contribute to stabilize prices, encouraging and promoting expansion of production and trading of goods;

• Ensure a stable revenue for the state budget through mobilization of a portion of consumers' income;

• Contribute to specialize production, improve productivity, quality and reduce production costs;

• Promote exportation activities as goods/services for export are subject to a tax rate of 0% and exporters are entitled to input VAT refunds;

Taxable Objects

▪ Goods and services subject to VAT (taxable goods/services)

are those used for production, trading, and consumption in

Vietnam (including those purchased from overseas

organizations and individuals), except for 26 groups of goods/services not subject to VAT (see Non-taxable objects in the next slides).

Non-taxable Objects ▪ A

See details in Article Circular 219/2013, Article Circular 151/2014, Article Law 71/2014, Article Law 106/2016

and Article Circular 26/2015

1 Products from farming (including agroforestry products), breeding, and aquaculture)

2 Breeds of livestock, plant varieties;

3 Irrigation services, plowing services, dredging channels, dredging in-field trenches serving agricultural production; harvesting services Fertilizers; machinery, special-use equipment for agricultural production; offshore fishing vessels; and feeds for cattle, poultry and other domestic animals;

4 Salt derived from seawater, rock salt, pure salt, refined salt, iodized salt composed primarily of sodium chloride (NaCl);

5 State-owned houses sold to tenants; Transfer of right to use land;

7 Certain insurance services (including life insurance, health insurance, agricultural insurance and reinsurance);

8 Financial services including credit extension; separate loans; security services; capital transfer; selling debts; foreign currency trading; derivative financial services; selling collateral;

9 Medical services, veterinary services;

10 Public postal and telecommunications services, and public Internet services provided by the government, postal and telecommunications services from abroad (inbound);

11 Maintenance of zoos, flower gardens, parks, street greeneries, public lighting, funeral services;

12 Maintenance, repairs, and construction funded by the people, humanitarian aid for cultural and artistic works, public works, infrastructure, and housing for beneficiaries of incentive policies;

13 Teaching and training;

14 Audio and video broadcasting funded by government budget;

Non-taxable Objects (cont.) ▪ A

See details in Article Circular 219/2013, Article Circular 151/2014, Article Law 71/2014, Article Law 106/2016 and

Article Circular 26/2015

15 Printing and publishing of newspapers, magazines and certain types of books;

16 Public transport by bus and tram within a province, a city or the routes adjacent to the city;

17 Imported machinery, equipment and materials which cannot be produced in Vietnam for direct use in science research, technology development, petroleum exploration and extraction;

18 Weapons and specialized vehicles serving national defense and security;

19 Imported goods and goods/services sold to organizations and individuals as humanitarian/non-refundable aid; gifts; belongings of foreign entities provided with diplomatic immunity; belongings in luggage within tax-free allowance; 20 Goods forwarded through Vietnam’s territory; goods

temporarily imported/exported and re-exported/re-imported, raw materials imported for manufacturing or export processing Goods/ services traded between foreign parties and free trade zones, or among free trade zones;

21 Technology transfers; intellectual property right transfers;

22 Imported gold in the form of bullions, pieces, and other forms that are not fashioned into jewelry or other items;

23 Exported unprocessed natural resources or minerals;

exported processed natural resources or minerals where the total value of natural resources or minerals plus energy costs makes up at least 51% of the product price;

24 Prosthetic body parts;

25 Goods/services provided by individuals having annual revenue of VND 100 million or below;

Taxpayers

▪ Organizations and individuals that manufacture, trade in taxable goods and services in Vietnam regardless of their lines and forms of business;

▪ Organizations and individuals that import goods or purchase services from abroad.

Exemption of VAT Declaration and Payment

For goods or services where VAT declaration and payment are not required, no output VAT has to be charged but input VAT paid on related purchases may be credited, including:

1 Compensation, bonuses and subsidies, except those provided in exchange for certain services; Transfers of emission rights and various financial revenues;

2 Certain services rendered by a foreign organization which does not have a permanent establishment in Vietnam where the services are rendered outside of Vietnam, including repairs to means of transport, machinery or equipment, advertising, marketing, promotion of investment and trade to overseas brokerage activities for the sale of goods and services overseas, training, certain international telecommunication services;

3 Sales of assets by non-business organizations or individuals not registered for VAT;

4 Transfer of investment projects;

5 Sale of agricultural products that have not been processed into other products or which have only been through preliminary processing;

Exemption of VAT Declaration and Payment (cont.)

7 a) Capital contributions in kind;

b) Certain asset transfers among dependent units of a company; asset transfers when a company is divided, split, amalgamated, merged, or converted.;

c) Collections of compensation/indemnities by insurance companies from third parties;

d) Collections on behalf of other parties which are not involved in the provision of goods/services (e.g if company A purchases goods/services from company B, but pays to company C and subsequently company C pays to company B, then the payment from company C to company B is not subject to VAT);

e) Commissions earned by (i) agents selling services, including postal, telecommunications, lottery, airlines/bus/ship/train tickets, at prices determined by principals; and (ii) agents for international transportation, airlines and shipping services entitled to 0% VAT; and (iii) insurance agents;

f) Commissions from the sale of exempt goods/services;

Tax Calculation Methods

7 a

LO 5-4: Define tax calculation method, tax base and tax rate of current VAT of Vietnam

VAT calculation methods

Deduction (or credit)

method

Direct method

V

A

T

bases Taxable prices

Taxable Prices

▪ Taxable prices of goods/services are VAT-exclusive prices including surcharges added to the prices of goods/services received by sellers If sellers offer a discount, the taxable price is the discounted price

Example 5-1: Sabeco sells canned beer

333 at the price VND 150,000 per carton exclusive VAT, VAT rate of canned beer is 10% The taxable price of canned beer 333 is VND 150,000

1 (a) For goods and services subject to special excise tax, taxable prices are the prices inclusive of special excise tax and exclusive of VAT

(b) For goods and services subject to environmental protection tax, taxable

prices are the prices inclusive of

environmental protection tax and

exclusive of VAT

Example 5-2: Minh Nghia Coal Mining

Company sells coal with the price VND 1,000,000/ton excluding VAT and environmental protection tax VAT rate of coal is 10% and the environmental protection tax is VND 10,000/ton of coal

Taxable Prices (cont.)

1 (c) For goods and services subject to both special excise tax and environmental protection tax, taxable prices are the prices inclusive of special excise tax and environmental protection tax but exclusive of VAT

2 For imported goods, taxable prices is calculated as follows:

Example 5-3: Binh Thuan Company

imported gasoline 92, the import price is VND15,000/liter The import tax rate is 5%, the excise tax rate is 10%, the environmental protection tax is VND3,000/liter and the VAT rate is 10%

Import tax = 15,000 × 5% = VND750 Excise tax = (15,000+750)×10% = VND1,575

VAT taxable price = 15,000 + 750 +1,575 + 3,000 = VND 20,325 /liter Taxable price on imported goods = Import dutiable price + import duty (if any) + Excise tax (if any) + Environment protection tax (if any)

Regulations on taxable prices of imported goods shall be applied to calculation of import prices

Taxable Prices (cont.)

Taxable prices of the invitations (complimentary) to art performances, fashion shows, beauty pageants, and sports competitions permitted by competent authorities are zero (0)

3 For goods/services (whether bought externally or

produced by business establishments) used as

exchange, gifts, donations, or substitute for wages, value added taxable prices are the taxable prices of the same kinds or equivalent goods/services at the same time

Example 5-4: Nha Be Garment

Company used 5,000 sets of clothes to exchange with Thanh Cong Textile Company to get the fabric The VAT exclusive price of a set of clothes of the same type that Nha Be is selling on the market is VND 300,000/set, the VAT rate for clothing is 10% Taxable price = 5,000 sets x VND 300,000/set = VND1,500B

Example 5-5: Company X is permitted by a competent authority to hold a beauty pageant Apart

Taxable Prices (cont.)

4 For goods and services for internal use:

a) For goods/services for internal use not serving for production and business, taxable prices are taxable prices of the same kinds or equivalent goods/services at the same time

b) Goods circulated internally such as goods put into storage or semi-finished products used during the manufacture process within a business establishment or goods/services produced or provided by a business establishment to serve for its business activities are not subject to VAT

Example 5-6: Company Y manufactures bottled water.

The VAT exclusive price of a bottle on the market is VND 4,000 When Company Y uses 300 bottles for a trip of the company’s children, the taxable price of 300 bottles, which not serve the manufacture or trading is 4,000 x 300 = VND 1,200,000

Example 5-7: Company Y manufactures

Taxable Prices (cont.)

5 For goods/services used for sales promotion in accordance with trade laws, taxable prices are zero (0) In case they are not conformable with trade laws, tax shall be declared and paid as if they are used internally, given, or donated

Example 5-8: PH Company produces

carbonated soft drinks PH conducted two promotional campaigns in May 2014 and December 2014 in the form of buying 10 products, awarding product The program in May 2014 is implemented prescribed procedures so the taxable price of the products donated when buying products in May 2014 is The program in December 2014 is not conformable with trade laws therefore PH must declare and pay VAT on the products donated when buying products in December 2104

Taxable Prices (cont.)

7 For commodity paid in instalments, the taxable price is the original price

exclusive of VAT and interest Example 5-9: Company X sells

100cc motorcycles, the VAT exclusive installment price is VND 25.5M/unit (of which the selling price is VND 25M, the interest is VND 0.5M) The taxable price of these motorcycles is VND 25M

8 For processing goods, taxable prices are the

processing price exclusive of VAT under the processing contract, including wages, costs of fuel, machinery, indirect materials, and other expenses to serve the processing

9 For construction and installation, taxable prices are the VAT exclusive values of the completed construction project or works

a) If the price is inclusive of building materials, taxable prices are the prices inclusive of building materials and exclusive of VAT

Example 5-10: Company B has signed the construction contract including material value with Investor A Total contract value exclusive of VAT is VND 1,500M, of which the value of construction materials excluding VAT is VND 1,000M The taxable price of the

construction contract is VND

Taxable Prices (cont.)

q Example 5-11: Company B has signed theconstruction contract with Investor A Total

value of the construction is VND 1,500M (VAT-exclusive); the value of building materials provided by the Investor A is VND 1,000M, then taxable price is 1,500M -1,000M = VND 500M

10 When transferring real estate, taxable price is the transferring price minus (-) deductible land value

a.1) If land is allocated by the state to build houses for sale, the deductible land value include land levy and compensation for land clearance as prescribed by law

Example 5-12: In 2014, Company A is allocated with land by the state to build houses for sale Land levy is VND 30b (before deducting compensation for land clearance and land levy reduction) Land levy is reduced by 20% Compensation for land clearance is VND 15b

+ 20% reduction in land levy: 30b x 20% = 6b; + Land levy payable after reduction: 30b – 6b

– 15b = 9b;

+ Deductible land value: 9b + 15b = 24b

+ The deductible land value is divided by the business area

9 b) If the price is exclusive of building materials, machinery, or equipment, the taxable price is the construction price exclusive of building materials, machinery, or equipment and exclusive of VAT

Taxable Prices (cont.)

10 q Example 5-13: VN-KR is a joint-stock company

specialized in infrastructure for industry and services VN-KR leases land from the state and pays a lump sum of land rent to build infrastructure of an industrial park; the lease period is 50 years The land area is 300,000m2, the rent is VND 82,000/m2 Total land rent is VND 24.6B VN-KR is not granted land rent reduction or exemption After infrastructure is finished, VN-KR leases out 16,500m2 to an investor with a lease period of 30 years; the rent is VND 650,000/m2, inclusive of VAT

The VAT-inclusive rent for the infrastructure for 30 years: 16,500m2 x [650,000 – (82,000/m2 / 50 years x 30 years)] = 9,9132B

VAT-exclusive rent = 9.9132B / (1 + 10%) = VND 9.012B

10 a.2) When land tenure is put up for auction, the deductible land value is the successful bid

Taxable Prices (cont.)

10 a.4) When a taxpayer receives land tenure from another entity, deductible land value is the land price when the transfer is made, inclusive of the value of infrastructure (if any); the taxpayer must not deduct input VAT on infrastructure value that has been included in the deductible land value

If the deductible land value is exclusive of infrastructure value, the taxpayer may deduct input VAT on the infrastructure If the land price on the transferring date cannot be determined, deductible land value is the land price imposed by the People’s Committee of the province when the transfer contract is signed a.5) If real estate under a build-transfer (BT) contract is paid with land tenure, the deductible land value is the land price when the BT contract is signed If the land price is unknown when the BT contract is signed, the deductible land value is the payment for the whole construction decided by the People’s Committee of the province

Example 5-14: In September 2013, Company B buys 2,000m2 of land

together with infrastructure thereon from Company A for totally VND 62 billion (including VND 40 billion in VAT-exclusive land price, meaning the unit price is VND 20 million/m2).

The invoice issued by Company A indicates:

- VAT-exclusive sale price: VND 60B - VAT-exclusive land price = VND 40B - Taxable price: 60B – 40B = 20B

- VAT on infrastructure: VND 2B - Total amount payable: VND 62B Company A must declare VAT as follows: VAT payable = output VAT -deductible input VAT

Taxable Prices (cont.)

10 a.6) When a real estate company buys the right to use a piece of agricultural land from an individual seller under a contract, then a competent authority permits the conversion of that piece of land into residential land where houses or apartment buildings are built for sale, the deductible land value is the price of the piece of land paid to the seller and other expenses, including: land levy paid to government budget for land conversion, personal income tax paid on behalf of the seller (if agreed by both parties)

a.7) When a multistory apartment building is built for sale, deductible land value of every m2 of housing equals (=) the deductible land value mentioned in Points a.1 to a.6 divided by (:) the area (m2) of floor area, exclusive of shared areas such as corridors, stairways, basement, and underground constructions

Taxable Prices (cont.)

11 For running an agent or brokering the sale of goods/services, export and import entrustment, taxable prices are VAT-exclusive remunerations or commissions

12 For goods/services using special receipts on which the selling prices are VAT-inclusive, such as stamps, bus tickets, lottery tickets, taxable prices are VAT-exclusive prices determined as follows:

𝑉𝐴𝑇 𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 (𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑡𝑖𝑐𝑘𝑒𝑡, 𝑠𝑡𝑎𝑚𝑝, 𝑒𝑡𝑐 ) + 𝑉𝐴𝑇 𝑟𝑎𝑡𝑒 (%)

13 For casino services and prize games, taxable prices are the amount of money collected from such services inclusive of SCT and exclusive of VAT minus the prize money paid to the customer Taxable price is calculated as follows:

𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑒𝑑 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑆𝐶𝑇 − 𝑃𝑟𝑖𝑧𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑖𝑑 + 𝑉𝐴𝑇 𝑟𝑎𝑡𝑒

Example 5-15: In a tax period, a casino presents the following figures:

- Total amount collected from players at the exchange counter: VND 43B

- Total amount returned to players: VND 10B Actual revenue: 43B – 10B = 33B

The revenue of 33B is inclusive of VAT 10% and excise tax

Taxable Prices (cont.)

14 For transport and material handling services, taxable prices are the VAT-exclusive charges, whether the materials are handled by the taxpayer itself or by another service provider

15 For an all-inclusive package of travel services (inclusive of meals, accommodation, and travel), the price is considered VAT-inclusive Taxable price is calculated as follows:

𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑎𝑐𝑘𝑎𝑔𝑒 + 𝑉𝐴𝑇 𝑟𝑎𝑡𝑒

If the price is inclusive of the costs of return flights, meals, accommodation, and other expenses overseas (if valid receipts are presented), such costs may be deducted from the taxable price Input VAT on the goods and services serving the all-inclusive tour shall be deducted in full

Example 5-16: Saigon Tourist signs a

contract to provide an all-inclusive package tour in Vietnam for 50 Thai tourists for 05 days The total payment for the tour is US$32,000 Saigon Tourist must pay for the air tickets, meals, accommodation, and sightseeing under the contract The payment for return air tickets is US$10,000 The exchange rate: US$ = 22,000 VND) + Taxable revenue: (US$ 32,000 – US$ 10,000) x VND 22,000 = VND 484M

Taxable Prices (cont.)

16 For pawn-broking services, the collectible including the interest and other revenues from the sale of pawned articles, is VAT-inclusive Taxable price is calculated as follows:

𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑏𝑙𝑒 + 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒

17 For books subject to VAT sold at the cover prices according to the Law on Publishing, prices are VAT-inclusive prices and shall be used to calculate VAT and revenues If books are sold at prices other than the prices on the cover, VAT shall be imposed on the actual sale price

Taxable Prices (cont.)

19 For brokering assessment, brokering compensation examination, claiming compensation from a third person (including the costs),

taxable prices are VAT-exclusive remunerations or commissions earned by the insurer

20 Taxable prices for services provided both in Vietnam and abroad are the value of services performed in Vietnam as stipulated in the service contract Where the contract does not specify the value of services performed in Vietnam separately, the taxable price shall be determined according to the percentage of expenses incurred in Vietnam on the total expenses

21 Taxable price is expressed as VND If a taxpayer earns revenue in a foreign currency, it must be converted into VND according to the average exchange rate on inter-bank foreign exchange market announced by the State Bank during the time the revenue is earned

Example 5-17: Company D provides consultancy, survey and feasibility study for investment projects in Laos for Company X Total revenue excluding VAT 10% Company D receives is VND 5B The contract between the two companies can not determine the revenue made in Vietnam and the revenue realized in Laos Company D calculates the cost of implementation in Laos (exploration costs) is 1.5B and the cost of implementation in Vietnam (sum up, report) is 2.5B

Tax Rates

▪ There are three VAT rates as follows:

0% This rate applies to exported goods/services including goods/services sold to overseas/non-tariff areas and consumed outside Vietnam/in the non-tariff areas, goods processed for export or in-country export (subject to conditions), goods sold to duty free shops, certain exported services, construction and installation carried out for export processing enterprises, aviation, marine and international transportation services

5% This rate applies generally to areas of the economy concerned with the provision of essential goods and services These include: clean water; teaching aids; books; unprocessed foodstuffs; medicine and medical equipment; husbandry feed; various agricultural products and services; technical/scientific services; rubber latex; sugar and its by-products; certain cultural, artistic, sport services/products and social housing

10% This "standard" rate applies to activities not specified as not-subject to VAT, exempt or subject to 0% or 5%

Tax Rates (cont.)

+ Overseas reinsurance; technology transfer, transfer of intellectual property right to abroad; capital transfer, credit extension, overseas securities investment; derivative financial services; outbound postal and telecommunications services (including those provided for entities in free trade zones; prepaid cards sold overseas or in free trade zones);

+ Exported natural resources that are not processed into other products;

+ Goods/services provided for individuals that not register to business in free trade zones;

+ Oil and gas purchased from domestic market by a taxpayer and sold to automobiles in free trade zone;

+ Automobiles sold to entitles in free trade zones;

+ Services provided for entities in free trade zones include leases on houses, meeting halls, offices, hotels, warehouses, yards; employee transport; food and drink (except for catering, food and drink services provided in free trade zones);

+ Services provided in Vietnam for overseas entities:

✓ Sports competitions, art performances, entertainments, conventions, hotel, training, advertising, traveling and tourism;

✓ Online payment services;

✓ Services attached to sale, distribution, consumption of goods in Vietnam

▪ Services/goods not applied 0% VAT:

▪ Services directly rendered and goods sold to foreign companies, including companies in non-tariff areas, are subject to 0% VAT if they are consumed outside Vietnam or in non-non-tariff areas ▪ Various supporting documents are required in order to apply 0% VAT to exported goods and

Time for VAT Calculation

a

1 For goods sale, the time when the ownership or the right to use goods is transferred to buyers, whether the payment is made or not

2 For service provision, the time

when service provision is

completed or when the invoice for service provision is made, whether the payment is made or not

3 For electricity and water supply, the time when the electricity or water consumption is recorded

4 For real estate trading, construction of infrastructural works, houses for sale or for lease, the time when money is collected according to the project schedule or the contract Taxpayers shall declare output VAT incurred in the tax period according to collected amount

5 For construction and installation, the time when the construction or a work is completed and put into use, whether the payment is made or not

Calculation Methods

▪ There are two VAT calculation methods: ✓ deduction (or credit) method and

Deduction Method

▪ This method applies to enterprises maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including:

➢ Business establishments with annual revenue subject to VAT of

VND (one) billion or more;

➢ Certain cases voluntarily registering for VAT declaration under the deduction method.

➢ Determination of VAT payable:

➢ Using value-added invoices when sales of goods or provision of services.

➢ Illustration

Deduction Method (cont.)

▪ Calculation of output VAT:

✓ Output VAT equals the total VAT on goods and services sold and written on the VAT invoices

Output VAT = Taxable price × Applicable VAT rate ✓ When issuing a value-added invoice,

taxpayers must clearly write the VAT exclusive prices, VAT, and total amount payable by buyers If invoices only have the selling price (except where special invoices are allowed) without specifying the VAT exclusive price and VAT, the VAT shall be levied on the selling price

Example 5-18: A company sells F6

steels at VAT exclusive price VND11M/ton; 10% VAT = VND1.1M/ton

Deduction Method (cont.)

▪ Calculation of input VAT:

✓ Input VAT equals total VAT on VAT invoices for domestic purchases and VAT payment vouchers for imports

✓ If special receipts, on which selling prices are VAT-inclusive, are permitted, taxpayers may calculate VAT-exclusive prices and input VAT according to the VAT-inclusive prices and the calculation method

VAT exclusive prices = Selling prices inclusive of VAT + Applicable tax rate

✓ VAT invoices can be declared and claimed any time before the company receives notice of a tax audit by the tax authorities

Deduction Method (cont.)

▪ Calculation of input VAT:

✓ Input VAT paid on behalf of foreign contractors (i.e under the foreign contractor tax system) is also deductible when calculating tax

✓ Enterprises that providing goods and services not subject to VAT shall not be entitled to input VAT deduction

✓ Enterprises supplying goods and services subject to VAT rate of 0% or exempt VAT declaration and payment, shall be entitled to input VAT deduction

Deduction Method (cont.)

▪ Calculation of input VAT: Example 5-19: Thanh Thai

Company bought 200kg of nylon for packaging products Sum of input VAT of 200kg nylon was VND5 million The nylon was used to package two products including sugar and salt Salt is not subject to VAT Accountants of Thanh Thai separately recorded: 150kg used for Sugar and 50kg for Salt

Calculate deductible input VAT 5M × (150kg/200kg) = VND3.75M

Example 5-20: Thanh Thai Company had

input VAT of telephone fees of VND10 million in the factory These fees were used for manufacturing both sugar and salt Salt is not subject to VAT

Accountants of Thanh Thai did not separately record deductible input VAT and non-deductible input VAT of telephone service

Sales of sugar was VND billion exclusive of VAT and salt was VND 200 million

Calculate deductible input VAT

10M × (1,000M / (1,000M+200M) = VND8.33M

Example 5-21: Using data in ex 5-19.

Sum of input VAT of 200kg nylon was VND5 million The deductible input VAT is: VND3.75M

The non-deductible Input VAT is: 5M – 3.75M = VND1.25M

Direct Method

▪ This method applies to:

✓ Business establishments engaging in trading in gold, silver and precious stones;

✓ Business establishments with annual revenue subject to VAT of less than VND1 billion;

✓ Individuals and business households;

✓ Business establishments which not maintain proper books of account and foreign organizations or individuals carrying out business activities in forms not regulated in the Law on Investment

Direct Method

▪ For enterprises engaging in trading in gold, silver and precious stones:

Value added of gold, silver and

gemstones

=

Selling prices of gold, silver, and

gemstones

-Cost prices of gold, silver, and

gemstones

✓ Selling prices of gold, silver and gemstones are the actual selling prices written on the sale invoices, inclusive of VAT and other surcharges to which the seller is entitled

✓ Cost prices of gold, silver and gemstones are their VAT-inclusive values when they are purchased or imported for trading or fashioning

✓ Where there is a negative value added from the trading in gold, silver or precious stones in a period, it can be offset against any positive value added of those activities in the same period Any remaining negative balance can be carried forward to a subsequent period in the same calendar year but cannot be carried over to the next year

𝑉𝐴𝑇

𝑝𝑎𝑦𝑎𝑏𝑙𝑒 =

Value added of gold, silver and

gemstones

Direct Method (cont.)

▪ For other cases:

VAT payable = Revenues × Rates (%)

✓ Taxable revenue is total revenue from selling goods and services, which is written on the sale invoice for taxable goods and services, inclusive of the surcharges to which the seller is entitled

✓ Rates (%) applied to calculate VAT on revenues:

+ From goods distribution or goods supply: 1%;

+ From services or construction exclusive of building materials: 5%;

+ Manufacturing, transport, services associated with goods,

construction inclusive of building materials: 3%;

Tax Declaration

▪ All organizations and individuals

producing or trading value added taxable goods and services in Vietnam must register for VAT In certain cases, branches of an enterprise must register separately and declare VAT on their own activities ▪ Taxpayers must file VAT returns on a

monthly basis by the 20th day of the

subsequent month, or on a quarterly

basis by the 30th day of the subsequent

quarter (for companies with prior year annual revenue of VND50 billion or less)

Quarterly declaration of VAT:

✓Taxpayers’ total revenue from sale of goods/services in the preceding period is equal or less than 20 billion VND;

✓Taxpayers that has just begun his business shall declare VAT monthly In the next calendar year after 12 months of business, VAT declarations shall be declared whether monthly or quarterly depending on the revenue from the sale of goods and/or services in the preceding calendar year (12 months);

✓Taxpayers shall determine their eligibility to declare tax quarterly themselves

Tax Declaration (cont.)

▪ A declaration dossier consists of:

* Declaring VAT using deduction method:

✓ VAT declaration (form 01/GTGT);

* Declaring VAT on value added using direct method:

✓ Monthly/quarterly declaration of VAT on value added using direct method (form 03/GTGT)

* Declaring VAT on revenue using direct method:

✓ Monthly/quarterly declaration of VAT (form 04/GTGT) and the manifest of sold goods and services (form 04-1/GTGT)

Tax Declaration (cont.)

▪ Declaring VAT on extra-provincial business including construction,

installation, sales, real estate transfer:

✓ The taxpayer shall provisionally declare VAT at 2% if the goods/services incur 10% VAT, or at 1% if the goods/services incur 5% VAT and submit the provisional declaration to the tax authority in the locality where the business is located

✓ Using form 05/GTGT

✓ Submitted whenever revenue is earned Taxpayers may request the tax authority to permit monthly submission of tax declarations if they have many tax declarations in one month

Tax Refund

1 a

▪ From 01 July 2016, VAT refunds will no longer be allowed Where the taxpayer’s input VAT for a period exceeds its output VAT, it will have to carry the excess forward for the subsequent period

➢ In certain cases (e.g exporters where excess input VAT credits exceed VND 300 million), a refund may be granted on a monthly/quarterly basis

➢ Newly established entities in the pre-operation investment phase may claim VAT refunds on a yearly basis or where the accumulated VAT credits exceed VND300 million

▪ Newly established entities and certain investment projects which are in the pre-operation stage may be entitled to refunds for VAT paid on imported fixed assets based on shorter timelines than normal, subject to certain conditions

LO 5-4: Explain tax refund of current VAT of Vietnam.

Example 5-22:

Company A applies VAT deduction method and quarterly VAT declaration In Q1/2017, the VAT amount not yet fully credited is VND 100M, this amount will be deducted in Q2/2017

A Big Example

1 a

I Purchase of goods/services in May:

1 Imported a fixed asset, CIF price of VND 200M

2 Purchased 30,000kg of material B, buying price excluding VAT on the VAT invoice is VND40,000/kg

3 Purchased services, the buying price excluding VAT on the VAT invoice is VND 120M inclusive of commission earned by the agent

4 Purchased material C, the buying price on the sales invoice is VND 20M

II Consumption of products in May:

5 Exported 10,000 products A, FOB price of VND 90,000/product

6 Delivered the agent 20,000 product A, the agent sells at fixed prices under the contract, the selling price excluding VAT of VND 80,000/product, commission for agent is 5% of the selling price exclusive of VAT

7 Sold in retail 30,000 product A, the selling price excluding VAT of VND 80,000/product

A Big Example (cont.)

• Required: Calculate VAT amount Company X has to pay in May 2015. • Additional data:

✓ Company X applies deduction method and monthly VAT declaration

✓ The fixed asset, product A, material B, material C and the service are subject to VAT, not subject to excise tax

✓ VAT rate of the fixed asset, product A, material B, material C and the service is 10% Particularly, VAT rate of product A when exported is 0%

✓ Import duty rate of the fixed asset is 20% Company X has already paid fully import duties

✓ At the end of May, the agent sold 90% of the delivered product A and returned the remainder to Company X The agent applies VAT deduction method

TAXATION

REFERENCES

1 Law on CIT No.14/2008/QH12 dated 03 June 2008; 2 Law No.32/2013/QH13 dated 19 June 2013 on

amendments and complements of CIT;

3 Law No.71/2014/QH14 dated 26 November 2014 on amendments and complements of CIT;

REFERENCES

6 Decree 12/2015/ND-CP dated 12 February 2015; 7 Decree 100/2016/ND-CP dated 01 July 2016;

8 Circular 78/2014/TT-BTC dated 18 June 2014;

9 Circular 119/2014/TT-BTC dated 25 August 2014; 10 Circular 151/2014/TT-BTC dated 10 October 2014; 11 Circular 96/2015/TT-BTC dated 22 June 2015;

LEARNING OUTCOMES

• LO 6-1: Understand concept, characteristics and role of CIT.

• LO 6-2: Specify taxable subjects and taxpayers of current

CIT of Vietnam.

• LO 6-3: Define tax base, tax period and tax rate of current

CIT of Vietnam.

• LO 6-4: Recognize revenues, deductible expenses and

other incomes of current CIT of Vietnam.

• LO 6-5: Explain tax exemption, loss transfer and tax

incentives of current CIT of Vietnam.

• LO 6-6: Define incomes from capital transfer, security

OVERVIEW OF CIT

▪ Definition

+ Corporate Income Tax (CIT) is a direct tax levied on incomes

of enterprises through their business activities.

+ Other calls of CIT: Enterprise Income Tax (EIT) or Corporation Tax (CT).

OVERVIEW OF CIT

▪ Characteristics

+ A progressive tax.

+ Taxpayers are also taxable entities.

+ Depending on business results of enterprises or investors.

▪ Roles:

+ A tool of regulating income, ensuring social justice. + Contribute to encourage investments.

+ Contribute to restructure the economy by industries and territories.

TAXABLE OBJECTS & TAXPAYERS

▪ Taxable objects

+ Incomes from business activities including production, sales of goods and provisions of services.

+ Other incomes

▪ Taxpayers:

+ Enterprises (Enterprise Law, Foreign Law, Investment Law, etc.) + Public non-business units (with taxable incomes)

+ Cooperatives (Cooperative Law)

+ Foreign contractors (Contractor's tax)

TAX BASES

▪ a

LO 6-3: Define tax bases, tax period and tax rates of current CIT of

Vietnam

CIT

payable = (

Taxed

incomes

-Science and technology fund

if any

) × CIT rate

Taxed incomes = Taxable incomes -Tax exempted incomes -Losses carried forward under regulations Taxable

incomes = Revenues

-Deductible

expenses +

TAX PERIOD

▪ Tax period

+ A calendar year (from Jan to 31 Dec) + Or a fiscal year applied by enterprises

▪ Notes:

+ not exceed 15 months:

➢ the first tax period for newly established enterprises;

➢ the final tax period for merging, dissolving or liquidating enterprises

+ CIT is temporarily paid quarterly, four times a year, and one annual settlement

EX 5-1:

Phuong Dong Company established in July 2013, its 1st tax period is months from

July to December 2013 From 2014 onwards, its tax period is 12 months from Jan to Dec

Phuong Tay Company established in Nov 2013, its 1st tax period is 14 months from

Nov 2013 to December 2014 From 2015 onwards, its tax period is 12 months from Jan to Dec

Phương Nam Company dissolved in Jan 2013, its final tax period is 13 months from Jan 2012 to Jan 2013

TAX RATES

▪ Currently, the CIT standard rate is 20%.

▪ Certain industries are liable to higher tax rates:

➢ Companies operating in the oil and gas industry are subject to rates ranging from 32% to 50%, depending on the location and specific project.

REVENUES

▪ Time to determine turnover for calculation of taxable

income:

+ For sale of goods: the time when to transfer rights to ownership and/or rights to enjoyment of goods to buyer;

+ For provision of services: the time when to complete provisions of services or part or services;

+ For air transport: the time when to complete provision of transport services.

REVENUES (CONT.)

▪ Revenues for calculating taxable income are total proceeds from the

sale of goods, remuneration for processing and charges for provided

services including price subsidies, surcharges and extra fees that an

enterprise may earn regardless of those amounts have been

collected or not EX 5-2: Company A applies VAT deduction method The VAT invoice contains the selling price excluding VAT: VND 5.000,000 VAT (10%): VND 500,000 and payment price: VND 5.500,000 The turnover to calculate taxable income is VND 5.000,000

EX5-2: Enterprise B applies direct VAT calculation method The payment price on the sale invoice is VND 42M (VAT inclusive price) The turnover to calculate taxable income is VND 42M

a) for enterprises applying VAT deduction

method, revenues are the selling price

excluding VAT

b) for enterprises applying direct VAT

calculation method, revenues are the selling price including VAT

REVENUES (CONT.)

c) For enterprises subject to excise tax, revenues are the selling price including excise tax

d) For goods/services sold on installment or

deferred payment, revenues are lump-sum

selling prices of goods/services, excluding interests

e) For goods/services used for exchange or

internal consumption (except of a usage for

enterprises’ production & business activities), revenues are selling prices of

similar goods/services at the same time

EX 5-3: Tri Tue Company applies VAT deduction method, using sale methods of computers: + For 1-year installment sales, the selling price

exclusive of VAT is VND 11M per computer of which interest is 0.5M

+ For cash sales, the selling price exclusive VAT is VND 10.5M per computer

+ Revenues to calculate taxable income for installment sales are VND 10.5M

REVENUES (CONT.)

f) For processing activities, revenues are

proceeds from processing activities,

including remuneration, fuel, electricity, indirect materials, and other expenses;

g) For enterprises selling their goods

through agents or consignees,

turnovers are total amount of goods sales (no deduction of commissions for agents);

For agents or consignees, turnovers are

commissions enjoyed under contracts;

EX 5-5: Company X undertakes the processing of 500 shirts for Company C with the processing unit price excluding VAT of 50,000 VND/unit

Company X recognizes revenues to calculate taxable income: VND 50,000 * 500 units = 25M

EX 5-6: Both An Tam Company and its agent apply VAT deduction method An Tam delivered the agent computers with the fixed selling price excluding VAT of 10M/unit Commissions are 5% on the selling price excluding VAT The agent sold units and returned to An Tam

+ Revenues to calculate taxable income at An Tam: 10M*4 = 40M

REVENUES (CONT.)

h) For asset lease:

Revenues are amounts lessees pays periodically under lease contracts;

In case lessees pay the rental in advance for many years:

➢ turnover is an annual rental which equals the paid rental divided by (:)

number of years of advance

payment; or

➢ turnover is total rental of the number of years of advance payment;

EX 5-6: ABC Company applying VAT deduction method rents a warehouse for XYZ Company, 10 years lease, total rental excluding VAT billion

+ Case 1: XYZ pays the annual rent at 100M excluding VAT Revenues for calculating taxable income each year: 100M

+ Case 2: XYZ pays total rent at 1B excluding VAT There are methods to determine revenues:

➢Revenues are the annual rental: 1B/10 years = 100M each year

REVENUES (CONT.)

i) For golf course business, turnover is proceeds from sales of membership cards, golf playing tickets and other revenues in the tax period

j) For credit activities of credit institutions and banks, turnover is interests from deposits and loans and turnover from financial leasing activities to be collected in the tax period

k) For transportation activities, turnover is total revenues from passenger, cargo and luggage transportation arising in the tax period

l) For electricity and clean water supply,

turnover is charges for supplied electricity or clean water on VAT invoices

m)For insurance business, turnover is total proceeds from provision of insurance

services and other goods/services,

including VAT-exclusive surcharges and extra fees that insurance enterprises earn

REVENUES (CONT.)

o) For prize-winning game business

(casino, prize-winning electronic

games, and betting entertainment business), turnover is proceeds from these activities including excise tax but minus the prizes paid to customers

p) For securities trading, turnover is

proceeds from brokerage services,

securities dealing, securities issuance

underwriting, investment portfolio

management, financial and securities investment consultancy, investment fund

management, issuance of fund

certificates, market organization services

and other securities services as

prescribed by law

q) For derivative financial services, their turnover is the proceeds from the provision of derivative financial services performed in the tax period

EX 5-6: Phu Tho Racetrack applying VAT deduction method on June sold 15,000 tickets of horse racing betting with the selling price of VND 10,000/ticket including excise tax and VAT Among 15,000 tickets sold, 100 tickets had prizes, each prize was VND 100,000 Excise tax rate of horse racing is 30%, VAT 10%

Actual proceeds of Phu Tho = 15,000 tickets x VND 10,000 – 100 tickets x VND 100,000 = VND 140M

DEDUCTIBLE EXPENSES

▪ Expenses are CIT deductible if they meet the following requirements:

a) Relevant to production and business activities;

b) Having sufficient legitimate invoices and vouchers;

c) Settlement via forms of non-cash payment for

transactions from VND 20 million or more;

NON-DEDUCTIBLE EXPENSES

• ABC1 Depreciation of fixed assets which is not in accordance with the prevailing regulations:

+ fixed assets not used for business operation except

for assets serving employees;

+ fixed assets without papers of enterprises’ ownership (except finance lease assets);

+ fixed assets not managed, monitored and recorded in accounting books of enterprises

+ depreciated amount exceeding the rate prescribed

in current regulations on the management, use and depreciation of fixed assets;

+ depreciation corresponding to the historical cost in

excess of VND 1.6 billion/car for passenger cars of seats or under (except automobiles used for passenger transport, travel and hotel business);

+ depreciation of fixed assets that have been fully depreciated;

+ depreciation for constructions on land used for both business and other purposes may not be included in deductible expenses with regard to the value of constructions on land corresponding to the area not used for production and business;

+ long-term land use rights may not be depreciated except termed land use rights, if there are sufficient invoices and documents

2 Employee remuneration expenses (including salaries, wages, bonuses and allowances) which are not actually paid, or are not stated in a labor contract or collective labor agreement;

NON-DEDUCTIBLE EXPENSES

• ABC

3 (a) Expenses, if paid to wrong subjects, for improper purposes or in excess of prescribed levels such as leave travel allowance, yearly health testing, allowances for female after childbirths, allowances for ethnic minority employees, etc.;

(b) Staff welfare (including certain benefits provided to family members of staff) such as support on funeral, wedding, vacation, treatment, training, losses due to disasters, hostilities, accidents, rewarding employees’ children for their achievements, non-compulsory medical and accident insurance, etc.) exceeding a

cap of one month’s average salary;

4 In-kind expenditure on employees’ clothing without invoices or monetary expenditure that exceeds million/person/year

5 Expenditures on purchases of goods/services (where listed purchases statement is allowed) without statements enclosed with receipts for payments to sellers/service providers

6 Reserves for research and development not made in accordance with the prevailing regulations;

7 Provisions for severance allowance and payments of severance allowance in excess of the prescribed amount per the Labor Code;

8 Overhead expenses allocated to a permanent establishment (“PE”) in Vietnam by the foreign company’s head office exceeding the amount under a prescribed revenue-based allocation formula;

9 Interest on loans corresponding to the portion of charter capital not yet contributed;

10 Interest on loans from non-economic and non-credit

NON-DEDUCTIBLE EXPENSES (CONT.)

• ABC

9 Provisions for stock devaluation, bad debts, financial investment losses, product warranties or construction work which are not made in accordance with the prevailing regulations;

10.Unrealised foreign exchange losses due to the year-end revaluation of foreign currency items other than account payables;

11.Donations except certain donations for education, health care, natural disaster or building charitable homes for the poor;

12.Administrative penalties, fines, late payment interest;

13.Contributions to voluntary pension funds exceeding VND million per month per person; 14.Certain expenses directly related to the issuance,

purchase or sale of shares;

15.Expenditure on construction in progress during investment phase to create fixed assets

16.Creditable input value added tax, corporate income tax and personal income tax except for net salary reflected in the labor contract Notes:

▪ From 2015, the cap on the tax deductibility of advertising and promotion expenses was abolished

▪ Business entities in Vietnam are allowed to set up a tax deductible Research and Development Fund

to which they can appropriate up to 10% of annual profits before tax

NON-DEDUCTIBLE EXPENSES (CONT.)

• ABC

EX 5-7: An Phu Co., Ltd specializing in manufacturing computers and applying VAT deduction method, paid bank cash for purchase of a 7-seat car for its business with the selling price on the VAT invoice of VND 3.3 billion including VAT 10% Knowing depreciation rate is 10% per year

+ Original cost of the car: 3.3/1.1 = 3B

+ CIT deductible depreciation : 1.6B*10% = 160M/year

+ CIT non-deductible depreciation: (3B–1.6B)*10% = 140M/year

EX 5-8: Binh Minh Company borrows billion from Mr Thanh with the interest rate of 30%/year The basic interest rate announced by the State Bank at this time is 9%/annum

+ CIT deductible

interest: (9%*1.5) *1B = 135M/year + CIT non-deductible

interest: (30% -9%*1.5) *1B = 165M/year

EX 5-9: WA

Construction Company hires Mr Hung as a supervisor of the AMW construction Mr Hung's net wages (excluding PIT) is million/month Rental period is months PIT rate of irregular income: 10%

OTHER INCOMES

• ABC

1 Income from the transfer of capital or securities Income from the transfer of real estate;

3 Income from the transfer of investment projects; transfer of the right to participate in investment projects; transfer of the right to explore, exploit and process minerals;

4 Income from asset ownership or use rights, including also copyright royalties in any form paid for asset ownership or use rights; royalties from intellectual property rights; and income from technology transfer;

5 Income from asset lease;

6 Income from transfer or liquidation of assets (excluding real estate) and other valuable papers: Income from transfer or liquidation of assets = turnover from asset transfer or liquidation – residual book values – deductible expenses related to asset transfer or liquidation.

7 Income from deposit or loan interests, including also interests on deferred and installment payments, credit guarantee charges and other charges under loan provision contracts;

8 Income from the sale of foreign currency, which equals total proceeds from the sale of foreign currency minus (-) total buying price of the sold foreign currency amount;

9 Income from exchange rate difference;

10 Recovered bad debts which have been written off

11.Payable debts of unidentifiable creditors

OTHER INCOMES (CONT.)

• ABC

13 Differences between collections of fines and indemnities paid by partners that violate economic contracts minus (-) penalties or compensations for breach of contracts in accordance with the law;

14 Differences resulting from the re-valuation of assets in accordance with law for capital contribution or asset transfer upon enterprise split, separation, consolidation, merger or transformation;

15 Donations and gifts in cash or in kind; income received in cash or in kind from financing sources; income received from marketing support, expense support, payment discount, promotional prizes and other supports;

16 Advance deductions in costs but not used or used up in the deduction period which are not accounted by enterprises as decrease in expenses; refunded provisions for warranty of construction works;

17 Income from the sale of scraps and discarded products, after subtracting recovery and sale expenses;

18 Incomes from the contribution of equity capital, contribution of capital to joint ventures or economic associations at home which are divided from pre-enterprise income tax incomes;

TAX-EXEMPT INCOMES

• ABC

1 Incomes from cultivation, husbandry, aquaculture and salt production of cooperatives; incomes of cooperatives engaged in agriculture, forestry, fisheries and salt production in geographical areas with difficult socio- economic conditions or geographical areas with particularly difficult socio- economic conditions; incomes of enterprises from cultivation, husbandry and aquaculture in geographical areas with particularly difficult socio-economic conditions; incomes from fishing activities;

2 Incomes from the provision of technical services directly for agriculture, including income from such services as irrigation and water drainage; soil plowing and harrowing, and dredging of intra-field canals and ditches; prevention and control of crop and animal pests and diseases; and harvest of agricultural products

3 Income from performance of contracts for scientific research and technological development are entitled to tax exemption for a contract period but not more than three years from the date of commencement of revenues from the performance of the contracts;

Income from sale of products made from new technologies applied in Vietnam for the first time shall be exempt from tax for not more than years from the date of commencement of turnover from the sale of products;

4 Income from production and business activities of enterprises employing disabled, drug-detoxified and HIV- infected laborers, who account for at least 30% of the average number of laborers of these enterprises in a year;

TAX-EXEMPT INCOMES (CONT.)

• ABC

5 Income from job training exclusively provided for ethnic minority people, the disabled, extremely disadvantaged children and people involved in social evils, people undergoing detoxification, detoxified people and HIV/AIDS-infected people; Incomes divided from capital contribution, share

purchase, joint venture or economic association with domestic enterprises, after contributed capital recipients, share issuers or joint venture or association parties have paid enterprise income tax under the Law on Enterprise Income Tax, including those eligible for enterprise income tax incentives; Aid received for educational, scientific research,

cultural, artistic, charitable, humanitarian and other social activities in Vietnam

8 Incomes from the first-time transfer of certified emission reductions (CERs) of enterprises granted with emission reduction certificates;

9 Undivided incomes of establishments engaged in socialized education-training, health and other socialized activities; undivided incomes retained by cooperatives for creation of their assets;

10 Incomes from technology transfer in the prioritized fields of transfer of technology to organizations and individuals in geographical areas with particularly difficult socio-economic conditions 11 Incomes of bailiff offices (except for incomes from

LOSS TRANSFER

• ABC1 Losses arising in a tax period are the negative differences of taxable incomes exclusive of losses carried forward from previous years;

2 Businesses that incur losses after tax finalization are entitled to carry forward those losses to be offset against the assessable income of future years for maximum of five consecutive years before they expire;

3 Losses on incentivised activities can be offset against profits from non-incentivised activities, and vice versa

4 Losses from the transfer of real estate and the transfer of investment projects can be offset against profits from other business activities

EX 5-10: In 2013, Company A suffers a loss of VND 10 billion In 2014, it generates an income of VND 12 billion So, the CIT payable in 2014 = 12B – 10B = 2B x CIT rate

EX 5-11: In 2013, Company B suffers a loss of VND 20 billion In 2014, it generates an income of VND 15 billion So, the loss in 2013 is offset against the income in 2014 The remaining loss (20B – 15B = 5B) will be carried forward to the years counting from 2015 but not later than 2018

TAX INCENTIVES

• ABC

▪ Tax incentives are granted to new investment projects based on regulated encouraged sectors, encouraged locations and the size of the project

▪ Business expansion projects (including expansion projects licensed or implemented during the period from 2009 to 2013 which were not entitled to any CIT incentives previously) which meet certain conditions are also entitled to CIT incentives

▪ New investment projects and business expansion projects not include projects established as a result of certain acquisitions or reorganizations

▪ The sectors which are encouraged by the Vietnamese Government include education, health care, sport/culture, high technology, environmental protection, scientific research, infrastructural development, processing of agricultural and aquatic products, software production and renewable energy

▪ Locations which are encouraged include qualifying economic and high-tech zones, certain industrial zones and difficult socio-economic areas

▪ Large manufacturing projects (excluding those related to the manufacture of products subject to special sales tax or those exploiting mineral resources) with total capital of VND6,000 billion (VND12,000 billion from 2015) or more, disbursed within years (5 years from 2015) of being licensed can also qualify for CIT incentives if the projects meet either of the following criteria:

➢ minimum revenue of VND10,000 billion/annum by the 4th year of operation at

the latest; or

TAX INCENTIVES (CONT.)

• ABC

▪ New investment projects engaged in manufacturing industrial products prioritized for development will be entitled to CIT incentives if they meet one of the following conditions:

➢ the products support the high technology sector; or

➢ the products support the garment, textile, footwear, IT, automobile assembly, mechanical sectors are not produced domestically as at January 2015, or if produced domestically, they meet the quality standards of the EU or equivalent

▪ The two common preferential rates of 10% and 20% are available for 15 years and 10 years respectively, starting from the commencement of operating activities From January 2015, a preferential rate of 15% will apply in certain cases Certain socialized sectors (e.g education, health) enjoy the 10% rate for the life of the project

▪ Taxpayers may be eligible for tax exemption and reductions The holidays take the form of a complete exemption from CIT for a certain period beginning immediately after the enterprise first makes profits, followed by a period where tax is charged at 50% of the applicable rate However, where the enterprise has not derived taxable profits within years of the commencement of operations, the tax holiday/tax reduction will start from the fourth year of operation

▪ Additional tax reductions may be available for companies engaging in manufacturing, construction and transportation activities which employ many female staff or ethnic minorities

INCOMES FROM CAPITAL TRANSFER

• ABC▪ An enterprise’s income from capital transfer is income earned from the transfer of part

or the whole of the capital amount the enterprise has invested in one or many other organizations or individuals (including sale of the whole enterprise)

▪ Tax bases: CIT payable = Taxed incomes × CIT rate (20%)

Taxed

incomes =

Transfer price

-Purchasing price of the

transferred capital

-Transfer expenses

+ Transfer price is the total actual value earned by the transferor under the transfer contract excluding installment or deferred payment interests (if any)

+ Purchasing price of the transferred capital can be the value of the contributed capital amount recorded in accounting books or the value of the capital amount at the time of redemption + Transfer expenses are actual expenses directly related to the transfer such as expense for

carrying out legal procedures necessary for the transfer; charges and fees paid for carrying out transfer procedures; expenses for transaction, negotiation and signing of transfer contracts; and other expenses

https://supreme.justia.com/cases/federal/us/301/495/case.html https://nhantokhai.gdt.gov.vn/ihtkk_nnt/