Final examination preparation Taxation. 1/ What is the Vietnamese tax rates.

. Taxpayers are subject to the tax rates imposed under the BIT Law. The standard BIT rate is 25%. Enterprises operating in the oil and gas industry will be subject to BIT rates ranging from 32% to 50% depending on each project. 2/ How are Tax incentives granted to businesses. Tax incentives are granted based on regulated encouraged sectors and difficult socio-economic locations. The sectors which are encouraged by the Vietnamese Government include education, health care, sport/ culture, high technology, environmental protection, scientific research, infrastructural development and computer software manufacture. The two preferential rates of 10% and 20% are available for 15 years and 10 years respectively, starting from the commencement of operating activities. When the preferential rate expires, the BIT rate reverts to the standard rate. 3/ How to calculate the taxable profits? Taxable profit is the difference between total revenue, whether domestic or foreign sourced, and deductible expenses, plus other assessable income. Taxpayers are required to prepare an annual BIT return which includes a section for making adjustments between accounting profits and taxable profits. 4/ What kinds of expenses will not be deductible? Expenses which relate to the generation of revenue, that are properly supported by suitable documentation and are not specifically identified as being non-deductible are tax deductible. Some non-deductible expenses include: Depreciation of fixed assets which is not in accordance with the prevailing regulations; Employee remuneration expenses which are not actually paid or are not stated in a labour contract or collective labour agreement; Life insurance premiums for employees; The portion of costs of raw materials, materials, fuel or goods which are used in excess of the reasonable consumption levels; Interest on loans corresponding to the portion of charter capital not yet contributed; Interest on loans from non-economic and non-credit organizations exceeding 1.5 times the interest rate set by the State Bank of Vietnam;

 Reserves for research and development not in accordance with the prevailing regulations; Provisions for stock devaluation, bad debts, financial investment losses, product warranties, or construction work which are not in accordance with the prevailing regulations; Advertising, promotion (except certain items), conferences/parties, commissions, prompt payment discounts exceeding 10% of total other deductible expenses (this cap is increased to 15% for newly established enterprises for the first 3 operating years); Donations except certain donations for education, health care, natural disasters, or building charitable homes for the poor; Management expenses allocated to permanent establishments in Vietnam by the foreign company s head office which are not in accordance with the regulations; Administrative penalties, fines; Creditable input value added tax, business income tax, and other fees/ charges; For certain businesses such as insurance companies, securities trading, and lotteries, the Ministry of Finance provides specific guidance on deductible expenses for BIT purposes.

Business entities in Vietnam are allowed to set up a tax deductible Research and Development fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. 5/ How can losses be treated? Taxpayers may carry forward tax losses fully and consecutively for a maximum of five years. Carry-back of losses is not permitted. 6/ What are the regulations about tax payment? Provisional quarterly BIT returns must be filed and taxes paid by the 30th day of the first month of the subsequent quarter. Final BIT returns are filed annually. The annual BIT return must be filed and submitted not later than 90 days from the fiscal year end. The outstanding tax payable must be paid at the same time the annual BIT return is submitted. The standard tax year is the calendar year. However, different tax and accounting yearends can be used if approval is obtained from the Ministry of Finance. 7/ When can Profit be remitted? Foreign investors shall be permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors

are not permitted to remit profits if the investee company has accumulated losses. The foreign investor or the investee company are required to notify the tax authorities of the plan to remit profits at least 7 working days prior to the scheduled remittance. 8/ What is the scope of FCWT? FCWT applies to payments of interest, royalties, licence fees, foreign contractors fees, cross border leases, insurance/ reinsurance, airline and express delivery charges.

Dividends

No withholding or remittance tax is imposed on profits paid to foreign corporate shareholders.

Interest

An interest withholding tax of 10% applies to interest paid on loans from foreign entities. Interest earned from bonds (except for tax exempt bonds) and certificates of deposit are subject to 10% withholding tax. The sale of bonds and certificates of deposits are subject to deemed tax of 0.1% of the gross sales proceeds.

Royalties, licence fees, etc.

A 10% royalty withholding tax applies in the case of payments made to a foreign party for transfers of technology.

Freight & transportation services

Foreign entities performing transportation services are now subject to the FCWT of 1% to 2% of the contract. 9/ How can foreign contractors make tax payment?

1) Method One Deduction Method Foreign contractors can register for VAT if they meet the requirements below: They have a permanent establishment (PE) or are tax resident in Vietnam; The duration of the project in Vietnam is more than 182 days; and They adopt the full Vietnamese Accounting System (VAS).

The foreign contractor will pay BIT at 25% of its net profits.

2) Method Two Direct Method Direct method foreign contractors do not register for VAT. VAT and BIT will be withheld by the Vietnamese contracting party at deemed percentages of taxable turnover. Various rates are specified according to the nature of the services performed. 3) Method Three Hybrid Method The hybrid method allows foreign contractors to register for VAT and accordingly pay VAT based on the conventional method (i.e. output VAT less input VAT), but with BIT continuing to be subject to deemed rates. Foreign contractors wishing to adopt the hybrid method must: Have a PE in Vietnam or be tax resident of Vietnam; Operate in Vietnam under a contract with a term of more than 182 days; and Maintain accounting records in accordance with the accounting regulations and guidance of the Ministry of Finance. 10) What countries did Vietnam sign DTA? (Hi p l n). nh trnh nh thu 2

Vietnam has more than 60 agreements signed, and numerous others at various stages of implementation and negotiation. The agreements in force include those with Australia, France, Germany, Japan, Korea, Malaysia, the Netherlands, Singapore, Thailand, Hong Kong and the United Kingdom, etc. Notably absent is a DTA with the United States of America. 11) How is the tax rate applied for capital & securities transfer? Gains on transfers of capital in a foreign invested or Vietnamese enterprise are subject to 25% BIT. The taxable gain is determined as the excess of the sale proceeds less cost (or the initial value of contributed charter capital for the first transfer) less transfer expenses. Transfers of securities (bonds, shares of public joint stock companies, etc.) are subject to BIT on a deemed basis at 0.1% of the total value of the disposal proceeds. 12) What is the difference between exempt and zero-rated? If you sell zero-rated goods or services, they count as taxable supplies, but you don't add any VAT to your selling price because the VAT rate is 0 per cent.

If you sell goods or services that are exempt, you don't charge any VAT and they're not taxable supplies. This means that you won't normally be able to reclaim any of the VAT on your expenses. 13) How many VAT rates are there? There are three rates as follows: y 0% This rate applies to exported goods including goods sold to enterprises without permanent establishments in Vietnam (including companies in non-tariff zones), goods processed for export, goods sold to duty free shops, exported services, construction and installation carried out abroad or for export processing enterprises, aviation, marine and international transportation services. y 5% This rate applies generally to areas of the economy concerned with the provision of essential goods and services. This includes: clean water; fertiliser production; teaching aids; books; foodstuffs; medicine and medical equipment; husbandry feed; various agricultural products and services, technical/scientific services; rubber latex; sugar and its by-products. y 10% This standard rate applies to activities not specified as exempt or subject to 0% or 5%. 14) What is SST? SST is a form of excise tax that applies to the production or import of certain goods and the provision of certain services. Goods and services that are subject to SST are also subject to VAT. The Law on SST classifies objects subject to SST into two groups: 1. Commodities - cigarettes, liquor, beer, automobiles having less than 24 seats, motorcycle, airplane, boat, petrol, air-conditioners up to 90,000 BTU, playing cards, votive papers; and 2. Service activities - discotheque, massage, karaoke, casino, gambling, golf clubs, entertainment with betting and lotteries. For example: Discotheques 40%, Cigar/Cigarette 65%. 15) Pls. explain briefly the Vietnamese import duty. Import duty rates are classified into 3 categories: ordinary rates, preferential rates and special preferential rates.

Preferential rates are applicable to imported goods from countries that have Most Favoured Nation (MFN, also known as Normal Trade Relations) status with Vietnam. The MFN rates are in accordance with Vietnams WTO commitments and are applicable to goods imported from other member countries of the WTO. y Special preferential rates are applicable to imported goods from countries that have a special preferential trade agreement with Vietnam. Also, as part of ASEAN, Vietnam has special preferential trade agreements with: China; Korea; Japan; Australia and New Zealand; India (signed but not yet in force). To be eligible for preferential rates or special preferential rates, the imported goods must be accompanied by an appropriate Certificate of Origin (C/O). Without such a C/O, or when goods are sourced from non-preferential treatment countries, the ordinary rate is imposed. y 16) What products get tax exemption? There are 20 categories of import duty exemption, including: Machinery & equipment, specialised means of transportation and construction materials (which cannot be produced in Vietnam) comprising the fixed assets of certain projects. Raw materials, spare parts, accessories, other supplies, samples, machinery and equipment imported for the processing of goods for export and finished products imported for use in the processed goods. Machinery, equipment, specialised means of transportation, materials (which cannot be produced in Vietnam), health and office equipment imported to use for oil and gas activities. Exemptions are also available, inter alia, for Build-Operate- Transfer enterprises, including their sub-contractors and for direct production of software. Goods imported by courier with a value of up to VND1 million. 17) Pls. explain briefly the Vietnamese export duty. Export duties are charged only on a few items, basically natural resources such as sand, chalk, marble, granite, ore, crude oil, forest products, and scrap metal etc. Rates range from 0% to 33%. 18) How to become tax resident in VN? How non-tax resident be treated in VN? Residents are those individuals residing in Vietnam for 183 days or more in a calendar year, or in 12 consecutive months from the first date of arrival; or those having a permanent residence in Vietnam. Where an individual stays in Vietnam for more than 90 days but less than 183 days in a tax year, the individual will be

treated as a tax non-resident if he/she can prove that they are tax resident of another country. Tax residents are subject to Vietnamese PIT on their worldwide taxable income, wherever it is paid or received. Employment income is taxed on a graduated tax rates basis. Non-employment income is taxed at a variety of different rates. Individuals not meeting the conditions for being tax residents are considered tax non-residents in Vietnam. Non-residents are subject to PIT at a flat tax rate of 20% on the income received as a result of working in Vietnam in the tax year, and at various other rates on their non-employment income. However, this will need to be considered in light of the provisions of any DTA that might apply. 19) What income will be non taxable? Non taxable income includes: Interest earned on deposits with credit institutions/banks and on life insurance policies; Compensation paid under life/non-life insurance policies; Retirement pensions paid under the Social Insurance law; Income from transfer of properties between various direct family members; Inheritances/gifts between various direct family members. 20) Pls. list all tax deductions for PIT calculation. Tax deductions include: 1. Contributions to mandatory social, health and unemployment insurance schemes; 2. Contributions to certain approved charities; 3. Tax allowances: Personal allowance: VND48 million/year, Dependent allowance: VND1.6 million/month. The dependent allowance is not automatically granted, and the taxpayer needs to register qualifying dependants and provide supporting documents to the tax authority. 21) How SI, HI & UI be calculated in VN?