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Vietnam tax reform in 2009 -erns & young presentation
Vietnam Tax Reform in 2009 Corporate taxes & Customs Nam Nguyen, Partner Page 2 Agenda 1. Recent Tax Legislation 2. Major Changes in: • Corporate Income Tax & Tax Incentives • Value Added Tax • Special Sales Tax (proposed) 3. Administration 4. Tax Treaty Developments 5. New Tax Treaty Procedure 6. Permanent Establishment Issues 7. Common Tax Audit Issues 8. New Customs Regulations Page 3 Recent Tax Legislation Four new tax laws will take effect in 2009: Corporate Income Tax (CIT) Law Personal Income Tax (PIT) Law Value Added Tax (VAT) Law Special Sales Tax (SST) Law (draft) The 1 st three laws have been passed but implementing regulation and guidance are expected to be released by the end of 2008. The draft SST Law is expected to take effect from 2nd quarter of 2009. Overall, the changes are aimed to bring in lower tax rates, wider scope of application, improved administration and transparency, alignments with international tax practices. Page 4 Legislative Framework Laws Circulars Ordinances Decrees, Decisions Tax rulings (or “Official Letters”) National Assembly (“NA”) Ministries NA’s Standing Committee Government Ministries, General Departments Page 5 Changes in Corporate Income Tax (1/2) Current law New law Scope of application All enterprises, including corporate entities, sole proprietorship, independent practitioners, individuals earning property rental income ► Only corporate entities. ► All others will be taxed under the Personal Income Tax (PIT) Law Tax rates - Standard rate - Oil & gas rates - Incentive rates ► 28% ► 28% - 50% ► 10%, 15%, 20% ► 25% ► 32% - 50% ► 10%, 20% Capital gains/losses from real estates Capital gains are taxable at 28% plus applicable surtax at graduated rates from 10% to 25%. ► Capital gains are taxable at 25%. ► The surtax will be abolished. ► Capital gains are not entitled to tax any relief ► Capital losses are only tax deductible against capital gains Page 6 Changes in Corporate Income Tax (2/2) Current law New law Deductions ► A taxpayer may deduct only expenses specified as allowable deductions. ► A deduction for interest expenses on non-bank loans is capped at 120% of the rate offered by commercial banks. ► Deduction for advertisement & Promotion (“A&P”) expenses is capped at 10% of specified allowable deductions ► A taxpayer may deduct any expenses other than those specified as prohibited deductions, but the list of prohibitions is longer ► The cap on interest expense on non-bank loans is increased to 150% ► The 10% cap on A&P expenses remains, but new companies enjoy 15% for the first 3 years following incorporation. Research & Development provision ► Not regulated ► 10% of taxable income tax-free but at least 70% of the provision must be utilised within 5 years. Depreciation ► Accelerated deprecation at 200% is allowable ► The 200% accelerated depreciation no longer allowable Page 7 Changes in Corporate Tax Incentives Current law New law 20% ► Promoted industries or areas with difficult socio-economic conditions (“difficult area”) ► “Difficult areas” criteria only 15% ► Promoted industries and difficult areas ► Removed 10% ► Specially promoted industries, or areas with especially difficult socio-economic conditions (“especially difficult areas”) ► Especially difficult areas, Hi- tech zones, or hi-tech industries Tax holiday ► Begins from 1st year of taxable profit (before losses carried forward) ► Begins from 1 st year of taxable profit but not later than the 4 th year of operation Page 8 Changes in Value Added Tax Current law New law Exempt categories 28 categories 25 categories Equipment/vehicles (not available in VN) imported to form fixed assets Exempt Taxable at 5% or 10% International transportation Exempt Zero-rated Financial derivatives Not regulated Exempt Deductibility of input VAT Input VAT for purchase invoices reported later than 3 months is not creditable A claim of VAT input can be made within 6 months Page 9 Proposed Changes in Special Sales Tax Current items Proposed additions Taxable goods & services Goods: cigarettes, cigars, alcohol, beers, cars below 24 seats, gasoline, air- conditioners etc. Services: dancing clubs, massage, karaoke, casino, poker machines, golf, lottery etc. Tobacco products; dual purpose vehicles with two seat rows or above (eg. pickup trucks, vans); motorcycles of at least 750cc; aircrafts and yachts for private use; electronic betting machines; Current rates Proposed rates Tobacco products 25%, 45% or 65% 65% Alcohol products 15%, 20%, 30% or 75% 20% or 55% Beers 30% or 75% 50% Automobiles 25%, 50% or 80% 10% - 70% Motorcycles above 175 cc, aircrafts, yachts n/a 20% Dancing, massage, karaoke 30% 40% Casino & poker machines 25% 30% Golf 10% 15% Page 10 Administration Traditionally, tax audits were conducted on annual basis New procedures released in May 2008. Tax audit methodologies have changed from comprehensive/ substantive approach to ad- hoc and risk based approach Selection of tax audit targets is based on compliance history and targets are classified into two groups: 9 Taxpayers with poor compliance history include: incomplete returns or late filings; inaccurate declarations of tax liabilities or frequent tax corrections; being visited by tax authorities at least 3 times during the year; owing tax debts and delaying tax payments 9 Taxpayers with irregularities include: having refundable VAT but not claimed or VAT refund claims abandoned; or 20% fluctuation in revenue or in the amount of tax payable