The General Department of Taxation (GDT) has issued Guidelines on the 2016 annual finalization of corporate income tax (CIT) and personal income tax (PIT). The key points are outlined below.
1. CIT finalization
Deductible and non-deductible expenses
Non-cash payment for purchases over VND 20 million
Under CIT regulations, any purchase of goods or services over VND 20 million cannot be settled in cash if it is to be deductible.
An acceptable non-cash settlement method would be a bank wire transfer, among others. Previously under the VAT regulations, in order for the transaction to be CIT deductible, the wire transfer had to be accompanied by documents proving that: (i) the money was transferred from the buyer’s bank account to the seller’s bank account; and (ii) both accounts were registered with the relevant tax authorities.
In line with VAT regulation changes on this matter, the Guidelines confirm the removal of these conditions on registering or notifying the bank accounts (of the purchaser and seller) to the tax authorities. In any case, the buyer may treat the purchase as a deductible expense provided that:
- The transaction is real;
- The transaction is settled via a non-cash banking method;
- The seller has issued an invoice to the purchaser; and
- The seller has declared taxed on the sale.
On the subject of expenditures for employees’ welfare which are tax deductible[1], the Guidelines confirm that:
- Fees paid by an employer for personal income tax services to expatriate employees are non-deductible for the employer’s CIT purposes. This is due to the cost not being deemed relevant to either the employer’s business or the employee’s welfare.
- However, costs paid for employee health checkups or insurance premiums for employees motorbikes are tax deductible for the relevant employer.
[1] Under article 4 of Circular 96/2015/TT-BTC dated 22 June 2015, certain expenditure for employees’ welfare provided that the total employment welfare expenditure incurred in a tax year is not in excess of average monthly salary. This includes expenditure on employees’ family occasion; expenditure on holiday allowance or treatment support; expenditure on professional training; expenditure on supporting employees’ families affected by natural disasters, hostilities, accidents, illness; expenditure on providing rewards for employees’ children due to their educational achievements; expenditure on allowances for traveling during holidays of the employees and other welfare expenditure.
CIT incentives
Preferential rate of 17% from 2016
From 2016, the statutory CIT rate is 20%. CIT regulations thus allow existing enterprises that enjoy CIT at the preferential rate of 20% (equal to the statutory rate) to apply for a reduced rate of 17% from 2016.
However, in reference to the provisions of Decree 12[2], the Guidelines further provide that from 2016, the 17% reduced rate may only be obtained by corporate taxpayers[3] that were able to satisfy the conditions contained in clause 3, article 15 of Decree 218 for applying the previous rate of 20%.[4]
As this reduced rate of 17% may only be obtained by enterprises eligible for CIT incentives under Decree 218 (from 2014), the amount of enterprises able to apply the reduced rate may be limited. Those entities not qualified for CIT incentives under article 15.3 of Decree 218 should revise their tax incentive rate accordingly if the 17% has been applied for 2016 CIT report.
Business expansion during 2009-2013
Though primarily focused on 2016 CIT finalization, the Guidelines still touch upon the tax treatment of business expansion during the period 2009-2013. This treatment is in line with current CIT regulations and rulings.[5]
Briefly, during the period 2009-2013, a company’s investment activities (including the acquisition of fixed assets) will not be deemed as business expansion for disallowances of CIT incentives enjoyed by relevant corporate taxpayers, provided that the investment is funded from one of internal resources, including (i) depreciation fund; or (ii) after tax profit (for reinvestment); or (iii) investment capital which already registered with authorities.
Moreover, the above investment should not have resulted in the increase of production capacity or business size above that registered with the authorities.
[2] Decree 12/2015/ND-CP dated 12 February 2015 of the Government on amending certain articles of Decree 218/2013/ND-CP on CIT. Decree 12 provide that an existing enterprise that is enjoying a preferential CIT rate at 20% in accordance with clause 3 Article 15 of this Decree may apply the 17% CIT rate for the residual incentive period, starting from 1 January 2016.
[3] That have been enjoying preferential CIT at 20% by the end of 2015.
[4] Decree 218/2013/ND-CP dated 26 December 2013 on CIT.
[5] Please refer to our Tax Alert issued in August 2016 for more details on this.
2. PIT finalization
Who must conduct annual PIT finalization?
Both employers and employees may be subject to annual PIT finalization:
- Employers that paid employment income to its employees must lodge an annual PIT finalization. This is compulsory regardless of whether any PIT liability arose from payments during the year.
- Employees must conduct their annual PIT finalization where:
- Additional tax must be paid; or
- There is an overpayment of tax upon which they wish to claim a tax refund or a tax credit against future payable tax.
Authorization for PIT finalization
Employees may authorize their employer to conduct PIT finalization on their behalf in certain circumstances, such as:
- Employees have an employment contract of at least three months’ duration with their employer and are working for the employer at the time of authorization.
- Individuals with multiple sources of income in a tax year, including:
- Earning non-employment income that the payer has withheld 10% PIT from before making payment to the individual; and
- Earning employment income on the basis of an employment contract of at least three months’ duration with their employer, and are working for the employer at the time of authorization.
- In any case, employers may only finalize PIT on income they paid to the relevant employees.
Tax deductions
- Personal deductions:
- Taxpayers with multiple sources of income should make personal deductions from only one source of income.
- Deductions for dependents
- A dependent can be claimed by one taxpayer only.
- Where taxpayers have dependents but have not claimed deductions for them during the year, the taxpayer may claim the deduction from the month that the taxpayer began to support the dependent. This is provided that (i) the taxpayer conducts PIT finalization; and (ii) the dependent has been properly registered.
In addition to the above GDT Guidelines, certain provincial tax departments (such as Hanoi, Ho Chi Minh City or Vung Tau) have issued their own guidelines on PIT finalization.
3. Due date of the tax finalization
The deadline for lodging CIT and PIT finalization is 90 days from the end of the fiscal year. This is normally 31 March for most taxpayers, with the fiscal year ending on 31 December.
Please feel free to contact us if you need further details on these guidelines.
DFDL contacts:
Jack Sheehan
Partner, Regional Tax Practice Group
jack.sheehan@dfdl.com
Phan Thi Lieu
Senior Tax Manager
lieu.phan@dfdl.com
*The information provided is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
