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Tax Position Paper 10.2010 _EN_ - PROPOSED REFORMS IN RELATION TO

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					Tax position paper                                                               Vietnam Business Forum, 2010



 PROPOSED REFORMS IN RELATION TO INVOICING, TAX DOCUMENTS AND OTHER
                             TAX ISSUES


                                                                                         Presented by
                                                                                   VBF Tax Sub-group

I.   INVOICING

1. NEW PROCEDURES FOR INVOICING

The Government has issued Decree No. 51/2010/ND-CP providing for the printing, issuance, use and
management of invoices.

This Decree implements the provisions of Resolution No. 25/NQ-CP dated 02/06/2010 on simplifying
258 administrative procedures for the first round of Project 30 relating to invoicing

1.1 Background

Advantages from allowing enterprise to use printing-self invoices

Under the Decree 51, starting from 2011 onwards, the tax authorities will be restricted in issuing and
selling the invoices designed by Ministry of Finance to enterprises. Currently enterprises must buy
official “red” invoices from the tax authorities (the usual case) or apply for approval to use customized
invoices. Instead, under Decree 51 all enterprises are required to use self-printed invoices in the form
of either (i) printed-out invoices from enterprise’s own machines (ii) or printed-out invoices by
qualified printing organizations and (iii) electronic-invoices under the Law on Electronic Transactions.

The regulation is a significant improvement in administrative procedures in Vietnam as it helps
enterprises to reduce the many time-consuming steps involved in applying to purchase invoices from
the tax authorities and avoiding unexpected delays where there is a large demand for invoices or in
applying for approval to use customized invoices. In particular enterprises now have some flexibly in
customizing invoices for the purposes of the enterprise’s promotion such as by adding the enterprise’s
logo, slogan, etc on the invoices.

1.2 Outstanding Issues:

Difficulties for Small Enterprises

Besides the significant advantages as mentioned above, potential risks/difficulties for enterprises are
the increased cost and complexity, especially for small enterprises which prefer to use invoices
published by Ministry of Finance due to insignificant demand for invoicing, and who do not wish to
invest in invoice printing machines or registration with printing organizations.
Tax position paper                                                              Vietnam Business Forum, 2010



Separately, there are number of SMEs hiring offices from individual households that are subject to
change frequently, it may take time with self-printed invoices to cancel the outstanding invoice and
print/register a new one when they change office address.

Taxpayers will be put in a riskier situation if the tax regulations are not consistent with invoicing
regulations

In accordance with the current Value Added Tax (“VAT”) and Corporate Income Tax (“CIT”), the
invoices issued by decamping enterprises will be disallowed for both input VAT deductibility and CIT
deductibility. The list of decamping enterprises and invoices issued by them will be posted by General
Department of Taxation (“GDT”). However with the new regulations (i.e. self-printing of invoices by
many enterprises), there would be more invoices from decamping enterprises in the market, it would be
more difficult for GDT to update the list of decamping enterprises, and it would be even more difficult
for taxpayers to update / keep track of these invoices. Accordingly, without a corresponding
amendment of the tax regulations (e.g. those invoices will be deductible if some conditions are
satisfied), taxpayers will face more risks of their actual expenses being rejected by tax authorities.



2. SECURUTY OF INVOICES

Enterprises are concerned that they may face challenges from the tax authorities in relation to
fraudulent invoices which the enterprises themselves are unable to verify the legal status of. Therefore
it is important that there are measures to security of invoices need to be set at a high level. The
procedure on self-printed invoices must be clear.

3. ELECTRONIC INVOICING

The ability for companies to use electronic invoices is a welcome development which is necessary if
Vietnam wishes to develop e-commerce. Electronic invoicing is very beneficial for companies that
have a large volume of low value transactions. There is however no guidelines at present in Decree 51
on electronic invoicing. There are a number of authorities that need to be involved if electronic
invoicing is able to become a reality. For example transportation of goods currently requires an
accompanying invoice however there is no physical invoice with electronic invoicing. In addition
electronic invoicing will require an electronic seal involving the approval of another authority. The
agreement of many authorities is needed to practically implement electronic invoicing. In this case
there should in our view be one body that can regulate and monitor all matters relating to electronic
invoices.

4. INTEGRATION TO GLOBAL INVOICING SYSTEM

There are increasing number of foreign invested enterprises which are and will apply centralized
(global) electronic invoicing system in their day-to-day operations in Vietnam. In studying the
invoicing regulations in Vietnam for possibility of integration, they normally face the following
difficult issues, which are not easy to overcome:
Tax position paper                                                                 Vietnam Business Forum, 2010



    -    Credit note: according to normal practice, credit notes are normally used in case the buyer has to
         return part or all the goods back to seller, or the seller has to reduce the price for goods due to
         quality of goods does not match with contractual specifications. In fact, it is a negative invoice
         that seller issues to buyer to reduce the invoice amount. However, negative invoices are still
         disallowed under both Decree 51 and Circular 153, and so are credit notes. Instead, seller in
         some cases has to issue amending invoice (still positive amount), or buyer issue invoice back to
         seller.

         This would cause a lot of troubles when integrating in a global centralized invoicing system,
         because, for example, the system cannot handle a positive invoice for reducing / amending a
         previously issued invoice. Accordingly, it is strongly recommended that considerations should
         be given for credit note to be allowed in subsequent invoicing regulations.

    -    Multi-pages invoice: in many cases the number of items per one invoice exceeds the lines of the
         invoice sheet. Decree 51 and Circular 153 adopts the issuance of multiple invoices, or attached
         list to address this issue. Although these are acceptable solutions, they still cause a lot of
         troubles, especially for integrated invoicing system. There are many cases where these goods
         should be contained in one invoice only (for internal management, or for client’s request etc.),
         and there should not be many problems for an invoice to contain multiple pages. Therefore we
         would also recommend the considerations for multi-pages invoices to be accepted in further
         regulations.



II. TRANSLATION OF TAX DOCUMENTS INTO VIETNAMESE

It is noted that Resolution 25 introduces a very helpful change in relation to documents required to
apply for relief under tax treaties. Only the parts that relate to tax and any other parts required by the
tax office are required to be translated rather than the whole document, the original document is to be
attached.

It would reduce compliance costs and assist taxpayers if the same principle could be applied to other
documents required in tax dossiers. For example to register a contract with a foreign contractor (which
is required within a short timeframe of 10 days of the contract signing) the translation of the full
contract can take some time, in particular where the document is long and includes technical terms
which may be difficult to translate into Vietnamese but which do not affect the tax treatment.


III. DEADLINE FOR SUBMISSION OF TAX RETURN

The current deadline for submission of finalization tax return is causing some difficulties for corporate
taxpayers.

Under current tax administration regulations, corporate taxpayer is required to submit Corporate
Income Tax (“CIT”) finalization return by latest 90 days after the calendar or fiscal year-end. After the
year-end, it will take enormous time for the company, especially large corporations (group), to
Tax position paper                                                               Vietnam Business Forum, 2010



consolidate and complete the draft annual report. Then it will also take quite some time for independent
auditors to audit, discuss with the company, make amendments to the draft report and issue the audited
report. Also, for companies whose year-end is calendar year, at least one (1) week will be lost for the
Lunar New Year.

As required under CIT regulations, tax returns must be prepared based on the audited report, however
in many cases the audited report would not be available within 90 days after the year-end, especially for
large groups with various subsidiaries. As such, various large corporate taxpayers do not have
sufficient time to prepare proper tax finalization return. They have to submit the return based on draft
audited report and then submit amended one should the audited report is not available. This
inconvenience can be settled if the deadline is extended to a more reasonable period, for example, 150
days.

IV. TAX YEAR

The current CIT regulations provide that basis period for tax year can be calendar or fiscal year.
However there is no detailed guidance on how the basis period and tax year is defined. For example, it
would be difficult for both taxpayer and tax authorities in determining whether fiscal year from 1
October 2008 to 30 September 2009 would be tax year 2008 or 2009.

Under an official letter from General Department of Taxation (“GDT”), it appears that it would be tax
year 2008 (i.e. based on the date of commencement of fiscal year). However there may be a problem if
the company is newly established (e.g. from 1 February 2008). In the above example there may be 2 tax
years 2008. In other tax jurisdictions such as Singapore, the tax year is determined based on the end of
the fiscal year, so that in the above example the period 1 February 2008 – 30 September 2008 is tax
year 2008, and from 1 October 2008 to 30 September 2009 is tax year 2009.

The determination of basis period and tax year would be important for determining tax holidays, tax

V. LOSS CARRYFORWARD

Under Circular 130/2008/TT-BTC on CIT, losses must be carried forward in a consecutive manner.
There is no specific guidance on “consecutive”, however a recent ruling from Ministry of Finance
(Official Letter 7250 dated 7 June 2010) guided that the loss must be carried forward to any profitable
year following the year of loss (within a maximum 5 years). The ruling is silent for the case where the
taxpayer is exempted from CIT under tax incentives regime. In the absence of specific guidance, it will
be understood that loss must be offset to profits of any profitable year, including tax exemption year.

This would cause significant impacts on the business projection / plan of many taxpayers. This would
impair the value of the tax incentives that the Government provided in previous regulations and
severally restrict the utilization of tax loss, a legal asset of the company. We would recommend that
the requirement for “consecutiveness” of loss as mentioned in Official Letter 7250 should be removed,
and loss utilization should be at the discretion of the taxpayer, provided that the loss can only be used
within 5 years.
Tax position paper                                                                 Vietnam Business Forum, 2010




VI. OTHER ISSUES UNDER CURRENT TAX REGULATIONS

1.   Corporate Income Tax (“CIT”)

Advertising and Promotion (“A&P”) expenses

     -   A&P are actual expenses of the company, and as such if they are supported by proper
         documents they should be deductible in full. The current limit of 10% (15% for newly
         established company) is in many cases too low compared with actual disbursements of company
         and therefore should either be removed or increased.
     -   In many cases A&P expenses are incurred for the whole group and not for an individual
         company. However the 10% cap is applicable to only one company. There should be some
         considerations, for example, that in case a company incur the A&P expenses for the whole
         group, the cap would be calculated on the group’s expenses.

Other income

     -   The current treatments (in 2009) of some items such as interest, foreign exchange gain / loss are
         not quite consistent.
     -   For example, under Official Letter 7250, interest expenses and income can be offset.
              o If the remaining is a gain, the gain will be treated as other income (for which no
                incentive is allowed),
              o If the remaining is a loss, the loss will be treated as operating expenses (deducted to
                taxable profit which would be subject to incentives if any).
     -   Interest income and Interest expenses, Foreign exchange Gain and Loss etc. should rather be
         considered and treated consistently as operating because these incur in relation to the operations
         of the business

Accrued expenses

     -   According to current regulations, when a company issue VAT invoices, normally the company
         is required to recognize taxable revenue for VAT and CIT purposes while accounting revenue
         has not yet been recognizable. It is unclear under current regulations whether taxpayer can
         accrue expenses as deductible expenses in the year of recognizing taxable revenue or not
     -   In fact, as the expenses are not supported by proper voucher, it is very likely that the expenses
         will be non-deductible. Even worse, when the expenses are actually incurred, tax authorities
         may still disallow these as deductible expenses because these are not matched with revenue (i.e.
         not creating taxable revenue in the year these expenses are incurred because revenue has already
         been taxed last year).
     -   There should be clear guidance on whether and how accrued expenses can be deductible.
Tax position paper                                                              Vietnam Business Forum, 2010




2.   Personal Income Tax (“CIT”)

Income arising in Vietnam

     -   Current PIT regulations states that “income arising in Vietnam” will be taxable, however there
         is no clear definition of circumstances where income is considered “arising in Vietnam”.

Tax treatments of individuals who carry out independent services in Vietnam

     -   Under current regulations, it is unclear how an individual performing independent services in
         Vietnam (e.g. services, trading etc.) will be subject to tax, and how the Vietnamese party
         withhold tax from payment to him/her.
     -   In case he/she is a resident, will company be required to withhold 10% if payment is in excess
         of VND500,000, or withhold progressive tax rate? Will company be required to withhold any
         VAT?
     -   In case he/she is a non-resident, will company be required to withhold 10%, or only 5% for
         services / 1% for trading / 2% for other activities? Will company be required to withhold any
         VAT?
     -   These issues should be clarified in future regulations.

Unclear tax treatment for business vs. personal expenses

     -   The treatments of several expenses which are partly business, partly personal paid by company
         to individuals are unclear.
     -   For example, in case company pays for golf membership and the card bear the name of
         individual employee, the expenses will be taxable on hand of employee although the golf
         membership serves for business purposes more than personal purposes.
     -   Another example is car provided by company. A recent ruling on PIT states that apportionment
         between personal use and business use is required, but does not provide detailed guidance on
         the apportionment.
     -   We would recommend that the treatments of these items are confirmed in future regulations

Claim of tax credit in Vietnam for tax paid in foreign country

     -   Currently there is no detailed guidance on the procedures, methods and calculations for an
         individual to claim credit with Vietnamese tax authorities for tax paid in overseas countries.
     -   As the practice is increasing in number, we would recommend clarifications from tax authorities
         the earlier the better.


Tax refund
Tax position paper                                                                 Vietnam Business Forum, 2010



     -   Currently PIT regulations allow individuals who have overpaid PIT only 1 option: to claim for
         PIT refund. It would be more flexible, more convenient and preferable for taxpayers if they
         also have other options, such as carrying forward the overpaid tax to offset with next year.

3.   Foreign Contractor Tax (“FCT”)

Training services overseas

     -   Before 2009, training services performed overseas are not subject to FCT. This is also
         confirmed in Circular 134/2008 applicable from 2009. However, recently, GDT has issued
         ruling 3962/TCT-CS dated 06 October 2010 in which stated that the training overseas is subject
         to FCT in Vietnam. This is not in line with the previous guidance and make the investor/Tax
         payer confuse when apply the Tax regulation.

FCT on software

     -   According to current regulations, software product provided by foreign supplier is exempted
         from VAT and 1% for CIT (trading of software product).
     -   However, GDT recently issued a ruling which stated that:
              o If the software is massively produced for everyone’s use, it will be treated as software
                product and is subject to FCT at 1% of CIT (as trading);
              o If software is produced under an order of the buyer, it will be treated as royalty and be
                subject to FCT at 10% CIT (as royalty).
     -   As the gap is large, this causes confusion in determining which software will be treated as
         massively produced and which is uniquely produced. For example, a foreign company develops
         a software for securities company, and sell to company ABC a version customized to
         requirements of company ABC, and also sell the same version to company XYZ because XYZ
         has similar requirements, will the software sale be treated as trading? It should be noted that in
         both cases, ABC and XYZ only has the right to use, not the right to own the software.

FCT on imported goods under DDU / DDP term

     -   Circular 134 on FCT provides that imports of goods/materials/fixed assets will not be subject to
         FCT if the delivery point is at a foreign bordergate or Vietnamese bordergate.
     -   For some foreign invested companies in Vietnam importing goods from foreign affiliates, the
         standard terms and conditions are DDU or DDP at buyer’s site. The goods are delivered to
         Vietnamese border gate and the Vietnamese companies transport from the border gate to the site
         (the foreign supplier does not perform any services in Vietnam). There is no specific guidance
         on whether the Vietnamese buyer is required to withhold any FCT in Vietnam in these cases.
         There should be some clarifications for these cases.


4.   Value Added Tax
Tax position paper                                                             Vietnam Business Forum, 2010



    -    Current VAT Circular 129/2008/TT-BTC defines that services can be treated as export if they
         are provided directly to a foreign organization which has no P/E and is not a VAT taxpayer in
         Vietnam.
    -    There is no further guidance on whether the Vietnamese service provider has to obtain any
         documents from the foreign organization to evidence that it has no P/E and it is not a VAT
         taxpayer in Vietnam. Thus the Vietnamese company faces the risk of being challenged by tax
         authorities for such evidence, and if none is available, the risk of being denied 0% for the
         services.

				
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