Monthly Newsletter August, 2019

Tax incentives for expanding projects of producing supporting industrial products

On March 18, 2019, the General Department of Taxation issued the Official Letter no. 896/TCT-CS guiding the application of tax incentives for expanding projects of producing supporting industrial products, whereby,

Based on the tax incentive regulations regarding the transitionally incentivized cases, there is no regulation regarding transitionally incentivized cases for projects carried out before January 1, 2015 under the new scope of incentive supplemented in the Law no. 71/2014/QH13, tax exemption for incomes from agricultural products processing at places where the investment is incentivized; the incentives are applied to projects of producing supporting industrial products, projects with a minimum investment of 12,000 billion Vietnamese dong, incomes of processing, planting and husbandry enterprises out of areas where the investment is incentivized.

Therefore, expanded investment projects carried out at industrial zones during the period 2009-2013 are not considered as transitionally incentivized under production conditions for supporting industrial products for the remaining period.

Withholding tax applied to royalties

On March 18, 2019, the General Department of Taxation issued the Official Letter no. 903/TCT-CS guiding the withholding tax applied to royalties, whereby, please note that:

The Circular no. 103/2014/TT-BTC is not applied to foreign franchisors If their incomes are generated in foreign countries.

The Circular no. 103/2014/TT-BTC is applied to foreign franchisors If their incomes are generated in Vietnam.

For the determination of tax obligation, the tax authorities shall accurately check contracts, documents, vouchers, and accounting books during their inspections for determining the origin of incomes.

Note for enterprises accounting in foreign currencies carrying forward of losses when calculating corporate income tax

On March 25, 2019, the General Department of Taxation issued the Official Letter no. 999/TCT-CS guiding carrying forward of losses when calculating corporate income tax for enterprises accounting in foreign currencies.

The enterprise is whereby allowed to use foreign currencies in accounting currency which are converted into Vietnamese dong when tax declaration dossiers are submitted to the tax agencies. Upon the company carries forward of losses as prescribed, the carried-forward losses shall be in Vietnamese dong, which was declared in the submitted corporate income tax finalization dossiers of the previous year.

Instruction for issuing Certificates of Science and Technology Enterprises

On April 16, 2019, the Ministry of Science and Technology issued the Official Letter no. 1048/BKHCN-PTTTDN guiding the procedures and conditions for issuing the Certificates of science and technology (S&T) enterprises under the Decree no. 13/2019/ND-CP.

The clients whereby note that conditions for certifying S&T enterprises consist of:

 a. Being established and operated under the Law on Enterprises.

 b. Being capable of creating or applying S&T results which are evaluated, appraised and recognized by competent authorities as prescribed in Clause 2, Article 7 of the Decree no. 13/2019/ND-CP.

The enterprises cover one of the two cases:

• Being capable of creating S&T results which are evaluated, appraised and recognized by competent authorities as prescribed.
• Being capable of applying S&T results which are evaluated, appraised and recognized by competent authorities as prescribed.

 c. Meeting the revenue rate conditions:

• For enterprises established for 5 years or more: The revenue from product manufacturing and trading created from S&T results has to reach the minimum rate of 30% of the total.
• For enterprises established for less than 5 years: the revenue rate conditions are not required.

Technology Transfer Pricing between Associates

On 13 June 2019, the Government issued the Decree No. 51/2019 / ND-CP prescribing administrative fines for violations arising from technology transfer, effective from August 1, 2019. In which activities Technology transfer is regulated in technology transfer law No. 07/2017 / QH14 June 19, 2017.

In Clause 3, Article 27, the Law on Technology Transfer, the price of transferred technology must be audited and applied in accordance with regulations of the Law on taxation and prices in the following cases:　

a) Technology is transferred between the parties among which one or both parties have state funding;　

b) Technology is transferred between the parties having parent company-subsidiary company relationship;　

c) Technology is transferred between the parties having association relationship as prescribed by the law on taxation.　

In Clause 3, Article 22, Decree No. 51/2019 / ND-CP dated June 13, 2019, prescribing administrative fines for violations arising from technology transfer ranging from VND 30,000,000 to VND 40,000,000 for one of the following violations:　

a) Failing to carry out the valuation based on technology valuation counsels when transferring technology between parties, one or several of whom hold state capital;　

b) Failing to audit prices in the form of appraisal of the transferred technology when transferring it between parties whose relationship exists in the model of parent company and subsidiary upon the request of the tax authority;　

c) Failing to audit prices in the form of appraisal of the transferred technology when transferring it between parties engaged in transfer pricing under law on taxes upon the tax authority’s request.

Accordingly, it can be understood that the tax administration authority has the right to request evidence for the evaluation of technology transfer prices. In case the taxpayer fails to provide it, a fine of between VND 30,000,000 and VND 40,000,000 shall be imposed on individuals and In case of imposition of a fine, authority to impose a fine on an organization shall be 02 times as much as the authority to impose a fine on an individual. Thus, any taxpayer in Vietnam who participates in technology transfer agreements and pays or receives royalties should prepare a record for determining the transaction at the price of the royalty fee for the purpose of declaring associated transactions in accordance with the provisions of Decree 20/2017 / ND-CP February 24, 2017.

Import tax exemption

On June 25th 2019, the General Department of Vietnam Customs issued the Dispatch No. 4138/TCHQ-TXNK guiding import tax exemptions on raw materials and supplies imported for processing and manufacturing on-spot exports.

Accordingly, an enterprise is entitled to an import tax exemption on raw materials and supplies imported from a foreign business for processing or manufacturing exports, which will then be delivered to another enterprise in Vietnam as directed by such foreign business (in the form of on-spot export).

This Dispatch supersedes Paragraph 2 of the Dispatch No. 5826/TCHQ-TXNK dated October 5th 2018 by the General Department of Vietnam Customs.