Highlighting recent tax and customs developments in Vietnam
Key Policies in Vietnam Regarding Foreign Investments
The State Inspector has announced an inspection program for 2025 under ruling no. 2220/TTCP-KHTH, dated October 23, 2024. The Vietnamese government aims to set a milestone for economic growth in 2025, with high expectations and significant efforts. This inspection program is anticipated to play a crucial role in evaluating the current economic landscape, emphasising a comprehensive inspection strategy. Notably, the State Inspector has outlined directives for the Ministry of Planning and Investment (MPI), the General Department of Taxation (“GDT“), and the General Department of Customs (“GDC“) to implement a thorough inspection program that impacts foreign investments, particularly in licensing, mergers and acquisitions (“M&A“), and tax incentives for foreign-invested enterprises.
GDT’s inspection program will focus on several key areas, including:
- enterprises involved in capital transfers, investment project transfers, and brand/license transfers;
- enterprises with intra-group transactions and suspected transfer pricing issues, particularly those reporting losses or low profits over several years;
- enterprises suspected of invoicing irregularities;
- enterprises claiming value-added tax (“VAT“) refunds; and
- enterprises benefiting from tax incentives.
GDC’s inspection will encompass issues related to Harmonised System (HS) codes, Certificates of Origin (CO), customs valuation, and import policies. This program will include:
- enterprises importing for processing for export;
- export processing enterprises (EPE);
- enterprises importing for foreign investment projects; and
- enterprises with duty-free imports.
The State Inspector plays a vital and influential role within the government. In practice, the decisions made by inspectors can overturn those of the ministries, GDT, and GDC, often with negative consequences for enterprises, including foreign-invested ones, regarding licensing, M&A activities, tax incentives, and VAT refunds. As a result, several foreign-invested enterprises have faced issues such as revocation of tax incentives, the need to repay VAT refunds, license withdrawals, and substantial penalties, raising concerns among foreign investors.
Personal Income Tax (“PIT”) Policy on Shares Owned by Individuals
According to ruling no. 3904/CTBTR-TTHT issued on 24 October 2024, by a local tax authority, individuals are subject to PIT on:
- income derived from investments, including dividends and capital gains on shares; and
- gains (or deemed gains) from the transfer of shares.
A PIT rate of 5% is applied to investment income, while a rate of 0.1% is applied to share transfers at joint stock companies. Joint stock companies involved in share transfers by individual shareholders are responsible for declaring and withholding taxes for submission to local tax authorities.
The obligations for declaring and paying PIT on investment income are deferred until an individual shareholder transfers shares. Thus, joint stock companies must only declare and withhold PIT on both investment income and gains from share transfers at the time of the share transfer.
Foreign Contract Tax (“FCT”) Policy on the Transfer of Account Receivables to Foreign Entities Outside Vietnam
GDT issued ruling no. 4909/TCT-CS on 30 October 2024, providing guidance on FCT policy regarding the transfer of accounts receivable (“AR“) to foreign entities outside Vietnam. The transfer of AR by Vietnamese enterprises, along with the transfer of collection obligations without recourse to foreign entities, is exempt from FCT, as this transfer is not considered income sourced from Vietnam by foreign entities.
In practice, many local tax authorities have taken a conservative approach to interpreting FCT laws applicable to overseas transactions, often requiring tax declarations for such transactions. This ruling clarifies that FCT exemptions apply as long as there are no payments made to overseas entities.
If you have any queries on the above, please feel free to contact Nguyen Hung Du, Partner, Tax at du.nguyen@rajahtannlct.com or any of our team members set out on this page.
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