Tax Watch Update

Issue 5
June 2011




Introduction 2

Corporate Income Tax (CIT) 2

Double Tax Agreement 3

Invoice 3

Value Added Tax (VAT) 4

Tax reform for the period from 2011 to 2020 4

Import Export duty and Customs 6

Abbreviations 7











June 2011 Tax Watch Update Page 2


Introduction
In this issue we update guidelines on Corporate Income Tax, Double Tax Agreement, Invoices, Value Added
Tax, Tax reform strategy for the period from 2011 to 2020, as well as regulations on Import - Export Duty and
Customs in Vietnam for your reference. As usual, we would be happy to address any queries that you may
have after you have had the opportunity to consider the impacts and/or opportunities these changes may
have on your business.
Corporate Income Tax (CIT)
Circular providing guideline on deferring payment of 2011 CIT
On 22 April 2011 the MoF issued Circular No. 52/2011/TT-BTC providing guideline for implementation of the
Decision No. 21/2011/QD-TTg dated 6 April 2011 of the Prime Minister regarding deferral of CIT payment for
small and medium-sized enterprises.
As updated in our previous Issue, pursuant to the Decision No. 21/2011/QD-TTg, small and medium-sized
enterprises are permitted to defer payment of 2011 CIT for 1 year from the statutory deadline for 2011 CIT
payment covering both quarterly provisional payment and year-end finalization payment.
Circular 52/2011/TT-BTC provides detailed guidance on the criteria of the small and medium-sized
enterprises, method of calclulation of the deferred CIT, the extended period for tax payment, and procedures
for tax payment deferral.
This Circular takes effect from 06 June 2011.
Fund for Science and Technology Development
In accordance with the 2006 Law on Technology Transfer and the Regulation on Organization and Operation
of Science and Technology Development Fund (the Fund) dated 16 May 2007 of the Minister of Finance,
enterprises are allowed to use a part of their annual before-tax profit to set up the Fund. However,
establishment of the Fund shall only be implemeted from 1 January 2009 in accordance with the provisions
of the Law on CIT No.14/2008/QH12 dated 03 June 2008 because before 1 Januarry 2009 the competent
authorities did not issue any regulation on the specific amount to be deducted from the before-tax profit
therefore enterprises have no basis to set up the Fund for the period before 1 January 2009.
[Pursuant to Official Letter No. 1346/TCT-CS dated 20 April 2011 of the GDT]
Accounting for income being the fines for breach of contract
Pursuant to Official letter No.1355/TCT-CS dated 21 April 2011 of the GDT, enterprises are not required to
issue invoice for income being the fines for breach of contract since this is not income from sale of goods or
provision of service. In addition, enterprises shall not record the income from fines for breach of contract as
June 2011 Tax Watch Update Page 3
revenue, but shall decrease the contruction investment capital if the fines relate to the investment process
/construction of factories.
CIT incentives
Pursuant to Official Letter No.1333/TCT-CS dated 20 April 2011 of the GDT, where a joint-venture enterprise
established under the Law on Foreign Investment, and entitled to certain tax incentives, is afterwards
converted into a limited liability company with 100% domestic capital, then this limited liability company shall
not be entitled to the incentives for remaing period because the company does not meet the condition of
being a joint-venture enterprise with foreign invested capital as per the original licence.
Double Taxation Agreement (DTA)
Application of DTA between Vietnam and Singapore (the Agreement)
Where a company being a resident of Singapore, transfers its capital in a joint-stock company in Vietnam to
another company in Singapore, then the income from this capital transfer will only be subject to Singaporean
tax and shall not be subject to Vietnamese CIT according to Clause 4, Article 13 of the Agreement, because
this is not the case of transfer of immovables, movables and ships.
[Pursuant to Official Letter No. 1308/TCT-HTQT dated 18 April 2011 of the GDT].
Invoices
Treatment of invoices issued in 2010 and backwards
On 22 April 2011, the GDT issued Official Letter No. 1373/TCT-TVQT providing guidance on treatment of
invoices issued by the MoF (MoF invoices) and self- printed invoices by organizations/individuals in 2010
and backwards as follows:
! From 01 April 2011, all types of invoices issued by the MoF shall become invalid.
! For the MoF invoices remaining in organisations and individuals doing business after 31 March 2011
(which were already declared in the Form BK01AC, Part II): these organisations and individuals shall
cancel the invoices and report result of invoice cancellation to the tax authorities. With respect to the
invoices declared in Part I of the Form BK01AC, the Tax authorities shall get back for the cancellation.
! For the self-printed invoices of business organisations and individuals printed in 2010 and backwards:
After 31 March 2011, business organisations and individuals shall cancel if there is no need to use, or
make announcement on invoice issuance if they continue to use the invoices.
! Business organisations and individuals are not allowed to make announcement on issuance for the
remaining self-printed invoices which, as of 31 March 2011, have not been declared in the Form BK01AC.
In adition, according to the Official Letter No. 1464/TCT-CS dated 28 April 2011, in case a business entity
has large amount of self-printed invoices and did not use up until 31 March 2011, if the invoices have all
required contents such as name of the invoice, ordinal number etc., and in the period between 31 March
31 May 2011 the business entity has sent a letter to the tax authorities requesting for permission to continuse
to use the invoices, the tax authorities shall instruct the business entity to issue the invoices based on the
guidelines provided in the Official Letters No. 15364/BTC-TCT and 17716/BTC-TCT.
Sales of invoices to Foreign Contractors and Project Management Units
Pursuant to Official Letter No. 1464/TCT-CS dated 28 April 2011 of the GDT, Foreign contractors and Project
management units are not business entities, but organisations, therefore they are allowed to purchase
invoices from the tax authorities.

June 2011 Tax Watch Update Page 4
Value Added Tax (VAT)
Input VAT of goods used for internal consumption
Under the prevailing regulations, enterprises must prepare VAT invoices for the goods used for internal
consumption and calculate VAT as invoices issued for goods sold to customers. In accordance with Official
Letter No. 3722/TCT-CS dated 24 September 2010 of the GDT, if the goods are used for business activities,
the enterprises can deduct the input VAT of the invoice issued for these internally consumed goods.
VAT regarding the processing goods for exports
Pursuant to Official Letter No. 1215/TCT-CS dated 08 April 2011 of the GDT, in case a Vietnamese company
signs a garment export processing contract with a foreign company, and under the processing contract, the
foreign company assigns the Vietnamese company to buy raw materials for processing, and the foreign
company shall pay the Vietnamese company for the raw materials, then the cost of raw materials will be
expense of the Vietnamese company, the Vietnamese company shall be entitled to declare input VAT of the
raw materials. Revenue of export processing including processing price and raw material cost shall be
subject to the VAT rate of 0% if the following requirements are satisfied:
! There is a processing contract for exported goods ;
! There is a document evidencing payment for exported goods is made via bank;
! There is a customs declaration for the exported goods.
VAT refund for contractors carrying out ODA projects
Official Letter No. 1360/TCT-CS dated 21 April 2011 of the GDT reconfirms that for ODA concessional loan
projects which are fully funded by the State Budget, or ODA projects which are partly funded, partly re-lent
by the State Budget, and were approved before 29 May 2001, the main contractor implementing the projects
is entitled to VAT refund of the input VAT of the goods, services purchased for implementation of the projects
if there is a confirmation from the project owner that (i) the project owner is not provided counter-fund by the
State Budget to pay the contractor with VAT-included price, and (ii) the payment price per the tender result is
VAT- excluded price and the project owner requests tax authorities to refund the tax to the main contractor.
Tax reform for the period from 2011 to 2020
Strategy for tax reform from 2011 - 2020
On 17 May 2011, the Prime Minister issued Decision No. 732/QD-TTg approving the strategy for the tax
system reform for the period from 2011 to 2020. The main content of the tax policy reform during this period
is summarized as follows:
1. Value Added Tax
! Reduction of the number of groups of goods, services not subject to VAT;
! Reduction of the number of groups of goods, services subject to VAT rate of 5%;
! Until 2020, there will be only one VAT rate (not including the rate of 0%);
! Improvement of methods of tax calculation;
! Application of the revenue threshold which is subject to VAT declaration.
2. Corporation Income Tax
! Decrease adjustment of the common tax rate according to the suitable roadmap;
! Simplification of tax incentive policy according to which number of sectors subject to the incentives
shall be narrowed; investment in the following industries will be encouraged: production of products
with high added value, supporting industries, industries using high-tech, bio-technology, high-quality
services, socialized sectors, areas of difficult and highly difficult economic-social conditions;
! Additional regulations on deductible and non-deductible expenses for the purpose of income tax
determination;
June 2011 Tax Watch Update Page 5
! Additional regulations on new economic activities such as: multi-level sales; e-commerce; economic
groups; thin capitalization phenomenon when determining expense, especially interest expense;
transfer or re-evaluation of assets when restructuring enterprises; pre-agreement on the price of
related companies.
3. Personal Income Tax
! Expansion of the tax base and clear definition of taxable income;
! Simplification of the tax calculation method for each type of income in accordance with international
practice;
! Adjustment of number of tax rates taking into account the taxable income and tax payers;
! Unification of the tax rate for income of the same activity type to ensure the fair tax obligations
between natural persons and legal entities;
! Adjustment of the tax rates to be reasonable.
4. Special Consumption Tax
! Adjustment and addition of objects subject to tax;
! Development of roadmap for adjustment of taxes for products such as tobacco, beer, wine, cars etc. to
regulate consumption and implement international commitments;
! Additional regulations on taxable price for certain cases: cooperation, allocation in the global
production chain among countries, ensure equality between domestically produced goods and
services and imported goods and services;
! Research on application of combination of prorated tax rates and flat tax rates for some taxable goods
and services.
5. Import Export Duties
! Amendment and supplement of export duties to encourage manufacturing and exporting of high added
value products, limiting export of unprocessed minerals and natural resources, reducing processing
goods of low- added- value;
! Amendment and supplement of the import duties for reasonable and termed protection of some kinds
of domestically produced goods, in line with international practice;
! Cutting down number of tax rates, simplification of the tariff and codes of goods;
! Amendment of the regulations on tax calculation method;
! Implementation of roadmap of adjustment of import - export duties according to international
commitments to which Vietnam is a party.
6. Natural Resource Tax
! Amendment of the tax in order to manage, protect and promote the effective use of national resources,
especially non-renewable resources; promote resource exploitation associated with deep processing
and to minimize export of unprocessed natural resources;
! Amendment and supplement of the regulations on taxable price, tax rates and implementation of
revenue management methods to suit the practical exploitation activities of resources in each period of
time.
7. Environmental Protection Tax
! Implementation of the Law on environmental protection tax with effect from 01 January 2012;
! Research and supplement objects subject to tax collection, adjust the levy rates in order to limit the
use of goods causing adverse impacts on ecological environment.
8. Levy from exploration and exploitation of natural resources
! Issuance of new policies or amendment and supplement of the prevailing policy of budget collection
related to the exploration, exploitation and use of resources to match the amendment and
supplementation of the Law on Petroleum, the Law on Water Resource Exploration, Law on Minerals,
Law on Forest Protection and Development etc.
June 2011 Tax Watch Update Page 6
9. Fees
! Issuance of a new Law on fees to replace the current Ordinance on fees;
! Convert business license tax into annual business management fee.
Import Export duty and Regulations on Customs
Invoices for on-the-spot export
Before 01 January 2011, enterprises engaged in processing activities for on-the-spot export according to the
commercial regulations on international goods trading activities and agent activities relating to goods
processing, selling, purchasing with foreign countries must use VAT invoices for on-the-spot export goods,
specify name of the foreign purchaser, name of goods receiver and the location of goods delivery in Vietnam.
From 01 January 2011, enterprises engaged in on-the-spot export activities can register with competent
authority for use of VAT invoices or on-the-spot export invoices.
[Pursuant to Official Letter No. 6282/BTC-TCT dated 16 May 2011 of the MoF].
Problem related to imported raw materials used for processing contract
Under the prevailing regulations, in order to be entitled to refund of import duty a business entity must
register that it imports materials for production of goods for export or at least import for trading. If the
business entity registers to import raw materials under other forms, the it would not be entitled to duty refund.
Under an Official Letter No. 2149/TCHQ-TXNK dated 12 May 2011 of the General Department of Customs,
where an entity engaging in activity of processing for export and imported raw materials under the form of
import for investment and paid import duty but later on used such imported materials for processing contract
for export as designated by the principal, this entity will not be entitled for refund of the import duties paid for
the material imported under the form of import for investment.
Procedure for transfer of raw materials in case of merger
According to Official letter No. 1613/TCHQ-TXNK dated 18 April 2011 of the General Custom Department,
upon mergering, the merged entity cannot apply the on-the-spot export statute in respect of raw material
which was imported for production of goods for export and is transferred to the merging entity. After merging,
the merging entity can continue to use the transferred materials with the primary import purpose. Business
entity can only change the use of the imported materials with the primary form of import to domestic
consumption as regulated in Article 35.5 of the Circular 194/2010/TT-BTC.
Tighten import procedures for cars
Recently, the Ministry of Industry and Trade ("MoIT") issued Circular No. 20/2011/TT-BCT and Notification
No.197/TB-BCT imposing stricter procedures for importation of under 9-seat automobile, alcohol, cosmetics
and mobile phones. These procedures could be considered as barrier for the importation of 'luxury'
consumer goods which were included in the list of goods which are not encouraged for import under the
Decision No.1380/QD-BCT dated 25/03/2011 of MoIT.


June 2011 Tax Watch Update Page 7
Abbreviations

CIT Corporate Income Tax
DTA Double Tax Agreement
EPE Export Processing
Enterprise
FC Foreign Contractor
FCT Foreign Contractor Tax
FIE Foreign Invested
Enterprises
GDT General Department of
Taxation
GDC General Department of
Customs





























MoC Ministry of Construction
MoF Ministry of Finance
MoIT Ministry of Industry and
Trade
MoLISA Ministry of Labour,
Invalids and Social
Affairs
OL Official Letter


PIT Personal Income Tax
SBV State Bank of
Vietnam
SI Social Insurance
SSC State Securities
Commission
SST Special Sales Tax
VAT Value Added Tax
VAS Vietnamese
Accounting System



June 2011 Tax Watch Update Page 8
































































































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