Jul 26, 2019

Vietnam’s National Assembly in June approved a new Law on Tax Administration 38/2019/QH14. The new law will take effect from July 2020. As with most new laws, the authorities are expected to provide additional circulars and decrees on details and guidance on the changes.

We highlight some major points of the new law.

Tax authorities have been allowed additional power to collect tax, particularly in instances where companies or individuals attempt to evade tax. This includes instances where companies fail to abide by transfer pricing requirements and transactions where entities intentionally attempt to avoid tax.

Vietnamese tax authorities will also increase cooperation with international jurisdictions through information exchange and technical knowledge. This is in line with several countries such as India to ensure that tax evaders don’t use safe havens, but are tracked.

In addition, transfer pricing will be required to be filed as a separate return rather than part of the corporate income tax return.

Personal income tax (PIT) return deadlines have been extended to 120 days from the current 90 days of the calendar year end.

The new rules allow corrected returns to be filed if mistakes are found for up to 10 years. However, this must be done before any audit by the tax authorities.

Tax registration certificates will be issued in three days; currently, this process takes 10 days.

Entities that want to appeal a decision are required to pay the full tax amount as well as any penalties and late payment interest. However, if the entity wins the appeal it can request the tax authorities to pay an interest of 0.03 percent per day on the refunded amount.

Business organizations will be allowed to submit additional tax declaration documents after the tax authorities have announced an audit or inspection decision.

The draft law has also introduced two types of audit – a tax inspection and tax examination. A tax inspection is longer and focusses on a specific issue. A tax examination is shorter but covers wider issues or anomalies. The tax examination period has also been increased from five to 10 days.

Individuals will be able to use the citizenship code once it has been implemented for the entire country. At present, individuals are required to have a tax code and an identity card number for filing taxes

Of particular importance is for foreigners who are legal representatives of an entity in Vietnam.  If their employer has not paid due taxes, they may be stopped from leaving Vietnam. This includes Vietnamese nationals as well.

E-commerce, E-tax and E-invoices

Rules related to e-commerce activities will be implemented in July 2022. Regulations on e-commerce activities still require clarification in the present state however, some notable highlights:

  • Commercial banks will be required to withhold and pay taxes on behalf of e-commerce companies that may do business abroad but earn income from Vietnam.
  • E-commerce companies that do business on digital platforms without a permanent establishment in Vietnam will be required to register for tax in Vietnam or authorize another entity to do so.

While still unclear how this will be done, it will be interesting to see how online shopping sites conform to this rule, including suppliers or small business owners who sell on platforms such as facebook, or other online platforms such as Lazada or tiki

In addition, this also affects non-resident businesses that sell goods and services into Vietnam via online platforms.

Further details on e-invoices and e-commerce activities can be found in Decree 119/2018/ND-CP.

The upcoming law on tax administration shows that Vietnam wants to close loopholes related to tax evasion. The separate section on e-commerce activity and its implementation also shows that Vietnam is serious about recouping taxes from e-commerce activity. However, the tax authorities will find it challenging to implement given the aforementioned changes.

Still, while the tax authorities have been granted additional powers, it has also made it easier for entities to file taxes. Investors in or planning to enter Vietnam should keep a track of these developments in the run-up to its implementation in July 2020.

This article has been published by our media partner Dezan Shira & Associates (www.dezshira.com)