Important Vietnamese Tax Changes

In January and February 2009, the Vietnamese Government announced, through the Ministry of Finance (MOF), a number of plans for tax reductions and deferral of tax payments, the details of which have been included in the recently issued Deloitte Tax Alerts. These changes affect Corporate Income Tax (CIT) and Value Added Tax (VAT). These measures are aimed at stimulating the Vietnamese economy.

A further major stimulus was released today affecting Personal Income Tax (PIT).

PIT Changes

Today, the MOF issued Circular 27/2009/TT-BTC, which provides that an employer is not required to withhold PIT from employees’ salaries and wages for the first five months of 2009.


The National Assembly will meet in May 2009. At that time, the National Assembly may decide whether the PIT not withheld from employees’ January through May 2009 salaries will be permanently forgiven, or be payable to the General Department of Taxation and, if so, under what terms.


In our view, the incentive granted in today’s Circular 27 clearly benefits those employees who are remunerated on a “gross of tax” basis. These employees’ cash flow should increase for the PIT that would normally have been withheld for the first five months of 2009. Furthermore, any PIT already withheld from 2009 salaries should be returned to employees.


For employees whose labor contracts are based on “net of tax” compensation, it is unclear how these tax savings will be realized by them and, effectively, it appears the tax benefit is earned by the employer.


The Vietnamese version of Circular 27/2009/TT-BTC is attached for your reference.


CIT and VAT Changes


A brief summary of the recently announced CIT and VAT key changes are:

* Small and Medium Vietnamese Enterprises (SMEs) have had their CIT rate reduced by 30% for the 4th quarter 2008 (to 19.6%), and for the 2009 tax year (to 17.5%);


* The 2009 CIT liabilities otherwise payable on a quarterly basis may each be deferred for payment by 9 months with no late payment or penalty interest accruing. Thus, the 1st quarter 2009 provisional payment due on 30 April 2009 may be deferred, without penalty or interest, until 31 January 2010; and



* The VAT rate has been reduced by 50% for goods and services provided by enterprises in certain industries, including tourism, automobile sales, domestic transportation and certain engineering works. For example, the standard VAT rate of 10%, for a hotel business, has been reduced to 5% output VAT with effect from 1 February through 31 December 2009.


In addition, some proposed regulations of PIT (yet to be approved) that may be of interest are as follows:

* Tax Treatment on Fringe Benefits : Under the new regulations, certain fringe benefits provided to which were previously not subject to tax (i.e. employees’ children school fees, home leave, relocation costs) and benefits previously taxed at a concession rate (i.e. domestic rents) will become taxable in full with effect from 1 January 2009. The impact of this, in some cases, resulted in more than 20% increased in tax cost.



In mid-January, the General Department of Taxation (“GDT”) drafted a circular to the MOF seeking to reinstate the previous tax treatment on fringe benefits, i.e. school fees, home leave and relocation costs will not be taxed. Based on the wordings of the draft circular, it appears that the tax exemption on fringe benefits is only applicable to foreign tax resident only. If this draft is approved and issued by the MOF, this will reduce the tax liability of foreign tax residents, i.e. expatriates substantially. In the draft circular, housing remains to be taxable in full.



It is yet to see if this draft will be approved by the MOF.



* Tax Treatment of Salaries and Bonus Relating to 2008, but Paid in 2009: Earlier this month, the GDT issued a Public Ruling dated 31 December 2008 which state that for “salary and bonuses and other benefits” that relates to the 2008 but was paid in 2009, the employer must calculate PIT based on the 2008 tax rates and not the 2009 tax rates. Resulting from this, many employers are required to recalculate the PIT payable in respect of salary and bonuses relating to 2008 but paid in 2009.



In the draft circular mentioned above, it was proposed that “salary and bonuses” paid by employers in 2009 be taxed at the 2009 PIT rates. It appears that there is no requirement to apply the 2008 tax rates even if the salary or bonus payments relates to 2008.



The draft is pending approval by the MOF.



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Source: Deloitte Vietnam