Taxation of foreign investors and contractors basics, case studies and suggestions for best practice solutions

1. Lawyer in Vietnam Oliver Massmann
Taxation of Foreign Investors and Contractors Basics, Case Studies
and Suggestions for best practice Solutions
On behalf of the Investor Group, we would like to express our gratitude about the recent reform
and amendment of the tax policy by the Government. This represents for the comprehension and
responsiveness of the Government to legitimate proposals of enterprise community which are
raised via dialogues hosted by Investor Group, aligning the Vietnam tax policy with international
practice.
Among the issues raised by the Investor Group and approved by Government, Vietnamese
enterprise communityhighly appreciated and applauded the changes on the followings:
(1) Foreign contractor tax policy applied for supply transaction in Vietnam accompanied
with warranty term
(2) The phasing out of the cap on advertisement and promotion (A&P) expense.
(3) The reform and simplification of tax administration procedures which are presented by
the elimination of CIT quarterly declaration and the broadening of companies subject to
quarterly VAT filling instead of monthly filling.
In this document, through the dialogue channel of Investor Group, we would like to raise some
tax issuesfrom the perspective of international practice in commercial transactions and incentives
for expansion investment which are much concerned by Vietnamese enterprise community in
general and by foreign investment enterprises in particular:
I. ISSUES ON REFORM OF ADMINISTRATION PROCEDURES IN THE FIELD
OF TAX AND CUSTOMS
1. Declaring norm of material used for export processing and export production
Issue: Pursuant to current regulation on customs, enterprises have to set up actual production
norm of exported products and notify the norm to customs authority before or at the time of
filling customs declaration of the first product lot of the HS code declared in the notification.
Shortcomings: The norm is set up, monitored by enterprise, even in the case the norm changes,
enterprises are eligible to notify the change of the registered norm. As such, the notification of
the norm to customs authority before or at the time of fitting customs clearance is not necessary.
To ensure the control of the customs authority toward the production norm, it is necessary for
enterprise to keep the norm at their premise and present to authority when requested.
Proposal: We would propose to the Ministry of Finance to remove the requirement of enterprises
to register the production norm to custom authority. Enterprises shall set up and monitor the
norm by themselves and present to authority when requested.
2. Tax payment deadline for imported material used for export production
Issue: Pursuant to the current regulations, imported material used for export production are
entitled for grace period of 275 days if satisfying specific conditions. If the products are exported

2. after 275 days, enterprises have to pay VAT and import duty for the imported material plus
penalty.
Shortcomings: The above regulation has caused difficulties for many enterprises who produce
high value exported products (such as ship) since after 275 days the products cannot be finished
and exported, meanwhile enterprises have to pay a large amount of VAT and customs duty for
the imported material. This could affect cash flow of the enterprises significantly and also
increase the administration procedure as when the products are exported, the paid VAT and
customs duty are refunded.
On the other hand, some enterprises having in stock redundant material which are not sold
domestically and over 275 days. When carrying on inspection, customs authority imposes tax
duty on the materials, forces enterprises to pay imposed VAT and customs duty on this
redundant material and late payment interest. This is illogical as the redundant material is still
used for the purpose of producing exported products.
Proposal:To simplify administration procedures, we would propose to the Ministry of Finance to
eliminate the regulations of 275 days deadline applied for imported material used for producing
exported products. This kind of material only should be taxed when material or products are sold
inland.
3. VAT declaration for the activity of peripheral provincial construction
Issue: Circular 156/2013/TT-BTC dated 6 November 2013 provides that: Where the taxpayer
engages in peripheral provincial construction, installation, or sale, or real estate transfer without
establishing an affiliate in that province (hereinafter referred to as peripheral provincial
business), the taxpayer must submit a tax declaration to the tax authority of the locality where the
peripheral provincial business takes place.
Shortcomings: The provision needs being reconsidered because of the following reasons:
- In many cases, enterprises having construction or installation with small value in the
province, but under this provision, they have to file and pay tax at that province. The payable tax
amount is very small but enterprises have to carry out procedures to register tax code at that
province, suffering unnecessary administration procedures.
- For the peripheral provincial sale, there are no clear regulations to identify which case
taxpayer has to pay tax in local province and which case company has to pay tax for the whole
revenue of the company. In practice, it is hard for the tax authority to manage those activities; as
such the feasibility of the tax management is low.
- In many case, due to the lack of knowledge, taxpayers does pay all tax at headquarter, but
the tax authority still request them to pay tax at local province regardless of the payment status.
This cause the double tax payments and is burdensome to taxpayers
- In nature, this is the allocation of revenue amongst local budgets and is derived from the
principle that VAT must be declared and paid at location where business takes place. However,
this provision has been causing burden of administration procedure to taxpayers.

3. Proposal: From above situation, we would like to propose to the Ministry of Finance to
reconsider the regulations toward a more realistic approach, specifically:
- To eliminate the regulations of local tax declaration for the peripheral provincial
construction, installation, or sale
- To keep the regulation of requiring the tax payer to temporary declare and pay VAT at
the local tax authority for local infrastructure construction works but limit to contracts,
transactions with the value over one billion Vietnam Dong.
II. ISSUES ON TAX POLICY
1. Foreign contractor tax policy applied to sale of goods into Vietnam
Issues: Circular No. 103/20U/TT-BTC dated 6 August, 20U (Circular 103) regarding FCT has
expanded the subjects bearing tax which include cases of foreign company distributing goods in
Vietnam. Specifically, Circular 103 set out the applicable subjects of this Circular include: "Any
foreign entity that performs the whole or part of goods distribution or service provision in
Vietnam, who is still the owner of goods that are delivered to Vietnamese organizations or take
responsibility for the cost of distribution, advertising, marketing, quality of goods/services
delivered to Vietnamese organizations, or impose prices including the cases in which the foreign
entity authorities or hires some Vietnamese organization to perform part of the distribution or
service provision pertaining to goods sale in Vietnam."
Shortcomings: This provision should be reconsidered due to the following drawbacks:
■ It is clearly that the scope of above provision is quite enormous, and applicable to many
cases selling goods from overseas into Vietnam including transactions with purely commercial
nature which, up to now, falling under the governed subjects of Law on import and export tax,
leading to more cost burdento Vietnams enterprises since consequently foreign contractor tax
will be added to prices borne by Vietnamese buyers.
■ In particular, with the current regulations, local tax authorities have full competence to
impose tax regarding goods distribution contracts when:
- Company A (seller) bears responsibility for quality of goods provided to Company B
{buyer}: The seller bearing responsibility for quality of goods provided to Vietnamese buyers is
a certain commercial condition. This transaction of goods trading cannot be carried out when the
seller does not undertake the responsibility for quality of goods. The Circular 103 recorded one
improvement in comparison with the previous regulations when confirming that the agreement
for purchase and sale of goods with delivery at Vietnamese border gate accompanying with the
warranty condition of the supplier will not bear the foreign contractor tax. However, the
provisions lead to confusion, misunderstanding and detriment to tax payers. In practice, the local
tax authorities are applying the provision in this Circular to impose tax on goods supplement
contract in which the supplier bearing the responsibility for quality of goods via warranty's term.
- Company A imposes selling price: The price is a fundamental component of the value
proposition of one enterprise in the market. At the present time, when the borders are blurred, the
markets are connected and integrated, the multi-national companies have to calculate a global

4. pricing strategy in order to maintain the competitiveness while still retaining the product's image
to the consumers. For this purpose, the foreign supplier shall have a certain control on pricing
policy in every market where they sell goods and prevent the unhealthy speculation among
markets and undermine the official distribution system. The implementation of pricing strategy -
an integral part of business strategy - cannot and should not turn the foreign suppliers into the
entities bearing foreign contractor tax.
- Company A authorizes or hires a Vietnamese organization to conduct part of a
distribution service, other services related to the sale of goods in Vietnam: The current regulation
is too general about what is authorizing or hiring a Vietnamese organization to conduct part of
service relating to the distribution and sale in Vietnam. With the current wording, the seller
offers free warranty through bartering, replacing goods or supplying parts for buyers in Vietnam
to provide warranty service to final consumer or implement the warranty obligation in
accordance with commitment could also be considered as conducting "services relating to the
sate of goods in Vietnam” and thus subject to the foreign contract withholding tax.
Proposal: Under the international practices, which are typically Agreements on avoiding double
taxation signed between Vietnam and regions, the distribution activity of foreign sellers,
depending on the model and level of participation in Vietnamese market, might create a
permanent establishment in Vietnam and might be taxed on the income allocated to such
permanent establishment. The Agreements are based on the principle if the business (sales) in
Vietnam is conducted through a broker, a commission agent or any other agent with independent
status provided that they shall only operate within the framework of their ordinary business
activities, then foreign contractor shall not be subject to tax.
Based on the above analysis, we propose to the Ministry of Finance to consider and clarify which
distribution activities shall be subject to foreign contractor withholding tax. In particular, we
would like to propose to Ministry of Finance to study and provide guidance base on the
description and regulation about permanent establishment under international practice and
standard as the UN and the OECD to identify whether the foreign contractor has permanent
establishment, thereby determining the tax liability of foreign contractors. With that opinion,
Circular 103 should be amended to exclude the condition when the seller bears responsibility for
quality of goods/services and/or imposes selling price from the conditions triggering FCT to
seller.
2. Applying the Foreign Contractor Tax policies for EPC contracts
Issues: Circular 103/2014/TT-BTC guiding on withholding tax prescribes the applicable tax rate
to calculate VAT, CIT on revenue for construction, installation work involving the supply of raw
materials or machinery and equipment associated with construction works under two
circumstances:
- In the contract, if the value of each business activities could be separated, the foreign
contractor is not required to pay VAT on the value of raw materials or machinery and equipment,
which has been paid at importation stage or is VAT exempted, for each part of work under the

5. contract, the ratio % shall be applicable for VAT and CIT calculation on corresponding revenue
for that business activity.
- If the value of each business activities could not be separated in the contract, the VAT
rate of 3% and CIT rate of 2% shall be applied on the whole contract value.
Meanwhile, Circular 60/2012/TT-BTC prescribes that regardless each business activities could
be separated in the contract, 3% VAT and 2% CIT shall be applied on the whole contract value.
The change is an important progress on contractor withholding tax policies, reflecting the
principles of taxing on each activity implemented by contractors. This improvement will help to
reduce significantly the cost to Project Owner as the proportion value of M&E in EPC contracts
is normally very high, often accounting up to about 70%-80% of the whole contract value.
However, the current provisions of Circular 103 only apply to contracts signed from the date 1sl
October 2014.
Shortcomings: In principle, withholding tax is declared and paid on each payment. For a number
of contracts, particularly EPC contracts, several payments could be made during contract
implementation period.
So if the above guidance of Circular 103 applies only to contracts entered into after the date of
1st October 2014, it shall be unfair for those contracts entered into prior to 1st October 2014 but
the payment made after 1st October 2014.
Proposal: We understand that Vietnam Government has encouragement and protection policy
toward investment of local and foreign enterprises in Vietnam. In particular, investors are
entitled for applying more favorable condition if the policy changes. As such, in order to create
favorable conditions for foreign contractors as well as to generate the equality among contractors
performing EPC contract in respect of the tax payment obligation in Vietnam, we kindly propose
Ministry of Finance to consider allowing the EPC contract which signed before the date of
01/10/014 but the payment done after the dated of 01/10/2014 have choice to apply tax policies
prescribed in Circular 103 for payment after 10/01/2014.
The principle of applying FCT policy base on date of contract is unchanged, however if the tax
policy changes in the way to offer more favor to taxpayers, taxpayers can apply the new policy at
the time of payment to declare and pay tax. We understand that this grandfather clause was
stated clearly in the previous change in FCT policy (Circular 60/2012) and was very welcomed
by enterprises.
3. Identifying expanded investment and regular investment
Issues: Pursuant to regulations on Corporate Income Tax and Investment Law, expanded
investment project is project developing on-going project in order to expand and improve the
production and capability of business, innovate technology, improve product quality, reduce
environmental pollution.
In practice, during the process of production and business activities, the enterprise must
constantly invest in fixed assets to replace, suplement assets to maintain productive activities
using internal cash flow generated from depreciation fund or retain earnings, without any

6. injection of capital from external sourced, i.e. loan or increase in contributed capital. However
the lack of clear guidance in determining point of time starting expanded investment has led to
arbitrategeous interpretations in practice. In particular:
Firstly, the tax authorities do not consider whether enterprises contribute more capital into
exiting project. FDI companies when submitting dosierfor establishment must register total
investment capital. This is considered as a measure of project scale. Total investment capital
includes chatter capital and mid-long term loan used for purchasing fixed assets and exclude
working capital. As such the figure in the Balance Sheet closely reflecting the capital
implementation of the enterprise is the value of fixed asset after accumulated depreciation as
opposed to registered capital. If this figure is less than the registered capital, it can not be said the
enterprise has expanded investment. However many tax authorities deem all assets newly
purchased from 2009 as expanded investment, or deem the excess of total historical value of
assets over the registered capital as expanded capital.
Secondly, tax authorities do not consider the cause and purpose of the increase in asset value and
treat the regular investment in fixed assets to replace, suplement assets to maintain current
productive activities as the same category as expanding investment, accordingly they deem that
when the enterprise has increased in asset value, it means enterprise carry on expanded
investment.
Shortcomings: The regular investment in fixed assets to replace, supplement assets to maintain
productive activities is inevitable activity of any enterprise. Capital to invest regularly
(replacement of property or buying office property for management activities, improving
working condition for employees) can be financed from the source of asset depreciation or retain
earnings without the need to increase capital investment. Thus it can not be considered the
regular investment in fixed assets to replace, supplement assets to maintain productive activities
as expanding investment, also expanded investment cannot be identified only based on indicator
of increase in fixed assets.
Proposal: Foreign investors when being awarded investment certificate alreadyregistered
investment capital. We understand that this is very important indicator for Government to
consider the incentive mechanism for investment projects. As such for the consistency between
Investment Law and Tax Law, we would propose to Government and Ministry of Finance to
provide more specific guidance to identify investment expansion for the period prior 2014 in the
way that would base on invested capital which includes charter capital and loan capital and is
measured by the value of fixed asset after accumulated depreciation on the Balance Sheet. In
case enterprises use internal cash flow generated from depreciation source to purchase assets, it
cannot be considered as expanding investment. In case enterprise used up all registered capital
but invest using retain earnings to purchase asset to maintain the manufacturing activities
without any increase in capital, capacity, scale of business, then the investment should not be
deemed as expanded investment and shall be able to applied corresponding tax policy in each
period.

7. 4. Tax incentive for regular investment in acquisition of fixed asset
Issues: Resolution 63 newly issued by the Government has brought much positive signal to
Vietnamese business community, solving lots of difficulties for businesses as well as for tax
authorities. Steering spirit of Resolution 63 is said that it is very common sense. However when
Resolution 63 is guided by Circular, it seems that common sense was undermined. Specially,
provisions on incentives for regular investment in purchasing property are as follows:
- Point 4, Section I, Resolution 63 specifies: "For businesses entitled to the preferential
business income tax of period 2009-2013 with their regular investment in machinery and
equipment during production and business, then they will be entitled to the preferential business
income tax for the additionally increased income (no re-settlement to cases which have been
implemented)”
According to the above we understand that the only exception of those cases have been tax
audited for the 2009-2013 period, the business which has investment of acquisition of fixed asset
during the 2009-2013 period, will be applied the current tax incentive of project.
- However, the circular 151/2014/TT-BTC provides that: "investment projects of
enterprises applied tax incentive and if in the 2009 - 2013 period, the enterprises had invested in
machinery and equipment regularly during production which not belongs to the new investment
project and new projects expansion, the part of the additional income by investing in additional
machinery and equipment, is also applied tax incentives under the project for the remaining time
from the tax period 2014 " •
Thus Circular limits the period of application for preferential tax period only from 2014.
Moreover, the guidance of this Circular seems to be illogical due to if the investment is not the
new investment project and new project expansion, such investment does not belong to the
current project which enjoy tax incentive or has tax obligation as current projects.
Shortcomings.-We understand that the guidance in Circular seems to be illogical because if the
investment does not belong to "new investment project and expansion project, such project must
belong to existing project, accordingly it is entitled for tax incentive or tax obligation as current
project. Therefore, if enterprise makes regular investment in the period of 2009-2013 which is
not new investment project and/or expanding investment project, such project will be applied tax
incentive of current project obviously. However, because of the inconsistent perception of the tax
authorities and the guidance in Circular as analyzed above, the regular investments are regarded
as expanding investment, and are not be applied tax incentive for the 2009-2013 period.
Proposal: We kindly propose that the Ministry of Finance should consider adopting guidelines on
tax incentives applied for the regular investment in the consistent spirit of both Resolution and
Decree in the way that: If the investment project of enterprise is currently enjoying tax incentives
and if in the 2009-2013 period, there is an investment in machinery and equipment during
operation which is not a new investment project and the expansion investment project, the

8. additional income from the investment in machinery and equipment is entitled for tax incentives
same as the current project for the remaining time.
5. Applying DTA to determining Permanent Establishment for tax reduction and tax
exemption
Issue: According to the guidance in Circular 205/2014/TT-BTC and some guidance petitions, tax
authorities tend to interpret broadly the Permanent Establishment (PE) definitions in tax treaties
to conclude that foreign companies have a PE in Vietnam, specifically for purely commercial
activities of foreign contractors such as on the spot imported/exported activity, commodity
distribution activity, sales activities delivered at the bonded warehouse and so on.
Shortcomings: The interpretation of tax authority sometimes does not take into account the
commercial nature of the transaction as well as international trading practices. Some cases are as
following:
- For on the spot import/export activity: tax authorities consider that a Vietnamese
enterprise deliver goods to another Vietnamese enterprise according to instruction of the foreign
buyer, they wilt be treated as representative of the foreign enterprise so the foreign enterprise is
deemed to perform business in Vietnam via a permanent establishment, whereas in the activity of
on the spot importing and exporting, such transaction is only a commercial agreement in order to
optimize delivery/stock circulation of commercial trading activities.
- For goods distribution activities in which foreign enterprises have control of the sale
price in Vietnamese market: the tax authority said that foreign enterprises having control of the
sale price means they have control of sale activities of Vietnamese enterprises such that
Vietnamese enterprises will become dependent establishment of foreign enterprises leading to
constitution of permanent establishments. Meanwhile the implementation of pricing strategy is
an integral part of business strategy, especially in an integrated global economy.
The interpretations mentioned above made the application of DTA of foreign enterprises
impossible, effectively it obliterate the legitimate benefit of enterprises.
Proposal: We would propose the Ministry of Finance to consider and have guidance to local Tax
authorities to take into account the true nature of transactions as well as the perspective of
international practices when interpreting DTA.
TALKING POINTS WITH MINISTRY OF FINANCE ON SOME TAX RELATED
ISSUES
Contents
1. Extension the application of Item 3 & 4, Article 23 of the Vietnam - Korea Double
TaxAvoidance Agreement
2. Regulations on receipts for non-cash payments for expenses over 20 millions Dong
3. Conditions for credit of input VAT of branches
4. Conditions for crediting input VAT of imported goods
5. Issuance of invoice for goods sale and service provision invoices in vast number

9. 6. Voluntarily register for appliance of the credit method of VAT
7. Issuance of Invoice of foreign contractorafter closing Tax Code
8. VAT rate applied forpest control products (including killing cockroaches,
ants, flies,mosquitoes, etc.)
9. Issuing invoice/document for the allowance received by distributors
10. VAT policy applied for fee of transferring trade mark's right
11. Right to apply the Double Tax Avoidance Agreement (DTA)
12. Refunding the overpaid Tax amount
13. Determination of CIT-able income from expansion investment project
14. Determining total investment capital to identify time of starting expansion investment
15. Determine taxable revenue to calculate Corporate Income tax
16. Tax policy for the foreign exchange rate difference
17. MOF's plan to abolish the cap on advertising expense and to expand CIT incentive for
someindustry
18. Policy on Foreign Contractor Tax (FCT)
19. Tax exemption for Foreign Expertsimplementing ODA project
20. VAT refund for investment projects
1. Extension the application of Item 3 & 4, Article 23 of the Vietnam - Korea Double Tax
Avoidance Agreement
Issue: Pursuant to Item 3&4, Article 23 of the Vietnam - Korea Double Tax Avoidance
Agreement (DTA], tax incentive awarded to foreign investors by Vietnam Government, in
general, will be preserved when applying DTA, particularly: Even projects invested in Vietnam
are in tax exemption or tax reduction, holding company in Korea is still entitled for deducting the
CIT amount paid in Vietnam which is equivalent to CIT amount the subsidiary in Vietnam
would pay without tax exemption, tax reduction.
We understand this is an effort of Vietnam Government in negotiation with Korean Government
to enhance the foreign direct investment to Vietnam. However, in accordance with Item 5, we
know that the Item 3&4 above will end the effective on 31 December 2014 if it is not extended
by two Governments.
Proposal: We would like to suggest to the Ministry of Finance to propose to Korean Government
to extend the application of Item 3&4, Article 23 of the DTA for another 10 years. This
extension if being approved will help to maintain the attractive of the tax incentive regulation in
Vietnam and help to encourage Korean investors to continue investing as well as expanding the
current investment in Vietnam.
2. Regulations on receipts for non-cash payments for expenses over 20 millions Dong:
Issue 1: Under regulations on CIT and VAT, expenses over 20 million Dong must have receipts
for non-cash payment (previously called payment via bank). The Government as well as the

10. Ministry of Finance have provided specific guidance for some cases that are considered as
non¬cash payment. However, a popular payment method at the moment, which is using personal
credit card to pay for the expenses on behalf of the company, was not mentioned in the decrees
and circulars.
In fact, currently, there are many cases where individuals are assigned to do business overseas
and incurred expenses for which the individuals must use personal credit cards to pay on behalf
of the company; for example: for the cost of accommodation and meals at the hotel. The direct
money transfer from the company to the hotel is not feasible as the payment must be made
before leaving the residence.
Proposal: The Ministry of Finance should consider supplementing to the methods of non-cash
payment including-the payment from personal credit card of individual employees for the
expenses of the company that are specified in the financial regulation or other internal policies.
In case, the Ministry of Finance ("MOF") perceives that this provision is not consistent with the
management, MOF can firstly only specify that this method is allowed for transactions occurring
overseas.
Issue 2: According to the regulation in Circular 219, receipts for non-cash payments are
understood as the receipt of transferring money from the bank account of the buyer to the bank
account of the seller, in which both bank accounts must be registered or notified to the tax
authorities.
This regulation results in the fact that the seller will have to verify the account that the seller use
to receive money is the account that was registered with the tax authority to ensure that the input
VAT of the buyer will be deductible. This is unreasonable as the buyer cannot verify whether the
seller has registered their bank account with the tax authority and even if it is possible, it will
induce additional procedures. Meanwhile, the responsibility to register their bank accounts with
the tax authority belongs to the seller.
Proposal: The Ministry of Finance should provide specific guidance on this case to avoid
cumbersome and unnecessary procedures for enterprises in the direction that, if the buyermakes
payment to the seller into the account specified in the contract, the payment will be considered as
via bank.
3. Conditions for credit of input VAT of branches
Current regulation specifies the two conditions for crediting input VAT are:
- Having legitimate invoice of goods and services purchased
- Having receipts for non-cash payment for the purchase of goods and service over twenty
millions Dong.
In fact there are a number of cases occurred very common but are not guided specifically in
regulations, which results in confusion in implementation. In particular:
Issue 1: Enterprise has headquarter and dependent branch, in which the branch has production
and selling activities, declare VAT under credit method at its local tax department.

11. Due to the nature of management, for centralized, effective management and to avoid
cumbersome procedures and to minimize money transfers between the Company and its
branches, the purchase of goods and services for production and selling activities of the company
are concentrated in purchase department of the company, and the payment is centralized through
the company’s accounts.
Besides, as the branch is a dependent unit and does not constitute a legal entity, the branch does
not directly sign contract for the purchase of goods and service; these contracts are signed by the
Company’s headquarter.
Therefore, how can the company determine the deduction of input VAT of the branch?
Proposal: To reduce administrative procedures, we propose that the Ministry of Finance and the
General Department of Taxation consider providing additional guidance in the following
direction:
Allow branches to credit input VATinvoices issued for the goods and services serving the
activities of the branches, if the contract signed between the company and suppliers clearly state
that:
Goods and services are used for the activities of the branches.
The VAT invoices are issued by the supplier to the tax code and address of the branch The
payment of the supplier are made from the account of the Company
Issue 2: Similarity, the foreign contractor applying Hybrid method and having Project office in
Vietnam, purchase services (e.g. construction insurance) from local supplier.
Because of the management purpose and in nature, foreign contractor and project office in
Vietnam are one contractor, the service contract is signed by foreign contractor (parent
company). Terms under the contract stating that:
- Service is used for project of the foreign contractor in Vietnam
- Invoice will be issued to Project Office, under tax code and address of Project Office
- Payment is made from bank account of the parent company or from bank account of
bothparent company and project office. These accounts are registered with tax authority
asregulations.
Proposal: For the above case, we would like to propose the MoF to allow Project Office to credit
input invoice with above documentation.
4. Conditions for crediting input VAT of imported goods
issue: According to current regulations, in order to credit input VAT of imported goods, two
conditions must be met:
- Having receipt of import VAT payment
- Having receipts for non cash payment for purchase of goods and services (including
imported goods) from twenty millions Dong
The provision that the importer is required to make payment to the seller before crediting import
VAT is not reasonable as in reality, at the importation stage, the importer must have sufficient
documents proving that the goods are imported to Vietnam (for example: customs declaration)

12. and in fact, the importer has directly paid the VAT amount to the state budget, unlike in the case
of domestic purchase of goods whereby the buyers do not directly pay VAT but the seller declare
VAT.
Proposal: We recommend a revision in the direction that when the buyer has paid VAT at import
stage to the State Budget, they can immediately credit input VAT regardless whether the buyer
has made payment to the seller.
5. Issuance of invoice for goods sale and service provision invoices in vast number.
Issue: According to the current regulations on invoices, the invoice date of the goods sale and
service provision is the time of transfer ownership or right to use goods to the buyer, regardless
of whether or not the revenue earned money.
In special case, when selling gasoline at retail store to regular buyer including organization,
individuals doing business, providing banking services, securities services, date of issuing
invoice is periodic as stated under contract between the two parties, accompanied with the
declaration list or other documents certified by the parties, but no later than the last day of the
month when the sale of goods and the rendering of services arising.
In fact, currently, beside gasoline, banking and securities services, a number of enterprises
manufacturing goods in large scale have generated the sales to the same clients in large quantity
with several times a day. If each delivery of goods for the same clients requires the issuance of
invoice, hence the quantity of invoice in a day will be significant, making it difficult for the
management, comparison of enterprises as well as tax authorities in the future.
Proposal: We suggest that the Ministry of Finance, the General Department of Taxation consider
providing the guidance for the circumstance where enterprises providing goods and services to
the regular buyer including organization, individuals might use the coupon inventory cum
internal transport for each shipment and the issuance of invoice shall be carried out periodically
in accordance with the agreement between parties accompanied with the list or other documents
certified by two parties, but no later than the last day of the month when the sale of goods and
the rendering of services arising, as in the case of sales of gasoline, providing banking services
and securities services.
6. Voluntarily register for appliance of the credit method of VAT
VAT threshold is a new and important policy set out in the Law amending and supplemting a
number of articles of Law on VAT and others guiding documents. In recent times, the Ministry
of Finance and the General Department of Taxation haveissued a number of guiding legislations
to the provincal tax Departments, however, in fact, the implementation remains many obstacles
for enterprises.
Issue 1: VAT calculation method applied to the branch of export processing enterprises (EPEs)
carrying out trading business:
Pursuant to the Decree No. 164-/2013/N -CP dated 12 November 2013 on Processing Zones,
Industrial Zones, Economic Zones and the Circular No. 219/2013/TT-BTC on VAT,
whenimplementing activities directly related to goods trading in Vietnam, EPEs must establish a

13. separated branch out of the processing enterprise, processing zone in order to carry out such
activity. Such branch shall declare and pay VAT according to regulations.
Also under the guidance of the Ministry of Finance, the General Department of Taxation, in case
of newly established branch, the tax calculation method of the branch is followed the tax
calculation method of the holding enterprise. Nonetheless, in this case, the holding enterprise is
an EPE which is not subject to the declaration and payment of VAT.
As the newly established branch is often not eligible for the conditions regarding asset or
income, leading to the difficulty in the declaration of VAT under the credit method for the EPE's
branch. In fact, the tax authorities do not accept and reply that the Branch is not eligible for
applying credit method.
Proposal: The Ministry of Finance and the General Department of Taxation should provide a
guidancespecificallytowards the case, of which clearly state that newly established Branch of
EPE is eligible for voluntarily declaration and payment VAT under the credit method if the
income of the EPE is over one billion or the total investment asset of the EPE is over one billion.
Issue 2: VAT calculation method applicable to foreign contractors.
According to the Circular No. 219 on VAT and official dispatch of the Ministry of Finance and
the General Department of Taxation,only enterprises, cooperatives operating with the annual
revenues from the sales of goods or providing services subject to the VAT under one billion
dong and fully implemented the accounting system, records, invoices and vouchers in
compliance with the laws on accounting, invoiceare required to submit the Notification on the
application of VAT credit method. However, many local tax authorities are forcing the
contractors, not having income or having income under one billion dong as to date 01 January
2014 to submit the above Notification. In case of the contractor not submitting the Notification
prior 15 March 2014, the tax authority forces the contractor to pay tax under the direct method.
The above application of the local tax authority is totally unreasonable and not complied with the
regulations because foreign contractorsare not able to declare and pay tax following the direct
method as under the Tax Administration Law.
Proposal: We would like to request The Ministry of Finance and the General Department of
Taxation to provide a clear guidance that foreign contractors are not subject to the adjustment of
VAT declaration method from 01 January 2014, so that the tax authority and the contractor have
the basis to implement and avoid inappropriate application.
7. Issuance of Invoice of foreign contractorafter closing Tax Code
Issue: According to the current regulation with respect to invoice, in case enterprise after
dissolution, bankruptcy, having completed the tax finalization, closingtax code but arising asset
liquidation transaction which requires issuing invoices for buyers, the enterprise will be entitle to
buy sale invoice from tax authority. However, this provision does not cover the foreign
contractor.
In fact, aftera foreign contractor closes a project office, which means the closure of tax code of
such project, foreign contractor may stilt generate incomes from the payment of the investor for

14. the signed contract. In this case, the contractor is neither able to issue invoice for the investor
because tax code was closed nor declare the FWT under the direct .method because the
contractor still has other projects to make tax declaration under the mix method.
Proposal: We suggest a supplementguidancethat in this casethe foreign contractor can buy retail
invoice from tax authority to issue to the investor.
8. VAT rate applied forpest control products (including killing cockroaches, ants, flies,
mosquitoes, etc.)
Issue: From 1 January 2009, the regulations and guidance of tax authorities on VAT policies
with respect to insecticide products (including roach, ant, flies, mosquito killers..., etc.) are not
apparent. Some tax authorities apply the VAT rate of 5% while others applies the VAT rate of
10%.
On 04 March 2014, The Ministry of Financeissued the official dispatch No. 2786/BTC-TCT
guiding: from 1 January 2009 to 31 December 2013 pest control products are applied VAT rate
of 5%, and they will be applied VAT rate of 10% from 1 January 2014.Where the enterprise,
from 1 January 2014, issued invoice and declared VAT with tax rate of 5% for the above
products, such enterprise shall adjust and supplement in compliance with regulations.
The above guidance ofThe Ministry of Financeis a positive move in order to unify the
application of tax policy throughout the country, however when applying in practice, there are 2
issuesarise:
- The Ministry of Financeissued the Official Dispatch No. 2786 on 4 March 2014 but
retroactively for the period from 1 January 2014, while, enterprises issued invoices and declare
VAT with tax rate of 5% in compliance with the previous guidance of the local tax authorities.
Furthermore, not every enterprise is aware of this Dispatch since local tax authorities did not
publicize widely, therefore after the date of 4 March 2014, a number of enterprises still issue
invoice and declare VAT with the tax rate of 5% regarding pest control products. Pursuant to the
above guidance ofthe Ministry of Finance, such enterprises shall amend the declaration and re-
issue the VAT invoices to clients with the tax rate of 10%, this is such a complicated work as it
does not only involve the enterprise but relate to a product supply chain from manufacturers to
distributors and consumers.
- VAT is an indirect tax that output VAT of seller shall be the input VAT of the buyer,
hence the amendment of invoice is unnecessary, time-consuming, waste of labor, and increment
of administrative procedures for either buyer or seller, while in fact, the problem just occurs due
to inconsistent guidancefrom tax authorities.
Proposal: The Minstry of Finance should considerto allow enterprise not to adjust the invoice
issued with tax rate of 5%, for at least the period from 1 January 2014 to 31 March 2014 andthe
buyers, sellers do not need to supplementVAT declarations for this period.
9. Issuing invoice/document for the allowance received by distributors
Issue 1: Pursuant to Item 1, Article 5 of Circular 129/2014/TT-BTC on VAT, when receiving
support, enterprise will not declare and pay VAT. However in this Article, Circular provides that

15. distributors when receivingsupport from Company to implement promotion, marketing activities
have to issue VAT invoice with VAT rate of 10%.
The above regulation has been causing a different understanding and application among local tax
authority for case when Company pay support to distributor for implementing Company’s
promotion, marketing program. This program could be either belongs to Company and Company
requires distributor to implement or belong to distributors and they ask for Company's support.
Particularly, some tax authority ask distributor to issue VAT invoice when receiving the support,
however some ask Company issue payment voucher when payingsupport to distributors.
Furthermore, Circular 219 use the term “distributors receiving money to implement service for
Company", this could lead to an understanding that the contract signed between Distributor and
Company is marketing service contract, which is not under in the business license of the
Distributor.
Proposal: For unifying the understanding and application of policy among local tax authorities,
we would like to propose the MOF to have detail guidance for the case of paying allowance for
distributors as follows:
- When distributorsreceivingsupport to implement promotion, marketing activities for
Company, distributors will issue VAT invoice with tax rate of 10%
- As activities of promotion, marketing for Company are supporting activities for the sale
of the product, then this activity shall not be registered in the business license of the distributor.
Issue 2: Pursuant to Item 2 Article 7 Circular 219/2013/TT-BTC, in case Company has sale
discount for customer and this discounted amount is finalized at the end of the discount period,
Company must issue separate invoice to reflect the discount amount. Base on the invoice, buyers
and sellers will adjust the input, output VAT liability.
In fact, some vendors does not issue invoice to adjust the discounted amount but issue
payment/receive voucher to present the discounted amount base on the detail description.
Tax authority when carrying on the tax audit at enterprise request buyer to reduce input VAT
even there is no adjustment invoice issued by seller.
Proposal: When seller does not issue adjustment invoice for the discounted amount, the output
VAT of seller, hence, will not be reduced. Therefore, there is no basic for buyers to reduce input
VAT. Overall, there is no effect on State Budget's revenue. In addition, not issuing adjustment
invoice is the fault of seller and the buyer cannot control this. From the end of buyers,
theydeclare the discounted amount as other income for CIT purpose.
Given the above, we propose MOF to have a detail guidance that in this case the buyers do not
need declare a reduced input VAT.
10. VAT policy applied for fee of transferring trade mark’s right
Issue: On 02/12/2013, General Tax Department issued the Official Letter No. 4153/TCT-CS
providing guidance to Petro Vietnam Corporation ("PVN") about VAT policy for transfer fee of
trademark's rights. Accordingly, if PVN sign the contract for transferring the rights to use
trademark with its partners in accordance with the provisions of the Law on Intellectual Property

16. then it is not subjected to VAT. When collecting the transfer fee of trademark's rights, PVN will
issue VAT invoice which is only recorded gross amount, the tax rate, the VAT amount will not
be stated and crossed out.
On 3 March 2014, GDT promulgated Official Letter No. 631/TCT-CS to replace Official Letter
No. 4-153/TCT-CS dated 2 Dec 2013. The Official Letter clearly stated: "The contract to transfer
trademark using "PETROVIETNAM and symbol” for partner belonged to transferring activity of
intellectual property rights (not transferring activity of intellectual property right in accordance
with Law on Intellectual Property), so it is not object not subject toVAT ... The contract to
transfer trademark using “PETROVIETNAM and symbol" of PVN belonged to activities related
to intellectual property shall apply VAT tax rate of 5% in accordance to clause 15, article 10,
Circular No. 06/2012/TT-BTC dated 11 Jan 2012 of the Ministry of Finance.
We understand that there is change in understanding and applying the tax policy from Tax
authority. The mixed guide from tax authority caused businesses to be confused in howto apply
and when to apply?
Proposal: Regarding this issue, since tax authority has different interpretation and understanding,
it is difficult for businesses to apply. Therefore, we propose that GDT should promulgate an
Office Letter providing consistent guidance for local tax department about VAT treatment of
trademark license andspecify the effective date. For transactions that are alreadyimplemented
prior to 3 March 2014, no adjustment should be required to ensure a stable business environment
for enterprises.
11. Right to apply the Double Tax Avoidance Agreement (DTA)
Issue: According to current regulations as well as guidance of General Tax Department, foreign
contractors only lose the right to submit the proposal to apply for tax exemption, tax reduction
under the DTA between Vietnam and other countries (or regions) which they are resident if the
related tax obligation exceed the 3 years from the date of incurrence.
Also, according to the principles of applying DTA, in case the provisions about paying tax under
the DTA is different with that provision under domestic law, then DTA provision shall be
executed.
However, in fact, some Tax Departments prefer to apply domestic law rather than the DTA,
following is one example: Vietnamese enterprise has not filed the Notice for Tax Exemption
under DTA for income that foreign contractors earn from provide services, goods for the
Vietnamese enterprise, during that time the enterpriseis inspected, audited by tax authority.
After the tax inspection, the enterprise submit dossier for applying DTA for the above mentioned
income of foreign contractors, the time when submitting dossier is still in the 3 years cap,
however the Tax Authorities refuse to handle since Vietnamese enterprise has been inspected by
tax authority.
Proposal: We would like to propose to the Ministry of Finance to have an official guidance in
detail for this case to clearly state thatthe right to submit the proposal to apply for tax exemption,
tax reduction under the DTA between Vietnam and other countries (or regions) which foreign

17. contractors are resident is not limited by the obligation to tax registration, tax declaration, and
tax paymentby Vietnamese party who signed contracts with foreign contractors.
12. Refunding the overpaid Tax amount
Issue: According to the regulation of the Law on Tax Administration, taxes, late payment, fines
are considered as overpaid when Taxpayers have the amount of paid taxes, late payment, fines
higher than the amount of taxes, late payment, fines that need to pay for each type of tax.
In fact, there is conflict between Tax Authorities and enterprise in how to determine overpaid
tax.
When Tax Authorities conduct tax inspection at the company, they assessed a higher tax amount
than the amount companies had self-declared and paid earlier, thus collecting an additional
underpaid tax from them.
Although company disagreed with inspection result, they fully paid the additional tax amount
state budget. After the inspection, firms appeal the inspection result to higher authorities. The
complaint results showed that local tax authorizes had wrong tax assessment and being forced to
re-assess the payable amount in accordance with the Decision to solve the appeal.
The re-assessment results again showed that the tax amount that company must pay is less than
the tax amount that Firms have self-declared, paid at first. However, local tax authorities did not
admit that the company have overpaid tax and did not allow them to be refunded these overpaid
taxes.
It is unreasonable because the company obviously has paid more than the payable amount in
accordance with Decision of Tax Authorities, it means that the companyhas overpaid, so
theremust be a refund for the amount of tax overpaid by either forms of compensation of refund
according to the principle.
Proposal: We would like to propose to the Ministry of Finance, General Tax Department to have
detail guidanceonhow to determine the overpaid amount, particularly, taxes, late payment and
fines are considered as being overpaid when Taxpayers paid the amount of tax, late payment,
fines more than the payable amount of tax, late payment, fines for each type of taxes. The
payable amount of tax, late payment, fines are determined based on final conclusion of the tax
authorities.
13. Determination of CIT-able income from expansion investment project.
Pursuant to CIT regulations for period from 2009 to end of 2013, the extra income due to
expansion investment project will not be entitled to CIT incentives. In order to determine the
correspondence income that is not entitled to tax incentives due to expansion investment project,
the company couldallocate by revenue or deductible expenses or income from activities entitled
for incentives and activities not entitled for incentives. However, in fact the application of this
regulation to calculate CIT for expansion investment project during the period from 2009 to end
of 2013 has caused a lots of obstacles to companies, because they cannot record revenue,
expense, or income from each activity separately.

18. Pursuant to Circular No. 78/2014/TT-BTC, the determination of income correspondence with the
expansion investment project that is not entitled to incentives in case companies cannot
determine the additional income due to expansion investment is allocated by proportion of
expansion investment fixed assets value in use for production, business compared to the actual
total fixed asset in use for production, business according to end of period data on annual balance
sheet. However, this provision arose two shortcomings:
The provisions of Circular No. 78/2014/TT-BTC is only applicable for the period form 1st
January, 2014, there does not have a written guidelines for companies to apply this formula for
the period from 2009 to end of 2013, thus guiding on allocating the expansion investment
additional income that is not entitled to CIT incentive of the years from 2009 to 2013 still remain
unresolved.
In the formula to determine additional income due to expansion investment in Circular No.
78/2014/TT-BTC, the expansion investment fixed assets value in use for production, business
until end of year, was used as a basis for determine, is not really accurate because of the
following:
o In principle, income only be taxed when the assets are completed to use and generate
income. In fact, when companies invest in new production lines, the investment process
should last for a long period before generate revenue, income. Therefore, the
determination of income allocating for expansion investment based on total annual
income for the entire additional investment at the end of the year will not fit.
o In principle, companies can base on the invested value of fixed asset at the end of each
quarter to determine the income for expansion investment of each quarter, however, the
CIT is finalized every year, therefore, in order to avoid complication, the method of
allocating taxable income for expansion investment activity in whole year based on the
ratio of the average of accumulated increased value in each quarter is consistent and the
results are relatively close to the actual.
o In fact, General Tax Department has already issued Official Letter No.384/TCT-CS dated
8th Feb, 2014 guiding for Samsung Electronics Vietnam Co., Ltd. in determining taxable
income from expansion investment project, using the capital ratio of cumulative average
increase asset value for each quarter.
Proposal: The Ministry of Finance should consider to have a guidance for all firms to apply the
ratio of the value of assets average accumulated increase in value in each quarter as a basis to
determine the expansion investment additional income for the period from 2009 to 2013.
14. Determining total investment capital to identify time of starting expansion investment
Issue: The investment project of the company was granted the Investment Certificate with the
total investment capital of VNDA billion. The project is entitled to CIT incentive stipulated in
the Investment Certificate and in accordance to the regulations.

19. During the operation, the company acquires assets for the purpose of investment, replacement of
assets to meet the requirement of manufacturing... up to certain point of time, the historical cost
of the fixed assets which is represented in the financial statement exceeded VND A billion, but
in the consideration of the net book value of the fixed asset (equal to the historical cost of fixed
assets minus accumulated depreciation), the amount does not exceed VND A billion.
Accordingly, is the company considered having expansion project? And how to calculate the
total investment capital of the company at the certain time to determine whether the company has
an expansion project? Currently, the tax authorities normally compare the value of acquisition
cost of fixed asset of the company vs. the value of total investment capital on the Investment
Certificate, if excessive the company will be considered having expansion investment.
Proposal: According to current tax regulations, we note that there is no definition of "total
investment capital” and no provisions in the tax laws indicating that the total investment capital
is measured by "original cost of fixed assets". Under the regulations on investment, when
reviewing the application for Investment Certificate of the enterprise, the licensing authority
provides guidance on the determination of "total investment capital" which is consisted of
"contributed capital”.and "loans”. It means the cash and any other legal resources contributed to
implement the investment project.
This understanding is also in line with regulations issued by State Bank on the management of
foreign currencies and overseas loans. In particular, in accordance to Decree 160/2006/N -CP
dated 28/12/2006 and Circular No. 12/2014/TT-NHNN of the State Bank of Vietnam released on
31 Mar 2014- (Circular 09/2014/TT-NHNN on 21 Dec 2004 previously) then the mid-term and
long-term loans are limited to the difference between the total capital and the contribution capital
under investment certificate. Hence, it can be understood that the total investment capital
excludes short-term loans.
Normally, the manufacturing enterprises use its owned capital and long-term, mid-term loans to
finance the acquisition of fixed assets used for manufacturing activities. Hence, in term of fixed
assets, the most suitable measure to assess actual disbursement of investment capital for
manufacturing activities is the original cost of fixed assets minus accumulated depreciation.
Even in the case that the net book value of fixed asset exceeds VND A billion, the new assets are
acquired not for the purpose of "expanding the scale, innovating the technology, improving the
ecology, enhancing the productivity", but only the auxiliary assets for the manufacturing e.g.
canteen, mid-shift recreation area, vocational and training facility... for employees or
replacement assets to maintain current production capability, we would like to propose that the
company should not be considered having an expansion project.
15. Determine taxable revenue to calculate Corporate Income tax
Issue: Current regulations on determining CIT-able revenue and tax incentive income present
some shortcomings with practice. In particular:
- Company A is entitled for CIT incentive due to location.

20. - Company A has a headquarter and 2 dependent branches managing 3 factories in in
North, Middle and South area of Vietnam. Three factories produce 3 types of product,
accordingly, the 3 factories are entitle for different CIT incentive level.
- To fasten the delivery of goods to dealersacross the nation, products from the three
factories will be internally delivered to 3 stores in 3 regions then sold to customers.
- Pursuant to current regulations, when products are delivered from one factory to store
located in other province, the factory has to issue invoice to the branch managing the store.
Normally, price on the invoice issued for internal delivery from one province to other will be is
lower than price sold to dealer by the Company (wholesale price).
Then, how to determine revenue entitle for CIT incentive of each factory?
Proposal: We understand that, all 3 factories are dependent branches of company A. The delivery
of goods from factories to branches in other provinces to distribute to deaters is only the internal
arrangement/organization for the ease and effectives of management. Instead of delivering
products to selling branches, factories can sell products directly to dealers. As such, the taxable
revenue entitled for incentive of each factory must be determined on wholesale price instead of
transfer price used for internal delivery. This point is appropriate to market price principle.
16. Tax policy for the foreign exchange rate difference
Issue 1:
As current regulation, in a tax year, if an enterprise has an exchange rate difference arising in the
period and the exchange rate difference related to turnover and expenses of the enterprise's major
production and business activities, such arising exchange rate difference shall be accounted as
expense or income of such activities.
However, the determination whether the loss of the FX difference is accounted as deductible
expense is not unique in some cases, particularly:
- Vietnamese Company (subsidiary) has a loan in foreign currency from parent company
To reduce difficulty for Subsidiary, parent Company decides to convert the loan to their
investment capital in the subsidiary.
- Instead of paying the loans to its parent company, and then the parent company transfers
the money back to increase their investment capitals in subsidiary, Vietnamese company and its
parent company have made an agreement on converting the loans to equity capitals and
registered with relevant authority. Accordingly, Vietnamese company recorded the increase of its
capitals and decrease of payable account.
- At the time of reducing the loan in foreign currency, Vietnamese company converted
from foreign currency to Vietnam dong, then it leads to the loss on exchange rate difference.
Proposal: As the time of conversion from loans to capital is the time company reimbursed the
loans, foreign exchange differences loss incurred must be interpreted as foreign exchange
differences loss incurred during the period. As such, the loss shall be included in the deductible
expenses when calculating Corporate Income Tax of the company.

21. Issue 2: Under VAS 10, enterprises can record loss/profit when re-valuing item originated from
foreign currency at 31 December as expense/revenue in the period. However, under CIT
regulation, loss/profit on exchange rate difference derived from re-valuatingforeign currency
originated account receivable, cash will not be recorded as expense/revenue to determine CIT of
the period. Consequently, enterprise has to adjust increase/decrease CIT-able income in the CIT
finalization.
In the next year, when enterprise record an expense in foreign currency or sell foreign currency
to banks for Vietnam dongs, the loss/profit on the exchange rate difference comes into reliable,
as such enterprise re-adjust decrease/increase income with an amount equivalent to the amount
adjusted in previous year. Some local tax department, when taking tax audit at enterprise, do not
accept the re-adjustment.
Proposal: In principle, loss/profit on exchange rate difference derived from re-valuatingforeign
currency originated account receivable, cash are non-reliable at the time of re-valuation but will
become reliable when company receives or sells foreign currency next year. Therefore, the
difference is only temporary between accounting and tax, not permanent. Company need amend
the loss/profit in the expense/income next year to reflect exactly their operation result. CIT
regulation allow to record the reliable loss/profit in expense/income pf the period to determine
CIT.
We, hence, propose to MoF to have a detail guidance that the loss/profit on exchange rate
difference derived from re-valuatingforeign currency originated account receivable, cash is not
accounted for expense/income to determine CIT of the period but will be recorded when this
loss/profit become reliable in next period.
17. MOF’s plan to abolish the cap on advertising expense and to expand CIT incentive for
some industry.
We learnt that MOF has taken some steps to propose to the Government abolishing cap on
advertising expense and to give CIT incentives for some industries, projects.
We respectfully request the MOF to provide more information on this, particularly:
- When is proposal expected to be approved by the Government?
- Which industries/projects type are under the consideration by MOF for CIT incentive?
- Is the draft proposal available to be contributed by enterprise?
18. Policy on Foreign Contractor Tax (FCT)
Current regulation on FCT (Circular 60/2012/TT-BTC) has some shortcomings as follows:
Issue 1: FCT declaration for sub-contractor by foreign contractor Main contractor declares and
pays tax in Hybrid method Sub-contractor is foreign contractor applying deemed method
Under regulation of Cir 60, for sub-contractors being foreign sub-contractors paying tax under
the deemed method, the VAT-liable turnover and CIT-liable turnover of the foreign contractor is
the whole turnover earned by the foreign contractor under the contract signed with the Vietnam
party. Foreign sub-contractors do not need to pay FCT on the part of work that they perform
under the sub-contractor contracts signed with foreign contractors.

22. As such in case the foreign contractor apply Hybrid method, foreign contractor will declare and
pay CIT portion for the whole turnover earned by the foreign contractor under the contract
signed with the Vietnam party. Foreign subcontractor will not declare and pay CIT for their
work.
However, for VAT portion, as foreign contractor declare VAT in credit method and regulation
on Cir 60 for this circumstance is not available, there are some different understanding in
practice.
Proposal: Because VAT is declare in credit method, i.e. output of sub-contractor will be input of
main contractor and the total tax amount paid to State budget is unchanged, to reduce admin
procedure, we would like to propose that main contractor in this case will not declare and pay
VAT on behalf of sub-contractor.
Issue 2: Declare and pay tax on advance payments
Although current regulation does not state clearly that foreign contractor when receive advanced
payment has to declare and pay FCT, in practice, foreign contractor complies to declare and pay
tax for this advanced payment. However, there is still some issue for this:
- Main contractor is foreign contractor applying Hybrid method
- Sub contractor is Vietnamese sub contractor or foreign subcontractor applying Hybrid
method
Project owner makes advance payment to contractor with amount of 100, at the same time
contractor advances to subcontractor with amount of 60. Then the main contractor will declare
and pay tax on the amount of 100 or 40?
Proposal: As regulated in Cir 60, In case foreign contractors that sign contracts with Vietnamese
sub-contractors or foreign sub-contractors pay tax under the deduction, declaration method, or
foreign sub-contractors pay tax using the combined method to assign part of the work value or
item value stipulated in the contractor contracts signed with the Vietnam party and the list of
Vietnamese sub-contractors, the foreign sub-contractors carry out the corresponding work or
item enumerated under the contractor contracts, the turnover for CIT calculation of foreign
contractors does not include the value of work done by Vietnamese sub-contractors or foreign
sub-contractors.
In accordance with the above regulation, the foreign contractor will declare and pay FCT on the
amount of 40 (=100-60). As such we would like to propose MOF have a detail guidance on this.
19. Tax exemption for Foreign Expertsimplementing ODA project
Issue: Before 20/11/2009: as regulated in Decision no. 211/1998/QD-TTg on the regulations of
ODA Foreign Experts, only foreign experts, who have been employed or appointed by
Vietnamese party or Foreign party coming to Vietnam in order to implement the ODA project
can be entitled the personal income tax (PIT) exemption.
From 20/11/2009 onward: according to Decision no. 119/2011/QD-TTg, which is the
replacement for Decision no.211/1998/QD-TTg, the PIT exemption for foreign experts working
on ODA projects also covers the foreign experts listed as consultants in the contractors' bidding

23. documents, based on bidding results approved by a competent authority of the Vietnamese party
and consented by the foreign party
Article 2 of the joint Circular no. 12/2010/TTLT-BKHDT-BTC and the Official letter No.
144/BTC- TCT dated 6/01/2011 guiding the conditions and procedure for certification of ODA
foreign experts who are entitled to PIT exemption regulates that: "The consultant contracts
effective before 20/11/2009 are not within the scope of application of the Prime Minister'
Decision no. 119/2009/QD-TTg dated 01/10/2009. In the case the contractors (companies)
change or supplement the list of experts after 20/11/2009 for the consultant contract valid before
20/11/2009, the new experts must be replaced exactly for the old experts. The new experts must
satisfy all criteria mentioned in the bidding document of Contractors (Company) and the
replacement must be certified by competent party. In the case of new replaced experts is eligible
for PIT exemptions under the Decision No. 211/1998/QD-TTg dated 31/10/1998 then they will
be entitled to the PIT exemption following guidance of the Decision No. 199/2009/QD- TTg).
During the application of the PIT exemption for foreign experts, some contractors has acquired
the foreign experts certification from Host Company and tax exemption certification by Local
Tax Department. Accordingly, the contractors made full payment for the individuals without
withholding PIT. Now that after 2 years, the local tax authorities who issued the tax exemption
certification, at tax audit at the Contractors, re-collect the PIT of the foreign experts with the
argument that the determination of foreign experts for PIT exemption issued by them previously
is not in line with the regulations.
Proposal: The local tax departments themselves are the authorities, who make a decision for tax
exemption, now, the same local tax department disregarded the decision made by them while, the
tax regulation did not change from the time the contractors submit tax exemption document until
now. Thus, the tax authorizes themselves have different thoughts in different points of time on
the same legal basis, so that is the problem of Tax regulation application. The inconsistent in
understanding and application of the tax regulations creates a clearly hazardousfor investors and
giving a bad effect to Vietnam's business environment as welt as the attractiveness of Vietnam in
the eyes of foreign investors.
Moreover, according to current regulations, we understand that PIT payment is the individual
responsibility of the foreign experts; the contractors only stand for helping them to withhold PIT
and make tax payment on the foreign experts' behalf as an income payer. Thus, after received the
certification of foreign expert from Host company and tax exemption decision of the local tax
department, the case that the contractor did not withhold and pay PIT based on the above
certification and decision is in line with current regulations. If the local tax departments now
made a decision to re-collect the PIT on income paid for the foreign experts then the income
payers don't have sufficient source of fund because all payment have been made for its foreign
experts.
We recommend that the Ministry of Finance should have solutions to solve the above issue and
not re-collect the PIT from the income payers for the above case.

24. 20. VAT refund for investment projects.
Issue: Enterprise is granted the License to operate two business activities: (i) building ships and
floating structures (building new ships and other waterway facilities) and (ii) architectural
activities and technical consultancy relating to: design ship’s hull, electrical shipboard,
mechanical ship, floating dock. At Investment Certificate - Certificate of Business Registration,
beside the business activities which the enterprise has registered, licensing agency also stated
separate certification for the investment project of (i) as this project requires large capital
investment and long-term investment.
While the enterprise needs a few years to complete the basic constructing investment for the
Project to operate activity (i), immediately after being granted the License, the enterprise
operates activity (ii) and generates revenues for this service.
Enterprise declared input VAT for the basic constructing investment (i) base on the 02/GTGT
form for investment project accorded to current VAT regulations and tax management. At the
same time, with the activity (ii) mentioned above, the enterprise has generated revenues and thus,
will declare and make VAT payment for this activity base on 01/GTGT form for taxpayers under
the deduction method in accordance with the current VAT regulations and tax management.
Enterprise files the documents for tax refund for the input of the investment project (currently up
to billions VND). However, tax authority refused to refund because on the tax authority’s point
of view, the enterprise received revenues from activities (ii) therefore cannot apply for tax refund
for investment project and has to wait for 12 months for tax refund if the accumulated input VAT
have not been fully deducted.
Proposal: Due to the specification of ship building industry, a ship building project requires time
for basic constructing investment for 3-4 years. Meanwhile, architectural activities and technical
consultancy do not require capital investment to operate and generate revenues. The Investment
Certificate also shows that the priority of this Investment Project is activity (i). Therefore, with
all due respect, we recommend the Ministry of Finance to review and clarify the conditions for
tax refund of the Investment Project are already satisfied in this particular case. Thank you very
much!
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you
have any questions on the above. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.
INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz
THANK YOU VERY MUCH!