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Ministry of FinanceNo.: 18050/ BTC-CST

responses to recommendations at Annual VBF 2016

SOCIALIST REPUBLIC OF VIETNAMIndependence – Freedom – Happiness

Hanoi, 20 December 2016

To: Ministry of Planning and Investment

In referring to the Recommendations from Associations and VBF Working Groups enclosed with the Official Letter No. 465/BKHĐT-ĐTNN dated 17 November 2016 by the Ministry of Planning and Investment requesting participation and discussion at the Vietnam Business Forum 2016.

After studying and considering the recommendations, the Ministry of Finance provides responses to 49 issues raised by organizations and enterprises, which involve the responsibility of the Ministry of Finance (see the Appendix enclosed).

The Ministry of Planning and Investment is requested to summarize and report to the Prime Minister and circulate among relevant Associations and enterprises for acknowledgement./.

To: As above, The Minister (to report); Government Office; Vietnam Chamber of Commerce and Industry; American Chamber of Commerce in Vietnam; European Chamber of Commerce in Vietnam; Korean Chamber of Commerce in Vietnam; Japan Business Association in Vietnam; Vietnam Business Forum (VBF); Other agencies: General Department Of Taxation (GDT), General Department of Customs (GDC), State

Securities Commission (SSC), Agency for Corporate Finance, Agency for Price Management, Department of Banking and Financial Institutions, Department of Legislation;

For filed

APPENDIX

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On behalf of MinisterDep. Minister

Signed and sealed

Vu Thi Mai

RESPONSES TO RECOMMENDATIONS OF BUSINESS COMMUNITY AT ANNUAL VIETNAM BUSINESS FORUM 2016

(Enclosed with Document no.18050/BTC-CST dated 20 December 2016 by Ministry of Finance)

1. Recommendations (VBF Power & Energy Sub-Working Group)

Preferential tax duties and family-tailored/ business-tailored regulations are needed in order to reduce energy consumption as well as promote the installation/use of solar energy, wind energy and other renewable energies.

Response:

Current tax policy system has already included regulations on preferential tax (such as import tax, corporate income tax, tax on using non-agriculture land, land leasing tax, tax on leasing water surface area, etc), aiming to support businesses and households in producing and consuming green energy, minimizing the consumption of polluting energy. For example:

Investment projects in producing renewable energy, clean energy, and biomass energy are exempt from import duties for imported goods as non-current assets; are exempt from import duties within 05 years from the beginning of production regarding materials needed for production but domestically unavailable.

Highest level of preferential CIT (tax rate 10% trona; within first 15 income years: 04 years tax exemption, 50% tax payment reduction within 09 years) is applied to corporate income from projects in producing renewable/clean/biomass energy, developing biotechnology, producing pollution-control devices and environmental monitoring and analyzing devices; recycling and reusing waste, etc.

Production projects of renewable/clean/biomass energy are exempt from taxes on non-agricultural land using, land leasing, and water surface area leasing for primary construction period. Projects implemented in areas with difficult socio-economic conditions get tax exemption for leasing land and water surface area during the whole implementation period.

Impose high rate of environmental taxation on the consumption of environmental pollution goods such as petroleum, coal; environmental protection fee is also applied in order to limit consumption of such products. In the coming time, policies on environmental tax will be further studied and amended in terms of tax payers and suitable taxation rate in compliance with socio-economic development policies.

2. Recommendations (EuroCham)

Regulations of Decree No. 108/2015/ND-CP on special consumption tax have boosted a significant tax amount and strongly affected selling price of imported products, leading to the dramatic decrease in sales revenue and the State’s tax collection.

Response:

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Before 01/01/2016, for domestic goods, special consumption tax (SCT) means the selling price given by producers, including production cost (prime cost); plus (+) cost of domestic sales (administration, packaging, exhibition, promotion, transportation, warranty… if any); and plus (+) profits of tax payers.

For imported products, the taxable price for SCT means import duty taxable price (CIF price) plus (+) the import duty.

In the context that the import duty is cut down to 0%, enterprises producing goods subjected to SCT believe that SCT taxable price does not ensure the fairness for domestic commodities since it does not include the cost of domestic sales, and profits of importers. Therefore, imported products will have more competitive advantages over domestic ones.

Researches show that in many countries, such as Poland, Austria, Chile, Australia, Mexico, Korea, etc, SCT taxable price means the wholesale price (selling price given by producers or importers) or retail price to the final consumers.

Therefore, in order to comply with the international practices and economic integration context, the Government issued Decree 108/2015/ND-CP dated 28/10/2015 (effective from 01/01/2016) stipulating that: SCT taxable price on imported products is the selling price given by the importers as also prescribed for domestic products with SCT imposition.

SCT taxable price on imported goods is stipulated as the selling price given by importers, which does not violate the WTO regulations (no discrimination between domestic and imported products) but guarantees the fairness between imported and domestic products; and prevents the price transferring through importing process.

MoF issued the official Document No. 18683/BTC-CST dated 16/12/2015 providing responses to EuroCham. It is requested that EuroCham provides guidance to its members to implement in compliance with the Decree No. 108/2015/ND-CP.

3. Recommendations: (Automotive Working Group)

SCT on motorcycles with the capacity of more than 125 cm3 still remains at 20%, which discourages producers and limits the consumers’ choices.

Response:

Regarding the request of reducing SCT on above 125 cm3 capacity motorcycles, MoF has submitted to the Government and National Assembly to issue the Law amending and supplementing some articles of SCT Law. However, on 26/11/2014, at the 8 th session of 13th

Congress, the National Assembly approved Law no. 70/2014/QH13 amending and supplementing some articles of SCT Law. Accordingly, the NA decided not to amend SCT regulation on over 125 cm3 capacity motorcycles.

4. Recommendations (EuroCham):

Decreasing the personal income tax for employees working in garment sector.

Response:

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According to the Law on PIT, individual’s taxable income is reduced by 9 million VND/ person/month due to the family difficult circumstances and by 3.6 million VND/person/month based on each dependent of the tax payer; reducing payment amount for compulsory insurances (social insurance, medical insurance,…) and charitable contribution from taxable income. The remaining income will be applied with progressive tariff schedule of 07 grades (the lowest grade is 5% of taxable income ranged from 0-5 million VND/month; the highest grade is 35% of taxable income of more than 80 million VND/month) to calculate PIT amount. The taxable income does not include allowances and subsidies, such as hazard or danger allowances for employees working in hazardous or dangerous location; allowances for laborers to work in certain regions; subsidies for labor accidents or occupational diseases, etc. Therefore, it is requested to consistently implement in compliance with the tax regulations.

5. Recommendations (Investment and Trade Working Group):

Regarding implementation of tax incentives policies, it is recommended to reduce some taxes, enhance tax incentives for businesses, reduce part of corporate income tax; especially reducing tax for industry and businesses in difficulties or applying installment tax payments.

Response:

In the past few years, due to the world’s economic crisis, the country’s economy and business community encounter many difficulties. Laws on CIT, VAT, PIT, royalties, tax management, etc have been amended to be in line with the fluctuation of economy, the changing business operation method, the world’s socio-economic development trend, and international agreements. By doing so, many positive results have been created, such as:

Firstly, reducing taxes for enterprises: the common tax rate reduced from 25% to 22% since 01/01/2014; defining the roadmap to apply 20% tax rate since 01/01/2016 which is quite competitive in the region and the world; imposing 20% tax rate for enterprises with revenue less than 20 billion VND since 01/07/2013 in order to encourage SMEs to increase accumulation for reinvestment, production and business development, and improve competitiveness.

Secondly, expanding subjects for tax incentives and adjusting the rate of tax exemption and tax incentives, especially for cooperatives, localities with difficult socio-economic situations, and sectors that investment attraction needed, as follows:

- Offering high rate of tax incentives (10% tax rate in 15 years, duty-free in maximum 4 years, 50% tax rate reduction in the coming 9 years) for high-tech sector; agriculture, forestry, fishery and salt production; production of composite materials, lightweight construction materials, rare materials; renewable/clean/biomass energy; biotechnology development; protection of the environment; earnings of high-technology firms, agricultural high technology firms in accordance with the Law of High technology; corporate income from large scale projects that bear the major positive socio-economic impacts;

- Supplementing tax incentives for investment expansion projects. Accordingly, for businesses having expansion investment projects in specific sectors and areas of CIT incentives will be offered with tax incentives (tax exemption period, tax reduction for additional income from expansion projects in parallel with tax exemption period, tax reduction for new investment projects in the same sectors and areas of CIT incentives);

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- Supplementing tax incentives for Industrial zones (IZ) , which allows CIT exemption for new investment projects at the industrial zone (except for the IZ located in favorable socio-economic conditions) in 2 years and reduce 50% tax in the next 4 years.

Thirdly, amending subjects for tax incentives according to “investment project” in order to conform with reality and regulations of Investment Law. As a result, the scope of tax incentives is significantly expanded.

Besides, in order to remove the difficulties for businesses and boost the production due to the impacts of the economic crisis in 2008 - 2013 period, the National Assembly and the Government have issued many tax solutions, such as reducing CIT for firms with big number of employees and SMEs; extending deadline of VAT and CIT payment for difficult enterprises; PIT exemption; reducing the collection from land leasing; license tax exemption for fishery and salt production households; extending the payment deadline of road toll fee. The implementation of these measures have received agreement and appreciation from business community regarding the suitability with the socio-economic conditions, business conditions with high inflation rate, reduced pressure for businesses on capital investment and banking interest rate.

6. Recommendations: (Investment and Trade Working Group)

There is still no measurement in total investment capital to determine the tax incentives for businesses having investment projects in Vietnam: inconsistency in definition of total investment capital between licensing authorities and tax authorities creating difficulties for businesses. VBF recommends the Government/Ministry of Finance to promulgate clear and consistent guidance so that authorities are able to determine the total investment capital for potential businesses for their easy implementation of projects.

Response:

The above question does not detail difficulties facing businesses in determining the total investment capital needed for tax incentives. Since the condition to receive CIT incentives is that the investment project is under the sector or implemented in the location of tax incentives imposition, the definition of total investment capital has nothing to do with the conditions to receive tax incentives.

In terms of large-scale investment projects receiving CIT incentives (total minimum investment of 6 trillion VND with the disbursement conditions of investment capital and variable revenue; otherwise, total minimum investment of 12 trillion with conditions of technology using and investment disbursement), CIT law does not introduce the definition of total investment capital – which instead will be defined according to general regulations on enterprises and investment.

7. Recommendations (Capital Market Working Group):

The Government issued the Decree on the pension fund in July 2016. However, until now, fund management firms are still waiting for Circular providing guidance of this Decree and will have to experience a time-consuming process of fund establishment. Thus, we hope that the

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Government urgently completes legal framework for the pension fund. Though being a vital key factor for the success of these pension funds, tax incentives policy regarding the contribution to the fund is not appropriate yet. The existing tax regulations do not encourage employees and employers to participate in the pension fund. We have discussed this issue with MoF and are looking forward to amendments of these regulations.

Response:

(i) On 01/07/2016, the Government issued the Decree No.88/2016/ND-CP on pension fund. Accordingly, there will be 02 Documents providing guidance on: (i) agreement between employee and employer participating in the pension fund (issued by MoLISA) and (ii) reporting regulations for pension fund management firm and supervisory bank. In implementing Decree 88/2016/ND-CP, MoF has urgently drafted Circular guiding the reporting regulations as prescribed by the Decree. Accordingly, in September 2016, the Draft Circular has been circulated to Ministries and sectors and uploaded in the websites of the Government and MoF to call for comments. In addition, on 18 Nov 2016, MoF in coordination with MoLISA conducted a Workshop to collect comments on the 02 Draft Circulars from Ministry of Justice, Vietnamese Trade Unions, fund management firms, insurance enterprises, supervisory banks, depository institutions and enterprises.

Regarding the business permit procedures for the service of pension fund management, Decree no. 88/2016/ND-CP (Article 34, 35 and 36) details the conditions, documents, and procedures to issue the Permit. Once the provided documents are valid, within 30 working days, MoF in cooperation with MoLISA, Ministry of Planning & Investment, and relevant agencies will verify and consider the issue of Business License. Therefore, enterprises are requested to comply with current regulations.

(ii) Regarding tax incentives for voluntary pension program:

In terms of PIT, currently, employees participating in the program are allowed to deduct from their taxable income the amount of less than 1 million/VND/person/month – which is paid by employers as insurance payment for employees (including the amount paid by employees if any); the monthly payment amount from the voluntary pension fund paid to the retired employees is also exempted from PIT.

Regarding CIT, since 2015, enterprises are allowed to deduct the amount paid for employees’ voluntary pension insurance from their taxable income if the amount is less than 1 million VND/month/employee (instead of the previous regulation that enterprises are allowed to deduct the amount of less than 1 million VND/month/employee paid for both voluntary pension insurance and life insurance).

In conclusion, some tax regulations have been amended, supplemented to facilitate employers and employees participating in voluntary pension fund. As a result, MoF requests enterprises to comply with the current tax regulations.

8. Recommendations (Investment and Trade Working Group):

Foreign Contractor Tax: Due to the inconsistent guidance from State authorities, enterprises encountered a lot of difficulties in determining the tax payment amount. Therefore, in order to

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reduce time for enterprises to review and revise their statement, it is requested that the starting date for applying the tax rate as MoF’s guidance is the date of issuing the document, means 27 July 2016. In case the MoF conducts the retroactiveness of the Document, it is requested to clarify the effective date, impose no late payment penalty due to objective factors, and allow enterprises to deduct VAT for inputs in case of additional taxes incurred.

Response:

* In terms of whether the Document No. 15888/BTC-CST dated 7/11/2016 providing the retroactive guidance: In the Document, MoF details that: “Regarding the cases arising before the issuing date of the Document in which VAT and CIT payment are made differently from regulations from this Document, amendments are not required; regarding the cases in which VAT and CIT have been declared but not yet paid, re-declaration and payment should be performed in compliance with the Document regulations.

* In terms of imposing no late payment penalty due to objective factors:

- Clause 3 Article 3 Law No. 106/2016/QH13 (effective from 01/7/2016) stipulates that: “Any taxpayer who fails the tax payment deadline or extended deadline specified in the notice of tax authorities shall make the full payment of tax amount and the interest rate of 0.03%/day due to the late payment.

For the late tax payments before 01 July 2016, including tax arrears after the inspection of the competent authorities, interest rate stipulated in this Clause shall be applied since 01 July 2016”.

- Circular No. 156/2013/TT-BT regulates: “Article 35. Exemption of late tax payment and entitlement to grant exemption of late payment

1. Taxpayers who shall pay late payment interest according to Article 34 of this Circular may request an exemption of late payment interest in cases of natural disaster, fire, accident, epidemic, or fatal disease, or other force majeure circumstances.

3. An application for exemption of late payment interest consists of:

b.3) In case of force majeure circumstance, it is required to submit the documents proving the objective reasons and that though all the possible measures have been taken, damages on business are unavoidable…”

According to the above regulations, enterprises failing the tax payment deadline and extended deadline mentioned in the notice of tax authorities shall fulfill tax payment and the late payment interest.

* Regarding deducing input VAT for additional taxes:

- Article 14.8, Circular 219/2013/TT-BTC dated 31/12/2013 by MoF on principles of deducing input VAT: “8. Arising input VAT shall be declared and deducted in the period during which it is incurred, whether the products are used or still in storage. In case the taxpayer finds that the input VAT is incorrectly declared and deducted, an adjustment may be made before the tax authority or a competent authority announces the decision on tax inspection at the enterprise.”

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According to Article 15 Circular No.219/2013/TT-BTC regarding conditions of reducing input VAT: “1. Legitimate VAT invoices for purchasing goods and services, or receipts for VAT payment on imported goods, or receipts for VAT payment on behalf of foreign organizations having no legal status in Vietnam and individuals doing business or earn arising income in Vietnam…”

According to these above regulations, in case the enterprise declares and deducts the additional VAT payment on behalf of the foreign party, any amendment shall be made before the tax authority announces the decision for tax inspection at the premise of tax payer. In principle, enterprises are not allowed to make additional tax declaration and deduction when the tax authority announces the tax inspection.

9. Recommendations:

Removing all import taxes on automotive components and spare parts which cannot be produced domestically to enhance the competitiveness of domestic products in terms of selling price.

Response:

Vietnam has joined 11 Free Trade Agreements with the tariff removal process (reduction of import tax till 0%). Vietnam has agreed on removing the tariffs for components and spare part in some Agreements, such as ASEAN Free Trade Agreement and ASEAN-China Free Trade Area, in which tax on automotive components and spare parts will be reduced to 0% by 2018 (some components and spare parts have been taxed 0% since 2015 according to ASEAN-China FTA); Vietnam-Korea Free Trade Area, in which this kind of tax will be reduced to 0% from 2019 to 2029; in other Agreements under discussion, this tax will be removed by 2021 - 2023.

Therefore, currently, import tax duties for automotive components and spare parts are already low. For example, tax rate of 3% - 5% for passenger vehicles fewer than 9 seats imported from the ASEAN markets and 8-12% for those imported from Japan. By 2018, 0% tax rate on components and spare parts will be imposed.

- In terms of preferential import duty (MFN), automotive components and spare parts are taxed following the regulation that: low tax rate for domestic components and spare parts which tend not to be produced domestically; high tax rate (in compliance with the WTO agreement) for components and spare parts which are encouraged to produce domestically by the Government.

+ The Annex of Decree No. 111/2015/ND-CP provides a list of supporting products from 6 sectors, including automotive industry. Therefore, automotive components and spare parts, which are listed as supporting products for development priority, are imposed MFN tax rate in order to boost the local production.

+ Decision No. 229/QD-TTg stipulates: “Impose the ceiling rate of import duty in accordance with agreements participated by Vietnam on components, such as gearbox, engines, gear assembly, and other components domestically produced and meet quality and quantity requirements”. Therefore, MFN tax rate remains high for products mentioned in the Decree 229.

However, the average MFN tax rate on a full set of automotive components remains far lower than the current one on a fully built automobile. For example, for passenger vehicles under 9 seats, MFN tax rate remains around 18% for a full set of components and from 51% - 70% for a fully built one.

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Therefore, the removal of the import duty on components and spare parts, which are not yet manufactured domestically, is consistent with the Government’s current policy on encouraging the development of local supporting industries.


It is requested to amend the Clause 1 Article 5 Decree No.218/2013/ND-CP as follows:

- “Projects with at least 6 trillion VND investment capital shall be disbursed within 3 years since the date of issuing the Investment License and reaches the revenue of at least 10 trillion VND annually after 3 years at the latest since the income year.

- Projects with at least 6 trillion VND investment capital shall be disbursed within 3 years since the date of issuing the Investment License and employ more than 3,000 people after 3 years at the latest since the income year.”

Response:

Law on CIT tax (Article 1.7.d, Law No. 32/2013/QH13) imposes 10% tax rate within 15 years, tax exemption in 4 years, and 50% tax payment reduction in the next 9 years for: “Enterprise’s income from implementing new production projects (except for products subject to special consumption duties and mineral exploitation projects) meets one out of the two criteria as follows:

- Projects with at least 6 trillion VND investment capital shall be disbursed within 3 years since the date of issuing the Investment License and reaches the revenue of at least 10 trillion VND annually after 3 years at the latest since the income year.

- Projects with at least 6 trillion VND investment capital shall be disbursed within 3 years since the date of issuing the Investment License and employ more than 3,000 people.

The guidance content in Clause 1 Article 5 Decree No. 218/2103/ND-CP complies with the regulations of the Law on CIT tax.

During the implementation, it is requested for clearer guidance on tax incentives for: investors who perform the process for Investment License but have not registered their investment scale (from 6 trillion VND onwards); however, still meet the conditions of disbursement schedule, revenue, and number of employees; investors who disburse at least 6 trillion VND within 3 years since the date of issuing Investment License for the first time. This will ensure transparency and facilitate enterprises’ operation.

Basing on the Government’s guidance at law, the MoF conducted research and developed solutions. The draft Decree amending and supplementing some articles of Decrees on CIT, PIT, and VAT have been circulated among Ministries, provinces, and business community for further comments. The amendments for at least 6 trillion VND projects have been made as follows: “Investment projects at this point of time include new projects that investment scale of at least 6 trillion VND has not been registered in the first Investment License; however, the disbursement of at least 6 trillion VND has been made within 3 years since the date of the first Investment License.

In the coming time, MoF will further review and evaluate the existing regulations and practical implementation to submit to the Government, the Prime Minister for further amendment.

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11. Recommendations (Investment and Trade Working Group)

It is requested the MoF amend the following regulation:

(i) Expenditure on employees’ direct welfare that enterprise has the legal invoices,, such as funerals, weddings, vacations and events for employees and their families; training facilities; supporting employees’ family suffering from natural disasters, accident, sickness; rewarding employees’ children for their good performance; travelling expense on national holidays and others expenses as guided by the Ministry of Finance. The total expense does not exceed 01 month of actual salary in the taxation year.

(ii) Benefits for employees’ family specified in the Employment Contract and corporate personnel policy is in fact a part of the income policy in order to encourage their commitments to the company. These benefits are taxable in terms of PIT; thus, they should be regarded as reasonable expense of enterprises. Accordingly, VBF requests to amend and supplement Point m, Clause 2, Article 9 Decree No. 218/2013/ND-CP as follows: “... expenditures for bonuses or life insurance, other benefits for employees (including those for their families) without specific details on rewarding conditions and amount mentioned in the following documents: Labor contract, Collective labor agreement; Corporate Financial Regulation; Regulation of Rewards specified by Chairman of the Board, General Director and Director in accordance with the Corporate Financial Regulations ...”

Response:

According to the existing CIT regulations, apart from expenditure for the welfare of employees and their families, businesses have already been exempted from CIT tax for many other expenditure on employees and their families, such as: expenses for depreciation of fixed assets such as medical clinics, training and training facilities, libraries, kindergartens, sports centre and other and furniture; tuition fee for foreigners’ children studying in Vietnam; accommodation fee for employees; expenses for purchasing compulsory insurance, voluntary pension insurance, life insurance;...

Therefore, regarding the request on CIT exemption for the expense of company events and other expenses on the welfare of employees and their families, MoF believes there should be throughout consideration to avoid additional burdens for enterprises. At the same time, it is requested that businesses rely on the current regulations on expenditures for employees to implement in line with enterprises’ reality


It is requested the Government amend and supplement to the Clause 5, Article 1, Decree No.12/2015/ND-CP as follows: “a) Actual arising expenditure on the corporate operation and production activities includes:

Expenditure for commissions and bonuses for individual agents does not require VAT invoices.

Response:

According to Clause 1 Article 9 Decree No.218/2013/ND-CP dated 26/12/2013, enterprises shall be deducted from CIT income with all expenditures under the following conditions: The actual

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expenses incurred in relation to the enterprise’s business and production activities are mentioned in legal invoices and documents as prescribed by law and with the value of at least 20 million VND (including VAT) and voucher of non-cash payment.

Thus, in case of business’s expenditure on commissions, bonuses individual agents without legal invoices (or VAT invoice), enterprises are allowed to include in the amount of CIT exemption.

Therefore, enterprises are requested to submit detailed documents to MoF if any difficulties on this issue.

13. Recommendations:

Warranty terms in the contract with foreign contractors: VBF requests the Ministry of Finance to early provide the guidance system about this issue. Warranty terms mentioned in the product supply contracts of foreign contractors, with a free warranty provisions, is the responsibility of the seller and is not accompanied by any other service at Vietnam, is not subject to foreign contractor tax (FCT). It is also requested that MoF provide guidance to the similar situation of contracts signed before the effective date of Circular No.103.

Response:

* Before 01/10/2014 (Effective date of Circular No.103/2014/TT-BTC): regarding the petition on imposing FCT on imported products with only warranty terms, MoF submitted document to Prime Minister (Document No.5212/BTC-CST dated 20/4/2015, Document No. 3953/TCT-CST dated 25/3/2016, Document No. 8667/BTC-CST dated 27/6/2016, and Document No. i3681/BTC-CST dated 01/10/2016)

The Office of the Government has released the DocumentNo.8954/VPCP-KTTH dated 20/10/2016 specifying the Ministry of Finance to coordinate with the Ministry of Justice to clarify violations against Laws on Tax and damages in order to report to the Prime Minister to handle in accordance with the law.

* Since 01/01/2014: Clause 2 Article 2 Circular No. 103/2014/TT-BTC stipulates: FCT is not imposed for any foreign entity that provides goods for Vietnamese entities without the services performed in Vietnam in the following form:

- Delivery at the foreign border checkpoint: the seller incurs all responsibility, costs, and risks to the transportation and delivery of goods at the foreign checkpoint; the buyer incurs all the responsibility, cost and risks to the receipt and transportation of goods from the foreign checkpoint to Vietnam (even if products are delivered at a foreign border checkpoint under warranty terms which prescribes that the seller is responsible for free warranty; apart from that, sellers shall not perform any other service on supplying that products in Vietnam).

- Delivery at Vietnam’s border checkpoint: the seller incurs all responsibility, costs, and risk until goods reaches the Vietnam’s checkpoint; the buyer incurs all the responsibility, cost and risk to the receipt and transportation of goods from the Vietnam’s checkpoint (even if products are delivered at a foreign border checkpoint under warranty terms which prescribes that the seller is responsible for free warranty; apart from that, sellers shall not perform any other service on supplying that products in Vietnam).

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Removing the 6% import tax 6% on high-quality fertilizers produced outside of Vietnam.

Response:

According to Decree 122/2016/NĐ-CP dated 01/09/2016, an import tax of 6% is imposed on fertilizers that can now be produced within Vietnam (urea fertilizers, superphosphate fertilizers, baked phosphate fertilizers, mineral fertilizers, chemical fertilizers containing two or three out of the following elements: nitrogen, phosphorus, potassium, diammonium hydrogen orthophosphate) with a view to boost local manufacturing and consumption of domestic goods rather than imports.The tax for other fertilizer products is already set at 0% in order to minimize input costs for agricultural production.


Abolishing the tax on agricultural machinery that is manufactured outside of Vietnam.

Response:

According to Decree 122/2016/NĐ-CP, agricultural machinery is categorized in the product group 84.32, which includes agricultural, gardening, and forestry equipment used in tillage and cultivation. At present, according to Circular 04/2015/TT-BKHCN, tractors, sugarcane-combining harvesters, and tillage machines can now be produced domestically; however, since there is yet no differentiation in tariffs on products produced inside and outside of Vietnam, all machines categorized in the product group 84.32 are preferentially taxed at 5% and 20%. Regulations on import tax rates are currently stipulated by the Government; therefore, the Ministry of Finance has noted this recommendation to submit the Government for amendment in 2017, towards introducing a 0% import tax on agricultural machinery that are yet to be produced domestically according to the Government’s Decree.


Reducing import taxes on necessary agricultural machinery to modernize the agriculture and boost competitiveness.

Response:

VBF is requested to specify the machinery types that are necessary to impose less import tax in order to modernize the agriculture and boost competitiveness; thensubmit the list to the Ministry of Finance for further research and collaborate with the Ministry of Agriculture & Rural Development for consideration.


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At present, most mineral resources in Vietnam are yet to be discovered and only a few mines are being probed using modern international-standard technology. If our fees and taxes on natural resources continue to be higher than the average world level, international investors are bound to invest in countries with more favorable conditions rather than bring modern exploration and exploitation technologies to Vietnam. We strongly recommend that the government review the current regulations, making them more competitive and encouraging towards investors, including a reasonable and fair tax system benefiting both the government and investors, as well as a legal framework with consistent and sustainable policies.

Response:

Natural resources play a crucial role in the socio-economic development of our country. The current policies on the collection of taxes and fees serve as a financial tool which demonstrates the governmental ownership of the national resources as well as the governmental control over all exploitation and consumption of natural resources by corporations and individuals. These policies have been formulated and amended in order to be consistent with the government’s undertakings in different periods, with a view to preserving and using the resources reasonably, economically and effectively.

Every country holds a different view about the tax policies on natural resources, depending on the national condition. Canada’s highest tax level is set at 16%, Argentina at 3%; Chile at 14%; Myanmar at 7.5%. From the examples above, it can be seen that tax policies on natural resources around the world are very varied and do not follow any common template. The tax rate for any specific type of resource depends on the importance of the resource itself as well as the nation’s policies on environmental protection and guarantee of the materials for domestic production.

18. Recommendations: (Japan Business Association – JBA)

Reducing the import tax to 0% from 2018 on the components of vehicles assembled/manufactured domestically following the Japan - Viet Nam Economic Partnership Agreement.

Response:

The government issued Decree 125/2016/NĐ-CP on 01/09/2016, which concerns the introduction of Vietnam's preferential import tariff schedule following the Japan - Viet Nam Economic Partnership Agreement in the period of 2016 – 2019. This guarantees Vietnam’s commitment to VJEPA, which also involves consideration of reasonable protection for domestic goods.

- Regarding the tariff reduction schedule:

+ From 01/4/2016 to 31/3/2018: According to VJEPA, current taxes on automobile spare parts and components ranging from 0% to 30% are imposed a steady reduction schedule (except for products excluded in VJEPA thatMFN tariffs or other preset tax levels are applied). Product lines

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currently taxed at 0% include: fuel pipes, heating ducts and plumbing supply pipes; gaskets and O-rings; oil filters; seatbelts; steering wheels with airbags installed; inflator airbags; fuel tanks; gas pedals, brake pedals, clutch pedals; radiator shells; battery racks/trays with frames; components of the safety belt; tachometers for motor vehicles; chassis or other components; camshaft and crankshaft; air filters for internal combustion engines; ignition magnetos...+ Products taxed at 0% from 01/04/2018 onwards include: springs for motor vehicles categorized as group 87.02, 87.03 or 87.04; petrol filters for internal combustion engines; cogwheels, sprockets...; assembled starter motors for motor vehicles categorized as group 87.02, 87.03, 87.04, 87.05; assembled alternating current generators for motor vehicles categorized as group 87.02, 87.03, 87.04, 87.05; assembled whistles; components of the damping system for motor vehicles categorized as certain groups; radiator cooling components for a number of groups; components of fuel tanks; speedometers for motor vehicles.

In the implementation of the Agreement, Japanese Embassy and Toyota Motor Vietnam have also requested for the abolition of import taxes on automobile spare parts and components as stated in the Japan - Viet Nam Economic Partnership Agreement (VJEPA), which aims to accelerate the tax reduction schedule to 0% before 2018 to cut down on domestic car manufacturing costs.

Out of the 39 product lines the Japanese Embassy has requested for tax reductions, 36 lines (92%) are categorized as products which have been produced domestically according to Circular 14/2015/TT-BKHĐT by The Ministry of Planning & Investment and Prioritized Industrial Product Portfolio according to Decree 111/2015/NĐ-CP by the government; some of the product lines are multidisciplinary, therefore changes in tax rates potentially lead to impacts on other manufacturing fields. As a result, there is a need for a detailed impact assessment in terms of the development of supporting industries and other related industries (comprehensively evaluating the orientation and targets of the development of Vietnam’s automotive industry and the ability to grow and compete with imported automobiles from Thailand, Indonesia after 2018, together with necessary conditions to boost this industry; evaluating how abolishing taxes on automobile spare parts and components as stated in VJEPA impacts the ability to grow and compete with imported cars from Thailand, Indonesia so that our disadvantages can be explained…)In addition, the tax reduction schedule for fully built automobiles as stated in ASEAN Trade in Goods Agreement takes effect from 01/01/2018. The current MFN tax rates on these products are already low.

Thus, regarding the Japanese request for reduction in taxes on automobile spare parts and components, Ministries and sectors are going to research and evaluate the potential impacts in order to report to the Government. However, it is recommended that Japanese enterprises in Vietnam actively take measures to boost the competitiveness of automobiles manufactured in Vietnam, turning to the Vietnamese supplies of spare parts and components instead of being dependent on the government’s import tax reductions. For the time being, the preferential import tax on automobile spare parts and components is implemented as stated in current legal documents.


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Abolishing the sanction/interest rate for late tax payment due to re-audits and re-inspections.

Response:

*Before 01/07/2013:

According to Article 111 of Law on Tax Administration:

“Article 111. Exemption from sanctioning of tax law violations1. Persons sanctioned against tax law violations may request exemption from sanctioning in case they suffer from natural disasters, fires, accidents or other force majeure circumstances.2. Exemption from sanctioning against tax law violations shall not be given to entities that have complied with decisions on sanctioning of tax law violations, issued by tax administration agencies or competent state authorities.3. The authority and procedures for exemptions shall be stipulated by the Government.”

According to Paragraph 1, Article 25, Decree 98/2007/NĐ-CP (07/06/2007), the government stipulated the regulations on tax law violations and enforcement of tax administrative decisions:

“Taxpayers sanctioned for tax-law violations may request exemption from sanctioning in case they suffer from natural disasters, fires, accidents or other force majeure circumstances. The maximum exemption amount may not exceed the total value of the assets and goods damaged.”

According to Part XIII, Section E of Circular 61/2007/TT-BTC (14/06/2007) by The Ministry of Finance, the procedure for handling tax law violations is as follows:

1. Taxpayers sanctioned for tax-law violations may request exemption from fines for their tax-law violations when they suffer from natural disasters, fires, unexpected accidents or other force majeure cases. The maximum fine exemption level does not exceed the value of damaged properties and goods.

Accordingly, before 01/07/2013, tax payers suffering from disasters, fires, accidents or other force majeure circumstances are exempt from sanctioning for tax law violation.

*After 01/07/2013:

According to Article 11 of Law on Handling Administrative Violations (2012):“Article 11. Cases not subject to administrative sanctioningThe following cases are not subject to administrative sanctioning:1. Committing an administrative violation in an emergency circumstance;2. Committing an administrative violation for the legitimate defense purpose;3. Committing an administrative violation due to an unexpected event;4. Committing an administrative violation due to a force majeure event;5. The administrative violator has no administrative liability capacity or has not attained the age for being administratively sanctioned stipulated at Point a, Clause 1, Article 5 of this Law.

According to Paragraph 36, Article 1 of Law on Tax Administration (2012) as amended:36. Supplement the phrase “late payment amount” in front of the phrase “sanction amount” in

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the title of Part 2, Chapter VIII, Article 3, 5, 8, 65, 66, 68, 90, 92, 93, 98, 99, 100, 13, 114 và 118; supplement the phrase “and exempt from paying santions” after the phrase “exempt from sanctions” in Paragragh 4, Article 49; eliminate the word “sanction” in the phrase “late payment sanction amount” in Paragraph 3, Article 56.

According to Article 4 and Paragraph 1, Article 16 of Decree 129/2013/NĐ-CP (16/10/2013) concerning the regulations on tax law violations and enforcement of tax administrative decisions:“Article 4. Cases in which penalties for administrative violations pertaining to taxation are exempt:1. The cases mentioned in Article 11 of the Law on Handling administrative violations2. The taxpayer has corrected the misstatement and paid tax sufficiently before the tax authority issues a decision on tax inspection at the taxpayer’s premises.”“Article 16. Exemption, reduction of fines for administrative violations pertaining to taxation; exemption and reduction procedure1. The individual that carries a fine from 3,000,000 VND for administrative violations pertaining to taxation is entitled to request a reduction or exemption of the fine if they face special or unexpected economic difficulties due to natural disasters, conflagration, calamities, accidents, epidemics, or fatal diseases.The maximum reduction equals to the remaining fine in the decision on penalties and shall not exceed the value of damaged assets, goods, and treatment cost.”

According to Article 5 and Paragraph 1, Article 26 Circular 166/2013/TT-BTC:“Article 5. Cases in which administrative penalties are not imposed1. The cases mentioned in Article 11 of the Law on Penalties for administrative violations.2. After making an incorrect declaration, if the taxpayer rectify the declaration and pay off the tax payable before the tax authority issues a decision on tax inspection at the taxpayer’s premises or before the offense is found by the tax authority without inspection at the taxpayer’s premises or before the offense is found by another competent authority, penalties shall not be imposed.” “Article 26. Cases in which a penalty decision is not made or is annulled1. A penalty decision shall not be made in the following cases:a) The case in Article 5 of this Circular.b) The violator is not identifiable.c) The time limit for imposing administrative penalties for tax offenses prescribed in Article 4 of this Circular has expires or the time limit for issuing a penalty decision prescribed in Article 27 of this Circular has expired.d) The violator is dead, missing, the violating organization has issued a decision to dissolve or declare bankrupt pending the issue of the penalty decision.dd) The case is converted into a criminal case as prescribed in Article 24 of this Circular.”

Accordingly, only corporation and individual violators in cases mentioned in Article 1 of Law on Handling Administrative Violations; Article 4 of Decree 129/2013/NĐ-CP are not subject to administrative sanctioning.Persons administrative sanctioned for tax law violation may request an exemption or reduction with the amount of 3,000,000 VND and above in case they economically suffer from natural disasters, fires, accidents, epidemics or fatal diseases.

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Therefore, regarding cases following re-audits and re-inspections, if the tax payers do not fall in any of the aforementioned circumstances, the violators are not exempt from sanction, sanction payment and late tax payment fines. This suggestion has been noted for further consideration by The Ministry of Finance (General Department of Taxation).


Postponing the application of based increased VAT base rate in calculation of mandatory insurances.

Response:

According to Law on Value-added Tax 19/06/2013, there were amendments to non-taxable objects“7. Life insurance, health insurance, insurance for students, other insurances related to humans, insurance for animals, insurance for plants, other agricultural insurances; insurance for boats, ships, and other equipment necessary for fisheries; reinsurance.”

Accordingly, life insurance, health insurance, insurance for students, other insurances related to humans are categorized as non-taxable objects.


(i) Amend regulations on the calculation of foreign contractor tax for foreign traders who supply goods according to the delivery conditions of the International Commercial Terms (INCOTERMS), in which suppliers bear the risks of their goods entering Vietnam, towards guaranteeing the essence of foreign contractor tax, which only applies for the income of foreign contractors that generates from providing services in Vietnam.

(ii) Consider and formulate regulations so that purchasers of imports can receive valued-added tax deductions provided that DPP delivery condition (Delivered Duty Paid) of INCOTERMS is used.

Response:

(i) According to Paragraph 3a, 3b, Article 11 of Decree 218/2013/NĐ-CP (26/12/2013) – Detailing and Guiding the Implementation of Law on Corporate Income Tax (CIT) – the calculation of foreign contractor tax is stipulated as:“3. For enterprises specified at Point c and d, Clause 2, Article 2 of the Law on CIT, the income tax to be paid by enterprises is calculated by the rate of % on revenue of sale of goods and services in Vietnam, specifically as follows:a) Services: 50%, as for services of management of restaurant, hotel and casino: 10%; in case of supply of services associated with goods, then the goods shall be calculated at the rate of 1% and 2% in case of failure to separate the value of goods with the value of services;b) Providing and supplying goods in Vietnam in the form of on-the-spot import and export or

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international commercial terms (INCOTERMS) are 1%;”

Accordingly, if foreign tax contractors distribute and supply goods in Vietnam according to International Commercial Terms (INCOTERMS), their duty is to pay CIT as a percentage of their income as stipulated above.

(ii) According to Law on CIT, one of the conditions for the receipt of valued-added tax deductions is the acquisition of value-added invoices for purchased goods/services or proof of value-added tax payment in the import stage. Regarding the application of DPP delivery condition, since suppliers pay the valued-added tax in the import stage, documents of payment will bear the name of suppliers; considering this, it is inappropriate to allow suppliers to receive valued-added tax deductions in the import stage using these documents.

However, it is stipulated in the law that because suppliers are categorized as corporate-income-taxable objects, the suppliers are required to issue invoices on delivery, otherwise the purchases must pay the tax for the suppliers (provided that suppliers pay the CIT directly). Purchasers use the tax payment receipts or invoices issued by suppliers made to make declarations and VAT deductions as stipulated in the law.

22. Recommendations

Adhering to the principle of investment protection through recognition and ensurance of the CIT incentives as specified in the investment certificates issued to investors: Recently, tax authorities have been conducting audits in many enterprises, have determined that the incentives in investment certificates issued to many businesses do not comply with current regulations on taxes and, therefore, have proposed collecting tax arrears rather than adhereing to the principle of investment protection. The tax incentives for enterprises in the investment certificate issued must be implemented precisely as stated. Upon detection of inaccuracies in investment certificates, licensing authorities are required to explain to investors to adjust the inaccurate terms; thereupon enterprises calculate their tax, starting from the date when adjustments are made in the investment certificate. In fact, we ackowledge that the Government and the Ministry of Finance have addressed many cases in which investors are allowed to preserve the incentives stated in the investment certificate. Therefore, on the basis of the principle of most-favored-nation treatment, we propose fair, equal and consistent treatment to investors from different countries in order to boost the confidence for potential and current investors in Vietnam.

Response:

There were differences between the Law on CIT and the Law on Investment in the government’s preferential investment policies before 2014. Accordingly, the Law on Investment encourages the use of incentives for new investment projects, while the Law on CIT delimitates between the incentives applied to new investment projects of newly established enterprises (incentives for the legal person) and the incentives applied to new investment projects of incumbent enterprises, allowing the latter to enjoy only incentives under investment expansion covers. At the same time, incentives for investment expansion projects also changed: during the period from 2009 to 2013, there were no incentives for investment expansion projects. In fact, the authoritative bodies have

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issued investment certificates/licenses with incentives for investment projects (not for newly established enterprises from investment projects) which are not in line with the Law on CIT at the time of issue of the business license.

In fact, to overcome problems in reality, the Congress has enacted Law No. 32/2013/QH13 amending and supplementing certain articles of the Law on CIT applied from tax period 2014, with an agreement on the criteria for consideration of tax incentives for new investment projects.To ensure the business environment and commitments of the government agency to investors, the Ministry of Finance has compiled similar cases and submitted to the Prime Minister for provision of preferential CIT under the investment license.

Implementing the Prime Minister’s guidance, the Ministry of Finance has taken the initiative, collaborating with the Ministry of Planning and Investment, the Ministry of Justice and related agencies to issue guidelines: if the CIT incentive stated in the investment certificate/license is inconsistent with the regulations at the time of issue, regulations on CIT in respective periods are applied.


Penalty on late payment of tax: inconsistency in existing regulations. It is proposed that the MOF issue consistent guidelines for all cases so that enterprises can properly fulfill their tax obligations toward the State Budget. Regarding the inconsistency in existing regulations on determining late payment interest, the MOF should issue consistent guidelines.

Response:

The question raised is unclear as to whether the inconsistency is in the penalty on late payment of tax itself or the inconsistency is between the penalty on late payment of tax and the penalty on late payment of fine.

Under current regulations, the rate of penalty on late payment of tax is 0.03% per day while the rate of penalty on late payment of fine is 0.05% per day. This is what the inconsistency is about. Namely:

According to Clause 3, Article 3 of the Law N0.106/2016/QH13 dated April 6th 2016 amending and supplementing a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Management.

“Article 3. Amend and supplement a number of articles of the Law on Tax Management N0.78/2006/QH11, which was amended under Law No. 21/2012/QH13 and Law N0.71/2014/QH13:Clause 1, Article 106 is amended and supplemented as follows:1. Any taxpayer who fails to pay tax by the statutory deadline, an extension thereof, or the deadline specified in the tax authority’s notice or decision shall be liable to fully pay the outstanding tax together with a late payment penalty which shall be charged on the unpaid amount at a rate of 0.03% per day.

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Any outstanding tax debts which were incurred before July 1st 2016, including those uncovered following inspections by a competent authority shall be subject to the penalty on late payment under this Article from July 1st 2016.Where a taxpayer providing goods/services which are supposed to be paid for by state budget incurs a tax debt as such goods/services have not been paid for, such taxpayer shall be exempt from paying the late payment penalty on the unpaid tax, provided that such unpaid tax does not exceed the amount owed by State Budget. ”

According to Clause 1, Article 78 of the Law on Handling Administrative Violations of 2012:“1. Within 10 days of the receipt of the sanctioning decision, the sanctioned individual or institution shall pay fines either at the State Treasury premises or pay into the State Treasury’s account stated in the sanctioning decision, unless the fine has been paid under clause 2 and clause 3 of this Article. Failure by the sanctioned individual or institution to do so shall result in the enforcement for execution of the sanctioning decision and the sanctioned individual or institution shall be subject to an additional 0.05% of the total outstanding fine amount for each day of delay”.

According to above listed regulations, the penalty on late payment of tax is governed by regulations on tax management; while the penalty on payment of fine is governed by regulations on handling administrative violations, namely:- Regarding the calculation of penalty on late payment of tax: A taxpayer committing delays in

the payment of tax shall be subject to a penalty on late payment of tax at a rate of 0.03% of the unpaid amount under the above mentioned Law N0.106/2016/QH13.

- Regarding the calculation of penalty on late payment of fine: the sanctioned individual or institution that commits delay in paying fines within the deadline stated in the sanctioning decision shall be subject to an additional 0.05% of the total outstanding fine amount for each day under the Law on Handling Administrative Violations of 2012.


We propose the MOF consider issuing regulations on investment expansion for the 2009-2013 period under which investment expansion shall only be determined when businesses have increased capital and have implemented capital for such period.

Response:

Under Decree N0.108/2006/ND-CP, a new project is defined as a project implemented for the first time or a project independent of an ongoing one; an investment expansion project is defined as a development investment project designed for scale expansion, capacity enhancement, business capabilities improvement, technological innovation and reduced environmental pollution compared with the existing project. Under tax regulations, in the 2009-2013 period, corporate income tax incentives shall not apply to investment expansion projects. As such, businesses which make investments during this period shall not be entitled to tax incentives.

In order to differentiate between investment expansion and regular investment, the MOF sought the Prime Minister’s instructions by Official Letter N0.13828/BTC-TCT On November 24th

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2015, the Government Office responded with Official Letter N0. 9830/VPCP-KTTH stating Deputy Prime Minister Vu Van Ninh’s opinions on the issues stated in Official Letter N0.13828/BTC-TCT. On August 8th 2016, the MOF issued Circular N0.130/2016/TT-BTC, Article 5 of which provides that: “For the 2009-2013 period, an enterprise that during its business process used its fixed asset depreciation fund or after-tax profit for re-investment, or used capital within the investment capital amount registered with the competent authority for the regular addition of machinery and equipment but did not increase the manufacturing or business capacity previously registered with or approved by a competent authority shall not be deemed to have carried out investment expansion. In addition, the MOF also issued Official Letter N0. 4769/BTC-TCT of April 7th 2016 detailing the criteria to determine CIT incentives for regular investment activities during the 2009-2013 period.

Accordingly, an enterprise that carried out investment expansion in the 2009-2013 period but meets the criteria under the said Circular N0.130/2016/TT-BTC and Official Letter N0.4769/BTC-TCT shall be entitled to Corporate Income Tax incentives in respect of initial investment projects. Accordingly, an enterprise that carried out investment expansion in the 2009-2013 period but meets the criteria under the said Circular N0. 130/2016/TT-BTC and Official Letter N0.4769/BTC-TCT shall be entitled to CIT incentives in respect of initial investment projects.


CIT incentives are to be granted to new investment projects licensed before January 1st 2014: We recommend the MOF consider issuing consistent guidelines to local tax authorities in order to create a level playing field for investors. Specifically, we recommend the provision “Enterprises which are newly established under investment projects granted Investment license or Investment Certificate before January 1st 2014 but remain in the investment process and have neither started operation nor generated revenues shall be entitled to CIT incentives like new investment projects do” be consistently applied from 2014 instead of being applicable only to enterprises coming into operation from 2015.

Response:

- Clause 2, Article 13, Circular N0.96/2015/TT-BTC dated February 27th 2015 issued by the MOF provides:

“2. Clause 3, Article 23 of Circular N0.78/2014/TT-BTC is amended and supplemented as follows:“3. “Enterprises which are newly established under investment projects granted Investment license or Investment Certificate before January 1st 2014 but remain in the investment process and have neither started operation nor generated revenues shall be entitled to CIT incentives under Law N0. 32/2013/QH13, Law N0.71/2014/QH13 and relevant by-laws”

- Clause 1, Article 14, Circular N0.96/2015/TT-BTC provides:1. This Circular comes into effect from August 6th 2015 and shall apply to the CIT calculation periods from 2015 onwards.

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Circular 96/2015/TT-BTC applies to the CIT calculation periods from 2015 onwards, which means it shall not apply retroactively to CIT calculation periods before that. As such, the recommendation for application of Clause 2, Article 13, Circular N0.96/2015/TT-BTC retroactively to 2014 is not legally founded.


The issue of capital transfer: We humbly request the MOF/GDT to amend regulations or provide specific instructions on which cases are subject to declaration under Clause 1, Article 14 (a possible option is to adopt the basis of ratio of property value to total assets) to accurately reflect the nature of a transaction as real estate transfer. Regarding indirect capital transfer, we humbly request the MOF/General Department of Taxation (GDT) to issue specific guidelines on the allocation taxable income between Country B and Vietnam as well as on the application of DTA. Whether the DTA between Vietnam and Country A or one between Vietnam and Country B shall apply.

Response:

Existing regulations on the determination and declaration of income from the transfer of capital or real estate:- Clause 1, Article 14, Circular N0.78/2014/TT-BTC dated June 18th 2014 by the MOF

providing detailed guidelines on the implementation of Decree N0.218/2013/NĐ-CP dated December 26th 2013 by the Government guiding the implementation of the Law on CIT provides for income from capital transfer as follows:

An enterprise’s income from capital transfer is income earned from the transfer, either in part or in whole, of the capital amount the enterprise has invested to one or more other institutions or individuals (including the sale of the whole enterprise itself). The time of determining income from capital transfer is the time of transfer of capital ownership.

In case an enterprise sells an entire single-member limited liability company of which it is the owner in the form of a transfer of capital together with real estate, it shall declare and pay CIT for real estate transfer and fill in the CIT return (form No. 08) issued under this Circular.”In case an enterprise transfers capital and receives, instead of cash, property or other material benefits (stocks, fund certificates, etc.) and earns income from such transfer, such income shall be subject to CIT. The value of property, stocks or fund certificates shall be determined based on their selling prices on the market at the time of their receipt.

- Article 16. Circular N0. 78/2014/TT-BTC provides for income from real estate transfer as follows:

“1. Enterprises subject to real estate transfer tax shall comprise of: Enterprises of all economic sectors and business lines having incomes from real estate transfer; and real estate enterprises having incomes from land sublease.2. Incomes from real estate transfer include: income from the transfer of land use right, or land lease right (including also the transfer of projects attached to the transfer of land use rights or land lease right in accordance with law); income from the sublease of land of real estate enterprises in accordance with the land law regardless of whether there is an infrastructure facility or architectural work attached to land; income from the transfer of houses or

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construction works attached to land, including their appurtenances, if the value of such appurtenances is inseparable upon the transfer, regardless of whether land use rights or land lease right are/is transferred; and income from the transfer of house ownership or use right.Income from the sublease of land of real estate enterprises shall not include cases in which only houses, infrastructure facilities or architectural works on land are leased. “

- Point 4, Article 27, Article 26, Circular N0.205/2013/TT-BTC by the MOF dated December 24th 2013 guiding the implementation of double taxation avoidance agreements and the prevention of tax evasion with respect to taxes on income and property between Vietnam and other states or territories and in force in Vietnam provides that:

“4. Tax obligations for income from the transfer of foreign investors’ capital in foreign-invested enterprises, in a trust or a partnership in which the value of real estate makes up a predominant proportion in the total capital of such enterprises.

Most of the Agreements between Vietnam and foreign countries provide that Vietnam is entitled to collect income tax in cases where the foreign parties transfer their capital in enterprises, trusts or partnerships being residents of Vietnam and the value of real estate makes up a predominant proportion in the total assets of such enterprises.

A predominant proportion of real estate value in the total assets of an enterprise is determined as follows:- Where an Agreement specifically provides for the proportion or the predominant proportion, then the proportion under the Agreement shall apply. For example, Clause 4 Article 13 of Vietnam - Spain Agreement provides for a proportion of over 50%, or Clause 4 Article 14 of Vietnam-Oman Agreement and Clause 4 Article 13 of Vietnam - United Arab Emirates Agreement states the predominant of over 50%.- Where an Agreement fails to specify the proportion or the predominant proportion, the predominance shall be determined to be over 50%.“4. Gains derived by a resident of a Contracting State from the transfer of shares or comparable interests in a company the assets of which consist wholly or principally of immovable property situated in the other Contracting State, may be taxed in that other State."

- Clause 8, Article 12, Circular N0.156/2013/TT-BTC dated February 27th 2015 issued by the MOF provides that:

“8. Declaring CIT on the transfer of capital:a) The income from capital transfer may be considered another income. Any company that earns incomes from capital transfer must determine and declare the CIT on capital transfer in the quarterly provisional declarations and annual terminal declaration.Where an enterprise sells in whole or in part a single-member limited liability company in the form of capital transfer, CIT shall be declared and paid quarterly at the tax authority where the transfer is made (form 02/TNDN - Declaration of CIT on real estate transfer) issued under this Circular and the annual terminal declaration shall be submitted where the enterprise’s head office is situated.b) Any foreign organization that does business in Vietnam or earns income in Vietnam (hereinafter referred to as foreign contractor) without being governed by the Law on Investment and the Law on Enterprises and performs capital transfer shall have CIT declared on a case-by-case basis.

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The capital transferee shall determine, declare, deduct, and pay the payable CIT on behalf of the foreign institution. If the transferee is also a foreign institution that is not governed by the Law on Investment and the Law on Enterprises, the enterprise incorporated under Vietnam’s law in which foreign institutions’ capital is invested shall declare and pay the payable CIT on behalf of the foreign institution.

Based on the above stated regulations, instructions are already available and stipulate that an enterprise which sells an entire one-member limited liability of which it is the owner in the form of a transfer of capital together with real estate shall declare and pay CIT for income earned from real estate transfer. Other cases of capital transfer (transfer of capital of a joint stock company, transfer of capital of a multi-member limited, etc.) together with real estate: no express instructions are available as to whether such transfers shall be treated as capital transfer or real estate transfer.

Regarding indirect transfer of capital, under Clause 4, Article 27 of the said Circular 2015/2013, Vietnam’s tax authority is entitled to collect tax in accordance with Vietnam’s tax regulations on income from capital transfer earned in Vietnam in the event of transfer of capital together with real estate in Vietnam provided that the value of real estate accounts for over 50% of the total assets.


Refund of VAT in respect of business lines with long manufacturing cycles: We recommend the Government allow VAT refund for investment projects in industries similar to export ship building having with un-deducted VAT of at least VND 300 million.

Response:

Clause 3, Article 1 of the Law No.106/2016/QH13 amending and supplementing a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Management provides that:

A business whose exported goods/services incur an input VAT of at least VND 300 million which has not been deducted in the month or quarter shall receive VAT refund for that month or quarter, unless such goods are imported for exportation or exports are not exported within a customs controlled area as prescribed by the Law on Customs. A “refund first, inspect later” approach shall apply to manufacturers of exports with at least 2 years of clean history of compliance with tax and customs regulations and those not classified as of high-risk profile under the Law on Tax Management.

Based on the above stated rationale, where a business in businesses with long manufacturing cycles incur an input VAT of at least VND 300 million which has not been deducted in the month or quarter shall be entitled to VAT refund provide that it meets the stated conditions.

Accordingly, the recommendation for VAT refund not depending a time frame of month or quarter with un-deducted VAT amount of at least VND 300 million is subject to the National

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Assembly’s jurisdiction. MOF, therefore, would take note of this recommendation for later reference for the upcoming drafting of the Law on Value-added Tax.


VAT refund in respect of trading in imports and exports: We humbly request more specific guidelines on handling input VAT of expenses directly/indirectly related to goods exportation. Specifically: What are the expenses of which input VAT will be refunded or will not be refunded but withheld for subsequent deduction? In case of a refund, will the refund be done for the full VAT or on a pro rata basis? Regarding VAT on imported goods (which has been paid during the import stage), will the tax authority or customs authority have jurisdiction over a refund? In the event of no refund, what is the reason?

Response:

Clause 3, Article 1 of Circular No.130/TT-BTC dated August 12th 2016 by the MOF amending and supplementing a number of articles of Circular No.219/2013/TT-BTC dated December 31st 2013 by the MOF provides that:

“4. VAT refund for goods and service exports:A business that has an amount of un-deducted input VAT of at least VND 300 million on its exported goods and services in a month (in the event of monthly tax declaration) or in a quarter (in the event of quarterly tax declaration) shall be entitled to VAT refund on a monthly or quarterly basis; however, an un-deducted input VAT of less than VND 300 million in a month or quarter shall be carried forward to the subsequent month or quarter.A business that both exports and sells its goods and services domestically in a month or quarter shall record input VAT on its goods and service exports separately in accounting entries. The input VAT on the goods and service exports, if not feasibly recorded in separate accounting entries, shall be determined according to the proportion of the revenues of goods and service exports to the total revenues of goods and services covering VAT periods from the period succeeding the latest tax period in which tax is refunded to the current period when a tax refund is requested.If the amount of input VAT on goods and service exports (including the amount of input VAT separately recorded and the amount of input VAT determined through the said proportion) remains at least VND 300 million after having been netted off against VAT payable on goods and services sold domestically, the business shall receive a refund of VAT on goods and service exports. The amount of VAT refund on goods and service export shall not exceed the revenues from such goods and service export multiplied by 10%.”

Based on the above stated instructions, for businesses involved in goods and service exportation, input VAT associated with exports shall be deducted and refunded but the amount of such refund shall not exceed 10% of the export value; expenses not relating to exports shall not be eligible for refund, and VAT deductions associated with the business’s domestic business activities shall be withheld for the subsequent period.

In the event a business fails to record input VAT associated with exports, the amount of input

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VAT with respect to expenses associated with goods and service exports shall be determined pro rata based on the proportion of goods and service exports in the total sales.

VAT on imported goods (which has been paid during the import stage) which are used for the manufacturing and trading of goods and service exports (except for goods imported for subsequent export) shall be deducted and refunded as stipulated. The refund of VAT in such a case shall be subject to the tax authority’s jurisdiction.


Refund VAT to businesses whose goods and services are both exported and sold domestically: We request the addition of examples of how to calculate the amount of VAT refund in the event of a business whose goods and services are both exported and sold domestically for the purpose of taxpayers’ proper understanding and compliance.

Response:

In accordance with Point 4(a), Clause 3, Article 1, Circular No.130/2016/TT-BTC dated August 12th 2016 by the MOF guiding the implementation of the Government’s Decree No.100/2016/ND-CP dated July 1st 2016 detailing the implementation of the Law on amendment and supplementation of a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Management and amending a number of articles of circulars on tax, and guiding the refund of tax with respect to goods and service exports:

a) A business that has an amount of un-deducted input VAT of at least VND 300 million on its exported goods and services in a month (in the event of monthly tax declaration) or in a quarter (in the event of quarterly tax declaration) shall be entitled to VAT refund on a monthly or quarterly basis; however, an un-deducted input VAT of less than VND 300 million in a month or quarter shall be carried forward to the subsequent month or quarter.A business that both exports, and sells its goods and services domestically in a month or quarter shall record input VAT on its goods and service exports separately in accounting entries. The input VAT on the goods and service exports, if not feasibly recorded in separate accounting entries, shall be determined according to the proportion of the revenues of goods and service exports to the total revenues of goods and services covering VAT periods from the period succeeding the latest tax period in which tax is refunded to the current period when a tax refund is requested.If the amount of input VAT on goods and service exports (including the amount of input VAT VCIO separately recorded and the amount of input VAT determined through the said proportion) remains at least VND 300 million after having been netted off against VAT payable on goods and services sold domestically, the business shall receive a refund of VAT on goods and service exports. The amount of VAT refund on goods and service export shall not exceed the revenues from such goods and service export multiplied by 10%. “

As such, Circular No.130/2016/TT-BTC already provides specific instructions on VAT refund for businesses whose goods and services are both exported and sold domestically. You are

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requested by MOF to follow the above stated instructions.


Refund of VAT to businesses whose goods are subject to a VAT rate of 5%Response:

In accordance with Clause 3, Article 1, Circular No.130/2016/TT-BTC dated August 12th 2016 by the MOF guiding the implementation of the Government’s Decree No.100/2016/ND-CP dated July 1st 2016 detailing the implementation of the Law on amendment and supplementation of a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Management and amending a number of articles of circulars on tax, and guiding the refund of tax with respect to goods and service exports. According to which:- A business adopting the invoice credit method and having goods subject to a VAT rate of 5%

has input VAT which is not yet fully deducted in a month (in the event of monthly tax declaration) or in a quarter (in the event of quarterly tax declaration) shall be entitled to deductions in the next period.

- If a business’s VAT is not fully deducted before the tax period of July 2016 (for monthly declaration) or of the 3rd quarter of 2016 (for quarterly declaration) but such business is eligible for VAT refund under Clause 1, Article 18 of Circular No. 219/2013/TT-BTC, VAT refund shall be effected as stipulated.


VAT rates applicable to exported services: We humbly request MOF to define exported services based purely on the where the customer (to which the invoice is issued) is located. This will ensure that Vietnam’s VAT treatment of exported services is in line with that of standard international practice and that Vietnamese service exporters are not disadvantaged versus their competitors overseas, who enjoy VAT rate of 0% for their exported services.

Response

The Law on Value-added Tax No.31/2013/QH13 dated June 19th 2013 amending and supplementing a number of articles of the Law on Value-added provides:

“3. Clause 1, Article 8 is amended and supplemented and point q is added to Clause 2, Article 8 as follows:7. The tax rate of 0% is applicable to goods and service exports, international transport, goods and services which are not subject to VAT under Article 5 of this Law when they are exported, except for the cases listed below:Goods and service exports being sold outside Vietnam, in non-tariff zones; goods and services provided for foreigners according to the Government’s regulations. “

The Government’s Decree No.209/2013/ND-CP dated December 18th 2013 provides for the 0% tax rate as follows:

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i. The tax rate of 0% applies to exported goods and services, international transportation and goods and services not subject to value-added tax under Article 5 of the Law on Value-Added Tax and Clause 1 Article 1 of the Law amending and supplementing a number of articles of the Law on Value-Added Tax upon exportation, except goods and services specified at Point dd of this Clause.Exported goods and services are those sold or supplied to overseas institutions and individuals and consumed outside Vietnam, in non-tariff areas; and those supplied to foreign customers as prescribed by law.Exported services include services provided directly to overseas institutions or individuals or institutions and individuals in non-tariff areas and consumed outside Vietnam, consumed in non-tariff areas. “

Based on the above stated regulations:

Exported services eligible for the VAT rate of 0% are those provided directly to overseas institutions or individuals and consumed outside Vietnam.Services provided to foreign institutions or individuals are not eligible for the VAT rate of 0%.


We humbly request the MOF to issue detailed guidelines as to which contracts among those containing terms of delivery at the bonded warehouse are subject to FCWT and which contracts are not. We assume that contracts containing CIF/FOB bonded warehouse terms of delivery are not subject to FCWT.

Response:

Clause 2, Article 1, Circular No.103/2014/TT-BTC dated August 6th 2014 by the MOF providing guidelines on FCWT define governed subjects as follows:“2. Foreign individuals and institutions...distributing goods in Vietnam or supplying goods under Incoterms rules where the seller bears all the risks associated with the carrying of goods into Vietnamese territory. “

Clause 2 and Clause 5 of Circular No.103/2014/TT-BTC provide for subjects not governed by this Circular as follows:“2. Foreign individuals and institutions supplying goods to Vietnamese individuals and institutions without ancillary services in Vietnam in the form of:- Delivery at Vietnam’s border checkpoint: the seller incurs all responsibility, costs, and risk until goods reaches the Vietnam’s checkpoint; the buyer incurs all the responsibilities, costs and risks associated with the receipt and transport of goods from Vietnam’s checkpoint (including deliveries at a Vietnamese border checkpoint upon a term that the seller is responsible for warranty).5. Foreign individuals and institutions using a bonded warehouse or inland clearance depot (ICD) as a warehouse serving international transport, transit of goods, or storage of goods to be processed by other companies “

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Based on the above stated regulations, in principle, if a foreign institution has distribution operations in Vietnam under Incoterms rules where the seller bear all the risks associated with the carrying of goods into Vietnamese territory and the place of delivery is within Vietnam’s territory, then the foreign institution is subject to FCWT. If a foreign institution uses a bonded warehouse as a warehouse to support international transport, transit of goods, or storage of goods to be processed by other companies, it is not governed by Circular No.103/2014/TT-BTC.


Administrative violation penalty at 20% of the understated tax amount or refunded tax amount: For the purpose of consistency, we recommend the MOF/GDT issue guidelines to local tax authorities on principles of tax penalty, specifically: in order to avoid ambiguities about misstatements that do not lead to underpayment or over-refund, penalty should be a fixed amount. We recommend future amendments when the MOF revises the Circular on administrative penalties in taxation.

Response:

Under Clause 4, Article 12 of Circular No.166/2013/TT-BTC detailing penalties on administrative violation.“Article 12. Penalties for understatement of tax payable or overstatement of refundable tax...4. In case the taxpayer makes an misstatement under Clause 1 of this Article but such misstatement does not lead to underpayment or misstatements which are made but no tax amount has been refunded, waived or reduced , the taxpayer shall be subject to penalties under Clause 4 Article 8 of this Circular instead of the penalties under this Article. “

Under Clause 4, Article 8 of Circular N0.166/2013/TT-BTC:

“Article 8. Penalties for failure to provide sufficient information in tax documents...4. A fine of VND 2,100,000, which fine shall not be less than VND 1,200,000 if mitigating circumstances are available and shall not exceed VND 3,000,000 aggravating circumstances are found, shall apply to the following violations:

a) The violations under Clause 4, Article, Clause 7 Article 13 of this Circular.b) The understatement of tax amount in the quarterly tax declaration but the time for the

annual terminal tax declaration is not yet due. “

The above-stated regulations under Circular N0.166/2013/TT-BTC expressly provide that misstatements under Clause 1, Article 12 of this Circular which do not lead to underpayment and misstatements which are made but no tax amount has been refunded, waived or reduced shall not be subject to penalties for tax understatement. Instead, they shall be subject to penalties on tax procedures under Clause 4, Article 8 of Circular N0.166/2013/TT-BTC with the penalty amount ranging between VND 1.2 million and VND 3 million.


Invoice issuing: We humbly request the MOF and GDT to provide more detailed instructions on

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documents which may serve as a reasonable basis to determine the time of service completion. We would also like to seek exhaustive instructions on the time of making invoice for construction and installation contracts where installments are supposed to be made in line with implementation progress.

Response:

Article 5 of the Government’s Decree No.209/2013/ND-CP dated December 18th 2013 provides for the time of determining VAT as follows:“2. The time for determining value-added tax on services is the time of completing the provision of services or the time of invoicing, regardless of whether money has been collected or not. “

Article 8 of Circular N0.219/2013/TT-BTC dated December 31st 2013 by the MOF provides instructions on the time of determining VAT as follows:“2. For service provision, the time for determining value-added tax on services is the time of completing the provision of services or the time of invoicing, regardless of whether payment has been made or not.5. For construction and installation, including shipbuilding, VAT shall be calculated when the a work has been accepted and handed over or the installation has been completed, regardless of whether the payment has been made or not. “Clause 2, Article 5 of Circular N0.78/2014/TT-BTC dated June 18th 2013 provides instructions on the time of determining revenues as follows:For the provision of services, it is the time of completion of the provision of services for the buyer or the time of making out the service provision invoice.In case the time of invoicing precedes the time of service completion, the time for determining taxable revenue is the time of invoicing. “

Based on the above-stated instructions, you are requested to follow regulations:

For service provision: The time for determining VAT and CIT is one of service completion or one of invoicing. In case the time of invoicing proceeds the time of service completion, the time for determining taxable revenue is the time of invoicing.For construction and installation, VAT shall be calculated when a work has been accepted and handed over or the installation has been completed, regardless of whether the payment has been made or not. The recommendation for determining the time of invoicing is beyond the MOF’s authority.


Regarding eligibility for deduction of input VAT: We request research to be done in order to adopt a general principle according to which non-cash payment documents shall not be required for cases where no payment obligation arises.

Response

Under Article 1 of Circular N0.173/2016/TT-BTC dated October 28th 2016 by the MOF

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amending and supplementing the 1st paragraph of Clause 3, Article 15, Circular N0.219/2013/TT-BTC dated December 31st 2013 by the MOF (as amended by Circular N0.119/2014/TT-BTC dated August 25th 2014, Circular N0.151/2014/TT- BTC dated October 10th 2014, Circular N0.26/2015/TT-BTC dated February 27th 2015 by the MOF).

Article 1. The first paragraph of clause 3 Article 15 of Circular No. 219/2013/TT-BTC dated December 31, 2013 by the Ministry of Finance guiding the implementation of the Law on Value-added Tax and Decree No. 209/2013/ND-CP dated December 18, 2013 by the Government detailing and guiding the implementation of a number of articles of the Law on Value-added tax (which was amended by the Circular No. 119/2014/TT-BTC dated August 25, 2014, Circular No. 151/2014/TT-BTC dated October 10, 2014 and Circular No. 26/2015/TT-BTC dated February 27, 2015 by the Ministry of Finance) is amended as follows:3. Bank transfer confirmations are documents evidencing the transfer of money from the buyer’s account to the seller’s account opened at institutional providers of payment services using legitimate payment methods such as checks, payment orders, cash collection orders, bank cards, credit cards, SIM cards (digital wallets) and other means of payment as prescribed (including the cases where the buyer transfers money from the buyer’s account to the seller’s account bearing the name of the owner of a private enterprise or from the buyer’s account bearing the name of the owner of an enterprise to the seller’s account).

Based on Clause 10, Article 10, Circular N0.26/2015/TT-BTC by the MOF providing guidelines on VAT and tax management under the Government’s Decree N0.12/2015/ND-CP dated February 12th 2015 detailing the Law on amending and supplementing a number of articles of laws on tax and amending and supplementing a number of articles of decrees on tax and amending and supplementing a number of articles of Circular N0.39/2014/TT-BTC dated March 31st 2014 by the MOF on goods sale and service provision invoice:

“10. Article 15 (amended by Circular No. 119/2014/TT-BTC dated August 25, 2014 and Circular No. 151/2014/TT-BTC dated October 10, 2014 by the MOF) is amended as follows:“Article 15. Conditions for input VAT deduction2. Having non-cash payment documents for goods and service purchases (including imported goods) of VND 20 million or more, ...Receipts for non-cash payments include bank transfer receipts and other non-cash payment documents 2 prescribed in Clause 3 and Clause 4 of this Article.3. Bank transfer confirmations are documents evidencing the transfer of money from the buyer’s account to the seller’s account... opened at institutional providers of payment services using payment methods which are compliant with applicable regulations ....4. Other non-cash payment documents used for deducting input VAT include:a) If goods and services are purchased by offsetting their value against the value of sold goods and services, or by lending goods and such method of payment is specified under a contract, a minutes of collation an confirmation made by and between both parties is mandatory to evidence such offset and lending. If the payment is offset against third party’s debt, a debt offsetting record made by and between all three parties is mandatory for the purpose of tax deduction.If goods and services to be purchased by bilateral payable offset such as money lending; debt offsetting via a third party and such payment method is specified in a contract, it is mandatory to have a previously prepared written loan contract and the receipts for transfer of money from the

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creditor’s account to the debtor’s account in the event of a monetary loan, even when the value of purchased goods and services is offset against the amount paid by the buyer on behalf of the seller or the amount provided for the buyer by the seller”.

Accordingly, instructions on payment through bank with respect to cases with no payment obligations are available under Points and 4, Article 15, Circular No. 219/2013/TT-BTC dated December 31st 2013 by the MOF, as amended and supplemented by Clause 10, Article 1, Circular No. 26/2015/TT-BTC dated February 27, 2015 by MOF and Article 1, Circular No.173/2016/TT-BTC dated October 28th 2016 by MOF.


We humbly request the MOF/GDT to study and supplement regulations that VAT on goods and services used for promotion shall not be governed by regulations on commerce except for trade discounts in the form of official membership card.

Response:

Point 2.5, Appendix 4 guiding the preparation of goods and service invoices in a number of cases issued under Circular No.39/2014/TT-BTC dated March 31st 2014 by the MOF provides that:Regarding goods/services applying sales discounts for clients, the VAT invoice shall state the discounted price, VAT, and total VAT-inclusive price.If the sales discount is based on the quantity or sales of goods/services, the discount amount of the sold goods/services shall be modified in the invoice of the final purchase or subsequent period. If the discount amount is stated upon the closing of the sales discount program (period), a modified invoice together with a list of invoices, amount of money and tax that need to be modified are required. Based on the modified invoice, the seller and the buyer shall modify the revenues, input VAT and output VAT.

Based on the above stated instructions, for discounts applicable to loyal customers, invoices shall be issued in accordance with the said Point 2.5, Appendix 4. The MOF deems that this is not a promotion activity and does not need to be registered with the Ministry of Industry and Trade.


Strict and transparent controls are to be imposed on the import of CBU vehicles; verification is to be performed of imported vehicles’ stated prices; Strict control is to be placed on the import of “used vehicles”.

Response:

Regarding price verification: Currently, the custom values of imported goods are already governed by Vietnam’s regulatory documents. Specifically:+ The Law on Customs (Article 86).+ The Government’s Decree No.08/2015/ND-CP dated Jan. 21st 2015 providing details

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regulations and measures of implementing the Law on Customs with respect to customs procedures, customs inspection, supervision and control (Articles 20, 21 and 22).+ Circular No. 39/2015/TT-BTC dated March 25th 2015 by the MOF providing for customs valuation of imported and exported goods.+ Circular No.38/2015/TT-BTC dated March 25th 2015 by the MOF providing for customs procedures (Juan, customs inspection and supervision; import and export duties and tax management with respect to goods imports and exports (article 25, Article 142, Article 143).

Under Article 3, Circular N0.39/2015/TT-BTC dated February 27th 2015 by the MOF: A customs declarant shall declare and carry out customs valuation themselves according to customs rules and methods under the Law on Customs No. 54/2014/QH13 dated June 23rd, 2014, the Government’s Decree No. 08/2015/ND-CP dated January 21st, 2015and this Circular and shall take legal responsibility for the accuracy and honesty of such declaration.

The inspection of the declared values of imported cars is carried out in accordance with Article 21, Decree No.08/2015/ND-CP dated January 21st 2015 by the Government and Article 25, Circular No.38/2015/TT-BTC dated March 25th 2015 by the MOF. A customs declarant shall declare the customs value; in the event of suspicion of the declared value, the customs authority shall perform inspection in accordance with the above state regulation.

As such, a complete array of regulatory document ranging from Law to Decree and Circular is already in place to govern customs valuation. Strict and transparent control has been effected over the implementation of policies on CBU vehicles.

Regarding the recommendation for strict control over the import of “used vehicles”, the General Department of Customs has always maintained strict control over the import of used cars in accordance with Joint Circular No. 03/2006/TTLT-BTM-BGTVT-BTC-BCA dated March 31st 2006 by the Ministry of Transport, Ministry of Trade (now the Ministry of Industry and Trade), Ministry of Finance and Ministry of Public Security guiding the import of used cars of less than 16 seats.


- Instruct the customs authority to accept certificate of conformity issued or as declared by importers if the products are not even posted on website.

- Instruct the customs authority on the time-line and list of required documents.- Publish such time-line and list of documents on the customs website and at customs offices.

Response:

The question fails to specify what ministry/authority governs the certificate of conformity. In case of acceptance of electronic certificates on website, this must be done in accordance with the relevant ministry/authority’s regulations so that the customs authorities may act accordingly.

39. Recommendations:Provide the same HS code for tractors of the same category.

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Response

The list of export, import commodities of Vietnam has been prepared on the basis of World Customs Organization (WCO)’s the Harmonized Commodity Description and Coding System and the ASEAN Harmonized Tariff Nomenclature (AHTN). Tractors fall under Group 8701 and detailed classification is done by category under the list of export, import commodities of Vietnam. This is in line with actual conditions and standards as well as international practice.


Regulations on import duties are to be loosened with respect to machinery used by export-processing enterprises in the form of finance lease: We recommend the waiver of import duties on machinery and equipment imported for use by export-processing enterprises in the form of finance lease. We recommend a case be added where a finance company importing commodities for subsequent finance lease, import duties and VAT be levied in the same way as when the leasee performs the import itself.

Response:

Regarding VAT, on April 4th 2016, the MOF issued Official Letter No. 4463/BTC-TCHQ guiding VAT treatment with commodities imported by finance companies for subsequent finance leasing to export-processing enterprises, specifically: “A finance lease company that imports commodities for a leasee not subject to VAT (if any) shall also be entitled to the non-VAT favor (if any) as in the case of direct import by the leasee if the lease rate under the finance lease contract is exclusive of VAT (if any) ”

Regarding import duties, the MOF would like to take note of the said recommendation for later research and resolution.


We humbly request the National Steering Committee for ASEAN Single Window, National Single Window and Trade Facilitation:(i) To approach experts and trade facilitation authorities from other countries as well as experienced multinational companies in order to facilitate Vietnam’s small and medium enterprises;(ii) To have a membership that features a complete representation of the business circle in general;(iii) To adopt an accountability culture in its operations and; (iv) To apply turn-around-time measurement indicators in order to be able to propose proposed improvements.

Response

As the entity directly implementing the activities of the standing body, the General Department

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of Customs (GDC) would like to take note of the recommendations from Associations and businesses and shall report the same to the steering committee. Regarding the above stated recommendations, the GDC presents its position as follows:The National Steering Committee for ASEAN Single Window, National Single Window and Trade Facilitation was formed recently under Decision No.1899/QD-TTg dated October 4th 2016 as an upgraded succeeding entity of the National Steering Committee for ASEAN Single Window and National Single Window. In terms of organization, the committee is headed by a Deputy Prime Minister while the other members are the senior leaders (deputy ministers or officials of similar level) of ministries and sectors. The committee is charged with the following key duties:- Implement, operate and maintain the ASEAN Single Window and National Single Window

mechanisms in accordance with commitments to establish a ASEAN Community.- Implement Vietnam’s commitments in trade facilitation made under the WTO Trade

Facilitation Agreement and other international treaties covering trade facilitation.- Implement solutions to facilitate cross-border commodity exchanges, enhance national

competitiveness as requested by the Government while ensuring national security.

The committee’s operations are based on the steering committee operation mechanism in the principle of inter-sector coordination to assist the Prime Minister in directing, coordinating, inspecting and organizing the implementation of the ASEAN Single Window, the National Single Window and the Protocol to Establish and Implement ASEAN Single Window; implement synchronous solutions to facilitate cross-border trade and commodity exchange. Therefore, consulting international experts and institutions experienced in trade facilitation is an important and necessary task that the steering committee will perform during its operations.

The steering committee’s membership is comprised of leaders from ministries and sectors including a representative from the Vietnam Chamber of Commerce and Industry. The responsibilities of this member are therefore to represent the voices of Vietnam’s business community in its efforts to help build and improve the business environment and facilitate trade.

The steering committee’s members are liable to direct their respective ministries/sectors to implement the most efficient solutions in order to fulfill the common cause. Performance assessment indicators will be adopted in addition to other synchronous solutions that the committee will carry out.


In order to assist businesses in complying with customs regulations, the VBF recommends transparency in compliance criteria, which can be secured by formulating and publishing risk management criteria system for customs law compliance as well as compliance assessment manual so that businesses may track their current level of compliance and follow their best practice while being able to avoid violations in post-clearance inspections.

Response:

Implementing the Government’s Resolution 19/NQ-CP dated Apr. 28th 2016, the GDC will in

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the coming time submit to the MOF a set of compliance assessment criteria as well as publish corporate compliance assessment in order to instruct and facilitate businesses’ enhancement of their compliance capacity.


Support businesses in determining customs values during post-clearance inspections. In order for post-clearance inspections to fairly reflect attempts to assist businesses, the VBF recommends the GDC establish and adopt detailed and specific basis for objective, transparent and quantitative criteria for businesses to follow and for consistency with global trends.

Response

- Regarding legal basis:The declaration and determination of taxable values is governed by the Law on Customs, the Government’s Decree No.08/2015/ND-CP dated Jan. 21st 2015, Circular No.205/2010/TT-BTC dated December 15th 2010, Circular No.38/2015/TT-BTC and Circular No. 39/2015/TT-BTC dated March 25th 2015 which were prepared by incorporating the Agreement on Customs Valuation (GATT) from time to time.

- Business transactions between affiliated parties:Regarding the determination of market values in business transactions between affiliated parties (which transactions are understood as those between a seller and a buyer with special relationships): This issue is governed by Article 7, Circular N0.39/2015/TT-BTC dated February 27th 2015 by the MOF. Accordingly, if a special relationship exists but does not affect the transaction value, declaration shall be performed as stipulated. Based on available information, if the special relationship is suspected to affect the transaction value, the customs authority shall perform inspections and hold a dialog clarify such special relationship.

- For cases in respect of which the customs authority, after having performed post-clearance inspections, determines that it is sufficiently grounded not to accept declaration under Articles 142 and 143 of Circular No.38/2015/TT-BTC, the customs authority shall base on the documentation and proof collected during the post-clearance inspection reject the declared value and shall determine taxable values using taxable value determination methods under articles 6, 8, 9, 10, 11 and 12 of Circular No. 39/2015/TT-BTC.

- Businesses which have transactions between affiliated parties are requested to study regulations on customs declaration under the above stated documents as well as other related ones for proper compliance.


Requests for presentation of documents to determine the country of origin and taxable values such as bills of lading and invoices are preventing the customs authority’s prior verification from being done in a substantial manner. We humbly request the GDC to consider and accept the use of documents by competent parties enclosed with photos or other non-transaction documents to

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issue decision before the availability of commitments by parties to the transaction.

Response

Clause 2, Article 7, Circular N0.38/2015/TT-BTC dated March 25th 2015 issued by the MOF provides for documents required for prior determination of origin as follows:+ An application form No. 01/XDTXX/GSQL in Appendix V enclosed with this Circular: 01 original copy;+ A list of materials used for manufacture of goods including such information as: names, codes of goods, origin of materials constituting the product, CIF prices or equivalent prices of materials provided by the manufacturer or exporter: 01 original copy.+ A description of the entire manufacturing process or the Certificate of composition analysis provided by the manufacturer: 01 photocopy;+ Catalogue or pictures of goods: 01 photocopy

Accordingly, a business is not required to present commercial invoices or bills of lading.

The prior determination of value is specifically governed by Decree 08/2015/ND-CP (Article 23. Article 24. Article 25) and Circular N0.38/2015/TT-BTC dated March 25th 2015 issued by the MOF (Article 7). The GDC would like to take note of this recommendation for consideration when appropriate.


Regulations on the De-minimus level: We request the Vietnamese side to consider raising the “de-minimus level” for goods imported via express delivery and postal means to be exempt from import duties to VND 10,000,000.

Response

During the formulation of the Decree guiding the Law on Import and Export Duties, the GDC already conducted thorough research into the “de-minimus levels”. Therefore, Clause 2, Article 29, the Government’s Decree S<D 134/2016/ND-CP dated September 1st 2016 guiding the Law on Import and Export Duties stipulate that Imports sent by express delivery service whose customs value is not exceeding VND 1,000,000 or duty on which is less than VND 100,000 are exempt from import duties.

Where the customs value of goods exceeds VND 1,000,000 or the duty payable exceeds VND 100,000, the entire shipment shall be dutiable. Businesses are requested to duly comply with the above stated regulations.


Under Decision No.1079/QD-BTC dated May 20th 2014 detailing measures to stabilize prices of dairy products for children aged under 6 and Decision No.857/QD-BTC dated May 12th 2015 amending the said Decision 1079/QD-BTC, the maximum price shall apply to dairy products for

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children aged under 6 from June 1st 2014 to the end of December 31st 2016. The State’s intervention in business activities using administrative measures including the imposition of maximum prices goes against the drive toward a complete market economy and may both exert impacts on short and medium-term performance of businesses as well as affect commerce and long-term investment prospects. We recommend the removal of the capping policy, a return to the market-driven price mechanism, the discontinuation of current price capping measures and non-issue of additional price controls.

Response

- Currently, the prices of a vast majority of goods and services in general and dairy products for children aged under 6 in particular in the local market are governed by the market mechanism. The State respects the rights of business-doing individuals and entities to price their products and to compete in terms of pricing under the provisions of law as well as international commitments.

Facing unusual developments in the dairy-product-for-children-aged-under-6 market, the Government decided to adopt a limited-term stabilization measure by introducing price caps. This measure was introduced under Articles 16 and 17 of the Law on Prices.As such, the administration of prices of dairy products for children aged under 6 is performed along the line of market mechanism with State management under a common guideline to ensure the harmonized interests of the manufacturer, the State and the consumer.

- Under the Government’s Resolution No.49/NQ-CP dated June 7th 2016 following the Cabinet meeting in May 2016, in order to stabilize the market for better control of inflation, the price caps would remain in place until the end of Dec.31st 2016.

Currently, the MOF is working on a report to the Government on the results of the stabilization effort as well as upcoming management measures. As part of the said report, from Jan. 1st 2016, the MOF will propose to the Government the discontinuation of the price capping on dairy products for children aged under 6. The administration of such products shall then be transferred to the Ministry of Trade and Industry under the Government’s Decree No.149/2016/ND-CP dated November 11th 2016 amending and supplementing a number of articles of Decree No.177/2013/ND-CP dated November 14th 2013 detailing and guiding the implementation of a number of articles of the Law on Prices.


Poor access to funds remains a hard problem for businesses wishing to expand their business. Therefore, the Government is expected to promote its role as a bridge between credit institutions and business by proactively seeking new fund-raising channels, expanding corporate lending channels, reducing barriers in access to funds including rate cuts. The Government is expected to request credit institutions to increase the rate of businesses afforded access to funds.

Response:

The State Bank of Vietnam (SBV) has been administering the monetary policy in such a way that

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interest rates are cut to facilitate businesses’ access to funds. In reality, in 2016, the rate of VND loans was down by 0.5% and medium and long-term lending rate hit a ceiling of 10% for good customers seeking loans for business.

In tandem with the SBV’s monetary policy, the MOF is now working on a proposal to the Government for amendment and supplementation of Decree No.90/2011/ND-CP dated October 24th 2011 on the issue of corporate bonds. This is expected to promote businesses’ ability to raise funds by issuing corporate bonds. Businesses are supposed to have a mechanism for disclosing information as well as a satisfactory reporting to obtain access to this source of funds.

48. Recommendations:Clarify and create a favorable environment for increase of foreign stake.

Response

On June 26th 2015, the Government issued Decree No.60/2015/ND-CP under which public companies operating in ordinary industries are allowed to increase foreign ownership ratio to 100%, unless otherwise provided for by a specialized law or an international agreement. This provision has partially remove the obstacles for PCs in terms of foreign shareholding and has assured foreign investors about Vietnam’s commitment to economic openness and integration. The move is in line with the commitments to which Vietnam is a party as well as international practice in stipulating foreign stakes by business lines. By October 2016, 12 listed companies had increased their foreign stakes to 100%. In reality, however, a number of issues remain. In particular, businesses involved in conditional industries where specialized laws do not provide for a specific foreign stake cap are subject to a limit of 49%. The State Securities Commission will consider a uniform solution to ensure continued openness for foreign ownership in the following orientation: If the relevant specialized law permits the incorporation of a foreign-invested business (or when the specialized administration authority’s consent is granted), the ratio of foreign stake is allowed to reach 100%. The business remains obliged to comply with the conditions and limitations of the relevant specialized law such as legal capital, scope of business, personnel eligibility. This issue is expected to be resolved by the Law on Securities (as will be amended).

In addition, inconsistencies between regulatory documents on securities and those on investment will also be considered for resolution under the Law on Securities (as will be amended) (which law is expected to be submitted to the National Assembly in 2018).

Regarding the procedures of publishing public companies’ foreign ownership ratio: This is expressly provided for under Circular 123/2015/TT-BTC dated August 18th 2015 by the Minister of Finance guiding foreign investment activities in Vietnam’s securities market along the line of simplicity: A company searches for business lines on the website on foreign investment ( http://dautunuocngoai.gov.vn ) , before delivering a notice on maximum foreign stake to the State Securities Commission. Basically, documents are processed promptly in accordance with the process under Circular 123/2015/TT-BTC. A number of delays have been due to a business’s multiple conditional business lines, which means several ministries and sectors must be consulted for responses.

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http://dautunuocngoai.gov.vn/

The increase of foreign stake in commercial banks is subject to the SBV’s jurisdiction.


- To specify the schedule of equitization and force equitized companies to comply with the deadline for listing, and to adopt the book-building method for equitization: The published divestment of State capital from a number of major State-owned enterprises is encouraging news.- To increase penalties for violations in corporate governance at public companies: In our opinion, the applicable penalties for violations in corporate governance at public companies are not appropriate. For example, the penalty of VND 50 million for violations of conflict of interest and trading with a related person applicable to a director of a listed company is too low; we propose the Government increase penalties for violations in corporate governance at public companies to VND 100 million or 10 times of the value of the violating transaction, whichever is bigger.

Response

a) Regarding the equitization of State-owned enterprises (SOEs)

(i) Specify and publicize the schedule of equitization, including the listing of names and time-line for equitization:The Ministry of Planning and Investment has submitted to the Prime Minister a decision designed to supersede Decision 37/2014/QD-TTg dated June 18th 2014 regarding criteria and lists for classification of SOEs which includes a specific list of enterprises scheduled for equitization in the 2016-2020 period as well as the State’s shareholding in each of such enterprises on the basis of conformity with regulations of the Law on Management and Utilization of the State for investment in production and business activities of enterprises.

(ii) Sell at least 20-30% of the enterprises to be equitized:According to current regulations on equitization and the spirit of the Draft Decree amending and supplementing Decree 59/2012/ND-CP regarding the conversion of 100% State-owned enterprises into joint-stock companies, based on the scheme of equitization approved by the competent authority, the equitization steering committee will implement Initial Public Offering during which offering through local and international stock brokers may be considered.

(iii) Regarding equitized enterprises having to comply with listing deadline and trading registration:Decree 60/2015/ND-CP, Circular 180/2015/TT-BTC, Decision No. 51/2014/ỌD-TTg, and Circular 115/2016/TT-BTC already provide for specific deadlines for equitized enterprises to perform listing and trading registration.

b) Increase penalties for delays in performing listing and trading registration, charging Board Chairman and Board members with personal liabilities for the company’s violations:

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On November 1st 2016, the Government issued Decree 145/2016/ND-CP amending and supplementing Decree No.108/2013/ND-CP regarding the sanctioning of administrative violations in the securities and securities market field under which enterprises required to perform listing and trading registration commits delay of up to 01 month shall be subject to penalties of between VND 10 and 30 million. These penalties shall be progressive with the length of the delay. A penalty of up to VND 400 million shall apply in the event of an enterprise’s failure to perform listing and trading registration or for delay in so doing for over 12 months.

Regarding the recommendation for removal of Upcom, OTC and for enterprises’ straight-through listing on HNX or HSX: The purpose of Upcom is to ensure proper management, to generate liquidity for transfer of shares of public companies which are yet to be qualified for listing, and to protect investors. During the restructuring of the stock market, including the structuring of commodities on the market, study will be carried out to re-arrange transaction boards for better conformity with economic conditions and to ensure market efficiency.

Regarding the adoption of the book-building method during IPO: Currently, the Draft Decree amending and supplementing Decree 59/2012/ND-CP regarding the conversion of 100% State-owned enterprises into joint-stock companies has added the principle of applying the book-building method during the equitization of SOEs./.

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