Vietnam issues Draft Pronouncement on Tax Administration, Transfer Pricing, Minimum Basic Wage and Personal Income Tax
The Vietnam Ministry of Finance has issued the draft pronouncement amending certain tax rulings. Some of the main aspects of the draft include:
- Transfer pricing and Tax Administration of related party transactions: The transfer pricing system of Vietnam is marked by a cap on the deductibility of interest. This limits the deductibility of interest to 20% of the EBITDA. The limit on deductibility has caused enormous difficulties for large capital investments. To resolve this, the cap is increased from 20% to 30% of the EBITDA. In case, if the company incurs a negative EBITDA, then the net interest expenses are allowed to be carried forward to offset with next year’s taxable profit within the next five-year period. Interest would also include capitalized interests. EBITDA is calculated as the sum of operating profit plus net interest expense plus depreciation and amortization for the tax period.Net total interest expenses can be calculated by offsetting the interest expense with the interest income that might have come from deposits and loans. The interest expenses will include that incurred for the loan as well as the interest capitalized as a fixed asset.
- Minimum basic wage: Public employees are getting granted the highest increase in basic salary for the past eight years. The National Assembly of Vietnam affirmed the basic wage increase from VND1,490,000 to VND1,600,000 from early July 2020. This is an increase equivalent to 7.38% compared to the present level. All public officials and employees at State agencies, civil servants and armed forces will be eligible for the increased basic salary. All allowances and the retirement pension will be based on the new basic salary.
- Return of exported goods after VAT refund: Instructions on the return of goods declared exported after a Value Added Tax (VAT) refund has been issued by the General Department of Taxation. The taxpayers will have to make adjusted tax declarations for the period in which the goods were declared exported. The VAT refunded amount relating to the returned goods must be paid back to the State Budget along with the interest for late payment.
- Guidance of Personal Income Tax (PIT) on overtime: The income earned from overtime and night shifts, if it exceeds the normal working hours will be exempt from PIT, given that it does not exceed regulatory limits. Amendments on the deductibility of interest expenses will directly affect the corporates that incur interest expense from related party loan agreements. The state expects to increase the standard of living and comfort through the basic wage raise.
The draft decree would be effective from the date the Government signs the proposal.