Vietnam’s New Tax Changes for Aug. 2011

On August 4, 2011, Vietnam’s Ministry of Finance promulgated Circular No.113/2011/TT-BTC amending and supplementing the guidance of the PIT Law mentioned in the Circular No.62/2009/TT-BTC dated March 27, 2009, Circular No.02/2010/TT-BTC dated January 11, 2010, and Circular No.12/2011/TT-BTC dated January 26, 2011.

Accordingly, organizations and individuals who pay commission to goods sale agents, salaries, wages, remuneration or other sums of money to individuals performing services with total income of VND1,000,000 or more each time shall deduct PIT before paying incomes to these individuals (in previous regulations, performing services with total income of VND 500,000 or more each time will be subject to such PIT deductions) as per below tariff:

• 10 percent from the total income for those who have personal tax code.
• 20 percent from the total income for those who don’t have a personal tax code, instead of the sole level of 10 percent as is the current regulation, unless the Ministry of Finance has given a written guidance on specific temporary withholding rates (such as for insurance or lottery agency commission)

Organizations or companies who sign labor contracts or service contracts with individuals will be responsible for informing individuals on the above percentage of withholding rates so that individuals can make procedures on registering a tax code. Tax departments will grant tax codes for individuals within five working days from when they receive the completed tax code registration documents.

In cases where individuals earn only incomes subject to tax withholding (including insurance or lottery agents) at the above rate, but their estimated total taxable incomes after deducting family circumstances are not high enough to be taxed (e.g. the individual has income under VND48,000,000/year if they are single or under VND 67,200,000/year if they have one dependent or under VND86,400,000/year if they have two dependents), these individuals shall make written commitments and send them to income payers for use as a temporary basis for delay of PIT withholding.

In case employers employ workers under seasonal contracts of a term between 3 months and 12 months, the tax rate as above will not apply. The temporary tax withholding will be made on monthly incomes according to the progressive tariff.

The tax rate applies to individuals earning incomes from transfers of real estate, houses, apartments which are supplied certificates of land use rights, and house and apartment ownership is 25 percent on the transfer revenue (transfer price – cost price).

In case cost price (buying price and related expenses) does not have sufficient invoices and vouchers, the tax rate of 2 percent of the transfer price will apply; in case the transfer price is not stated in the contract and or declared lower than the land price and registration fee calculation set by the provincial-level People’s Committee, tax shall be calculated at the tax rate of the land price and registration fee calculation set by the provincial-level People’s Committee.

Circular 113 takes effect on September 19, 2011 and annuls all guidance on personal income tax against this Circular.

In addition, on August 6, 2011, the National Assembly course XIII approved Resolution No.08/2011/QH13 on issuing solutions of tax in order to untie difficulties for businesses and individuals.

Accordingly, there are some tax incentives for organizations and individuals as follows:

Corporate income tax in 2011 will be reduced 30 percent for:

• Small and medium enterprises (SMEs), exclude tax calculated on income from business in lottery, real estate, securities, finance, bank, insurance and income from manufactured goods, services belonging to special consumer tax, and exclude enterprises sorted rank 1, special rank under corporations, enterprises of companies organized according to model parent company – subsidiary companies in which the parent companies are not SMEs and hold over 50 percent owner capital of the subsidiary company.
• Enterprises use many labors in manufacturing, processing, agricultural products, forest products, sea products, textiles and garments, leather and shoes, electronic components, construction of social economic infrastructure projects.

The fixed tax amounts of value-added tax, personal income tax and corporate income tax from the third quarter of 2011 until the end of 2011 will be reduced 50 percent for individuals, households business guest-house, room for lease with workers, employees, students, pupils; households or individuals that keep children; households, individuals or organizations that supply shift meals for workers on conditions that these households, individuals, or organizations keep a stable price for leasing guest-houses, rooms, and the price of keeping children and the price of supplying shift meals similar to the end of 2010.

Exemption on personal income tax from August 1 to December 31, 2011 will be applied for individuals having salary/wages or business income subject to PIT at the lowest rate of 5 percent (the taxable income after tax relief does not exceed VND5,000,000 per month).

Exemption personal income tax from August 1, 2011 to December 31, 2012 will be applied for dividends for individuals from activities such as investing in the securities market, capital contributions to buy shares of enterprises excluded dividends of joint-stock banks, finance investment funds, and financial institutions.

Also, 50 percent of personal income tax amounts will be reduced from August 1, 2011 to December 31, 2012 for activities including the transfer of securities of individuals.

However, the official written guidance on the above has not yet been granted. It is expected to be issued shortly.

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