Legal and Tax Update_Vietnam_July_August 2011

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VIETNAM LEGAL AND TAX UPDATE – JULY/AUGUST 2011
Lorenz & Partners 2011
VIETNAM LEGAL AND TAX UPDATE – JULY/AUGUST 2011
I. Tax Cuts: The National Assembly’s Fiscal Stimulus Package dated 6 August 2011 On 6 August the National Assembly approved a number of tax cuts in order to revitalize the economy. While tax cuts are usually welcomed these have attracted a great deal of commentary and controversy. The purpose of this article is to provide an overview of both the cuts and the differing responses thereto. 1. The Cuts i. A Personal Income Tax (“PIT”) exemption for those whose taxable monthly income is below VND5 million (approx.: 170 Euro or 240 USD) until 31 December 2011; ii. A 30% reduction in the current Corporate Income Tax (“CIT”) rates for labour intensive enterprises (manufacturing, farming, some infrastructure projects etc.) and for small and medium enterprises (“SME”) except; a) Profits from lotteries, property trading, securities activities, finance, banking, insurance or production/services which are subject to special sales tax; b) SMEs belonging to State Economic Groups and classified as 1st or special rank; and c) Profits of SMEs which are majority owned by a holding company which is not a SME. iii. iv. 50% PIT reduction on the sale proceeds of stock transfers from 1 August 2011 until the end of 2012; A tax exemption on stock dividends (no time limit stated); and
VIETNAM LEGAL AND TAX UPDATE JULY/AUGUST 2011
In this issue:
I. II. III. IV. V. VI. Tax Cuts: The National Assembly’s Fiscal Stimulus Package dated 6 August 2011 Tax in the Insurance Sector: Circular 09/2011/TT-BTC providing instructions on VAT and CIT for insurance businesses. Personal Income Tax Exemption on Medical Expenses: Circular No.78/2011/TT-BTC on PIT exemption for medical expenses paid by an employer When is a Foreign Contractor Not a Foreign Contractor?: Official Letter No. 66-BXD-HDXD on the applicability of contractor permits to foreign contractors. Commercial Arbitration Developments: Decree No 63/2011/ND-CP guiding the implementation of the Law on Commercial Arbitration. Equitisation Streamlined: Decree 59/2011/ND-CP on the conversion of state-owned enterprises.
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Please note that the definition of SME varies from industry to industry and is based upon the total charter capital and number of employees (up to 20 billion VND, (approx.: 675,000 Euro or 960,000USD) and 10 - 300 employees respectively). The total value of the proposal will be approximately VND4.2 trillion in 2011 (approx.: 140 million Euro or 200 million USD and VND 2.2 trillion (approx.: 74 million Euro or 105 million USD) in 2012. 2. The Controversy Reactions to these tax cuts, have been mixed to say the least.
For example the proposed exemption on stock dividends has been met with enthusiasm as a sound way to respond to this year’s 18% slump in Vietnam’s stock index. In contrast the reduction for stock transfers has had a much cooler reception with the chairman of the Finance and Budget Committee stating that such measures should be “carefully considered,” and only applied in “very necessary cases”. A similar opinion divides exists in regards to the Personal Income Tax and Corporate Income Tax proposals. In regards to PIT, opinion is divided over what if any impact the cut will have. Some commentators believe that the scope of the cut is not sufficient to make any real impact on Vietnam’s current economic climate. The basis for this argument is that the cut will only affect the lowest tax band. That is people who only pay 5% PIT anyways and only on whatever is left over after the current VND 4 million (approx.: 135 Euro or 190 USD) personal deduction and VND1.6 million (approx.: 50 Euro or 75 USD) dependant deduction. In contrast others, such as the Minister of Finance believe that, despite its potentially limited economic impact, the exemption will provide much needed encouragement to that section of the public (i.e. low income, low skilled citizens) which creates most of Vietnam’s wealth. Equally some have voiced concern that the CIT cuts will not solve the key problem currently faced by all companies, i.e. the credit issue. Nguyen Van Thuan, chairman of the Law Committee, summarizes this position by stating “the biggest problem that local companies are facing now is access to credit as interest rates are now very high.” It is felt that until this issue is resolved Vietnam’s corporations will find it harder and harder to make any kind of profit, making the CIT rate increasingly irrelevant. Further detailed guidance on the implementation of these cuts is expected shortly.