Official Dispatch 817/CT-TTHT 2019 on expenses for air tickets and hotels for experts from Singapore and Hong Kong

To: Central Building Limited
(Address: Room 601, No. 31 Hai Ba Trung Street, Trang Tien Ward, Hoan Kiem District, Hanoi, Tax identification number: 0100144460)

Responding to the Official Dispatch No. 56/2018/CV-TNTT dated November 28, 2018 of Central Building Limited (hereinafter referred to as “company”) on tax policy, the Hanoi Tax Department has comments as follows:

- Pursuant to the Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance, guiding the implementation of the Law on Personal Income Tax, the Law Amending and Supplementing a Number of Articles of the Law on Personal Income Tax and the Government’s Decree No. 65/2013/ND-CP detailing a number of articles of the Law on Personal Income Tax and the Law Amending and Supplementing a Number of Articles of the Law on Personal Income Tax.

+ In Article 1 providing for Taxpayers:

“...Non-resident individuals’ taxable incomes are incomes earned in Vietnam, regardless of where the incomes are paid and received...

...2. A non-resident individual means a person who does not satisfy the conditions specified in Clause 1 of this Article.”

+ In Clause 2 Article 2 providing for incomes liable to personal income tax:

“2. Incomes from salaries or wages

Incomes from salaries or wages are incomes received by employees from their employers, including:

a) Salaries, wages and amounts of salary or wage nature in monetary or nonmonetary form.

…

dd) Other monetary or non-monetary benefits other than salaries and wages paid by employers to taxpayers in any form...”

...dd.1) House rents, charges for electricity, water and associated services (if any).

dd.4) Package payments for stationery, working-trip expenses, telephone, clothes, etc., which are higher than the levels prescribed by current regulations of the State. These package payments are not calculated as taxable income in the following cases:

dd.4.2) For employees of business organizations and representative offices: The package payment levels comply with the levels for determination of income liable to enterprise income tax specified in documents guiding the Law on Enterprise Income Tax.”

dd.7) Other benefits...”

+ In Clause 1 Article 18:

“Personal income tax on income from salaries and wages of non-resident individuals is taxable income from salaries and wages multiplied by (x) the tax rate of 20%.”

+ In Clause 2 Article 18 on regulations for foreign individuals present in Vietnam:

“2. Taxable income from salaries and wages of non-resident individuals is the same as personal income tax-liable income from salaries and wages of resident individuals guided in Clause 2, Article 8 of this Circular.

Personal income tax-liable income from salaries and wages in Vietnam for a non-resident individual who works both in Vietnam and abroad but whose income generated in Vietnam cannot be separated is determined according to the following formula:

...b) For foreign individuals present in Vietnam:

Other (pre-tax) taxable incomes generated in Vietnam prescribed at Points a and b above are other interests in cash or not in cash paid by employers to or on behalf of employees in addition to their salaries and wages.”.

+ In Article 25 providing for Tax withholding and tax withholding documents:

“1. Tax withholding

Tax withholding means that income payers calculate and withhold payable tax amounts from incomes of taxpayers before paying incomes, specifically as follows:

a) Income of non-resident individuals

Payers of taxable incomes to non-resident individuals shall withhold personal income tax before paying incomes. To-be-withheld tax amounts are determined under the guidance in Chapter III (Articles 17 thru 23) of this Circular.

b) Income from salaries and wages

b.3) For foreigners working in Vietnam, income payers shall base themselves on the taxpayers’ working duration in Vietnam as written in contracts or documents on sending these foreigners to Vietnam to work to temporarily withhold tax according to the Partially Progressive Tax Tariff (for individuals who have worked in Vietnam for at least 183 days in a tax year) or the Whole Personal Income Tax Tariff (for individuals who have worked in Vietnam for less than 183 days in a tax year).

- In Article 27 providing for Responsibilities of Vietnamese organizations signing contracts to purchase services of foreign contractors not operating in Vietnam:

“In case organizations established and operating under Vietnam’s law (below referred to as Vietnamese party) sign contracts to purchase services of foreign contractors that sign labor contracts with foreigners working in Vietnam, the Vietnamese party shall notify foreign contractors of the obligation of foreign workers to pay personal income tax and the responsibility to provide information on foreign workers, including list, nationality, passport number, working duration, job and income, to the Vietnamese party for forwarding them to the tax agency at least 7 days before the date foreign workers start to work in Vietnam.”

- Pursuant to Article 31 of the Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance, guiding the implementation of the Agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and property between Vietnam and other countries currently in force in Vietnam providing for determination of tax obligation for incomes from dependent personal services:

“Article 31. Determination of tax obligation for incomes from dependent personal services

1. Under the Agreements, an individual, who is a resident of the Contracting State to an Agreement concluded with Vietnam, earns income from his/her employment in Vietnam, shall pay income tax in Vietnam in accordance with Vietnam’s current regulations on personal income tax...

2. If the individual stated in Clause 1 fully satisfies all the following three conditions, his/her remuneration from the employment in Vietnam shall be exempt from income tax in Vietnam:

a) That individual is present in Vietnam for less than 183 days in a period of 12 months starting or ending within the tax year; and

b) The employer is not a resident of Vietnam, regardless of whether that remuneration is directly paid by the employer or through the employer’s representative; and

c) This remuneration is not borne and paid by the Vietnam-based permanent establishment set up by the employer.”

- Pursuant to Article 13 of the Ministry of Finance’s Circular No. 156/2013/TT-BTC dated November 6, 2013, guiding on the implementation of a number of articles of the Law on Tax Administration; the Law Amending and Supplementing a Number of Articles of the Law on Tax Administration and the Decree No. 83/2013/ND-CP of the Government as follows:

“13. For a foreigner that earns taxable income is eligible for tax exemption or reduction according to an Agreement on the avoidance of double taxation between Vietnam and another country/territory, the procedures shall be as follows:

a) If the individual is a resident of another country/territory, even when he is a resident of another country/territory and earns income as mentioned at Point b.1 Clause 1 (from self-employments and other sources), Clause 3, Point b Clause 4, Clause 5, Point b Clause 10, and Clause 9 of this Article:

15 days before performing the contract with the Vietnamese entity, the foreigner must send the Vietnamese party having signed the contract or paying incomes a dossier of notification on eligibility for tax exemption or reduction under the Agreement. The Vietnamese party shall submit it to the tax office managing the Vietnamese party together with the first-time tax declaration dossier. Such a dossier includes:

- The Notice of eligibility for tax exemption or reduction under the Agreement (made using the form 01/HTQT issued together with this Circular);

- The original or certified true copy of the consularly legalized certificate of residence granted by a tax office of the taxpayer’s country of residence in the year preceding the year of notification of eligibility for tax exemption or reduction under the agreement;

- A photocopy of the labor contract signed with an overseas employer, bearing the foreign individual’s signature as his/her commitment to bearing responsibility (if any);

- A photocopy of the labor contract signed with an employer in Vietnam (for the income from salaries and wage and income from business activities) or photocopies of legal documents proving the sources of the incomes (for other incomes) bearing the foreign individual’s signature as his/her commitment to bearing responsibility;

- A photocopy of the taxpayer’s passport that has been used for carrying out procedures for entry into and exit from Vietnam, bearing the foreign individual’s signature as his/her commitment to bearing responsibility;

- Self-certified photocopy(ies) of the taxpayer’s business registration certificate and/or practice license and tax registration certificate, granted by the taxpayer’s country of residence, for individuals who earn incomes from independent practice (incomes of physicians, lawyers, engineers, architects, dentists, accountants);

- Self-certified photocopy(ies) of the taxpayer’s business registration certificate and/or practice license (for occupations requiring business registration or practice licenses under Vietnam’s law) granted by Vietnam, for individuals who earn incomes from independent practice (incomes of physicians, lawyers, engineers, architects, dentists, accountants);

- A self-certified photocopy of the taxpayer’s contracts signed with organizations or individuals in Vietnam, specifically as follows:

+ For real estate transfer: a photocopy of the real estate transfer contract.

+ For capital transfer: a photocopy of the capital transfer contract, a photocopy of the investment certificate of the Vietnamese company to which the foreign investors contribute capital, which are certified by the taxpayer.

+ For securities transfer: a photocopy of the securities purchase or sale contract. In case of securities trading without securities purchase or sale contracts, the taxpayer shall submit the certificate of his/her stock and bond depository account, certified by a depository bank or securities company, made using the Form No. 01/TNKDCK issued together with this Circular.

- A power of attorney, in case the taxpayer authorizes his/her lawful representative to carry out procedures for application of the Agreement.

In case the taxpayer already submitted in a year a notification of eligibility for tax exemption or reduction under the Agreement, in the subsequent years, he/she shall only be required to submit photocopies of labor contracts signed with Vietnamese and overseas organizations or individuals (if any).

At least 15 days before his/her working contract in Vietnam terminates or a tax year ends (whichever comes first), the taxpayer shall send the certificate of residence of that tax year and a photocopy of his/her passport to the Vietnamese party having signed the contract or paying incomes. Within 3 (three) working days after receiving the certificate of residence, the Vietnamese party having signed the contract or paying incomes shall submit it to the tax office.

In case the certificate of residence remains unavailable at the above-mentioned time, the foreign individual shall make a commitment to sending the certificate of residence within the first quarter of the year following that tax year.

In case the individual is a resident of a country or territory that has concluded a tax agreement with Vietnam but such agreement has no provisions on grant of certificates of residence, he/she shall provide a photocopy of his/her passport as replacement for the certificate of residence.

In case it remains impossible to identify the country or territory of residence of the taxpayer at the prescribed time for submission of a photocopy of the passport, he/she shall make a commitment to sending the photocopy of his/her passport in the first quarter of the subsequent year.

In case the taxpayer fails to provide sufficient information or documents in the dossier of notification on eligibility for tax exemption or reduction under the Agreement, explanation must be provided in the notification form No. 01/HTQT mentioned above for the tax office’s consideration and decision.”

- Pursuant to the Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income:

+ In Article 1:

“Article 1. Scope of regulation

This Agreement shall apply to persons who are residents of one or both of the Contracting States.”

+ In Article 15:

“Article 15: Dependent personal services

1/ Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2/ Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

a. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned; and

b. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

c. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3/ Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.”

- Pursuant to the Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income:

+ In Article 1:

“Article 1. Scope of regulation

This Agreement shall apply to persons who are residents of one or both of the Contracting States.”

+ In Article 15:

“Article 15. Dependent personal services

1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting Party in respect of an employment shall be taxable only in that Party unless the employment is exercised in the other Contracting Party. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Party.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting Party in respect of an employment exercised in the other Contracting Party shall be taxable only in the first-mentioned Party if:

(a) the recipient is present in the other Party for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Party; and

(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Party.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting Party shall be taxable only in that Party.”

- Pursuant to Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC (as amended and supplemented in Clause 2 Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC), as follows:

“Article 6. Deductible and non-deductible expenses when determining taxable income

“1. Except for expenses specified in Clause 2 of this Article, enterprises may deduct all expenses that fully satisfy the following conditions:

a) Actual expenses related to their production and business activities.

b) Expenses with adequate lawful invoices and documents as defined by law regulations.

c) Expenses for purchase of goods or services valued at VND 20 million or more (VAT-inclusive prices) per invoice with non-cash payment documents...”

Pursuant to the aforementioned regulations and the contents of the Company’s Official Dispatch and dossier, the Hanoi Tax Department provides guidance on the following principles:

1. Regarding personal income tax:

In case the Vietnam-based company incurs expenses for air tickets and hotels for officers and experts of the company's overseas joint venture partner (being non-resident individuals) travelling to Vietnam to support the company’s production and business activities, such expenses for air tickets and hotels for the foreign experts in Vietnam shall constitute personal income tax-taxable income; the company shall be responsible for withholding 20% prior to making payment to the aforesaid officers and experts in accordance with Article 18 of Circular No. 111/2013/TT-BTC of the Ministry of Finance.

In case the aforesaid foreign officers and experts are resident individuals of countries having concluded Agreements for the avoidance of double taxation with Vietnam (Singapore, Hong Kong), the income arising in Vietnam shall be exempt from personal income tax in Vietnam, if such officers and experts from Singapore and Hong Kong simultaneously satisfy all three conditions prescribed in Clause 2 Article 15 of the Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Republic of Singapore, the Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, in accordance with Article 31 of Circular No. 205/2013/TT-BTC of the Ministry of Finance. Procedures for tax exemption under Agreements for the avoidance of double taxation between Vietnam and other countries and territories shall be carried out in accordance with the principles prescribed in Article 13 of Circular No. 156/2013/TT-BTC of the Ministry of Finance mentioned above.

2. Regarding corporate income tax: In case the Vietnam-based company incurs expenses for lodging, meals and travel for officers and experts of the company's overseas joint venture partner, who are invited by the Vietnam-based company to provide support for the company’s production and business activities, and in the agreement between the Vietnam-based company and the company's overseas joint venture partner stipulates that the Vietnam-based company shall bear such expenses for the officers and experts of the company's overseas joint venture partner during their working period in Vietnam, such expenses shall be accounted as deductible expenses when determining corporate income tax-taxable income, provided that the conditions prescribed in Article 4 of Circular No. 96/2015/TT-BTC of the Ministry of Finance mentioned above are satisfied.