“Having signature on the commercial invoice in respect of imported goods” is not a new requirement in the importation and custom clearance procedures. However, this requirement has caused difficulties to importers when they import goods in practice, as there are still a number of discrepancies between the laws of Vietnam and international practices, without any remedy.

From the legal perspective, the requirements of the Ministry of Finance and Vietnamese Customs Authorities are base on Decree 51/2010/ND-CP, which stipulates that invoices must present signatures of the seller, seal of the buyer (if any), and signatures of the buyer. The entities who must comply with Decree 51/2010 are Vietnamese organizations, individuals who are selling goods, providing services in Vietnam’s territory or abroad; organizations, individuals imported goods in the local market regardless of producers or suppliers being Vietnamese or foreign organizations or individuals under Circular 64/2015/TTLT- BTC- BCT- BCA- BQP “With regard to goods sold or stored by entities other than importers, it is required to have invoices and/or documents of the selling entities as prescribed in Decree No. 51/2010/ND-CP.”

From the practical perspective, this regulation embarks a conflict with the common practice of making invoices by European countries in which all invoices are formed, retrieved electronically and without sellers’ signatures and seals in every single invoice. Annually, an automobile manufacturer can sell hundred thousands of products per year, the signing in each invoice is a hand work which makes time-squandering, human resource and increasing expenses. However, in order to complete the import procedure, enterprise must seek for ways to convince the manufacturers to provide their signature on invoices. This step has caused a lot of difficulties to enterprises because it is too hard for the manufacturers to change their goods trading management method contrary to the ordinary method in their home country. As a result, the completion of custom clearance of enterprises is often delayed for months from the scheduled business plan, which causes a lost in term of in business opportunity and cost burden to enterprises. In addition, the fact that the requirement on provision of invoice is still retained which is not caught up with the principle of Article 3.6(b) of Resolution 30c/NQ-CP enhancing the “application of information – telecommunication technology in the process of handling of works of administrative authorities, among administrative authorities and within transactions with organizations and individuals”.

With the understanding of these international practices, World Customs Organization (WCO) recommends its members not to have sellers sign commercial invoices when conducting the customs declaration, in particularly:

(16th MAY 1979)

RECOMMENDS that Members of the Council and members of the United Nations Organization or its specialized agencies, and Customs or Economic Unions, should :

  1. refrain from requiring a signature, for Customs purposes, on commercial invoices presented in support of a Goods declaration;[1]

Vietnam Customs authorities has been a member of WCO as of 01 July 1993 and entered into Kyoto Convention on the Simplification and Harmonization of Customs Procedures. After many renovations to adapt WCO’s objectives and policies, Vietnam Customs procedures have been modernized and reduced significantly yet not abrogated the requirements on signatures affixed to invoices due to existing “barriers” in Decree 51.

The main purpose for presentation of commercial invoices in customs procedures is to make a basis for determining customs values of the goods, goods origin and tax amounts imposed on goods at the time of import. In the Internet age, the authenticity of invoices can be checked by various methods. Therefore, we should learn a feasible way of other countries to check manufacturers’ database to conclude the accuracy of total value of goods rather than request them to sign in each of invoices. Customs Authorities can request the manufacture to send the detailed information of imported goods for checking, or confirm the accuracy and completeness of such invoices. From the author’s perspective, by taking advantage of the internet tool, the checking and verifying the accuracy of commercial bills will easier and more efficient.

 Author: Nguyen Thi Chau Thanh – LNT & Partners




The First Double Taxation Avoidance Agreement between Vietnam and USA

On 7 July 2015, The Socialist Republic of Vietnam (Vietnam) and The United States of America (US) signed the first income tax treaty – Double Taxation Avoidance Agreement (DTAA or the Treaty) – and adopted a Protocol between the two countries for the avoidance of double taxation and prevention of fiscal evasion of taxes on income. This Treaty will take effect after being ratified by each country and exchanged the instrument of ratification by the two jurisdictions. According to Deputy Minister Do Hoang Anh Tuan, Ministry of Finance, the ratification period will take approximately one year.

DTAA aims to eliminate the double taxation of income or gains arising in one contracting state and paid to the other contracting state and prevent the fiscal evasion regarding income taxes of any persons or companies from the contracting states.

For Vietnam, the applicable taxes shall include personal income tax and business income tax, likewise, the applicable taxes in the US are the Federal income taxes imposed by the Internal Revenue Code and the Federal taxes imposed on the investment income of foreign private foundations.

The DTAA also provides a number of key provisions on how to avoid the double tax.

  1. The broader definition of “resident status of a contracting state” and “permanent establishment”

The Treaty provides similar manners to determine a resident of a country to Vietnam’s provisions. Notably, the term of “residence of an individual” is also defined as the established and maintained place of the pension fund or organization that his incomes or gains are derived from.

Under the Treaty, permanent establishment consists of building sites, construction, exploration, assembly or installation of project, supervisory activities which last more than 06 months in a contracting state. The definition is expanded to encompass the place of providing consultancy services for the same and connected project within a contracting state for a period or periods computing more than 06 months within any by an enterprise of the other contracting state.

2. The maximum allowable tax rates of dividends, interests and royalties

The Treaty regulates the maximum allowable tax rates of dividends, interests and royalties as follow:

  • The maximum tax rate on dividends is 5% if the beneficiary is a Vietnamese company owning directly at least 25% of the voting stock of an American distributing company or an American company owning directly at least 25% of the capital of a Vietnamese distributing company. Such dividends are taxed in the country of which the distributing company is considered as resident. All other cases are taxed 15% of the gross amount of dividends.
  • The Treaty also provides that dividends paid by an American Regulated Investment Company (RIC) have maximum tax rate at of 15%. However, the dividends paid by an American Real Estate Investment Trust (REIT) or Vietnamese Real Estate Investment Fund (VREIF) are subject to a maximum tax rate of 15% if only the specific thresholds are met.
  • Article 11 of the Treaty provides that the maximum allowable tax rate of interest is at 10% of the gross amount. However, if interest payments are determined with references to receipts, sales, income, profits or other cash flow of the debtor, to any change in the value of any property of the debtor or to any dividends, partnership distribution or similar payment made by the debtor, the maximum rate can increase up to 15%.
  • Under the Treaty, royalties are sourced to the residence of the payer. The payments specified in the Article 12.3(a) of the Treaty are taxable at a maximum rate of 5%. Royalties paid for the use of or the right to use any copyright of literary, artistic, scientific or other work or any patent, trademark, design or model, plan, secret formula or process will be subject to a maximum allowable 10% tax rate.


Effect of eliminating double taxation in Vietnam

Individuals or companies who are considered as Vietnamese residents are granted the benefits of a credit for income taxes paid on income, profits and gains in the US. Moreover, Vietnamese companies owning at least 10% of the voting rights of a company which is a resident of the US can obtain an indirect tax credit in the US.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Corporate Income Tax Provides Boost High Tech Sector

Circular No.96/2015/TT-BTC dated 22 June 2015 guiding changes prescribed in Decree 12/2015/ND-CP and amending three circulars of corporate income tax (“CIT”) including 78/2014/TT-BTC, 119/2014/TT-BTC and 151/2014/TT-BTC.


Content of the new Law

This Circular provides considerable changes in CIT incentives, and tax deductible expenses which could bring more advantages to corporations in general and companies in the high technology sector.

The method to apply and extend CIT incentives is amended in order to be aligned with the new Law on Investment. Accordingly, new investment project stated in the list of industrial support products prioritized for development are subject to 15 years of 10% CIT rate, 4 years of CIT exemption and 9 years of CIT reduction, provided that such products support the sectors of either high technology as stated in the Law on Technology, or garment, textile footwear, information technology automobile production, and are not able to be produced in Vietnam as at 01 Januray 2015 or meet the EU quality standards if these products are domestically produced.

In addition, investment projects which were not, in general, entitled to any CIT incentives previously or located in areas where such are not encouraged in the past, will be allowed to apply for the  new and favourable CIT incentives regime in the remainder of phases from the tax year 2015.

The circular also modifies regulations of tax deductible expenses. Consequently, the caps on business trip per-diems are abolished; documents to prove expenses arising from renting individual’s assets is now simpler; certain expenses related to staff training are fully deductible for tax declaration; and the calculation method applied to non-deductible interests on debt corresponding to the portion of charter capital not yet contributed is regulated in detail.

Some other changes and supplements related to losses carried forward to the next year of real easte conveyance, tax-exempted income and dossier of CIT declaration and payment are prescribed in detail in this circular.

Implications for Business

From the aforementioned points, the circular is expected to support corporations in circumstances of new investment law. In order to assist companies in applying such circular, the Ministry of Finance issued dispatch 2512/TCT-CS to briefly summarize the new contents in this Circular.

The simpler application to calculate the CIT and the lifting of caps on trip expenses for tax are to bring a business-friendly environment for corporations when it comes to tax expense management. As a result, this is expected to lead to more active investment in Vietnam, and contribute to the country’s investment climate.

The Circular 96/2015/TT-BTC will come into effect from 6 August 2015.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

New Laws on Investment and Enterprise Come Into Effect from Midnight

As you now all know, the new Law on Enterprise (LOE) and Law on Investment (LOI) will take effect from 0.00AM tomorrow, 1 July 2015 promising to bring many positive changes to Vietnam business environment. 

What enterprises and investors are all now waiting for are the Decrees implementing the LOE and LOI, which have not been issued yet.

While the final draft of the decrees are now being circulated, and the vacatio legis by law would be 45 days after promulgation by the Government, the Ministry of Planning of Investment (MPI) sent and urgent Official Letter No. 4211/BKHĐT-ĐKKD dated 26 June 2015 (OL 4211) on business registration, implementing LOE (please click here to download).

Another Official Letter implementing the LOI are expected to be circulated anytime from now until Midnight (we have been informed that this Official Letter No 4326/BKHĐT-ĐTNN dated 30 June 2015 implementing LOI was issued, and will provide you with updates in the next legal alert).

Under OL4211, notable changes are as follows:

  1. Application of ERC for current foreign invested enterprise (FIE): for enterprises operating under an Investment Certificate (IC) or an Investment License (IL), when amending  the IC or IL, they will apply for the Enterprise Registration Certificate (ERC). The ERC dossier will be similar to the dossier for applying a new ERC, attached with the current IC or IL.
  1. Simplified ERC registration process: Art 24 LOE only requires applicants to file, among others, scope of business, and not the HS Code or CPC to the registration request or establishing an enterprise, be it a limited liability company (LLC) or a joint stock company (JSC). The form under Art 24 LOE is now being drafted by the local department of planning and investment (DPI) and to be released soon.  The CPC will be filled in by the DPI, and there is still a risk that the CPC/HS Code filled by the DPI are not matched by the CPC/HS Code of products to be imported by the enterprise. However, the enterprise’s application will no longer be rejected because the CPC/HS Code is not found or unfit.   Please note that with respect to FIEs, the filing of HS Code and CPC would still be required under form MĐ-6 of Circular 08/2013/TT-BCT dated 22 April 2013 of (Circular 08) of Ministry of Industry and Trade (MOIT).  This requirement is still valid until 1 July 2016, at the latest (LOI, Art 74.3).
  1. Place of business to be notified, not registered: the notice shall be sent within 10 days to the local DPI from the date of the decision to open a new place of business. This regulation does not affect requirements to have specific license for each type of business (e.g. a supermarket license, warehouse license, school license etc).
  1. A change of the scope of business, a JSC private placement, and entry of foreign shareholders to be notified, not registered: these changes are notified at the local DPI, who will then reconfirm within 3 working days from receipt of notice. The DPI reserves the right to reject the notice if the conditions for foreign investors’ entry under WTO assessments or other local laws are not met (for “conditional projects”). Therefore it is advisable that the scope of business of an enterprise must be “clean” from conditions, before a notice of foreign shareholders are sent. After foreign shareholders have been duly notified, the enterprise may change its scope of business. This change may still be subject to scrutiny, but the conditions will be strictly by law (e.g., percentage of foreign shareholding) rather by the authorities’ discretion.
  1. Enterprises can make more than one seals by notice. The new seals will be published on the National Business Registration Portal (NBRP).
  1. Liquidation process to be simplified: the enterprise’s liquidation shall be made within 6 months from the passing of the resolution for its liquidation. Within that 6 months, the tax authority should confirm the enterprise’s fulfillment of tax obligations. Unless the tax authority send a notice of objection, the liquidation process will complete within that time period and the enterprise will be deleted from the NBRP.


Some issues are still unclear under OL4211:

  1. Whether enterprises operating under an IC or IL must surrender its original IC or IL when receiving the ERC, and if so, what would be their new Investment Registration Certificate (IRC) under the new LOI, and what would be the In Principle Approval (IPA), should an IPA be required under the new LOI.
  1. Must a foreign shareholder have a “project” when it acquires shares (i.e., indirect investment) in a local company? It is likely that it is not required, but we might need to confirm this by an official letter implementing the LOI (ad hoc regulation pending Decrees implementing LOI).
  2. What is the real difference between “registration” and “notice” if DPI may have the right to send a negative opinion on a notice filed?

For more information about this article, please contact the author: Dr. Le Net at the email:

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

The 2015 First Tax Decree

When it comes to tax policy, the government starts 2015 with the Decree 12/2015/ND-CP (“Decree 12”) dated 12 February 2015. Decree 12 appears to keep up the spirit of Law No. 71/2014/QH13 (“Amendment Law”) on amendment of laws on taxes, which is adopted on 26 November 2014 and takes effect on 01 January 2015. The Amendment Law is designed to clarify and reduce bureaucracy and further liberalise tax laws. Decree 12 provides implementation for the Amendment Law and amends and supplements current applicable tax decrees in respect of corporate income tax (“CIT”), personal income tax (“PIT”), value-added tax (“VAT”), natural resources tax (“NRT”), and tax administration. This legal briefing highlights salient changes and new provisions that may interest the business.

  • CIT

Taxable Income of Foreign Company

Decree 12 expands on the sources of taxable income of foreign companies by adding income generated from transfer / assignment of equity, investment projects, rights to contribute capital, rights to participate in investment project, rights to explore, exploit and processing natural resources and minerals in Vietnam.

Educational Expenses are Deductible

Decree 12 allows businesses to deduct expenses for vocational and training education in accordance with the law. As this is a general regulation, there is likely to be further guidance for this provision.

Changes of Incentive policy

At the time of investment certificate issuance, the investor shall be entitled to a CIT incentive. In the event the CIT regulations change and the investor still satisfies conditions to obtain CIT incentive in accordance with new regulations, the investor may choose the incentive schemes in either old or new regulations. If the investor chooses to have the incentive under the new regulations, the new incentive shall be applied from the effective date of the new regulations.

  • PIT

Tax Withholding for Capital Assignment

Decree 12 includes a provision in the event that an individual transfers their equity ownership in a company. Accordingly, the company is responsible for ensuring that the transferor will submit documents proving his or her completion of the tax obligation in respect of the transferred equity before the company register the change of ownership in accordance with the laws. If the company registers such a change of ownership without documents proving completion of tax obligation, the company will be responsible to pay the PIT on behalf of the transferor.

Securities Transfer

Under Decree 12, a taxable income from securities transfer shall be determined upon the selling price of each transfer. The selling price shall be (i) the prices on the stock exchange if the securities are listed on the stock exchange; or (ii) if it is not the case, the prices inscribed in the transfer agreement or the prices in accordance with the accounting books of the company (whose securities are transferred) at the time of the most recent financial statements prior to the transfer.

Real Estate Transaction

Under Decree 12, a taxable income from a real estate transaction shall be determined upon the selling price of each transfer. The selling price shall be determined upon the price inscribed in the transfer agreement. The time to impose the PIT on a real estate transaction shall be (i) the date that the buyer registers for its ownership and/or right to use the real estate if the transaction agreement provides that the buyer shall pay the PIT on behalf of the seller; or (ii) if it is not the case, the date that the transaction agreement takes effective in accordance with the laws.

Decree No. 12/2015/ND-CP shall take retroactive effect from 01 January 2015, i.e., the date which the Amendment Law takes effective.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Customs rapped over vague tax bills for FDI firms 2014

Since early 2013, the General Department of Taxation has been inspecting foreign invested enterprises operating in Vietnam, especially processing and manufacturing enterprises operating in industrial zones. After each inspection, a majority of enterprises were told they owed outstanding tax arrears. The amount of tax imposed on each enterprise has reached up to hundreds of billions of Vietnam dong.

Better legal reasons are needed for customs authorities to justify huge tax arrears bills

Many of the enterprises subject to tax arrears consider themselves victims. Some enterprises have filed complaints to the Department of Taxation and the General Department of Taxation, and some have even begun court proceedings against the tax agency.

Lack of legal basis for tax arrears

Under the laws governing tax assessments, the application of the tax must be conducted objectively and equitably in compliance with tax regulations. It follows that tax agencies are responsible for informing taxpayers in writing of the reasons and legal basis for the application of a particular tax. Yet, despite this unequivocal requirement set out by law, tax arrears have been imposed on enterprises without proper reason or accurate legal basis.

One case study, which is by no means exhaustive, concerns an enterprise in a southern province that received a tax bill as part of an inspection campaign. After an inspection at the enterprise’s headquarters, the customs agency issued a decision to impose a tax of hundreds of billions of VND. This decision was made without a reasonable basis.

The grounds on which the customs agency proposed to justify the tax imposition was that the actual records of the inventory of imported materials for manufacturing were different from records under the financial report.

The tax agency framed this decision based on Article 23.2 of Circular No. 194/2010/TT-BTC which allows the “customs agency [to] impose tax arrears in the cases specified in Article 1.16 of Decree 106/2010/ND-CP.”

No further elaboration was provided by the customs agency – particularly, the “cases” specified under Decree 106/2010/ND-CP. A closer consideration of this regulation reveals that differences between the actual record of inventory materials and the record in the firm’s financial report did not constitute any “cases” for the purposes of imposing the tax under Article 1.16 of Decree 106/2010/ND-CP.

Arguably, the tax agency avoided providing a precise legal basis for imposing tax by citing a general ground that begs for elaboration. The implication is that regardless of how the enterprise interprets the law, the tax must be paid. This type of elliptical response by the tax agency constitutes a breach of their responsibilities in passing a decision to impose tax.

It goes without saying that enterprises should not pay tax of up to hundreds of billions of VND without an appropriate explanation by the authority for their supposed breach of tax regulations.

Completing tax regulations

Imposing tax arrears on an enterprise can have severe effects on its operations, including the enterprise’s survival and the employment of hundreds or thousands of people. Therefore, a reasonable tax policy and a need for clear legal basis for imposing tax arrears should be the foundation for the tax agency to justifiably impose tax and form a legal framework to protect enterprises from wrongful tax imposition.

The legal instruments governing tax management contain ambiguities. Clause 3 of Section 16 of Decree 106/2010/ND-CP is an example (see box).

There are concerns of whether the ambiguous provisions give the tax agencies a free hand to collect or impose tax whenever the agency considers it necessary in cases where the law is silent. If these concerns are true, then the legislature has effectively granted the tax agencies too much power because these bodies are only entitled to enforce the law.

In order to minimise the situation where tax agencies impose taxes in circumstances not recognised and permitted by the law, thereby leading to wrongful tax arrears, the cases for tax imposition should be clarified in legal instruments. This will provide enterprises with a clear understanding of the breach of obligations and the grounds for them. It also minimises cases of inappropriate collection and imposition of tax, as well as mitigating the caseload of unresolved complaints and disputes between enterprises and the tax agency.

Finally, for the greater good of Vietnam, completing the tax regulations may promote investor optimism and strengthen the attractiveness of the Vietnamese market for global investors.

Clause 3 of Section 16 of Decree 106/2010/ND-CP states:

“A taxpayer is subject to assessment of duties on imported or exported goods in the following cases:…

e/ Other cases of making tax declaration and calculation in contravention of tax laws which are detected by customs agency or other agencies.

Clause 20 of Part V of Circular No. 130/2008/TT-BTC (expired) also provides that:

“Other incomes are taxable incomes in a tax period which arise not from the business lines indicated in enterprises business registration certificates. Other incomes include:…

  1. Other incomes provided for by law.”

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Government revises VAT guidance

(VIR) – In wake of the continued efforts by governments to bolster investment following the economic downturn, there has been a noticeable and stable rebound in FDI in Asia.

Vietnam is no exception, as the Vietnamese government has taken steps to create better conditions to attract foreign investment, with clearer VAT regulations as part of wider measures to improve competitveness. Lawyers Le Net and Nguyen Thanh Thuy Linh, from LNT & Partners provide a break down of the new changes.The revision to VAT regulations will bring Vietnam more in line with international norms.

The amendment to the Law on Value Added Tax (VAT), together with Decree 209/2013/ND-CP (Decree 209) and Circular 219/2013/TT-BTC guiding this law, is one of the several positive moves the government has taken to revitalise the Vietnamese business environment.

The following are some noteworthy regulatory changes concerning VAT:

Changing the list of the subjects that are VAT exempt

In contrast to other taxes, VAT is not imposed directly on the taxpayers, but on the end-user. Products excluded from VAT do not necessarily bring any benefit to the taxpayer and instead, they carry with them an additional tax obligation. Therefore, in some cases, taxpayers are critical of policies that place their services outside of the list of subjects to which VAT is applicable.

Services of common sanitary items are a typical case. Under the former VAT laws, such services were not subject to VAT. As a result, all VAT inputs for the service provider, such as acquiring machines, investing in facilities, etc. will not be deducted but were instead determined as a business expenses. In order to encourage investment into this sector, Decree 209 has removed it from the list of subjects that do not apply VAT.

In addition to removing certain subjects, Decree 209 also adds to the list some new subjects, such as sales of assets used as collateral for loans, the provision of credit information, and transfers of capital contribution rights.

One of the most notable changes in Decree 209 is the removal of small household businesses from the list of subjects that need to pay VAT. Business households with an annual revenue not exceeding VND 100 million can now waive their VAT declaration and payment obligations, while all of their goods and services sold and/or provided will not include VAT. Former regulations previously employed a common minimum salary threshold for defining which goods and services were subject to VAT (i.e., goods and services of businesses and individuals with an average monthly income lower than the common minimum salary level were not subject to VAT). Therefore, the new law provides more clarity to the conditions.

New VAT exemptions

VAT exemptions are a new concept in Vietnamese VAT laws. Decree 209 stipulates five types of VAT exemptions, including collecting receivables for damages, bonuses, allowances, emission right transfers and other financial receivables, disposing assets of non-traders, or various prescribed services bought by Vietnamese from foreign parties. For these cases, the enterprise and individual engaging in the conduct will have no obligation to declare or pay VAT.

Perhaps the most important exemption is the one applied to transfers of any investment project for the production and trading of goods and services that are ordinarily subject to VAT. In view of the rebounding M&A activity in Asian countries, this policy is a step towards the right direction in attracting foreign investors.

Support for the real estate market

Vietnam’s real estate market has experienced a poor few years, with many property projects lacking buyers. In an attempt to revive the market, the government has enacted changes to VAT laws. Some new regulations include reducing the tax rate to 5 per cent for transactions relating to social housing and applying a 50 per cent VAT exemption to transactions relating to commercial houses with floor areas of under 70 square metres and a selling price of under VND15 million per square metre.

It is hoped that these changes will revitalise the Vietnamese real estate market – at least, the budget housing segment.

Export services: changing criteria for subjects to apply a 0 per cent tax rate

While the laws of Vietnam promote the notion that exported services should be subject to a 0 per cent VAT rate, the definition of which services are really exported for use out of Vietnam is a controversial matter.

In order to decide the application of the relevant VAT rate, the former decree prescribed the condition of whether the foreign client was holding a permanent establishment in Vietnam. This was unsatisfactory for the tax-payer as well as the state because such criteria did not bring clarity. Decree 209 reinstated a condition applied before the aforesaid former decree, which is that the service must be consumed outside of Vietnam. However, this may make the zero rating for exported services more difficult in most cases since the tax authorities can be expected to take the view that most services sold to customers overseas, if they are performed in and relate to Vietnam, will also consequently be consumed in Vietnam. Service providers should review their VAT treatment of exported services to ensure that the rate of VAT applied is correct.

VAT deduction method

The Law on VAT defines two VAT payment measures: one for tax deductions and one for the direct calculation of VAT. However, the question of which method applies may cause confusion to taxpayers.

Decree 209 provides a new provision whereby enterprises and co-operatives with an annual revenue of less than VND 1 billion can also apply for the tax deduction method on a voluntary basis after having fully complied with the regulations on accounting regimes, accounts, invoices and supporting documents. In comparison with the former regulations, this provision was earmarked to provide an easier and more transparent means for taxpayers to choose which deduction method would be applied.

Removing the time limit for VAT deduction

The six month statutory time limit for declaring and deducting input VAT for invoices has been removed in Decree 209. Now, the declaration of VAT invoices only has to be done before any tax inspections by the tax authorities.

Tax refund 

Instead of the former three month limit, VAT refunds under Decree 209 can now be claimed if a taxpayer has accumulated input VAT credit for at least 12 consecutive months or four consecutive quarters. In addition, for the new investment projects or registration of enterprises applying the tax deduction method, the threshold for claiming VAT has increased from VND 200 million to VND 300 million. This new provision is expected to make it easier for taxpayers to seek a tax refund. In practice, tax refunds usually take significant time and costs so the extension of the term for a tax refund may also be beneficial.

Decree 209 has brought with it a large number of positive changes in VAT treatment for both domestic and foreign businesses and investors. It is hoped that such changes will lead the way in promoting the Vietnamese government’s aim to improve transparency in the business environment, bolster Vietnam’s attraction to foreign investors and encourage domestic business activities.n

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Comments on Decree 139 & Decree 108

Together with a draft decree amending Decree 108/2006/ND-CP guiding the Investment law’s implementation, the Ministry of Planning and Investment (the MPI) is finalising a draft decree (the Draft Decree) amending Decree 139/2007/ND-CP on implementation of the Enterprise Law (Decree 139) which was hinted to take effect from this November.

This article streamlines some issues that foreign investors may need to be aware of in making their investment decisions in the future, particularly in relation to procedures for the foreign investment by way of capital contribution, purchase share, and establishment of enterprises with less than 49% foreign owned capital (herein after referred to as the “Enterprise(s)”).

Presently, there are different provisions applicable to establishment of the Enterprises according to Decree 139 and the Investment Law. Pursuant to Article 9.3.b) of Decree 139, in case of establishing the Enterprises, the investors shall carry out procedures for establishment of an enterprise in accordance with the Enterprise Law. The enterprise shall then register its investment project as same as domestic enterprises.

However, this provision is claimed to be inconsistent with Article 50.1 of the Investment Law stipulating that foreign investors who first invest in Vietnam regardless of percentage of their ownership in the newly established enterprise must have investment projects and carry procedure for registration of investment. In the event of conflict, the legal instrument with higher validity shall apply, and thus Article 9.3.b) should be void. Consequently, in practice the licensing authorities applying Circular 10725/BKH-PC of the MPI request that the Investors establish and register their investment projects which ironically, in turn, contrary to the provision of Decree 139.

Hence, one of the key objectives of the Draft Decree is to resolve the discrepancies with the provisions of the Investment Law. Indeed, the drafters have amended the Draft Decree in compliance with the provision of Investment Law.
According to Article 12 of the Draft Decree, foreign investor who first invest by establishing an enterprise shall need to conduct the investment registration procedures. The enterprise shall then be issued an investment registration certificate which is at the same time its business registration certificate. That means in establishing the Enterprises, foreign investors shall have to prepare documentation, including, among others, a statement of financial capacity of the investor, required for investment project with foreign capital stipulated in the Investment Law. Therefore, on the one hand this revision has fixed the inconsistency between the laws; on the other hand it creates burdens on foreign investors in proving their financial ability which would have not been the case if the provision of Decree 139 was to apply.

Further, under the current draft decree amending Decree 108, the foreign investors contributing capital or purchasing shares to established enterprise must conduct procedures for evaluation of investment conditions as stipulated in article 60 of Draft Decree 108. According to this Article, foreign investors shall be required to submit evidences of their financial capacity instead of submission of the statement of financial capacity as required by Decree 108. In so doing, the investor shall need to prepare a range of financial-related documents, such as a letter of comfort issued by a bank or credit institution attesting the current status of the investor’s bank account, a financial undertaking for the project or financial statements applicable for corporate investors operating for three years or more, to convince the licensing authorities that they will be able to implement the intended project.

One may take a view that making these amendments is actually taking a step backward in attraction of foreign investment in Vietnam. That is because the evaluation requirement will not only impose more cost on the foreign investors but also take longer time for the licensing authorities to assess applications. This concern is real given current workload of the licensing authorities in Hanoi and Hochiminh city. In future, if the draft decrees are approved, the workload of these authorities shall sharply increase meanwhile the human resources cannot be quickly trained to meet the increasing demands. Indeed, the draft decree amending Decree 108 has extended the statutory time-limit for evaluation from 15 days currently to 30 days. However, it should be noted that under the current evaluation process, very rare projects have been issued an investment certificate within the statutory time limit.

Another issue that raises the investors’ concerns in this regard is that these amendments would create room for bureaucratism. Even though the content of evaluation is restricted, there is no restriction that the licensing authority must not expand the scope of their evaluation to the extent required by law.

Further, two related issues that remains conflict between the provisions of Decree 139 and those of Decree 108 are: First, whether the foreign investors have to carry out project registration in the case where the ratio of foreign own capital exceeded 49% because the capital contribution of the foreign investors or the decrease of capital of the Enterprise. Second, whether an enterprise with less than 49% foreign investment will be restricted by WTO’s commitments, such as distribution enterprises are not allowed to establish more than one distribution point or foreign investment enterprises establishing a restaurant must invest in hotel business, etc. Unfortunately, these issues have not yet been addressed by the Draft Decree. Though, in light of above analysis, it appears that the mindset is in case of conflict whichever is more stringent shall be applied.

In conclusion, despite the expectation that the Draft Decree would further facilitate foreign investment in Vietnam, the provisions of Decree 139 were amended to stringent requirements and procedures for foreign investment. The reason behind these amendments was that there are many foreign investors have delayed the implementation of their projects and thus forcing the local authorities to withdraw their investment certificates. Given the time constraint, it is unlikely that the final Draft Decree would be significantly different from the current draft.

Therefore, to save time and cost, it is advisable that foreign investors should carefully select their investment project as well as prepare all required document, particularly those proving their financial capacity, before submitting to the licensing authority.

By Vietnam Law Insight, LNT & Partners.

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