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VAT, Invoices, Thailand – Vietnam tax treaty, Income during construction, & Expat travel costs

Released at: 04:52, 08/10/2014 TAX CONSULT

VAT, Invoices, Thailand – Vietnam tax treaty, Income during construction, & Expat travel costs

What are the recent updates on VAT exemptions for imported animal feed?, What is the detailed guidance on VAT implementation for unprocessed/semi-processed products from cultivation, breeding, aquaculture and fresh foods?...

by Kpmg

Q: What are the recent updates on VAT exemptions for imported animal feed?

A: The Ministry of Finance (MoF) issued Official Letter No 5165 dated April 21, 2014 confirming that animal feed/raw materials for animal feed production being unprocessed/semi-processed products from cultivation, livestock, or aquaculture is exempted from VAT at the import stage. However, if a company has already declared and paid VAT on the aforementioned products prior to the date of this letter, amendments to the submitted VAT returns are not allowed. Instead, the company can claim credit on the VAT already paid.

Q: What is the detailed guidance on VAT implementation for unprocessed/semi-processed products from cultivation, breeding, aquaculture and fresh foods?

A: On May 29, 2014 the MoF issued Official Letter No 7062 guiding the implementation of VAT regulations in respect of unprocessed/semi-processed products from cultivation, livestock, aquaculture and fresh foods. Notable points include:

Fresh food at the trading stage is subject to a VAT rate of 5 per cent. However, trading enterprises and cooperatives that apply a VAT credit method sell fresh food to other enterprises or cooperatives shall not be required to declare or pay VAT on these fresh food at the trading stage, effective from January 1, 2014.

To clarify the implementation of this guidance, a list of examples of unprocessed/semi-processed products from cultivation, breeding, aquaculture and fresh foods that are not required to declare VAT at the trading stage is provided.

Q: What about the changes or updates on invoice compliance?

A: On May 20, 2014, the General Department of Taxation (GDT) issued Official Letter No 1839 highlighting notable changes and updates on invoice compliance in light of the new Circular No 39/2014/TT-BTC, which comes into force from June 1, 2014.

Export invoices will be repealed from June 1, 2014. Businesses may continue to use outstanding export invoices currently in stock, subject to registration with the tax office by July 31, 2014.

It is no longer necessary to indicate the name and tax code of software providers on self printed and electronic invoices. However, this requirement is still in place for outsource printed invoices.

To self print its own invoices a company must have contributed charter capital of at least VND15 billion (from the previous VND1 billion). Newly-established companies with contributed charter capital lower than VND15 billion but having purchases of fixed assets, machinery and equipment with a value of VND1 billion or more shall be allowed to create self-printed invoices.

Business individuals and business households are no longer allowed to issue self-printed or outsource printed invoices. Instead, they must purchase invoices from the tax office.

It is no longer required to cross out the blank space on invoices.

Q: How is the Thailand-Vietnam tax treaty applied for income from design services?

A: On May 13, 2014, the GDT issued Official Letter No 1686 providing guidance on the application of the Thailand - Vietnam DTA for design services. Income from design services is treated as income from royalties in accordance with the tax treaty, subject to Vietnamese FCT not exceeding 15 per cent of total gross income. The current FCT rate for income from royalties in Vietnam is 10 per cent.

Q: What about interest income during the construction-in-progress period?

A: On May 12, 2014 the GDT issued Official Letter No 1661 providing guidance on this matter, as follows:

During this period, income can be offset against interest expenses incurred from loans obtained for construction if such income is generated from temporary investment activities.

On the other hand, interest income from the deposit of contributed capital amounts from shareholders is not allowed to be offset against interest expenses during the period of construction. Such interest income is treated as the company’s other income.

Q: How is tax applied on airfare costs for rotational shift of expatriates?

A: On May 15, 2014 the MoF issued Official Letter No 6375 stating that airfare costs provided to expatriate employees travelling to/from Vietnam on rotational shifts are not subject to PIT. This treatment also applies to periods prior to Circular No 111/2013/TT-BTC.

The above MoF guidance provides more favourable treatment than the previous guidance from the GDT, for e.g. under Official Letter No 4656 dated December 26, 2012.

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