TAXATION ON INDIVIDUALS AND HOUSEHOLDS
The Ministry of Finance recently issued Circular No. 40/2021/TT_BTC guiding value-added tax (“VAT”), personal income tax (“PIT”) and tax administration for household and individual businesses (“Circular 40”), which brings a number of new points. Notable issues include: categories of taxable incomes, applicable methods of tax declaration and tax payment, as well as specific applications for tax calculation. Household and individual businesses (jointly, “Individuals”) may aspire to look into the following sections for updates.
Scope of application
Compared to the previously issued Circular No. 92/2015/TT_BTC (“Circular 92”) , taxation policies in Circular 40 have been applied to some additional subjects. As prescribed in a list of residential individuals, more businesses and entities are included in Circular 40’s scope of application, such as: individuals doing business in the field of e-commerce or making income from the provision of digital products or services; individuals operating businesses at bordering markets or in border economic zones located in Vietnam; individuals transferring Vietnamese internet domains of “.vn”; or organizations and individuals who declare and pay tax on behalf of other individuals . Individuals whose revenues in a year are lower than 100 million VND are no longer excluded, and are obliged to fulfill a tax declaration.
Calculation, declaration and tax settlement
Under Circular 40, there are three methods to conduct the calculation and declaration of taxes for individuals, including periodic declaration, separate (or ad-hoc) declaration and presumption.
Although Circular 92 and Circular 40 provide that, individuals who have casual businesses and do not obtain permanent premises shall be subject to separate tax declaration , Circular 40 also lists out specific subjected businesses. For example, mobile traders, private construction contractors, individuals providing digital products or services and not choosing periodic tax declaration, and transferors of Vietnamese internet domains shall declare and pay tax using the “ad-hoc” mechanism . Furthermore, those who apply either the “ad-hoc” mechanism or presumption taxation are not bound by an accounting regime, yet they are still required to retain and preserve all invoices, contracts and relevant business documents .
Circular 40 provides for tax declaration conducted by authorized agents of business individuals. Specifically, those organizations shall perform on behalf of the individuals upon authorization under civil laws, or under listed circumstances such as: in a business cooperation; organizations that make payment for bonuses, incentives, promotions, discounts, contractual damages; and organization partners in Vietnam that act on behalf of individuals under agreement with a foreign provider of a digital platform .
For individuals in specific cases such as leasing properties, there are some guidelines in detail for the application of Circular 40, including taxable revenue and tax declaration . There are also some adjustments regarding the application, period and authority of tax declaration in comparison to Circular 92.
Other key changes
There are some general definitions that are prescribed in Circular 40. As a subject of the “periodic declaration” method, “large-size individuals” are defined with a number of specific conditions, including the highest criteria of super small enterprises, which have at least 10 employees participating in social insurance or obtain a total revenue of at least 3 billion VND in the prior year .
Moreover, taxable income and revenue are supplemented in the Schedule 1 of Circular 40. Some business lines and income sources have been added into the subjects of payable VAT and PIT by individuals in accordance with the Law on Tax Administration . For example, compensation for contractual breach is subject to a 0.5% PIT rate, advertising on digital services is also subject to a 7% rate total for PIT and VAT. Meanwhile, businesses on the 10% VAT rate in the deduction method shall be subject to a 1.5% PIT rate and a 3% VAT rate for taxable revenues.
This new Circular is considered a sub-law instrument under the Law on Tax Administration that was issued in 2019, and takes effect on 1 August 2021. This latest tax regulation for doing business in Vietnam impacts a large segment of Vietnam’s ecnonomy . It appears that some closer, stricter provisions are applied to advance both supervisory and regulatory management by the State.
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