Member Article

By way of -providing guidelines for implementing the Tax Law No.106/2016/QH13 (Law 106) effective from 1 July 2016, the government has issued Decree 100/2016/ND-CP (Decree 100) on 1 July 2016 and the Ministry of Finance has issued Official Letter 10315/BTC-TCT dated 25 July 2016 (OL 10315) and Circular 130/2016/TT-BTC dated 12 August 2016 (Circular 130). Following our tax alert[1]on the important changes under Law 106, the key points in Decree 100, Circular 130 and OL 10315 are outlined below:

1. Lack of Clarity on VAT Refund for Imported Goods Intended for Subsequent Export
   A VAT refund is allowed for taxpayers conducting export transactions with an accumulated input VAT surplus of at least VND 300 million attributable to these transactions per month or per quarter (depending on whether VAT is filed on a monthly or quarterly basis). Law 106 however, excludes the following from VAT refund entitlements:

   - Goods imported for subsequent export; and
   - Goods exported outside a customs controlled area according to the Law on Customs.

   In the first case, Law 106 and Decree 100 do not clearly specify whether the restriction on input VAT refund applies to:

   - Materials or goods imported to produce goods for export; or
   - Goods imported by traders and subsequently exported to a third country; or
   - Both

   An example provided in Circular 130 seems to indicate that the VAT refund restriction applies only to traders. However, to be certain, export manufacturers should seek further clarification with the tax authorities. This VAT refund restriction applied in any of the above cases would seem to defeat the very purpose of input VAT refund restriction in the first place, which is for the stimulating of local circulation or transacting of goods (i.e. to restrain significant inventory). This restriction on input VAT refund for export may negatively impact the cash-flow (or even increase the cost) for traders or manufacturers dealing in the exportation of goods.

   In the latter case, a “custom controlled/operating area” under the Law on Customs covers “areas of land border checkpoints, international railway stations, international civil airports; seaports and inland waterway ports where import, export, exit, entry and transit operations are conducted; areas where goods subject to customs supervision are stored, export processing zones and customs preference zones; customs clearance places, bonded warehouses, tax-suspension warehouses, international posts, head offices of customs declarants where post-customs clearance inspection is carried out; and places for inspection of imported and exported goods in the customs territory”.

   From the description above, it is very unclear in which customs controlled area would the input VAT of the goods exported through it be disallowed; or how the goods could be officially exported outside those areas. Although, an example in Circular 130 appears to indicate that the VAT refund restriction would only apply to “unofficial” exported cases.

2. Removal of Deferral Payment of Import Duty
   The old Law on Import Duty and Export Duty stipulated the time frame for payment of import duty as within 15 days (for goods temporarily imported for re-export); or 30 days (for normal importation); or 275 days (for materials imported to produce exporting goods) from the date of customs declaration. The new Law on Import Duty and Export Duty effective from 1 September 2016 requires that the duty must be paid prior to customs clearance (before the goods are released from custody) except in the case where duty payment is guaranteed by a banking institution.

   Furthermore, under the new Law on Import Duty and Export Duty, materials imported to produce goods for export are exempt from import duty. Therefore, Decree 100 has abolished Article 38 of Decree 83/2013/ND-CP on Tax Administration regarding the 275-day dereferral of import duty payment for material imported to produce exporting goods.

3. Reduced Interest Of 0.03% On Overdue Tax Payments Can Not Be Retro-Actively Applied.
   According to OL 10315, the reduction of interest on overdue tax payments of 0.03% per day cannot be retroactively applied to tax penalties for offences or inaccurate filing prior to 1 July 2016. This is regardless of whether the amount was voluntarily reassessed by the tax payer or reassessed by the tax authorities.

   OL 10315 states that the reduced interest rate only applies from 1 July 2016 onward. This will apply to overdue tax before or on 1 July 2016 that has not yet been settled.

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   [1] Please refer to our July tax alert for Vietnam posted on 22 July.

Please feel free to contact us if you need further details on this tax alert.

DFDL contacts:

Jack Sheehan
Partner, Regional Tax Practice Group
[email protected]

Phan Thi Lieu
Senior Tax Manager
[email protected]

*The information provided is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.