On 8 August 2017, the Ministry of Finance of Vietnam has announced the proposal to launch the tax reform program through two drafts on amending and supplementing the Laws on Corporate Income Tax, Personal Income Tax, Special Sales Tax, VAT and Natural Resources Tax.
The Proposal includes the following key measures:
Corporate Income tax:
- Tax on capital/share transfers by non-residents: a transfer of an interest in a Vietnamese company by nonresidents is proposed to be subject to a 1% CIT on the sale proceeds, replacing the current 20% tax on the net gain.
- Introduction of thin capitalization rules: Thin capitalization rules are introduced to limit the deductibility of interest expense to specific debt to equity ratios of 5:1 for manufacturing, 12:1 for banking and 4:1 for all other sectors.
- Cut the CIT for SMEs: small and medium-sized firms currently pay 20% in corporate income tax. If the proposal is approved, micro firms with less than VND3bn annual revenue will have the tax reduced to 15%. Firms with VND3bn to VND50bn revenue will have to pay tax at a rate of 17%.
- Incentives: tax incentives are proposed to be streamlined with the objective that they are only available for encouraged sectors such as enterprises and investments in high technology industries, assistive technologies, and manufacturing industries with high added value.
Special Sales Tax:
- Introduce special sales tax on soft drinks at either 10% or 20% from 01 Jan 2019.
- Increase rates for cigarettes: rates for cigarettes would increase from 70% to 75% during 2019 and to the maximum price of VND1, 0002 per 20-cigarette pack and VND1, 5003 per cigar from 2020.
Value Added Tax:
- The VAT rates are planned to increase from 10% to 12% as of 1 January 2019.
- The 5% VAT rate for essential goods and services would increase to 6%.
- Certain items of goods and services that are currently taxed at a 5% VAT rate would be subject to the new 12% standard VAT rate.
- A threshold for payment by the bank for both VAT and CIT purposes is proposed to be reduced from VND20 million to VND10 million.
- A VAT refund is proposed to be available for enterprises providing goods and services at a 6% VAT rate when there is outstanding input VAT for 12 consecutive months or 4 consecutive quarters.
The Proposal is expected to be effective as of 1 January 2019 after its submission to the Government in September 2017, followed by enactment by the National Assembly.
