On 28 February 2011, the Ministry of Finance issued Circular 28/2011/TT-BTC (“Circular 28”) to provide guidance on the Law on Tax Management, and superseded Circular 60/2007/TT-BTC (“Circular 60”). Circular 28 details various changes on tax administration, e.g. tax declaration procedures, deadlines, form, supporting documents, etc.
In this Tax Pointer, we discuss procedures and dossiers under Circular 28 to apply for a tax exemption/reduction under a double taxation agreement (“DTA”) to which Vietnam is a signatory.
Circular 28 provides for more detailed guidance on the procedures for tax exemption under the DTA. The specific changes to Circular 60 that are now included in Circular 28 are DTA exemption procedures for capital assignment and tax declaration procedures for re-insurance (see our previous Tax Pointer on this issue). With respect to capital assignment, the capital transferor will now apply the procedures guided under the new Circular 28 rather than Circular 133/2004/TT-BTC (dated 31 December 2004) as previously required.
In the scope of this Tax Pointer, we focus on the DTA procedures for a foreign contractor’s business and other incomes and such foreign contractor who applies the withholding method for tax declaration in Vietnam:
Procedure to apply for DTA exemption/reduction
According to Circular 28, in order to enjoy tax exemption under the DTA (which applies to capital assignment among other transactions), the Vietnamese party (in the case that the Withholding Method under the FCT regulation is used) shall submit the following documents to the tax authorities 15 days before the deadline of tax declaration to notify for the exemption/reduction under DTA:
– Notice of eligibility for tax exemption/reduction (form No. 01/HTQT);
– Original certificate of residence granted by a tax agency of the country of residence (regarding the prior year) which is legalized;
– Copy(ies) of the business registration certificate and/or the tax registration certificate granted by the country of residence;
– Copy(ies) of contracts signed with Vietnamese organizations and individuals which are certified by the taxpayer;
– In the case of a capital assignment: copies of assignment contracts, certificate of investment of Vietnam company (target company) which is certified by the taxpayer. Where the securities transactions without contracts of such transactions, tax payer can submit certificate of deposit account of stocks or bonds confirmed by Depository Bank or Securities company as per set form 01/TNKDCK.
The foreign contractor must send to the Vietnamese party the legalized certificate of residence of the current year 15 days before the termination of the contract or the end of tax year. We also note that this certificate must be submitted in the case of termination of the contract in Vietnam.
We note that the new Circular 28 does not require the original certificate of residence to state clearly the year of residence while this content was required under the prior Circular 60 In addition, Official Letter 2160/TCT-HTQT (dated 24 June 2011) sent to Ho Chi Minh City Tax Department states that the certificate of residence does not need to state the year of residence as long as a certificate of residency (“COR”) shows the duration of the year in which the resident receives such income.
Translation of documents
Circular 28 also emphasizes that the supporting documents be in Vietnamese. If the documents are in a foreign language (i.e., contract, agreement, tax return, etc.), such documents must be translated into Vietnamese by the taxpayer upon submission of the dossier. The taxpayer will sign and stamp on the translation for the accuracy of the translation. If the documents are more than 20 pages, taxpayers are advised to submit an official letter to local tax authority to have the permission of translating only main content, terms and conditions pertaining to tax liabilities determination.
The content to be translated will vary on a case-by-case basis and on the requirements of the tax authorities.
Tax treatment in case a DTA exemption dossier is submitted after the due date
Currently, taxpayers are allowed to self-declare their DTA exemption by going through DTA exemption notification steps as per the regulations. An issue that arises is what will happen if the taxpayer and/or the Vietnamese party did not declare or delayed the procedures. Does the taxpayer lose the right to claiming a tax exemption?
The General Department of Taxation has issued Official Letter 473/TCT-HTQT (dated 09/02/2011) to clarify this issue, and the ruling was sent to all local tax authorities for consistent implementation. Notable points under the ruling include:
– In case any penalty is triggered due to late submission of tax registration or tax declaration, the eligibility of DTA exemption does not exempt or reduce the penalty liability for the taxpayer.
– If the taxpayer fails to submit the DTA exemption notification properly in accordance to the regulations, the Vietnamese party still needs to withhold and declare taxes as per the regulations. The taxpayer may still submit the DTA exemption procedure, and the tax authority is required to consider the DTA exemption eligibility of the taxpayer provided that the submission does not exceed three years from the date the income was triggered.
Thus, even if the taxpayer fails to submit the initial DTA exemption notification, the taxpayer may still go through the exemption procedure to obtain a tax refund on taxes that were withheld and paid by the Vietnamese party to the state budget subject to statute of limitations of three years.
Although the new Circular 28 does not provide significant changes in the procedures of DTA application, overall, certain cumbersome requirements have been removed (such as certified translation documents, strict requirement on the form, and the content of the COR). Circular 28 allows the tax payer to explain any pending concerns that may arise in the preparation of the dossiers. In short, Circular 28 has simplified the administrative requirements, which would allow the foreign contractors to have a higher chance of obtaining DTA benefits.