I. TAX POLICY

1. If the payment price on the capital transfer contract is not consistent with the market price, the tax authority has the right to determine the transfer price

Official Letter No. 1755/CT-TTHT of the Hanoi Tax Department on tax policy for capital assignment activities:

– Pursuant to Article 14 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance (amended and supplemented in Article 8 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance) guiding on corporate income tax for capital assignment activities:

In case the assignment contract does not stipulate the payment price or the tax authority has the basis to determine that the payment price is not consistent with the market price, the tax authority has the right to inspect and determine the assignment price. If an enterprise assignments a portion of its capital contribution in an enterprise and the assignment price for this capital contribution is not consistent with the market price, the tax authority shall re-determine the entire value of the enterprise at the time of assignment to re-determine the assignment price corresponding to the proportion of the assignmentred capital contribution.

The basis for determining the assignment price shall be based on the investigation documents of the tax authority or the basis for the capital assignment price of other cases at the same time, the same economic organization or similar assignment contracts at the time of assignment. In case the assignment price determined by the tax authority is not consistent, it shall be based on the appraisal price of professional valuation organizations with the authority to determine the assignment price at the time of assignment in accordance with regulations.

If an enterprise assignments capital to an organization or individual, the value of the capital assignmentred under the assignment contract must have a non-cash payment document. In case the capital assignment does not have non-cash payment documents, the tax authority has the right to determine the assignment price.

Based on the above regulations, the Hanoi Tax Department responds in principle as follows:

– In case Bac Ha Technology Company Limited receives capital contribution assignments from foreign organizations and foreign individuals (not residing in Vietnam), Bac Ha Technology Company Limited is responsible for declaring, deducting and paying taxes on behalf of foreign organizations and non-resident individuals. In case the payment price on the capital assignment contract is not consistent with the market price, the tax authority has the right to determine the assignment price in accordance with the provisions of the law on tax administration.

2. Transferring profits abroad to the parent company in the form of offsetting debts with receivables from the parent company, this form of profit transfer is not in accordance with Circular No. 186/2010/TT-BTC. At the same time, payment for exported goods and services of the Company in the form of offsetting debts is not considered payment via bank

Official Letter No. 3142/CTTPHCM-TTHT of the Ho Chi Minh City Tax Department

Pursuant to Circular No. 186/2010/TT-BTC dated November 18, 2010 of the Ministry of Finance guiding the implementation of transferring profits abroad by foreign organizations and individuals with profits from direct investment in Vietnam in accordance with the provisions of the Investment Law;

In Article 16 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the Law on Value Added Tax:

“Article 16. Conditions for deduction and refund of input tax on exported goods and services

Exported goods and services (except for cases guided in Article 17 of this Circular) to be eligible for tax deduction and refund of input VAT must satisfy the conditions and procedures specified in Clause 2, Article 9 and Clause 1, Article 15 of this Circular

Based on Official Dispatch No. 2862/TCT-CS dated July 16, 2020 of the General Department of Taxation on tax policy,

Based on the above provisions and the presentation document, in case the Company transfers profits abroad to KMS US Company (Parent Company) in the form of offsetting debts with receivables of the Parent Company, this form of profit transfer is not in accordance with Circular No. 186/2010/TT-BTC. At the same time, payment for the Company’s exported goods and services in the form of debt offset as presented is not considered payment via bank, so the Company is not eligible for deduction and refund of input tax on exported goods and services as prescribed in Article 16 of Circular No. 219/2013/TT-BTC.

3. Importing goods as samples or goods with payment using non-commercial declarations shall be deducted VAT

Official Letter 15629/CT-TTHT of the Ho Chi Minh City Tax Department

Pursuant to Article 14 of Circular 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the implementation of the VAT Law, which stipulates the principle of input VAT deduction:

“1. Input VAT of goods and services used for production and trading of goods and services subject to VAT is fully deductible, including the non-compensated input VAT of damaged VAT goods.”

Pursuant to Clause 10, Article 1 of Circular No. 26/2015/TT-BTC dated February 27, 2015 of the Ministry of Finance amending and supplementing a number of articles of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the implementation of the Law on VAT and Decree No. 209/2013/ND-CP dated December 18, 2013 of the Government detailing and guiding the implementation of a number of articles of the Law on VAT (amended and supplemented by Circular No. 119/2014/TT-BTC dated August 25, 2014 and Circular No. 151/2014/TT-BTC dated October 10, 2014 of the Ministry of Finance) as follows:

“Article 15. Conditions for deducting input value-added tax:

1. Having a legal value-added invoice for goods, purchased services or documents for payment of value added tax at the import stage or documents for payment of VAT on behalf of foreign parties according to the guidance of the Ministry of Finance applicable to foreign organizations without Vietnamese legal status and foreign individuals doing business or having income arising in Vietnam.

2. There are documents for non-cash payment for purchased goods and services (including imported goods) worth VND20 million or more, except for cases where the value of imported goods and services each time is less than VND20 million, goods and services purchased each time according to invoices are less than VND20 million at prices including VAT and cases where the business establishment imports goods as gifts from organizations and individuals abroad.

Non-cash payment documents include bank payment documents and other non-cash payment documents as guided in Clauses 3 and 4 of this Article.”

Based on the above provisions, in the case presented, the Company receives sample goods from foreign suppliers without having to pay, if the import of these sample goods has full documents for payment of import value added tax, meets the conditions specified in Clause 10, Article 1 of Circular No. 26/2015/TT-BTC and is used for production and business activities of goods and services sold subject to VAT, the Company is entitled to deduct the input VAT at the import stage; In case the imported sample goods are not used for production and business of goods and services subject to VAT, the deduction is not allowed.

4. Foreign companies providing testing services for goods samples abroad before importing them to Vietnam for companies in Vietnam, this testing service is subject to contractor tax in Vietnam

Official Letter No. 3117/TCT-CS of the General Department of Taxation

The General Department of Taxation received Official Letter No. 2302/CV-VTD dated February 22, 2023 from Vietnam Technical Development Company Limited asking about contractor tax policy. Regarding this issue, the General Department of Taxation has the following comments:

– Clause 1, Article 1 of Circular No. 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or having income in Vietnam stipulates the subjects of application as follows:

“1. Foreign business organizations with or without a permanent establishment in Vietnam; foreign business individuals who are residents in Vietnam or not (hereinafter referred to as Foreign Contractors, Foreign Subcontractors) doing business in Vietnam or having income arising in Vietnam on the basis of contracts, agreements, or commitments between Foreign Contractors and Vietnamese organizations or individuals or between Foreign Contractors and Foreign Subcontractors to perform a part of the work of the Contractor’s Contract.”

– Clause 3, Article 2 of Circular No. 103/2014/TT-BTC of the Ministry of Finance mentioned above stipulates the following inapplicable subjects:

“3. Foreign organizations and individuals with income from services provided and consumed outside Vietnam…”

– Clause 1, Article 6 of Circular No. 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance stated:

“Article 6. Subjects of VAT

1. Services or services associated with goods subject to VAT provided by foreign contractors and foreign subcontractors on the basis of contractor contracts and subcontractor contracts used for production, business and consumption in Vietnam…, including:

– Services or services associated with goods subject to VAT provided by foreign contractors and foreign subcontractors in Vietnam and consumed in Vietnam;

– Services or services associated with goods subject to VAT provided by foreign contractors and foreign subcontractors outside Vietnam and consumed in Vietnam.”

Based on the above provisions, in case Vietnam Technical Development Company Limited signs a contract with Safe Airport Solution Hong Kong Company to provide sample testing services for composite core aluminum wire and ACCC accessories before importing to Vietnam, this testing service is subject to contractor tax in Vietnam.

5. If an employee receives income in cash or in kind from participating in competitions with prizes organized by the Company, this income is determined as income from winning prizes. If the prize value exceeds 10 million VND, the Company shall deduct personal income tax before paying the prize

Official Letter No. 61175/CTHN-TTHT of the Hanoi Tax Department

The Hanoi Tax Department received Official Letter No. 41/2023/CV-SAHN dated July 26, 2023 from Sun Asterisk Vietnam Company Limited requesting clarification on personal income tax from employee winnings. Hanoi Tax Department has the following comments:

+ At point g, clause 1, Article 25, regulations on tax deduction and tax deduction documents

“Article 25. Tax deduction and tax deduction documents

1. Tax deduction

Tax deduction is the act of organizations and individuals paying income to deduct the amount of tax payable from the taxpayer’s income before paying the income, specifically as follows:

g. Income from winning prizes

The organization paying the prize is responsible for deducting personal income tax before paying the prize to the winning individual. The amount of tax deducted is determined according to the instructions in Article 15 of this Circular.…”

Based on the above provisions, in case an employee receives income in cash or in kind from participating in competitions with prizes organized by the Company, this income is not determined as income from salary or wages according to the provisions of the Labor Code but is determined as income from winning prizes according to the instructions in Clause 6, Article 2 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance. If the prize value exceeds 10 million VND that the winning individual receives, the Company shall deduct personal income tax before paying the prize to the winning individual. The deducted tax amount shall be determined according to the instructions in Article 15 of Circular No. 111/2013/TT-BTC dated August 15, 2013.

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