Vietnam Issues Tax Breaks for Businesses, Individuals: Resolution 406
- Vietnam issued Resolution 406 to further help businesses and individuals affected by the pandemic including a 30 percent corporate income tax cut.
- The reduction will apply to all businesses with revenue of less than US$8.8 million (VND 200 billion) in 2021.
- The government issued Decree 92 guiding the implementation of Resolution 406; businesses should study the Decree carefully to obtain the support measures.
Similar to last year, the government issued Resolution 406/NQ-UBTVQH14 (Resolution 406) on October 19 on several measures to help businesses and individuals affected by the pandemic including a 30 percent corporate income tax cut.
The tax reduction is primarily based on the principle of self-assessment. Businesses are expected to review their actual business circumstances and self-assess their eligibility for such tax breaks.
Who is eligible?
- The CIT reduction applies to businesses that have revenue of less than VND 200 billion (US$8.8 million) in 2021;
- Revenue for 2021 is less than 2019;
- The CIT cut applies to all businesses that are involved in the production and trade of goods as well as services in accordance with Vietnamese law;
- The CIT reduction will apply to the total revenue of the enterprise including incomes such as capital transfer, real estate transfer, and services subject to special consumption tax; and
- The 30 percent CIT reduction will apply to the business’ CIT payable for the 2021 fiscal year minus the CIT incentives eligible for enterprises as per the Law on Corporate Income Tax.
This means that most small and medium enterprises (SMEs) will be eligible for such tax breaks regardless of the number of employees and the actual financial loss due to the pandemic.
However, it is important to note that this does not apply to businesses that are newly created, merged, consolidated, or split during the 2020 and 2021 tax period.
Personal income tax exemptions and value-added tax for business households and individuals
The resolution also outlines personal income tax (PIT) and value-added tax (VAT) exemptions in Q3 and Q4 of 2021 for individuals and household businesses affected by the pandemic. This exemption does not apply to services like digital entertainment, electronic games, digital movies, and digital advertisement
A 30 percent VAT reduction will apply from November 1 to December 31, 2021, to the following goods and services:
- Transportation services (railway, airlines, road, etc.);
- Catering and services related to tourism,
- Publication products;
- Cinematographic services;
- Television production;
- Museums; and
- Sports and entertainment services.
The government has also allowed an exemption of late payment interest in 2020 and 2021 related to tax debt, land use, and lent rent for businesses due to losses in 2020.
Businesses welcome reduction but want quick implementation
The tax reductions have been welcomed by businesses and will particularly help small and medium-sized businesses (SMEs) which have been significantly affected by the fourth wave of the pandemic.
- WE can help you navigate the tax landscape in Vietnam
Analysts say that the Resolution expands to more beneficiaries with the time for tax reduction longer. Lower taxes will also translate to lower input costs, reducing production costs, and improving supply chains. Businesses now want a quick implementation of the Resolution with simpler and relaxed conditions to gradually resume operations.
Decree 92 issued on guidance on implementing Resolution 406
As mentioned earlier, the government issued Decree No 92/2021/ND-CP (Decree 92) on implementing Resolution 406. Decree 92 follows up on Resolution 405 and includes details on implementation and how businesses can obtain the tax incentives.
Mainly, Decree 92 mentioned four groups that are eligible for the CIT reduction. This is mentioned in Resolution 406 as written earlier, but with some specifics, which include:
- Businesses established as per Vietnamese regulations;
- Businesses established as per the Law on Cooperatives;
- Public service units established as per Vietnam’s laws; and
- Other businesses established as per Vietnam’s laws and generate income as per their business activities.
PIT and VAT exemptions
Business households and individuals from all industries and sectors that pay tax and have been affected by COVID-19 in Q3 and Q4 are eligible for PIT and VAT reduction. In addition, Decree 92 also mentions additional exemptions from special consumption tax (SCT), natural resource tax, and environmental protection tax.
The local people committees will be responsible for defining the geographic areas of places affected by the pandemic and therefore eligibility.
For late payment interest on tax debts, land rental and use fees, tax authorities will determine the late payment interest in 2020 and 2021 and issue the exemption, however, businesses are required to use a form to request the waiver from the tax authorities who will respond within 15 days.
Late payment interest also applies to any additional taxes incurred during a tax audit.
Decree 92 is effective from October 19.
Note: This article was first published in October 2020 and has been updated to include the latest developments.