[Legal Updates] The Government widens the ceiling on interest expense for enterprises

LEGAL UPDATES

[Legal Updates] The Government widens the ceiling on interest expense for enterprises

1| Some new points of the Law on amendments to a number of articles of the law on entry, exit, transit and residence of foreigners in Vietnam

On November 25th, 2019, the National Assembly has promulgated the Law on amendments to a number of articles of law on entry, exit, transit and residence of foreigners in Vietnam, which takes effect on July 1st, 2020. According to this Law, the form and validity of a visa have some points that foreign investors should pay attention to as follows:

For foreign investors enter Vietnam that will be issued with a DT visa in one of the following types:

  • DT1 – Issued to foreign investors in Vietnam and representatives of foreign organizations investing in Vietnam and contributing capital of VND 100 billion or more or investing in business lines benefitting from investment incentives, in administrative divisions benefitting from investment incentives decided by the Government – Duration: not exceed 05 years.
  • DT2 – Issued to foreign investors in Vietnam and representatives of foreign organizations investing in Vietnam and contributing capital of VND 50 billion to less than VND 100 billion or investing in business lines benefitting from investment incentives treatment decided by the Government – Duration: not exceed 05 years.
  • DT3 – Issued to foreign investors in Vietnam and representatives of foreign organizations investing in Vietnam and contributing capital of VND 3 billion to less than VND 50 billion – Duration: not exceed 03 years.
  • DT4 – Issued to foreign investors in Vietnam and representatives of foreign organizations investing in Vietnam and contributing capital of less than VND 3 billion – Duration: not exceed 12 months.

For foreign employees coming to Vietnam to work, they will be issued one of the following 2 types of visa:

  • LD1 – Issued to foreigners working in Vietnam and certified of eligibility for work permit exemption, unless otherwise specified by international agreements to which Vietnam is a signatory – Duration: not exceed 02 years.
  • LD2 – Issued to foreigners working in Vietnam requiring a work permit – Duration: not exceed 02 years.

2| New regulations on deleting of outstanding tax, late payment interest and fines

On June 13, 2019, the National Assembly promulgated the Tax Administration Law, which takes effect on July 1, 2020. According to the Tax Administration Law 2019, taxpayers may have been detected outstanding tax, late payment interest, and fines in the following cases:

(i) An enterprise or cooperative is declared bankrupt and, after making the payments in accordance with bankruptcy laws, has no other assets to pay tax, late payment interest or fines.

(ii) An individual is dead or declared dead or incapacitated by the court and does not have any assets, including inheritance, to pay the outstanding tax, late payment interest or fines.

(iii) Tax debts, late payment interest, and fines of taxpayers not falling into the cases prescribed in Items 1 and 2, which tax authorities have applied the coercive measures “Revocation of registration certificates enterprise registration, business registration certificate, cooperative registration certificate, investment registration certificate, establishment and operation license, practising license ”and tax and tax debts For late payment, this fine is over 10 years after the deadline for paying tax but cannot be recovered.

(iv) Taxpayers being individuals, business individuals, heads of households, heads of business households, owners of private enterprises and one-member limited liability companies have had the outstanding tax, late payment interest and fines cancelled before resuming the business operation or establishing a new business shall pay such debts must be paid to the State.

(v) Taxes, late payment interest, and fines for cases of natural disasters, natural disasters, epidemics that have been considered for long-term exemption of late payment interest and extended tax payment time limit. , are unable to recover production and business activities and are unable to pay taxes, late payment interest, and fines.

3| The Government widens the ceiling on interest expense for enterprises

On June 24th, 2020, the Government issued Decree 68/2020/ND-CP amending and supplementing Clause 3 Article 8 of Decree No. 20/2017/ND-CP dated February 24, 2017, of the Government. Regulations on tax administration for enterprises having associated transactions, which takes effect on June 24th, 2020. According to this Decree, the Government raises the ceiling on interest expense for enterprises as follows:

  • The Loan interest expense is deducted when calculating corporate income tax calculated after deduction of deposit interest and loan interest. This provision is wider than that in Decree 20/2017 (Loan interest expenses include both deposit and loan interests).
  • The ceiling of the loan interest expense deducted when calculating corporate income tax arising in the period is raised from not exceeding 20% ​​(as prescribed in Decree 20/2017) to not exceeding 30% of the net profit from business activities in the period plus interest expenses (after deducting interest on deposits and loan interests) arising in the period plus depreciation expenses incurred in the period.
  • In addition, Decree 68/2020 further stipulates the loan interest costs which are not deducted (due to exceeding 30% or more) shall be carried forward to the next tax period when determining total loan interest cost to be deducted provided total loan interest cost to be deducted in the next tax period is lower than 30% as above. The loan interest costs may be carried forward for a maximum consecutive period of 05 years, counting from the year following the year in which such loan interest costs are not yet deducted.

However, this regulation does not apply to loans which the taxpayer is:

  • Credit institutions;
  • Insurance Business;
  • Loans on-lent by the Government from ODA loans;
  • Concessional loans of Government;
  • Loans granted for implementing national target programs;
  • Loans granted for investment in programs/projects for implementation of State social welfare policies.

Moreover, Decree 68/2020 also provides for the application of this new regulation in the tax period of 2019 and also retroactive for the tax period of 2017 and 2018. Specifically, taxpayers are allowed to declare and supplement their declarations corporate income tax finalization in 2017 and 2018  for determining loan interest costs and corporate income tax amounts payable (if any), and submit it to the supervisory tax authority before January 1, 2021. In case completing the additional declaration, if the total amount of the corporate income tax payable is reduced, a corresponding amount of late payment interests shall be also reduced (if any).

If taxpayers, in practice, have to pay the total amount of corporate income tax and a penalty for late payment of tax which is higher than that of the tax and penalty re-determined, the difference between these amounts shall offset against the corporate income tax in 2020. In case the corporate income tax of 2020 is insufficient for the offsetting, the remaining of the difference will be continued to be deducted from the payable corporate income tax of the following year. The offsetting, however, shall not excess 05 years from the year 2020. The remaining of the difference will not be kept processing after the 5-year period is ended.

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