Official Dispatch No. 80503/CT-TTHT dated October 24, 2019 on tax policies for interests on term deposits

To: The Representative Office of Joyo Bank, Ltd. in Hanoi City
(Address: Suite 504, Sun Red River Building, 23 Phan Chu Trinh Street, Phan Chu Trinh Ward, Hoan Kiem District, Hanoi City - TIN: 0108178045)

In response to the Official Dispatch No. 01 dated August 05, 2019 of the Representative Office of Joyo Bank Ltd. in Hanoi City regarding tax policies, Hanoi City Department of Taxation hereby gives guidelines as follows:

- Pursuant to Circular No. 151/2014/TT-BTC dated October 10, 2014 of the Ministry of Finance of Vietnam providing guidelines for implementation of the Government's Decree No. 91/2014/ND-CP dated October 01, 2014 providing amendments to Decrees on taxation;

+ Article 8 amending Point a Clause 8 Article 4 of the Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance of Vietnam providing guidelines for implementation of the Law on value-added tax and the Government’s Decree No. 209/2013/ND-CP dated December 18, 2013 elaborating and providing guidelines for implementation of some Articles of the Law on value-added tax (hereinafter referred to as “Circular No. 219/2013/TT-BTC” stipulates items not subject to VAT as follows:

“a) Credit extension services, including:

- Lending;”

- Pursuant to the Circular No. 103/2014/TT-BTC dated August 06, 2014 of the Ministry of Finance of Vietnam providing guidance on tax liabilities incurred by foreign organizations and individuals doing business or earning income in Vietnam:

+ Clause 1 Article 4 defines taxpayers as follows:

“1. Foreign contractors and foreign subcontractors that meet the requirements in Article 8 Section 2 Chapter II or Article 14 Section 4 Chapter II, do business in Vietnam, or earn income in Vietnam. The business is done under the main contract signed with a Vietnamese entity or another foreign entity doing business in Vietnam under the subcontract.

Foreign contractors and foreign subcontractors that have permanent establishments in Vietnam or are residents of Vietnam shall be determined in accordance with the Law on Corporate Income Tax, the Law on Personal Income Tax, and their guiding documents.

If permanent establishments and residents are defined otherwise by a Double Taxation Agreement to which Vietnam is a signatory, such Agreement shall apply.”

+ Clause 3 Article 7 stipulates incomes subject to corporate income tax (CIT) as follows:

“3. Incomes earned in Vietnam by foreign contractors and foreign subcontractors are any incomes they receive under main contracts or subcontracts (except for the case described in Article 2 Chapter I), regardless of their business locations. Taxable incomes of foreign contractors and foreign subcontractors in some cases:

…

- Income from loan interests means income of a creditor from loans, whether or not such loans are secured, whether or not the creditor receives profits of the borrower; income from deposit interests (except for deposit interests of foreigners and interests derived from deposit accounts meant to sustain operation in Vietnam of diplomatic missions, representative offices of international organizations and non-governmental organizations in Vietnam), including associated bonuses (if any); income from interests on late payment under contracts; income from bond interests and bond discounts (except for tax-free bonds), treasury bills; income from interests on certificates of deposit.

Loan interests include the fees payable by the Vietnamese party under the contract.”

+ Article 8 stipulates entities declaring and paying VAT using credit-invoice method, paying CIT as follows:

“A foreign contractor or foreign subcontractor shall pay tax in accordance with instructions in Section 2 Chapter II if the requirements below are satisfied:

1. The contractor/subcontractor has a permanent establishment in Vietnam or is a resident of Vietnam;

2. The period of business operation in Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the contract;

3. The contractor/subcontractor applies Vietnam’s accounting regimes, has applied for tax registration and has been issued with a taxpayer ID number (TIN) by a tax authority.”

+ Article 11 Section 3 of Chapter II stipulates entities paying VAT and CIT according to fixed rates of revenues as follows:

“If the foreign contractor or foreign subcontractor fails to meet any of the requirements mentioned in Article 8 Section 2 Chapter II, the Vietnamese party shall pay tax on their behalf in accordance with instructions in Article 12 and Article 13 Section 3 of Chapter II.”

+ Article 13 Section 3 of Chapter II provides for the CIT as follows:

“The basis for CIT calculation is the revenue subject to CIT and CIT rate (%).

CIT payable = Revenue subject to CIT x CIT rate

1. Revenue subject to CIT

a) Revenue subject to CIT

Revenue subject to CIT is the total revenue, exclusive of VAT, earned by the foreign contractor or foreign subcontractor, inclusive of taxes payable. Revenue subject to CIT includes the costs paid by the Vietnamese party on behalf of the foreign contractor or foreign subcontractor (if any).

...2. CIT rate (%)

a) CIT rates (%) applied to business sectors:

Loan interests: 5%”

+ Article 14 Section 4 of Chapter II stipulates entities and requirements for applying credit-invoice method, paying CIT according to fixed rates of revenues as follows:

“Foreign contractors and foreign subcontractors that meet the requirements in Clause 1 and Clause 2 Article 8 Section 2 Chapter II, and the organizations that apply accounting regimes in accordance with regulations of law on accounting and guidelines of the Ministry of Finance of Vietnam shall register with tax authorities to pay VAT using credit-invoice method and pay CIT according to fixed rates of taxable revenues.”

+ Article 16 provides for CIT as follows:

“Article 13 Section 3 of Chapter II shall apply”

- Pursuant to Article 20 of the Circular No. 156/2013/TT-BTC dated November 06, 2013 of the Ministry of Finance of Vietnam providing guidelines for some Articles of the Law on Tax Administration, the Law on amendments to the Law on Tax Administration and the Government's Decree No. 83/2013/ND-CP dated July 22, 2013 providing provisions on declaration of VAT and CIT by foreign contractors and foreign subcontractors;

Pursuant to the abovementioned regulations, the income earned by the Representative Office of Joyo Bank Ltd. in Hanoi City (foreign contractor) from interests on deposit accounts in Vietnam shall be subject to CIT as prescribed in Clause 3 Article 7 of the Circular No. 103/2014/TT-BTC. The foreign contractor is required to declare and pay foreign contractor withholding tax according to Article 20 of the Circular No. 156/2013/TT-BTC .

If there are any other difficulties that arise during tax declaration and payment, the Representative Office of Joyo Bank Ltd. in Hanoi City should submit adequate documents to and contact the Tax Inspection Division No. 1 for specific guidelines.

The Representative Office of Joyo Bank Ltd. in Hanoi City is requested to comply with guidelines herein./.