Will the Subjects Liable to Corporate Income Tax Be Supplemented? Proposal to Supplement CIT Exemptions?
Addition of Corporate Income Tax Payers—Is This True?
This content is proposed in the Ordinance Draft of the Corporate Income Tax Law submitted by the Ministry of Finance for public consultation. Specifically, as follows:
In the submission, the Ministry of Finance states that, according to international principles and practices, the right to taxation is shared between the country where the enterprise resides and the country where the enterprise generates income; between the country where the enterprise resides and the country where the enterprise has a permanent establishment.
The Ministry of Finance clarifies that Article 2 of the Corporate Income Tax Law 2008 stipulates the concept of taxpayers, the principles of tax payment for taxpayers for income arising in Vietnam and outside Vietnam, and the concept of a permanent establishment.
In determining a permanent establishment, it is done according to the Double Taxation Agreements that Vietnam has signed with other countries; for countries that do not have a Tax Agreement with Vietnam, the provisions of the Corporate Income Tax Law regarding permanent establishments apply.
Basically, this regulation is in line with reality and the provisions of Double Taxation Agreements that Vietnam has signed with other countries, ensuring Vietnam's tax collection rights. The implementation in recent times has not encountered any issues.
However, recent international and domestic practice shows that with the development of science and technology, along with cross-border e-commerce and digital economy activities, many foreign enterprises generate income in Vietnam without the need for any physical presence or representative office in Vietnam.
In many cases, relying solely on the physical presence of a permanent establishment as a basis for tax collection can pose the risk of tax base erosion. Recently, the Tax Administration Law 2019 has also added a fundamental principle in tax management that "the nature of activities and transactions determines the tax obligation."
Currently, Vietnam has agreements with over 80 countries that stipulate: for production and business activities, Vietnam has the right to tax foreign enterprises if they have business activities without going through a permanent establishment.
Therefore, if the definition of a permanent establishment under tax law does not encompass cross-border digital service provision, it may lead to disputes during implementation. Expanding the concept of a "permanent establishment" will facilitate the adjustment of agreements and enable tax collection for these activities.
Given the above shortcomings, the Ministry of Finance proposes to add a regulation that foreign enterprises providing goods and services to organizations and individuals in Vietnam through e-commerce or digital platforms must pay tax in Vietnam on the income derived from these activities. This ensures tax collection rights and expands the tax base for cross-border e-commerce, aligning with international practices and current tax management laws.
Will corporate income taxpayers be added? Proposing to add exempt CIT categories?
Will the Regulations on Determining Taxable Income from Real Estate Transfers be Amended?
In the submission of the Ordinance Draft of the Corporate Income Tax Law, the Ministry of Finance assesses the practical issues of CIT on profits from real estate transfers as follows:
Article 16 of the Corporate Income Tax Law 2008 (amended and supplemented by Clause 10, Article 1 of the Amended Corporate Income Tax Law 2013) stipulates that enterprises can offset losses from real estate transfer activities with profits from production and business activities but does not stipulate the reverse scenario (one-way offset). Therefore, if an enterprise has profits from real estate transfers, they must declare and pay taxes separately and cannot offset these profits with losses from production and business activities.
However, with the current economic development, enterprises tend to operate in multiple sectors and industries. Moreover, the legal framework has become more stringent, along with the administrative reform requirements to create convenience for enterprises; the requirement for separate tax declaration and payment for profits from real estate transfers has revealed some limitations and drawbacks that need adjustment.
Referencing the experiences of various countries shows that, besides a few countries (such as Myanmar, Poland, South Africa, Australia,...) which do not allow loss offsetting between main business activities and real estate transfers, many countries (such as South Korea, Japan, Cambodia, Thailand, Philippines,...) permit loss offsetting between these activities.
The Ministry of Finance believes that it is necessary to research and amend regulations on determining taxable income for cases of real estate transfers, investment project transfers, and investment participation right transfers (excluding the transfer of exploration and mineral extraction rights) to suit the current situation.
Proposal to Add Exempt CIT Categories
Regarding the current regulation on 11 types of exempt CIT income, the Ministry of Finance opines that these regulations are generally suitable for the past period, contributing to encouraging enterprises to invest in developing special preferential areas according to the direction of the Communist Party and the State.
However, during implementation, some new sectors and industries have emerged, which should be considered for CIT exemption to receive higher incentives, or certain areas must have clear criteria to ensure transparency during implementation.
Therefore, in the Draft of the Amended Corporate Income Tax Law, the Ministry of Finance proposes to amend and supplement the regulations on CIT exempt income categories as follows:
- Amend and supplement regulations to address existing issues and create convenience for taxpayers, such as:
+ Income from state budget support; income from state compensation;
+ Income from interest on deposits, bonds of the Government of Vietnam, treasury notes of state financial funds, and other non-profit state funds;
+ Criteria for exempting non-distributable income of private investment establishments from tax.
- Add new categories of CIT exempt income to encourage and promote public sector activities and environmental protection, such as:
+ Income from providing public services funded by the state budget in areas with particularly difficult socio-economic conditions;
+ Income from interest on green bonds, income from transferring green bonds.
View the entire Draft of the Amended Corporate Income Tax Law here.
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