Vietnam: 09 new important points of tax payment for household businesses from August 01, 2021

1. Supplementing the definition of a large-scale household business or individual business

According to Clause 2 Article 3 of the Circular No. 40/2021/TT-BTC, the definition of “large-scale” household business or individual household business is stipulated clearly in order to differ from other household businesses and based for determination of tax calculating method for these household businesses.

According to this provision, a “large-scale” household business or individual business means a household business or individual business that satisfies the highest criteria for revenue and employees of extra-small enterprises. To be specific: a household business or individual business in aquaculture, forestry, aquaculture, industry, construction has an annual average number of at least 10 employees participating in social insurance or has a total revenue in the preceding year of at least 3 billion VND;  a household business or individual business in commerce, service has an annual average number of at least 10 employees participating in social insurance or has a total revenue in the preceding year of at least 10 billion VND.

This is totally a new regulation, which has not been regulated in the Circular No. 92/2015/TT-BTC.

2. Explain clearly each method for declaring and calculating tax

Previously, household businesses and residents doing business declare and calculate tax according to provisions of the Circular No. 92/2015/TT-BTC, however, this Circular does not clearly explain the method for declaring and calculating tax for household businesses and residents doing business.

From August 01, 2021, when the Circular No. 40/2021/TT-BTC takes effect, the methods for declaring and calculating tax for household businesses will be explained clearly. In which:

- “Periodic declaration” means a method of declaring, calculating proportional tax on actual revenue earned per month or quarter.

- “Separate declaration” means a method of declaring, calculating proportional tax on actual revenue earned separately.

- “Presumptive tax” means a fixed amount of proportional tax on a fixed amount of revenue determined by the tax authority as prescribed by Article 51 of the Law on Tax Administration of Vietnam.

3. Explain clearly of the presumptive tax

The Circular No. 40/2021/TT-BTC supplements provision on “presumptive tax” as following:

“Presumptive tax” means a fixed amount of tax and other amounts payable to the state budget  by household businesses and individual businesses that have to pay presumptive tax determined by tax authorities as prescribed in Article 51 of the Law on Tax Administration of Vietnam.

For seasonal business, presumptive tax shall be determined by calendar year or month.

4. Prescribe the definition of organizations having business cooperation with individuals

Pursuant to Clause 10 Article 3 of the Circular No. 40/2021/TT-BTC, “organizations having business cooperation with individuals” are organizations that have agreements with individuals on contribution of assets and work to operate a business and jointly reap benefits and take responsibility in accordance with Article 504 of the Civil Code 2015 of Vietnam, its guiding, amending or replacing documents (if any).

This provision creates a legal corridor for capital contribution to do business together between business households and individuals that previously had not been issued by the Circular No. 92/2015/TT-BTC or other legal documents on business households.

5. Supplementing new tax calculation method for household business

According to the Law on Tax Administration of Vietnam, large-scale household business or individual household business must pay tax according to periodic declaration and comply with the accounting regime.

However, according to the Circular No. 40/2021/TT-BTC, tax payment according to periodic declaration is applied for both household business and individual households which do not meet the standards of large-scale business but choose to pay tax under periodic declaration.

Moreover, pursuant to Article 8 of the Circular No. 40/2021/TT-BTC, cases of organization or individual declaring and paying tax on behalf of another individual are supplemented as following:

- The organization leases property from the individual under a lease contract which prescribes that the lessee is the taxpayer;

- The organization has business cooperation with the individual;

- The organization pays bonuses, sales compensation, promotions, commercial discounts, payment discounts, assistance in cash or not in cash, compensations for breach of contract, other compensations for presumptive tax payers;

- The organization in Vietnam is a partner of an overseas digital platform provider (without permanent establishment in Vietnam) and pays the individual for digital information products and/or services under agreement with the overseas digital platform provider;

- The organization is the owner of an e-commerce platform, declares and pay tax on behalf of the individual according to the tax authority’s roadmap. Before being able to declare and pay tax on behalf of individuals, organizations that are owners of e-commerce platforms shall provide information about the individuals’ business operation on their platforms as requested by tax authorities, such as: full name; ID/passport number; taxpayer identification number (TIN); address; email address; phone number; goods and services provided; revenue; the seller’s bank account; other relevant information;

- The organization or individual is authorized by the other individual to declare and pay tax on his/her behalf as prescribed by civil laws.

In case the individual earns a revenue of not exceeding 100 million VND/year at multiple locations, the individual estimates or determines that the total revenue exceeds 100 million VND/year, he/she may authorize the paying organization to declare and pay tax on the revenue generated at the authorized unit in the tax year.

In case a presumptive tax payer also receives bonuses, sales compensation, promotions, commercial discounts, payment discounts, assistance in cash or not in cash, compensations for breach of contract, other compensations in addition to presumptive revenue, the paying organization shall declare and pay tax on the actual amounts in the tax year on behalf of the individual.

6. Tax payment under periodic declarations are not required to finalize tax

Pursuant to Clause 5 Article 5 of the Circular No. 40/2021/TT-BTC, household businesses and individual businesses paying tax under periodic declarations are not required to finalize tax.

However, if the revenue of a household business or individual business that is paying tax under periodic declarations is found to be false, the tax authority shall impose the taxable revenue as prescribed in Article 50 of the Law on Tax Administration of Vietnam.

On the other hand, household businesses and individual businesses paying tax under periodic declarations shall comply with accounting, invoices and documents. A household business or individual business is not required to do accounting if their business line has the basis for determination of revenue which is confirmed by a competent authority.

7. Regulate clearly entities paying tax under separate declarations

Although the two Circular No. 92/2015/TT-BTC and Circular No. 40/2021/TT-BTC both prescribe individual businesses paying tax under separate declarations as”...individual businesses who have casual business operation and do not have fixed business locations…”, but the Circular No. 40/2021/TT-BTC has obviously listed individual businesses paying tax under separate declarations, including:

- Traveling traders;

- Individuals that are private construction contractors;

- Individuals transferring Vietnam’s top-level domains “.vn”;

- Individuals earning incomes from digital information products and/or services that do not choose to pay tax under periodic declarations.

In comparison with the Circular No. 92/2015/TT-BTC, the current regulations had not specified individual businesses paying tax under separate declarations, there are only criterias to determine individual businesses paying tax under separate declarations.

Likewise, individual businesses paying tax under separate declarations are not required to do accounting but must retain invoices, contracts, documents proving the legality of their goods and services and enclose them with the separate tax declarations.

8. Many household businesses and individual businesses do not pay tax under presumptive tax

Pursuant to Clause 1 Article 7 of the Circular No. 40/2021/TT-BTC: “Presumptive tax shall be paid by household businesses and individual businesses other than those paying tax under periodic declarations and separate declarations.”.

Thus, if the large-scale household business or individual business voluntarily pays tax according to the periodic declaration, they will pay tax according to the periodic declaration.

Previously, according to the Circular No. 92/2015/TT-BTC, due to not having the periodic declaration, all individual businesses must pay presumptive tax, except for individual businesses under separate declarations, tax accounting method applied by persons leasing property, tax calculation method applied by persons who directly sign lottery, insurance, multi-level marketing agent contracts.

9. Supplementing incomes subject to VAT, PIT

Appendix I of the Circular No. 40/2021/TT-BTC has supplemented incomes subject to VAT, PIT for household and individual businesses. Specifically:

- Bonuses, sales compensation, promotions, commercial discounts, payment discounts: VAT rate of 1%, PIT rate of 0,5%.

- Advertising on digital information products and/or services, other services subject to deduction of 10% VAT: VAT rate of 2%, PIT rate of 5%.

- Other activities subject to deduction of 10% VAT: VAT rate of 3%, PIT rate of 1,5%.

Bao Ngoc

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