21Jun

Vietnam: Foreign Retailers Face Tax Inspection

Vietnam’s General Department of Taxation has asked local tax authorities to inspect foreign-owned retailers for tax avoidance through transfer pricing or profit shifting. The authorities will be auditing corporate tax, VAT, personal income tax, and foreign contractor tax for the period 2012-2016. Along with the direct and indirect taxes, the department is also planning to monitor franchising or ownership transfer of foreign retailers for unpaid taxes.

To ensure tax compliance, Vietnamese government released the Decree 20 earlier this year, which is in effect since May 1, 2017. It included changes in transfer pricing regulations, new documentation and declaration requirements, and guidance on the deductibility of related-party expenses and interest. Multinationals must assess the effects of the Decree on their operations in order to comply with tax regulations in near future, especially for companies conducting related party transactions.

Inspections in the past

Last year the hypermarket Big C Vietnam, was asked to pay VND 2 trillion (US$88 million) in taxes based on its capital gains tax obligations, after it was sold to Thailand’s Central Group by France’s Casino Group for 1 billion euros (US$ 1.14 billion).
Similarly Metro Cash & Carry, the German retailer was asked to pay VND 507 billion ($23.63 million) in tax arrears, after tax officials found that the multinational had engaged in transfer pricing. Metro Cash & Carry was also asked to pay VND 1.9 trillion ($85.25 million) in taxes, after its sale to Thai company Thailand’s Central Group in 2015.

Going forward

Vietnam will continue to attract foreign-owned retailers, driven by growing middle class, increased spending, and a relatively young population. As per A.T. Kearney’s 2017 Global Retail Development Index, Vietnam ranked the sixth most attractive market for retailers. With the increasing dominance of foreign enterprises, tax officials will continue to ensure greater tax compliance.
As per government estimates, almost half of foreign-invested enterprises evade taxes by exploiting regulation loopholes. With the new Decree 20 in effect, the government has taken a significant step forward to plug existing loopholes and provide further clarity for multinationals. In addition to this, tax administration should also develop a global price database to assist in discovering transfer pricing manipulations.

Multinationals over the years in Vietnam, have declared successive losses even after expanding their business activities. Such firms will attract increased scrutiny from tax officials, like in the case of Metro Cash & Carry, who was accused of falsely reporting losses for 12 years in Vietnam, to avoid paying taxes. 
Going forward, the frequency of audits and inspections are predicted to rise as part of the government’s initiative to bring down the government debt. Foreign corporations should continue to evaluate their operations and ensure compliance, to avoid tax arrears and penalties.


This article was first published June 2017.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.

For inquiries, please email us at .(JavaScript must be enabled to view this email address). Further information about our firm can be found at: www.dezshira.com

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Vietnam’s National Wage Council has decided upon a modest 7.3 percent average increase in monthly minimum wages across the country for 2017. From January, workers must be compensated between minimums of VND 2.60 million (US$116) to VND 3.75 million (US$166). This is the lowest annual increase since 1997 and seems to be a compromise...

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06Sep

Malaysia Announces 70% Tax Exemption for Shipping Industry

Malaysia’s Ministry of International Trade and Industry revealed tax incentives on August 9th targeting the shipping industry. Incentives will be applied with immediate effect and will be available for periods of five years. Understanding Incentives Shipbuilding incentives will be applied to both shipbuilding companies as well as those involved...

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29Aug

The Guide to Corporate Establishment in Labuan, Malaysia

Situated in the heart of Southeast Asia, and in close proximity to economic hubs such as Singapore, Hong Kong, Kuala Lumpur, and Jakarta, lies Labuan. Labuan is home to 96,800 people and offers a variety of benefits for businesses, including a gentle income tax regime, a well-regulated financial system, a deep...

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29Aug

Resolving Labor Conflicts: New Regulations on Wage Payment Methods in Shanghai

According to the Shanghai Municipal Human Resource and Social Security Bureau, a new regulation on wage payment methods for Shanghai-based organizations has been released and brought into effect on August 1, 2016. The new regulation, issued to replace the 2003 version, expands the scope of application and makes several clarifications and improvements on...

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29Aug

City Spotlight: Investing in India’s Lucknow

Lucknow is the largest city and capital of India’s most populous state, Uttar Pradesh (UP). Nicknamed the ‘City of Nawabs’ for when it was the seat of power of the Nawab of Awadh in the 18th and 19th centuries, Lucknow today is an important Tier-II city in India. Situated 500...

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29Aug

Vietnam Updates Fines for Investment Violations

Vietnam Updates Fines for Investment Violations Vietnam’s recent change in leadership with Prime Minister Nguyen Xuan Phuc taking office has opened the gateway for legislative change. Signed on June 1, 2016 and effective starting July 15, 2016, Decree 50 is one adjustment that investors should be sure to understand. Detailing penalties for administrative violations...

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23Aug

Registered Capital, Company Loans, and the Timely Repatriation of Profits for WFOEs in China

The Wholly Foreign-Owned Enterprise (WFOE) remains the most popular investment structure of foreign investors setting up a company in China. Early on in the process of incorporating a WFOE, investors are faced with the critical task of deciding how much Registered Capital to commit to their company. Because overcommitted funds...

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23Aug

India-Bangladesh International Rail Link Project

On July 31, two key railway lines were inaugurated by India’s Railways Minister Suresh Prabhu and his Bangladesh counterpart, Mohammed Mazibul Hoque in Agartala, Tripura state. The first was the opening of the weekly Tripura Sundari Express, traversing from New Delhi to Agartala, and the second, was the foundation stone...

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23Aug

An Introduction to Malaysian GST

Malaysia’s recent addition of a Goods and Service Tax (GST), which was passed by the government during the third quarter of 2011 but delayed until April 2016, has been the cause of much confusion within ASEAN’s second most developed economy. The hope and purpose of GST is to replace the...

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23Aug

Managing Vietnamese Labor Disputes

As more businesses begin to take off in Vietnam, job security has steadily begun to increase. With this rise in employment comes a lot of expectations from both employees and employers. As a result, operations can at times become exposed to strikes stemming from low wages, poor communication, disparity in...

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23Aug

Assessing the Hong Kong – Russia Double Taxation Agreement: Another Step Towards Amplifying China’s

The long-awaited Comprehensive Double Taxation Agreement (CDTA) between Hong Kong and Russia entered into force on July 29, 2016. The agreement will take effect on April 1, 2017 in Hong Kong and January 1, 2017 in Russia. Signed at the beginning of 2016, the CDTA aims to provide greater certainty on taxing rights between Hong Kong and...

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15Aug

An Introduction to Overtime in Vietnam

When companies turn to Vietnam to establish their manufacturing operations, it is important to not only consider the laws on regular wages, but also the policies on overtime that will be applicable to the workforce and style of a given operation.  One of the great benefits of Vietnam is...

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15Aug

Cutting Through the Red Tape: CFDA Plans to Accelerate the Review Process for Medical Devices

On June 20, 2016, the China Food and Drug Administration (“CFDA”) proposed the “Priority Review Designation Procedure for Medical Devices (Exposure Draft)” in an effort to cut through the persistent bureaucratic red tape in the registration process of medical devices and fulfill China’s rising clinical demand for medical devices. The release...

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15Aug

Goods and Services Tax – A Paradigm Shift in Indian Taxation

The Indian system of taxation of goods and services is characterized by cascading, distortionary tax on production of goods and services which leads to misallocation of resources, hampered productivity, and slower economic growth. To remove this hurdle, the Goods and Service (GST) Tax had been proposed. Finally, after a decade...

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10Aug

India Releases New National Intellectual Property Rights Policy

India recently released a new national intellectual property rights policy which seeks to enhance Prime Minister Narendra Modi’s Make in India scheme by boosting innovation.  The policy, which comes at an important time for U.S.-India relations, has been widely criticized in the Indian press. India currently...

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10Aug

An Introduction to Vietnamese Product Labeling Requirements

On the heels of inspections carried out in June, Coca Cola Beverages Vietnam Ltd. has been issued a US$19,300 fine and forced to temporarily suspend select sales for violating food safety licensing and labeling requirements. While seemingly serious in nature, the target of inspections – Samurai Energy Drink – fell afoul of...

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10Aug

ASEAN Regulatory Brief: Bankruptcy Laws in Singapore, Tax Data in Cambodia, and Money Laundering Leg

Singapore: Bankruptcy Reforms to be Implemented from August Singapore’s Ministry of Law (MinLaw) is expected to implement amendments to bankruptcy rules from August 1, for the benefit of debtors and creditors. As part of the rules, the minimum amount of debt for a person to be declared bankrupt has been...

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