Vietnam Labour Law Update (October 2014)
November 20, 2014
Recently, there have been many inquiries from Business enterprises and laborers related to hypo tax and assumed rental fees.
I. GUIDELINES FROM TAX DEPARTMENT RELATED TO HYPO TAX AND ASSUMED RENTAL FEES
Recently, there have been many inquiries from Business enterprises and laborers related to hypo tax and assumed rental fees. The Tax Departments from provinces and cities have provided some guidelines for Business enterprises on this issue but the implementation has not been unified between Tax Departments.
Therefore, on September 06th 2014, the General Department of Taxation issued Official Letter No. 12495/BTC-TCT (“OL 12495”) and sent this to the Tax Departments of provinces and cities providing guidance regarding Personal Income Tax (“PIT”) treatment for hypo tax and assumed rental fees as follow:
1. HYPO TAX:
In the situation where the employer (company) implements a tax equalization scheme (withholding hypo tax before paying income to the employees and paying Vietnamese PIT on the actual incurred amount for the employees), the base income for conversion into taxable income shall not include the withheld hypo tax.
After calculating the actual tax payable in Vietnam, if there is any additional hypo tax deduction or refund of withheld hypo tax per tax equalization scheme, the employer shall decrease or increase the income subject to conversion (excluding hypo tax) to determine taxable income of the employee at the time of receiving the different amount.
2. ASSUMED RENTAL FEES:
In the situation where the employer (company) implements assumed rent policy (withholding assumed rental fees before paying income to the employees and paying the actual rental to the landlord on be half of the employees), the base income for the conversion into taxable income shall not include the withheld assumed rental fees. The determination of taxable housing benefit to be included to the based income for converting to assessable income will be actual rental amount but capped at 15% of total taxable income (excluding assumed rental fees and actual rental amount)
In case the employer (company) concurrently withholds hypo tax, assumed rental fees and pays the actual rental and actual PIT payable incurred in Vietnam, the income subject to coversion will not include the withheld hypo tax, assumed rental fees. The determination of taxable housing benefit to be included to the based income for converting to assessable income will be actual rental amount but capped at 15% of total taxable income (excluding hypo tax, assumed rental fees, actual rental amount)
OL 12495 has also provided very specific examples to illustrate the calculation of Personal Income Tax in cases where the hypo tax and assumed rental fees are incurred. Please see the examples in the attached original document.
II. SOME CHANGES RELATED TO THE LABOR USAGE AND MANAGEMENT BASED ON CIRCULAR 23/2014/TT-BLDTBXH
On 29th August 2014, the Ministry of Labor – Invalids and Social Affairs issued Circular No. 23/2014/TT-BLĐTBXH (“Circular 23”) as guidelines on the implementation of Decree No. 03/2014/NĐ-CP issued on 16th January 2014. From this, business enterprises should note the following points related to the Labor usage and management report:
– Within 30 days, from the date of starting operations, the employer must prepare a Labor usage report to submit to the Office of Labor – Invalids and Social Affairs or Department of Labor – Invalids and Social Affairs using Form 05 issued with Circular 23.
– Before May 25th and November 25th each year, based on the half year and full year periods, the employer must prepare a Labor movement report for submission to the Office of Labor – Invalids and Social Affairs or Department of Labor- Invalids and Social Affairs, using Form 07 issued with Circular 23. Currently, the reporting deadlines are July 5th and January 5th annually.
– The employer must prepare an employee management record and has the right to decide whether the format of the labor management record should be paper or electronic, in accordance with management needs, provided they ensure the contents of the employee record are as specified in detail in Cicular 23.
This new request from the Ministry of Labour – Invalids and Social Affairs will be a challenge for the HR departments of business enterprises which have no storage/record system of employee information, or incomplete storage/record to meet legal requirements. HR professionals should bear in mind the need to keep fully employee information storage/record to comply with the new requirement.
This Circular takes effect from 20th October 2014.