Circular 40 guiding VAT, PIT and Tax Administration for business households and business individuals
On 1 June 2021, the Ministry of Finance issued Circular 40/2021/TT-BTC providing guidance on Value Added Tax (“VAT”), Personal Income Tax (“PIT”) and tax administration for business households and business individuals. The Circular comes into effect on 1 August 2021.
A significant, and arguably controversial, element of this circular is requiring e-commerce platforms to undertake the withholding, declaration and submission of taxes from on-line transactions on those platforms, on behalf of business households and business individuals.
Notable points of the Circular include:
1. Remaining the annual taxable revenue threshold of 100 million VND for tax exemption
Business households and business individuals with revenue from production and business activities in a calendar year of VND 100 million or less are exempt from VAT and PIT (Clause 2 of Article 4)
2. Taxpayer addition/clarification
Taxpayers to include individuals earning income from e-commerce business, providing digital information content products and services, and transferring “.vn” domain are subject to taxation as prescribed in this Circular (Article 2)
3. Additional subjects of organisations responsible for declaring and paying taxes on behalf of individuals
Article 8 of the Circular has regulated organisations that are responsible for withholding and declaring tax on behalf of individuals in the following cases:
i. Organisations leasing property of an individual where the lease agreement has a term showing that the lessee is the taxpayer;
ii. Organisations in business cooperation with individuals;
iii. Organisations paying bonuses, sales support, sales promotions, trade discounts, payment discounts, cash or non-cash support, compensations for breach of contract, and other compensations to business households applying the presumptive taxation method /deemed taxation method;
iv. Organisations in Vietnam those are partners of overseas digital platform providers (without a permanent establishment in Vietnam) pay income from digital information content products and services to individuals under agreements with the overseas digital platform providers;
v. Organisations owning e-commerce platform shall ｄｅｃｌａｒｅ and pay tax on behalf of the individuals according to the schedule of the tax authority. During the time when they are not yet possible to ｄｅｃｌａｒｅ tax on behalf of individuals, the organisations are required to provide information related to the individual’s business activities through the e-commerce platform at the request of Tax Authorities in accordance with the law; and
vi. Organisations declaring and paying tax on behalf of individuals according to authorisation agreement under civil law.
4. Additional taxation calculation method
In addition to the presumptive taxation method and the per payment occurrence method as currently regulated, declaration method is now applicable to:
i. Large-scale business households and business individuals; and
ii. Business households and individuals that do not meet the requirements of large scale but choosing to pay tax under the declaration method.
Business households and business individuals applying declaration method are not required to finalise tax. (Article 5)
Notes:
a. Definition of large-scale business households and business individuals: a business household or business individual is considered in a large-scale where its scale of revenue and labour meets the highest level of a micro-enterprise or higher (specifically as following):
| Criteria for large-scale business households and business individuals | Operating in agriculture, forestry, fishery, industry and construction | Operating in commerce and services |
| Average number of employees participating in social insurance per year | 10 or more | 10 or more |
| Revenue of the preceding year | VND 3 billion or more | VND 10 billion or more |
b. Applicable tax method in 2021: for business households and business individuals satisfying the conditions of declaration method, if the Tax Authority has managed their tax according to the presumptive method before the effective date of this Circular and has no request to change the tax method, they will continue to pay tax under presumptive method until the end of the 2021 tax period.
5. Adjustment to the tax calculation method for individuals leasing properties
The Circular provides guidance on the annual revenue of VND 100 million as a basis for determining tax exemption for individuals leasing properties.
Accordingly, where an individual who leases property does not generate revenue for the full 12 months in a calendar year (including situations where there are multiple lease contracts); then the revenue per year used to determine whether the individual is exempt from tax, is the taxable turnover of entire calendar year (12 months). The actual taxable revenue to determine the tax payable in the year is the revenue corresponding to the actual number of months received for leasing the property.
Comment: this guidance indicates that individuals earning income from property leases with an average of more than VND 8.33 million per month, are subject to tax even if they do not have full 12 months for lease in a calendar year.
Previously, where an individual leasing property does not generate revenue for the full 12 months, the revenue used to determine whether the individual is exempt from tax over a calendar year is the total revenue for actual months for lease during that calendar year.
Note for taxes already paid: where an individual has a property lease contract for multiple years and has declared and paid tax according to previous regulations, the paid/declared tax should not be adjusted.
