Taxation

Vietnam
(TX VNM)
June 2021
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General Comments.............................................................. 2
Specific Comments .............................................................. 2
Section A ............................................................................. 2
Example 1 ........................................................................ 3
Example 2 ........................................................................ 4
Section B ............................................................................. 5
Question 16 ...................................................................... 5
Question 18 ...................................................................... 6
Question 20 ...................................................................... 7
Question 22 ...................................................................... 8
Question 24 ...................................................................... 9
Question 25 .................................................................... 10
Examiner’s report – TX VNM June 2021 1
General Comments

There were two sections in this examination and all questions were compulsory.

Section A consisted of 15 multiple choice questions of two marks each, which covered
a broad range of syllabus topics.

Section B had four questions worth 10 marks each and two longer questions worth 15
marks, each testing candidates’ understanding and application of Vietnamese tax
rules in more depth.

When approaching this exam, future candidates should aim to:

i) Focus on ensuring that they have sufficient knowledge of all aspects of the
syllabus
ii) Understand the basic principles of tax and apply them appropriately
iii) Read each question carefully and answer accordingly. If a question
requests income tax payable or a due date, ensure that this is provided
iv) Ensure that they keep themselves fully informed and up-to-date with
respect to any changes in the tax rules up to the cut-off date.

The following paragraphs report on each section of the exam and focus on some of
the key learning points. This report should be used in conjunction with the published
exam which can be found here.

Specific Comments

Section A

Section A questions aim to achieve a broad coverage of the syllabus; accordingly,

candidates should study all areas of the TX VNM syllabus in order to be able to handle
these questions. This section accounts for 30% of the overall mark allocation and
therefore a strong score in this part will help in terms of securing an overall pass in the
exam as a whole; it is therefore important that candidates do devote due attention and
importance to it.

The following two Section A questions are reviewed with the aim of giving future
candidates an indication of the types of questions asked, guidance on dealing with
exam questions from this section and to provide a technical debrief on the topics
covered by the specific questions selected.

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Sample Questions for Discussion

Example 1

In 2020, Jonny, a UK resident, entered into an agreement with THB Co, a publisher
in Vietnam. Under the agreement, Jonny grants THB Co the right to publish, in
Vietnam, his new book about coaching skills for an amount of USD150,000. Jonny’s
personal income tax (PIT) liability in Vietnam is to be borne by THB Co.

What amount of PIT liability (in VND millions, rounded to two decimals), in
respect of Jonny, will THB Co be required to pay in Vietnam under the above
agreement?

A VND185.53 million

B VND175.75 million

C VND176.25 million

D VND185.00 million

This question tested candidates’ knowledge of personal income tax on royalty income
earned by a non-resident. As such, it shouldn’t have been either unfamiliar, or
particularly difficult.

Many candidates selected B, being VND175.75 million, which was incorrect because
this ignores the need to gross the amount up. This may have been the result of not
having read the requirement with sufficient care; since THB is to bear the personal
income tax liability of Jonny, this means that the amount concerned does need to be
grossed up.

Accordingly option D is the correct answer. This is calculated as follows:

(($150,000 * 23.5 exchange rate / (1,000 – 10 deduction)) / (1 – 5%) * 5%) =

VND185 million

This question demonstrates the importance of candidates taking the time to read the
scenario and associated question very carefully.

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Example 2

TFC Co is a Vietnamese company. Its records showed that by the end of 2020, the
following amounts were owed by the company:

i. VND10,000 million corporate income tax liabilities

ii. VND2,500 million late payment interest

iii. VND2,800 million penalty for tax under-declaration

iv. VND100 million administrative penalty for violation of tax regulations

v. VND800 million land rental to the State Budget

What amount should TFC Co pay to be viewed as having “fulfilled its tax
obligations” under the Law on Tax Administration of 2019?

A VND15,400 million

B VND10,000 million

C VND16,200 million

D VND15,300 million

Many candidates selected option A as their response to this question. This option
included all items with the exception of (v) (the land rental), but this was incorrect. The
correct answer was option C, being the sum of all the amounts listed, from (i) to (v).

According to Article 3, points 2 and 12 of the 2019 Law on Tax Administration, a

taxpayer is only viewed as “fulfilling its tax obligations” when all of those items
(including land rentals payable to the State Budget) are settled. This is an important
clause to ensure compliance with the Regulations, and it is one of which candidates
are recommended to have a good understanding.

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Section B

Question 16

This 10-mark question tested the capital gains treatment (as part of Corporate Income
Tax (CIT)) of a Vietnamese company which was engaged in certain transactions
involving listed shares. There were three parts to the question. Candidates generally
performed well, with the exception of part (c).

Part (a) required candidates to explain the CIT treatment when a Vietnamese
corporate shareholder sells listed securities. Many candidates answered this question
satisfactorily by discussing the tax rates, the formula for calculating the taxable gain,
and the method for determining the sale and purchase prices. Many gave appropriate
examples of transfer expenses. A few candidates mistakenly stated the applicable tax
rate to be 0.1% - this is the rate for foreign investors, not for Vietnamese corporate
investors.

Part (b), for 4 marks, required the calculation of a taxable gain for CIT on the disposal
of shares by the Vietnamese corporate shareholder, having previously received a
bonus issue. Several candidates demonstrated knowledge of the correct method for
working out the purchase price, that of weighted average, but made calculative errors
in terms of producing their answers . The most common mistake made in this part was
the omission of the bonus shares, with a purchase price of VND 0.

Part (c) of this question, for 2 marks, was not particularly well answered. The scenario
involved an exchange of shares for assets, such that there were two possible selling
prices (the market price of shares, and the market price of asset). As the question
required calculation of the “potential maximum taxable gain”, the higher of those two

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amounts provided the correct answer. Some candidates calculated the gain based on
the difference between the two prices, rather than the “market price”, as reduced by
the historical cost of the shares.

Question 18

This 10-mark question required candidates to explain the determination of taxable

income for a non-resident individual who received income from working overseas in
connection with a Vietnamese company, and who also earned income from working
in Vietnam for some of the year.

Many candidates struggled with this question, demonstrating possibly a lack of

familiarity with the topic, especially in so far as it concerned an individual carrying out
duties relating to Vietnam but performed outside the country.

In both parts, many students correctly answered the apportionment requirements,

especially for the period that the individual was actually working in Vietnam. This
apportionment should be based on the number of days present over 365 days in the
year. However fewer candidates were able to correctly deal with the apportionment
between days of work related to Vietnam over the number of working days, despite
there being a strong hint in the question that this needed to be considered.

This was shown clearly in the calculation in part (b), where the period of working which
was related to Vietnam but when the individual was not actually present there, was
either omitted completely, or simply added to the period of physical presence in
Vietnam and then divided by 365 days (or 246 total working days) as a whole. The
correct solution required two separate apportionments to be carried out.

A few candidates also went on to calculate dependant relief and/or housing relief.
These are not relevant for non-resident individuals.

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Question 20

This 10-mark question covered the area of the syllabus which deals with foreign
contractor tax (FCT).

Part (a) required candidates to determine the FCT treatments of three contracts signed
by a Vietnamese company with foreign companies. In this respect it should be noted
that, in all cases, FCT would be likely arise despite the contractors themselves
appearing to be conducting no business activities in Vietnam.

For Contract (1), it should be noted that the contract term is DDP – this therefore gives
rise to FCT treatment on trading activities. Some candidates stated that there was no
FCT based on the fact that there was no services – however this in itself did not provide
sufficient an explanation. In addition, since the activity would probably be treated as
trading, the most likely tax rates would be 1% CIT and exempt for VAT purposes; some
candidates considered that the tax rate should be 5%, or 0.1%.

By the same token, Contracts 2 and 3 would most likely expose the foreign contractors
to FCT, except for one situation in Contract 3 where the goods were being sold from
a bonded warehouse to outside Vietnam. However, not many candidates made this
distinction when discussing Contract 3.

In addition, in their answers to this part, some candidates omitted the requirement
which asked them to consider “whether IMP Co (the Vietnamese party) is responsible
for withholding FCT”. It is recommended that candidates carefully read the question
and all its requirements in order to avoid any loss of marks caused by such omissions.

Part (b), for 3 marks, required candidates to calculate the CIT portion of FCT with
respect to contract 4, relating to license fees and technical support services. Many
candidates correctly calculated the FCT on either, or both, of the fees. Common

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mistakes, however, involved forgetting to gross up the income, or incorrectly applying
a single tax rate (either 10% or 5%) to both sources of income.

Question 22

This 10-mark question consisted of two parts; part (a) required candidates to explain
the conditions for value added tax (VAT) refunds in respect of investment projects,
and part (b) involved a calculation of the refundable VAT amount for four specific
projects.

This question was generally well answered. In part (a), several candidates correctly
stated the key conditions for a VAT refund (for example, the need to separately declare
the VAT for the project, to offset first against output VAT from normal operations, and
the condition that a claim for a VAT refund will only succeed if the amount remaining
after offset exceeds VND300 million).

Some candidates referred to conditions of 20% capacity, or that the VAT refund must
first be carried forward for 5 years. These conditions are irrelevant to this situation.

Performance in part (b) of this question was mixed. Most candidates who attempted it
were able to correctly calculate the refundable amount with regard to Contract B, and
determined that there was no eligible VAT refund for Contracts A and C, because the
net amount after offset was below the VND300 million threshold.

Very few candidates performed the correct calculation for Contract D. Many added the
net input VAT from operations to the input VAT from investment projects and claimed
a refund for the total amount. It should be noted that only the input VAT from
investment projects was refundable and that therefore it must be declared separately
to the VAT from ongoing operations.

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Question 24

This 15-mark question tested a recent change in the CIT regulations with regard to
deductible interest expenses.

In accordance with the Decree 68/2020 (which revised the previous Decree 20/2017),
deductible interest expenses needs to be capped at 30% of EBITDA. And in terms of
performing the calculation, the “net interest” approach is used (i.e. after offsetting
against interest income).

The first year for which Decree 68 is applicable is the fiscal year 2019, but the
treatment can apply retrospectively to fiscal years 2017 – 2018 (where the cap is
otherwise 20% of EBITDA and there is no offset of interest expense and interest
income). In this situation, a tax credit would be given for excessive tax paid, which can
be carried forward to the fiscal year 2020.

This is an important change in the regulations and candidates were expected to

understand the impact of the changes (by comparing calculations performed under
Decree 68 and Decree 20), the methods for determining deductible interest expenses
and the calculations of tax credits.

Most candidates were able to demonstrate an appropriate lay-out for calculating the
deductible interest expense under both the old Decree 20 and the new Decree 68.
Although there were significant variations in terms of their numerical answers, credit
was given to those who demonstrated an understanding of the topic and of the
underlying rules.

The most common mistakes made in this question were:

• Application of 30% EBITDA ratio when calculating deductible interest expenses

under Decree 20 (the correct ratio should be 20%)

• Use of net interest expenses for both Decree 68 and Decree 20

• Use of gross interest expenses in the calculation under Decree 68

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 • Incorrect deduction of depreciation and amortisation when calculating EBITDA.

In summary, given that this is a new topic, performance on this question was better
than expected and an area of the syllabus for which candidates appeared to be well
prepared.

Question 25

This 15-mark question required candidates to calculate personal income tax (PIT)
liabilities for a married couple with different types of net income and with four
dependants.

The question was in two parts; part (a) was about the husband and part (b) about the
wife. Overall, this question was well answered by the majority of candidates who
scored satisfactorily.

Most candidates correctly determined the taxable employment income in cash, as well
as correctly giving self relief and dependant relief. The income was generally correctly
grossed up. However, only a few candidates scored full marks and the following
mistakes were among the most common noted:

• The housing benefit was in cash and therefore should have been taxable in full.
Several candidates performed a comparison of actual housing with 15% of
gross income.

• A few candidates incorrectly treated the bonus of the husband (Hung) as non-
taxable

• Some candidates calculated the tuition fees for only one son (the couple had
two sons and one daughter)

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 • Some candidates treated the car expenses as taxable or split them on a 50:50
basis between each of the individuals. However, the car benefit was not taxable
as the car was used for transportation from home to office and vice-versa.

• Dependant relief in respect of the wife’s mother was either omitted completely
or treated as the wife’s relief (the last sentence of the question clearly stated
that Hung, the husband, would claim all possible dependant deductions)

• Some candidates applied the maximum salary cap when calculating Trang’s
social, health and unemployment insurance- her salary was in fact lower than
the cap for this purpose

Generally however, despite these minor mistakes, most candidates were able to score
well on this particular question.

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