export – Duane Morris Vietnam

July 21, 2015 by Dr. Oliver Massmann

Vietnam Latest on Customs and Tax Compliance – What Has to be Improved to Match WTO Commitments

Over the past year, we have seen significant efforts and progress made by the General Department of Customs in terms of improved regulations, more effective e-customs operations, and increased dialogue and consultation with the business community. From 01 January 2015, the new Customs Law takes effect with its implementing Decrees coming into force on 15 March. The implementing Circulars are also already in force from 01 April with the most notable one, Circular No. 38/2015/TT-BTC. This Circular, which replaces 13 previous customs regulations, is considered the most comprehensive among the new regulations. We are looking forward to more regulations being adopted soon following the new Customs Law, for example, regulations on advance customs rulings, post-clearance inspection which stem from the ASEAN agreements implementing the AFTA, the WTO Trade Facilitation Agreement, or regulations in anticipation of the upcoming Free Trade Agreements. These agreements commonly have major requirements on advance customs ruling, availability of information, separation of customs clearance from final determination of duties and taxes, international cooperation in customs, etc. The Prime Minister has adopted Resolution No. 19 for a period of three years, from 2015 to 2018, to prioritize these changes. During the implementation process, Vietnam has been receiving much technical support from foreign experts of the WTO, WCO and other organizations.
We have also seen progress in reforming Vietnam’s tax procedures over the recent years. Up to 01 January 2015, the total time for tax compliance is reduced to 370 hours per year, which is an impressive decrease compared with 872 hours annually according to the 2013 statistics. Time spent for tax declaration and payment is also reduced to 121.5 hours per year, with possibility of online tax declaration and payment. Although German enterprises highly appreciate these tax reforms, we would expect that the efforts are not only at Government or ministerial levels but also at the local levels where we have to deal with the authorities there directly.
Notwithstanding the above positive developments, Vietnam still has much to do in the upcoming time. We address below certain major issues and suggest solutions accordingly.
1. Application of blended tax
Blended tax is a combination of ad valorem tariff and specific/ fixed duty rate. Since Vietnam has made WTO commitments in reducing import duty, especially for goods of commercial value imported from WTO members, the application of blended tax could be considered as going against WTO commitments on market opening and tax reduction. We suggest that if the Draft Law on Import and Export Tariff has to include provisions on blended tax, it should specify in which cases it is applicable or else it would create confusion for local companies in Vietnam who are only familiar with either ad valorem or specific duty for each of their commercial goods.
2. Application of quota duty
Decree No. 187/2013/ND-CP and Circular No. 111/2012/TT-BTC subject salt, raw tobacco, eggs, and sugar to tariff quota regime. This means if the imported quantity of these goods exceed the quota as prescribed by the Ministry of Industry and Trade or there is no import license as required under the tariff quota regime, import of these products will be imposed an import tariff of 50%-90%. We would suggest these provisions be included in the Law on Export and Import Tariffs rather than Decree No. 197 or Circular No. 11. Moreover, the Law on Export and Import Tariffs should also address applicable import tariffs for minimum and maximum import quota for specific types of goods and the authority to issue documents governing the application of import quota from time to time. This would serve as the basis for the competent authorities to perform their rights and obligations and enterprises to clearly understand government’s import and export policies.
3. Tariff policies for goods imported for production of exports
It is recommended that goods which are imported for production of exports be not subject to tariff upon importation. This tariff exemption works more efficiently compared with tax refund upon goods exportation in terms of cash flows burden for export enterprises and will help improve the competitiveness of domestic enterprises. However, there should be a mechanism to monitor and request for tariff payment if the goods are then used for domestic consumption.
4. Goods imported for implementation of investment projects
According to the new Investment Law, projects being implemented in certain geographical areas and industries will enjoy tax incentives. The implementing Decrees of the Investment Law or the Law on Export and Import Tariffs should provide a detailed list of such areas and industries. The law should also clarify whether imported goods are still exempted from duty if the investment project is entitled with tax incentives under the initial investment license but is no longer qualified for such preferential treatment due to a change in technology.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH!

July 20, 2015July 20, 2015 by Dr. Oliver Massmann

Vietnam Current Investment and Trade Issues and Solutions

The Government of Vietnam has made certain success in stabilizing the economy to reach a high growth rate projection in 2015 by World Bank (i.e., 6%) and maintain import-export balance over the five years. Nevertheless, there are a lot of outstanding issues which should be further addressed as analysed below:
1. Enforcement and recognition of arbitral awards – Status, issues and solutions
The major regulatory framework on arbitration proceedings in Vietnam includes the Law on Commercial Arbitration No. 54/2010/QH12, which took effect on 1 January 2011 (“Arbitration Law”) and replaced the Ordinance on Commercial Arbitration (“Arbitration Ordinance”) in 2003; Decree No. 63/2011/ND-CP of the Government on detailing the implementation of certain regulations in the Arbitration Law (“Decree No. 63/2011”) and Resolution No. 01/2014/NQ-HDTP by the Vietnamese Supreme Court guiding the implementation of a number of regulations in the Arbitration Law (“Resolution No. 01”).
Vietnam also ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 in September 1995 and the provisions of the New York Convention have been incorporated into the arbitration laws in Vietnam.
The above shows that Vietnam has made great attempts in building a legal framework for arbitration which played an important role in attracting foreign investment over the recent years. However, statistics from Vietnam International Arbitration Centre show that almost 50% (19 out of 44) of its awards submitted for recognition and enforcement were set aside. This is a disaster as this number is far below the statistics in other countries (for example, Japan – 100%; China and Hong Kong – 90% of arbitral awards are recognized and enforced).
The reason behind it lies in the judges’ misunderstanding of fundamental principles of arbitration, which is based on a contractual agreement between parties to submit their disagreement to a dispute settlement forum, where they await a simplified and expedited procedure. However, the judges seem to complicate it and apply very strict standards to arbitration awards that are simply unnecessary and inappropriate. The judges even re-consider the merit of the case despite it being heard by arbitrators’ expertise in relevant fields and provide no chance of challenge. The main reasons for judges to annul arbitral awards could be summarized in two points as follows: (i) arbitration procedures failing to strictly follow procedures under the Civil Procedure Code; and (ii) the arbitral awards in certain aspects violating fundamental principles of Vietnamese law.
Arbitration procedures failing to strictly follow procedures under the Civil Procedure Code
It should be noted that when parties to the dispute agree to submit their case to arbitration by a contractual agreement, they already opt to select a much more simplified and tailor-made procedures than court litigation. They stipulate the rules of arbitration to be applied. The principle that, dispute resolution by arbitration is a contractually agreed process and does not involve timely and costly procedural rules as litigation does, is widely recognized in every arbitration organization in the world. Claiming that arbitration procedures do not follow procedures under the Vietnam’s Civil Procedure Code is a baseless, unreasonable argument and goes against the main spirit of arbitration process.
The arbitral awards in certain aspects violating fundamental principles of Vietnamese law
“Fundamental principles of Vietnamese law” is a very vague and ambiguous concept that is nowhere defined in Vietnamese law. Further, there is also no consistent standard of “fundamental principles” so the Vietnamese judges take certain discretion in assessing the compliance of arbitral awards with Vietnamese fundamental principles. They take the view that anything that is not compliant with Vietnamese administrative procedures would be considered violating “fundamental principles”. Due to the inaccessibility to the court’s decisions by the public, it is nearly impossible to establish a well-founded jurisprudence of what “fundamental principles” are. It is also create unpredictability in the court decision in recognizing and enforcing arbitral awards.
All of the above somehow discourages foreign investors from having their disputes resolved in judicial system of Vietnam. With an attempt to addressing this problems, certain measures are strongly requested to take by the Government.
How to protect the parties from the request for setting aside an arbitral award
Recently, with the issuance of Resolution No. 01, the Council of Judges gave a signal to support the enforcement of domestic arbitral awards in Vietnam as well as the development of arbitration proceedings. Resolution No. 01 provides more criteria and grounds for handling a request for annulment and especially, the cases when an arbitral award is set aside are more clearly defined. However, there should also be a special mechanism to appeal to judicial decisions that annul arbitral awards on an unreasonable and wrongful basis.
In order to do that, the Government should first task a special body to review all the cases that have been set aside. The content of the case as well as the court’s decision must be made public for transparency purposes and this could be considered as a supervising tool of the public on the court and review process.
2. New Investment Law and Enterprise Law – standing issues
Under the old Investment Law, the Investment Registration Certificate (“IRC”) concurrently serves as the Enterprise Registration Certificate (“ERC”) of a foreign-invested company. However, under the new Investment Law which takes effect from 01 July 2015, enterprises need to apply for two separate certificates with different application dossiers. Though the timeline and procedures seem to be quicker and clearer, investors are still concerned about the reason behind the separate applications, especially in the context of administrative reforms conducted by the Government.
The new Investment Law shortens the period for charter capital contribution from 03 (three) years to (90) ninety days. In connection with the existence of two separate certificates, investors are concerned about the delay it may cause when applying for an increase in the charter capital. (Note: Charter capital is an amount contributed by the investor to establish a legal entity). Such delay could result in slow disbursement of the additional capital, which in turn affect business operations of enterprises. Thus, the Government needs to take further measures to prevent such delay.
With regards to conditional sectors, the number has been reduced much compared with the old laws and from several workshops on this topic, conditional sectors will only be promulgated by the Government and the National Assembly. However, in terms of conditions applicable to doing business in conditional sectors and any inconsistency, it is unclear which law will prevail (the Investment Law itself or its implementing decrees, ordinances, etc.).
3. Draft Circular on import of used equipment – New trade restrictive measures?
Draft Circular No. 20/2014/TT-BKHCN is to take effect on July 01, 2015 to encourage imports of new machinery, equipment and production lines that are manufactured with the latest technology. This Draft Circular is aimed to prevent Vietnam from being a “dumping ground” of old technology and scrap machinery in place of China when this country adopted a regulation prohibiting imports of used machinery and equipment.
Despite the good intention of the Draft Circular, it somehow introduces new trade restrictive measures that could be considered as violation of Vietnam’s international treaties and agreements. In particular, the Draft Circular conditions the imports of used machinery and equipment on its usage period of 10 years and remaining quality of 80%. While it is hard to evaluate the quality of technology and production lines due to available information of the products, it is even harder and impractical to apply these standards across all types of technology and production lines. Furthermore, the Draft Circular also requires the imported goods be in conformity with safety, energy saving and environment protection and be inspected before being imported and customs released. This may significantly delay the customs clearance process and create more burden for enterprises, which go contrary to the objectives mentioned in Resolution No. 19 of the Prime Minister in 2015. A question of consistency with the WTO Agreement on Pre-shipment Inspection and WTO Agreement on Technical Barriers to Trade arises in relation with the required standards and pre-shipment requirement as well.
4. Tax administration
Vietnam currently ranks 78 out of 189 countries in terms of ease of doing business according to 2015 World Bank Report. This low ranking is mainly due to tax problems such as requiring importers to pay VAT twice on the same import transaction, delay in tax complaints resolution, etc.
It is notable that business complaints do not mostly relate to high total tax over net profit of 40% but the compliance cost and time, lack of predictability, simplicity and transparency in the tax system.
The Government should take immediate actions to improve the tax administration for a better growth in Vietnam’s economy.
5. Privatization of state-owned enterprises – the problem for every solution…
State-owned enterprises have long played an important role in Vietnam’s economy. These enterprises have operated in an inefficient manner compared with private companies, many enterprises operating at loss for several years. Therefore, the Government has conducted several rounds of state-owned enterprises reform. However, setting aside the ambitious target of 289 state-owned enterprises to be privatized in 2015, the privatization process has been very slow and only by name. Only 5%- 20% of the shares are offered for sale, which is too low to attract foreign investors. They will be reluctant to invest in these enterprises as long as they have no chance to gain decision-making power by purchase of shares. The Government must then show stronger effort and commitment in reforming state-owned enterprises to attract more foreign investment in the process.

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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
IF YOU ARE INTERESTED IN DOING BUSINESS IN VIETNAM PLEASE VISIT: www.vietnamlaws.xyz
THANK YOU VERY MUCH!

May 12, 2015 by Dr. Oliver Massmann

Contract Manufacturing And Tolling Agreements

I. VAT and Customs
In many cases, the principal in the contract manufacturing relationship owns some or all of the raw materials, work-in-process and finished goods throughout the manufacturing process. The principal and many of the suppliers are typically outside of the manufacturing jurisdiction.

1. Generally Speaking, What Are The VAT, Customs And Related Costs (e.g. Broker Fees) That Arise When A Foreign Principal Has Goods Dropped Shipped Into Your Jurisdiction To The Local Contract Manufacturer? In Particular, Is There Any Non-recoverable VAT? If So, Are There Strategies For Avoiding Or Reducing This VAT Cost? With Respect To Customs, Please Provide The Range For The Customs Rates That May Apply. Also Are There Any Planning Techniques That Taxpayers Typically Employ To Reduce Customs Costs? Please Address The Same Issues In Connection With The Export Of The Finished Goods Outside Of The Country.

Most regulations on the Vietnamese VAT regime are included in the Law on Value Added Tax No. 13/2008/QH12 of the National Assembly, as amended by Law No. 71/2014/QH13.

Due to Article 7.3 of the Law on Tax Management, importers are obliged to pay tax in full and in a timely manner, including the VAT.

This norm includes the concept of drop shipping, which means an arrangement between a seller and the manufacturer or distributor of a product that shall be sold. According to the arrangement the product will be shipped to the buyer directly by the manufacturer or distributor and not by the seller. This definition can be understood as an alternative form of import. The law does not make any differences on the way that goods are delivered. Therefore drop shipping is not subject to tax exemptions or reductions.

It should be noted that no VAT is raised for goods in transit or transshipment or crossing Vietnamese borders as well as goods temporarily imported and re-exported and goods temporarily exported and re-imported. There are no further special regulations for drop shipping supplies.

2. In Many Cases The Principal Supplies Equipment That The Local Contract Manufacturer Uses In The Manufacturing Process. This Equipment May Remain In The Local Jurisdiction For A Substantial Period Of Time. Any Addition VAT Or Customs Issues That Are Unique To The Capital Equipment That The Principal May Import?

Capital equipment is not subject to the catalogue of VAT exemptions. According to the Law on Value Added Tax the following objects are exceptionally not subject to VAT: “Machinery, equipment and supplies which cannot be manufactured domestically and need to be imported for direct use in scientific research and technological development activities; machinery, equipment, spare parts, special-purpose means of transport and supplies which cannot be manufactured domestically and need to be imported for prospecting, exploring and developing oil and gas fields; aircraft, drilling platforms and ships which cannot be manufactured domestically and need to be imported for the formation of enterprises fixed assets or which are hired from foreign parties for production and business activities or for lease.”

3. Have There Been Any Recent Developments That Impact The VAT, Customs And Related Costs Applicable To Such Structures?

On 25 March 2015, the Ministry of Finance issued Circular No. 38/2015/TT-BTC, according to which machinery and equipment suitable for investment field, target, and scale of the investment project, satisfying other certain conditions, imported as fixed assets of investment projects in the fields or areas eligible for preferential import tax are exempted from taxes.

4. To The Extent That There Are Significant VAT Or Customs Issues That Arise If The Factory Imports And Owns The Raw Materials And Work-In-Process That Are Contract Manufacturing Specific, Please Let Us Know.

Raw materials and supplies imported for production of goods for export shall be subject to import duties and VAT and shall be entitled to refund of import duties and VAT corresponding to the ratio of exported goods on the basis of the levels of use of raw materials and supplies [Article 114, Circular No. 38/2015/TT-BTC in respect of raw materials and other supplies for production of goods for export].

According to Point c.5) of Circular No. 38/2015/TT-BTC dated 25 March 2015, enterprises that import raw materials for productions [“importing enterprise”] and then sell their products to another enterprise to directly produce or process products for exports [“exporting enterprise”], after the actual export by the exporting enterprise the importing enterprise is entitled to request for refund of import duty tax equivalent with the materials that the exporting enterprise already used.

5. Are There Any Additional Issues Taxpayers Should Be Aware Of In Connection With Locally Procured Raw Materials And/ Or Finished Goods That Are Sold In The Local Market?

Circular No. 128/2013/TT-BTC on guiding imported goods export, import, processing, liquidation and consuming products of foreign invested enterprises dated 10 September 2013 stipulates that:

– In the case of the sale of domestic goods to an export processing enterprise, the seller shall be exempt from export duties.

– In the case of the purchase by an export processing enterprise of domestic goods for export (without conducting any production activity), the export processing enterprise must pay export duties.

– In the case of the purchase by an export processing enterprise of domestic goods for the production of goods for export, the export processing enterprise shall be exempt from export duties upon export.

II. Permanent Establishment

1. As Noted Above, The Principal May Own Raw Materials, Work-In-Process And Finished Goods In The Local Jurisdiction. Is There Any Significant Risk That The Principal Could Have A Local PE Due To The Fact That It Has Such Inventory In The Country? Does It Matter Whether The Principal Has A Local Warehouse?

In Vietnam companies overseas conducting business activities through resident establishments in Vietnam are liable to pay corporate income tax.

According to the definition in Article 2.3 of the Law on Corporate Income Tax, Resident establishment means a business establishment through which a company overseas conducts all or a part of its business activities in Vietnam which earn income. A resident establishment of a company overseas can take different forms that are listed as well in the Law on Corporate Income Tax.

This list includes a representative in Vietnam in a case where it has authority to enter into contracts in the name of a company overseas or a representative which is not competent to enter into contracts in the name of a foreign company but regularly delivers goods or provides services in Vietnam.

This very broad reference might also include principals with assets as named above. These elements are not likely to form the risk of a permanent establishment in Vietnam but the authorities decide about permanent establishments on a case by case basis.

Where a treaty on avoidance of double taxation to which the Socialist Republic of Vietnam is a signatory contains different provisions relating to resident establishments, such treaty shall prevail.

2. Does The Answer Change If The Principal Also Owns Capital Equipment That It Has Provided To The Local Contract Manufacturer?

Also the ownership of capital by the principal does not necessarily bear the risk of a permanent establishment.

3. In Many Cases The Local Contract Manufacturer Purchases The Raw Materials (Either In Its Own Name Or As A Purchasing Agent Acting On Behalf Of The Principal) Because It Knows The Production Schedule Better Than The Principal. In Addition, In Some Cases The Contract Manufacturer May Have More Leverage With The Suppliers. Please Address Any Additional PE Issues That May Arise If The Contract Manufacturer Also Acts As A Purchasing Agent On Behalf Of The Principal.

The Law on Corporate Income Tax provides that the business conducted by a company overseas can be regarded as a resident establishment if the company has an agent that has authority to enter into contracts in the name of the company overseas. Given this the situation above might likely rise a PE.

4. In Certain Cases, The Principal Will Have Its Own Employees Or Agents In The Factory To Supervise The Contract Manufacturer, Provide Quality Assurance And Sometimes Technical Information. To What Extent Would Independent Or Dependent Agents (That Do Not Have Contract Concluding Authority) Providing Such Services, Combined With The Other Facts Set Forth Above, Result In A PE For The Principal. To The Extent That Actual Employees Or Staff May Result In A PE, Can The Principal Avoid The PE By Forming A Local Subsidiary To Employee The Staff? If So, Can The Subsidiary Be Compensated On A Cost Plus Basis?

Article 1.4.b of Decree No. 24/2007/ND-CP (as amended and partially superseded by Decree No. 218/2013/ND-CP and Decree No. 12/2015/ND-CP) (“Decree No. 24/2007/ND-CP”) stipulates that a business is considered as resident establishment if it takes the form of a “location of supervisory activities for construction, construction works, or installation and assembly works.

If the principal wants to be safe regarding the avoidance of a PE, he might establish a Representative Office [“RO”] to perform the tasks named above. This is possible as long as the RO is not doing business. Article 13.1.c of Decree 45 on Representative Offices allows to “monitor and activate the implementation of signed contracts of the foreign business entity or foreign tourism enterprise for which it acts as a representative.” This covers the activities named above.

According to Article 37 of the Commercial Law and Article 5 of Decree 45 any foreign business entity or foreign tourism enterprise which has lawful business registration in accordance with the law of the foreign country and has operated for at least 05 (five) years shall be issued with a license to establish a representative office in Vietnam.

5. To What Extent Do The Answers To These PE Questions Change If The Factory’s Sole Activity Is Acting As A Contract Manufacturer For A Single Principal.

This constellation is not directly addressed in Vietnamese Laws. Contract manufacturing for only one single principal might give rise to a PE if tax authorities interpret the business activities of the overseas company according to Article 1.4.b of Decree No. 24/2007/ND-CP [pls. see above under point II.4] as a form of “installation and assembly works”.

6. Assume An Extreme Set Of Facts Where In Addition To The Factors Set Forth Above The Principal Has A High Degree Of Control Over The Operations In The Factory. Assume For Instance That The Principal Hires The Employees And Its Employees In The Factory Have The Power To Stop Production To Correct Problems. At What Point Does The Principal’s Control Over The Factory Activity Give Rise To A PE?

We refer to point II.5 above. These business activities will be even more likely be considered as PE.

7. To The Extent That A PE May Arise In Any Of The General Fact Patters Described Above, Comment On Whether Additional Income Would Be Attributable To The PE. Can The Principal Argue That It Has Paid An Arm’s Length Gee Such That There Is No Additional Income That Such Be Taxed In The Jurisdiction? If So, What Transfer Pricing Methodologies Would Typically Be Used To Determine The Amount Of Income Attributable To The PE?

If there are no special rules in tax agreements, the principal can calculate on an arm’s length’s basis.

The Ministry of Finance has released a Circular on Transfer Pricing which requires companies to make a full self-assessment of their profits, calculated on an arm’s length’s basis. According to this circular, companies will be required to declare the related party transactions in a prescribed for and submit it within 90 days from the year end. Furthermore, the Circular provides an obligation for companies to maintain transfer pricing documentation to set out the evidence that they have taken place on arm’s length’s terms.

If companies fail to comply with these terms they risk double taxation and penalties.

III. Local Incentives

In many of your jurisdictions, the government grants tax incentives or holiday for taxpayers that invest in the local economy and manufacture within the country. In many contract manufacturing structures, however, the contract manufacturer receives a cost plus return, and the contract manufacturer generally does not own intangibles.

1. Is The Taxpayer’s Ability To Obtain A Tax Incentive Or Holiday Diminished By Operating Under A Risk-Stripped Structure Where The Local Entity Receives Cost Plus Remuneration?

Exemptions from and reductions of Corporate Income Tax are based on Chapter V of Decree No. 24/2007/ND-CP on Corporate Income Tax.

Tax incentives are provided in cases of encouraged investments. This term covers enterprises located in special export processing zones, enterprises that export a certain percentage of the manufactured goods or enterprises with a certain number of Vietnamese employees or laborers.

The contract manufacturer may carry forward their losses of a financial year to offset against future profits for a maximum of 5 years after the year incurring loss. The enterprise can freely choose how to allocate the loss to the later 5 years. When the 5 years period has lapsed but the loss has not been fully carried forward, the loss is not allowed to be carried forward to the next year.

2. Is The Taxpayer’s Ability To Obtain A Tax Incentive Diminished By The Lack Of Locally Owned Intangible Property?

This case is not addressed by the Vietnamese tax law.

3. Are There Any Other Aspects In Contract Manufacturing Structures That May Impact A Taxpayer’s Ability To Obtain A Tax Incentive Or Holiday?

Chapter V of Decree No. 24/2007/ND-CP provides detailed regulations on all CIT incentives.

Investment projects in certain industries and sectors listed in an appendix to the Investment Law shall be entitled to incentives as well as projects employing average numbers of employees, that are defined in Article 41.

According to the project type and the region of its location the tax rate can be 10, 15, 20 or 50 per cent.

IV. Conversion And Transfer Pricing Issues

In many cases, U.S. and European multinationals initially establish their local manufacturing operations in Asia as buy/sell entities because they have a local income tax holiday or exemption of some kind for a period of years. The local entity may even own intangibles and bear risk. When the local holiday or exemption ends (or the CFO decides the tax rate is too high), the parent may wish to convert the local entity into a contract manufacturer for a principal in a low-tax jurisdiction to reduce the income earned locally.

1. If There Are Locally Owned Product Intangibles, Is There A Capital Gains Tax On The Sale Of These Intangibles To A Foreign Owner And If So What Is The Rate? Assume The Local Contract Manufacturer Sells The Intangibles For Cash And Then Declares A Dividend Equal To The Amount Of The Sales Proceeds. Any Dividend Withholding Tax? If So, What Is The Rate? If There Is A Capital Gains Tax Or A Dividend Withholding Tax, in Addition To Discounted Cash Flow, What Other Valuation Approaches, If Any, Are Commonly Used? Are There Other Strategies For Reducing These Costs?

The taxation of the sale of intangibles is addressed in Article 32 of Decree No. 133/2008/ND-CP as amended by Decree No. 120/2014/ND-CP on technology transfer. This norm provides that the transferor has the obligation to pay tax on the amount of money generated from the technology transfer.

2. In Some Jurisdictions, The Local Authorities May Find That The Local Entity Owns Some Goodwill Or Going Concern Value As A Result Of Its Historic Operations. The Authorities May Assert Capital Gains Tax And Possibly Dividend Withholding Tax On Value Of The Goodwill Or Going Concern Value On The Theory That The New Principal Is Somehow Acquiring The Goodwill Or Going Concern Value In Connection With The Conversion. Is This An Issue In Your Jurisdiction? If So, What Planning Steps Can Be Taken To Minimize This Cost?

This issue is not relevant in Vietnam.

3. Assume The Local Entity That Historically Manufactured Goods On A Buy/Sell Basis Also Performs R&D And Marketing Activities. In Connection With The Conversion, Should These Activities Be Moved Into Separate Subsidiaries? If So, What Additional Issues Arise In Connection With This Conversion?

Please see point IV.2.

4. In Many Cases, The Local Contract Manufacturer Is A Wholly-Owned Subsidiary Of The Principal. In Such Cases, The Principal May Wish To Compensate The Contract Manufacturer On A Cost Plus Basis, With The Uplift Being A Percentage Of The Manufacturing Costs (And Not The Value Of The End Product). Is This Approach Viable In Your Jurisdiction and What Issues/Exposures Arise In Connection With The Use Of Cost Plus Transfer Pricing?

Transfer pricing rules in Vietnam require that the enterprise pays and Vietnam receives a reasonable rate of return on its activities as if the parties were unrelated [the arm’s length principle].

Vietnamese tax law does not provide special rules regarding cost plus transfer pricing. Please see point 2.7 for further information on the Circular on Transfer Pricing.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH