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Currently, Vietnam is one of the most upwardly trending countries for companies interested in expanding their business internationally. The country's economy keeps growing, driven by Free Trade Agreements (FTAs) as well as being improved from an increasingly regulated business environment.
Even after Covid-19, despite being targeted with one of the harshest lockdowns in its history, the country has managed to achieve GDP growth for two consecutive years.
It’s no surprise then, that many foreign enterprises are boosting their investments in Vietnam for increasing their subsidiaries’ capital or establishing a subsidiary in the country.
Financing a company with equity in Vietnam will require either paying up the initial share capital in cash or contributing non-cash assets (contributions in kind). For example, providing new modern assets, such as pieces of machinery or other sophisticated equipment.
In the latter case, it’s not common knowledge amongst the general public that the law concerning the capital contribution in kind (contributing non-cash assets), states that VAT imposition shall not be applied in Vietnam: “Taxpayers are not required to declare and pay tax in cases in which Assets are contributed to establishing a new company” (Art. 5.7 of Circular No. 219/2013/TT-BCT dated December 31, 2013, of the Ministry of Finance).
Since a newly established company can fulfill the initial capital contribution within 90 days from the date the company is issued with the Enterprise Registration Certificate (ERC), therefore, it can be considered as a taxpayer.
Therefore, if the parent company provides the equipment from inside the country as capital incremental, the contribution shall not be subject to the 10% standard VAT.
Different situations may occur when the equipment is imported from abroad: although it does not belong to the category of transactions not subject to VAT, it will still be affected by it: under the law, in fact, the Customs Office is the authority in charge of tax (including import VAT and customs duty) for any goods at the import stage; therefore, VAT would still be imposed and shall be paid at the point of import.
After the goods, i.e. the machinery or equipment, enter the country, it shall be possible to apply for a VAT refund (pursuant to Article 22 of Circular No. 219/2013/TT-BCT: “Tax authorities are responsible for organizing and managing the collection of price tax value added and VAT refund for business establishments”); considering also the recently-released Decree No. 49/2022, which modifies the list of VAT computations and for refund transactions stating that “a VAT refund for investment projects with a cumulative input VAT value of VND 300 million or more can be granted”.
It is of paramount importance to be aware of overseas mechanics intertwined amongst the different relevant government authorities (like customs and taxation authorities) in Vietnam, in order to improve the efficiency for capital injection solutions, and optimize their tax implications.
At PHC Advisory we are highly specialized, and we can carefully following capital-raising operations in Vietnam and other countries in Asia. Feel free to reach out to us at info@phcadvisory.com to find out about our international tax and accounting services that your company could benefit from.
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