Circular 40/2021/TT-BTC on taxation of business households and individuals

On 01 June 2021, the Ministry of Finance released Circular 40/2021/TT-BTC (“Circular 40/2021”) guiding VAT, PIT and tax  administration of business households and individuals. Below are some of the more salient points:

Definition of household business

“Household business” refers to a business or manufacturing facility established by an individual or members of a household who take responsibility with all of their property for its business operations as prescribed in Article 79 of the Government’s Decree No. 01/2021/ND-CP dated 04/01/2021 on enterprise registration and its guiding, amending or replacing documents (if any).

Additional incomes subject to VAT, PIT

Circular 40/2021/TT-BTC addis a number of taxable income items to the list, namely:

• Bonuses, sales compensation, promotion, commercial discounts, payment discounts, assistance in cash or not in cash for deemed tax payers
• Compensation for breach of contract, other compensation
• Advertising on digital information products and/or services.

Tax calculation methods for business households and individuals added

• Households businesses and individuals paying tax under declaration method (applicable to large scale business households and individuals, and those opting to pay taxes under this method)
• Paying tax per each declaration (applicable to individuals and households doing business infrequently and without a fixed business location)
• Business households and individuals who do not pay taxes under either two methods above shall apply deemed tax payment methods.
• Businesses households and individuals paying tax under declaration method are not required to finalize taxes.

Tax rates

According to Appendix 01 issued together with Circular No. 40/2021, the rates are as follows:

No.	Business lines	VAT rate	PIT rate
1	Distribution, provision of goods	1%	0,50%
2	Services and construction exclusive of building materi als	5%	2%
3	Production, transport, service associated with goods; construction inclusive of building materials	3%	1,50%
4	Lease of houses, land, warehouses and means of transport, machinery without operator	5%	5%
5	Lottery agent, multi-level sales	–	5%
6	Other business activities	2%	1%

 

Additional subjects accountable for declaring and paying taxes on behalf of  individuals

Circular 40/2021 requires the following to be held responsible for declaring taxé on behalf of individuals:

• The organization which has business cooperation with the individuals
• The organization which pays bonuses, sales compensation, promotion, commercial discounts, payment discounts, assistance in cash or not in cash, compensations for breach of contract, other compensations for presumptive tax payers
• The organization in Vietnam which is a partner of an overseas digital platform provider without permanent establishment in Vietnam and pays the individual for digital information products and/or services under agreements with the overseas digital platform provider
• The organization which is the owner of an ecommerce platform, declares and pay tax on behalf of the individual according to the tax authority’s roadmap.

For property leasing activities

Pursuant to Point c, Clause 1, Article 9 Circular No.40/2021, the revenue from property leasing for the full 12 months of VND 100 million/year or less is non taxable. However, if the lease period is not full calendar year, the revenue used to determine non taxable revenue is still the taxable revenue of a calendar year full of 12 months however the actual revenue as the basis for calculation of tax payable in the tax year shall be the revenue proportional based on the actual number of months the property is leased. In addition, in case an individual has both leased property and other business activities, the revenue threshold of
VND 100 million/year or less in determining non-taxable revenue is the total business revenue including other business activities.

Impacts

Circular 40/2021 takes effect from 1 August 2021. It appears the guidance from the Ministry of Finance on taxation of business households and individuals is to clarify taxation of leasing operations and some other tax issues that were not specified in the former regulations and hence, ensuring fairness in application of tax laws. Despite the above, the new tax rules will also impact business households and individuals in the way they are taxed and other entities held accountable for declaring & paying taxes on those individuals’ behalf. If you need further information or would like to discuss the ramifications of Circular 40/2021, please contact us.

UHY – Circular 40 on taxation of business individuals households – 15Jul2021