25 Sep Manage Tax Declaration And Settlement For A Foreign Representative Office In Vietnam
Pursuant to the newly enacted tax laws and anti-money laundering laws, starting from 2012, every 3 to 5 years, the HCM City Department of Taxation requires the Office to provide the cashbook, petty cash, bank statements of accounts, together with valid documents and employee profiles as well as payroll vouchers for representative office tax declaration.
Regarding representative office tax declaration, tax officers will review each transaction to ensure that the office’s costs have been made legally and duly, without violating the tax or anti-money laundering laws. In addition, in case of no need to operate, before the office’s closing, the tax authorities will also carry out similar tax inspection and settlement procedures.
Common risks of Representative Office Tax Declaration
- The office has not made a valid receipts and payments statement and cashbook;
- After its receipt of money from the parent company, the office made the expenses without valid invoices and vouchers, especially per diems, office expenses, house and car rents, and payments to other suppliers. Valid invoices and vouchers are provided for in the applicable tax – accounting laws.
- The expenses for procurement of direct production machines and materials and bonuses for employees, etc are not consistent with the functions of the representative office.
- Commissions, other per diems and other meal expenses will be considered personal benefits to some individuals and will be subject to the personal income tax.
- The office calculates and pays social insurance and health insurance premium according to the basic salary (other than the total salary fund) without registering the wage scale system as prescribed; or according to the total salary fund, leading to the large deductions from salaries, limiting the possible recruitment of more people for its operations.
- Despite having more than 10 employees, the office has not completed the procedures to register labor regulations as prescribed;
- The office has not notified the bank account number to the tax authorities in accordance with regulations of the laws;
- In particular, it is possible that the system of records shows that the office is operating in the form of a production company without declaring turnover and paying CIT, VAT, etc. This may cause serious risks when the relevant state authorities carry out specialized inspection activities.
2. Handling violations
After reviewing the unreported or unduly invoiced expenses, the tax authorities will retrospectively calculate the taxes payable, at a minimum of 10% plus a fine of around 17% per annum. Since the tax inspection is conducted after 3 to 5 years of operation, the total amount of arrears and cumulative fines may be huge. Paying a large amount of arrears and fines as well as spending much time traveling for clarification, damaging the reputation of the parent company is undesirable for any representative office and these risks can absolutely be controlled.
Solutions – What compliance procedures regarding representative office tax declaration should be prepared?
- Identifying the checklist of procedures, reports, and records to comply with regulations. Legally preparing reports and procedures right from 2017 onwards (Please consult VIVA for the checklist of work standards for an office).
- Completing vouchers related to invoices provided by suppliers, per diems records, salary and labor records from 2017 backward in the direction of clarification to avoid tax and duty arrears.
- Registering labor regulations, collective labor agreement as prescribed. This procedure helps the office to clarify various actual payments such as per diems and other employee benefits.
- Proactively preparing cashbook and petty cash for the office with the following main contents:
Collecting, organizing and saving monthly original records and vouchers into the Business records management folder, including:
- Bank statements of accounts with valid vouchers and invoices;
- Cashbook and petty cash accompanied by valid invoices;
- Actual salaries and benefits with valid payroll and employee;
- Other records and compliance reports being submitted to state authorities.
Making monthly reports and conducting internal audits of compliance reports and documents:
- Making a standard cashbook and petty cash;
- Reviewing the office’s operations in accordance with applicable regulations, establishing the relations among transactions in a lawful and optimal manner as required by the state;
- Calculating and optimizing taxes and insurance premiums payable, addressing and preventing risks;
- Completing legal documents for each transaction, making them legal bases for legal transactions.
Preparing tax reports, tax finalization reports, written confirmation of tax obligations, and tax reduction and exemption documents.
VIVA has been an in-depth consultant on business compliance procedures in Vietnam since 2006, based on our professional - integrated background in Business laws - Accounting and corporate finance - Tax management - Labor relation and payroll – Business administration procedures. VIVA offers exclusive services in an integrated tailor-made, consist of 5 specialized-expertise platforms and the inheritance experience up to hundreds of years for every job.
Our extensive expertise and management system that facilitates us to connect local resources and be ready to deliver exclusive solutions that exceed all standard limits and satisfy all expectations of our clients.