Vietnam: Who is entitled to tax exemption under an ODA project in Vietnam?
Over the last three decades, Vietnam has received a large amount of official development assistance (ODA) from other countries. As part of this, it has established preferential policies for foreign contractors (individuals) who carry out projects/programmes funded by ODA with regard to visas, foreign exchange, residential registration, work permits, customs duty and, most importantly, exemption from personal income tax on the salary/wages they receive during the time they work in Vietnam on ODA projects. There are some limitations, however, to who can enjoy such privileges, as not all those working on ODA projects/programmes are entitled to such benefits. Certain criteria must be satisfied and exemption is not conferred automatically. Individuals that meet the criteria must then obtain certification of such from the relevant ODA management agency, after which they must apply to the local tax authorities for a tax exemption certificate.
There are two criteria that need to be met:
The projects/programmes must qualify as ODA projects/programmes.
The individuals working for the ODA projects/programmes must qualify as foreign specialists under Vietnam's regulations.
With respect to the first criteria, the types of assistance that fall under the ODA category are defined in new Decree 38 (effective June 6 2013) as follows:
Provision of non-refundable ODA, such as grants, whereby the donor is not entitled to a refund of the ODA provided.
Provision of ODA loans that are made under concessional conditions on interest rates, grace periods and repayment schedules, with the non-refundable element (also referred to as the assistance element) accounting for at least 35% of the value of binding loans or at least 25% of the value of non-binding loans. Therefore, for these types of ODA loans, it is necessary to determine the assistance element ratio. If the ratio does not meet the required level, the projects/programmes cannot be classified as ODA projects and thus, foreign specialists would not be entitled to any special benefits. In practice, how to calculate the assistance element ratio is quite a complicated endeavour: there is a set formula, but given the numerous factors that must be taken into account, such as interest rate, grace period, discount rate, and number of payments, as well as issues with how to measure certain of the factors, it is difficult for the project owner/foreign staff to verify that they can apply for such benefits.
For the second criteria, a foreign specialist is defined as a person who is not a Vietnamese national, and who comes to Vietnam to provide specialised and technical consultancy services or to undertake other tasks with regard to an ODA project, such as research, construction, evaluation, monitoring and assessment, or management, pursuant to international treaties on ODA signed by the competent authorities on behalf of the Vietnamese and foreign party. Foreign specialists may come to Vietnam in the following ways:
The foreign party selects and signs a contract with a foreign specialist or with a contractor (company) where the foreign specialist is on the list of consultants in the tendering data of the contractor (company), on the basis of the tendering results approved by the competent authority of the foreign party and agreed by the Vietnamese side.
The Vietnamese party selects and signs a contract with a foreign specialist or with a contractor (company) where the foreign specialist is on the list of consultants in the tendering data of the contractor (company), on the basis of the tendering results approved by the competent authority of the Vietnamese party and agreed by the foreign side.
For specialist certification, one of the key criteria is that the foreign specialist's name must be listed in the bidding documents approved by the project owner. If a qualified foreign specialist is later replaced, there must be approval letters from both the Vietnamese party and the foreign party (donor). By virtue of the definition of a foreign specialist, Vietnamese specialists (even those whose names appear in the approved bidding documents) are not entitled to PIT exemption.
Thuan Pham (email@example.com)
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