The Week in Brief: 2 July 2021
Welcome to the latest edition of our regular legal update from the A&P Vietnam office. This week, we highlight new regulations on the privatization of state-owned enterprises, new rules on advance pricing agreements, updated tax obligations for e-commerce platforms, and new conditions for the operation of employment services. To learn more about one of these changes, just contact our office for more information.
New Regulations on Share Offering for Privatized SOEs
Last month, we outlined Vietnam’s latest plans to divest in 88 state-owned enterprises (SOEs). Now, new regulations have come into force guiding the initial share offering and management of capital gained from the privatization of SOEs.
Circular No. 32/2021/TT-BTC (“Circular 32”) outlines the three categories of investors eligible to purchase shares in privatized SOEs. The first is Vietnamese and foreign investors. These could include entities or individuals (such as workers or managers in the privatized SOEs). The second is Vietnamese and foreign strategic investors who meet the conditions in Article 6.3(a) of Decree No. 126/2017/ND-CP. And the third is trade unions of privatized SOEs.
Different methods of sale are applied depending on the circumstance:
- An auction will be used when selling shares to the public or at least two strategic investors.
- A direct agreement will be applied where there is just one strategic partner registered to purchase shares or when the number of shares that strategic partners have registered to purchase is small than the number intended for sale. The same agreement will be used to sell shares to employees and trade unions as well as when selling unsold shares.
- For the first sale of shares in privatized SOEs, a share issue guarantee will be used. Meanwhile, the book building method can also be applied as per Circular No. 21/2019/TT-BTC.
Circular 32 was issued on 17 May 2021 and took effect on 1 July 2021. It replaces both Circular No. 40/2018/TT-BTC and Circular 34/2019/TT-BTC.
Advance Pricing Agreements in Related-Party Transactions
In June, the government issued a new Circular on Advance Pricing Agreements (“APAs”) in related-party transactions. Circular No. 45/2021/TT-BTC (“Circular 45”), which will take effect on 3 August, provides guidance on the application of APAs in the tax management of enterprises.
Circular 45 applies to companies which declare Corporate Income Tax (“CIT”), are involved in related-party transactions, and request the tax authorities to use an APA. Eligible transactions include:
- The purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposal of commodities and provision of services.
- Financial borrowing, lending, financial services, financial guarantees and other financial instruments.
- The purchase, sale, bartering, renting, leasing out, borrowing, lending, transfer or disposition of tangible and intangible assets.
- Agreement on purchase, sale, and sharing of resources such as assets, capital, labour and sharing of costs between related parties. However, this does not include business transactions in goods and services subject to price adjustments that the state makes under laws on prices.
In order to be eligible, the above transactions must have been incurred during the operations of the enterprise and must continue to be incurred during the APA’s application. The transactions must be transparent, not under dispute in terms of tax, and must not be done for the purposes of avoiding tax or abusing tax treaties. Meanwhile, there must be a basis to determine the nature of the transactions as well as to compare and choose independent comparable subjects.
Once signed, an APA will take effect for three fiscal years. However, it will not exceed the time that the enterprise has operated and paid CIT in Vietnam.
Tax Obligations for E-Commerce Platforms
Following a new Circular published last month, owners of e-commerce platforms will soon be responsible for declaring tax on behalf of the household businesses and individuals who sell on their platform. This new provision is designed to make tax management of online transactions more effective.
It is just one of the new changes introduced in Circular No. 40/2021/TT-BTC which will enter into force on 1 August and provide guidance on VAT, PIT, and tax management for household businesses and individuals. From next month, the declaration method is applicable for large-scale household businesses and individuals. This method will also be available to household businesses and individuals who do not meet the ‘large-scale’ requirement but who nevertheless wish to use it.
New Conditions for the Operation of Employment Services
From last month, companies wishing to obtain a license for the operation of employment services will need to meet three conditions. It comes after the promulgation of Decree No. 23/2021/ND-CP on 1 June. Decree 23 provides detailed instructions on Articles 37.3 and 39 of the Law on Employment. In particular, it regulates employment service centers and businesses.
In order to obtain a license for the operation of employment services, an enterprise must now make a deposit of 300 million VND; must have an office or branch with a lease contract of at least three years; and their legal representatives must have a university degree (or higher) or at least two years of professional experience in employment services or labour supply. This experience must be in the five years before the license application is made.
The license for operation of employment services has a maximum term of 60 months and can be extended.
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