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Issues of start-up tax businesses need to know

Issues of start-up tax businesses need to know

Startups is a booming trend in Vietnam with hundreds of companies and products are launched to serve the needs of Vietnamese people. However, whether starting a restaurant, a technology company or a shop, it is a business component in the economy in accordance with Vietnamese law. Therefore, entrepreneurs must be obliged to the Vietnamese state which is paying taxes.

The following article will show you the basic reference information, which is the foundation for startups. In many cases, startups will have different notice about taxes and meet the business criteria of the area in which they are participating. Tax knowledge is very arid, but those who intend to start a business must know to ensure a smooth business.

1. License tax:

This is the first tax that a newly established startup needs to pay attention to. Simply said, license tax is a direct tax (collected directly from a business or business entity), which is a quota on the business license (license) of the business. The license tax is collected once a year (at the beginning of the year) for the inventory purpose, controlling and classification of production and business establishments.

The license tax has the classification levels as follows:

For business households and individuals:

Tax bracket 1 month income (VND) Annual tax rate (VND)
1 Over 1.500.000 1.000.000
2 Over 1.000.000 to 1.500.000 750.000
3 Over 750.000 to 1.000.000 500.000
4 Over 500.000 to 750.000 300.000
5 Over 300.000 to 500.000 100.000
6 Less than 300.000 50.000

For economic organizations, it will be based on the registered capital (recorded in the Business Registration Certificate):

Tax bracket Registered capital(VND) Annual tax rate (VND)
1 Over 10 billion 3.000.000
2 From 5 billion to 10 billion 2.000.000
3 From 2 billion to 5 billion 1.500.000
4 Less than 2 billion 1.000.000

(Pursuant to Circular No. 42/2003 / TT – BTC May 7, 2003).

In case of changes such as increasing or decreasing the registered capital, the startup must declare to the tax office that is directly managing it as a basis for determining the license tax of the following year. If not declared, it will be sanctioned for violations of tax administration and subject to a tax rate payable. The deadline for tax declaration is December 31 of the year in which there is a change.

For example, if company A has a registered capital of 6 billion VND in 2012, the amount of 2012 payable is 2,000,000 VND / year. If in 2013, if there is an increase or decrease in registered capital, the license tax rate in 2013 is still determined by registered capital in 2012. Company A must declare to the tax authority to manage the increase. or reduce its registered capital by December 31, 2013. New registered capital as of the end of 2013 is the basis for classification in 2014.

Another point to note is the tax payment time, if the startup pays later than the appointed date, it will be fined.

Startups who are doing business or newly established are given tax registration and tax codes in the first 6 months of the year, pay the license for the whole year; If established, granted tax registration and tax code during the last 6 months of the year, 50% of the license tax shall be paid for the whole year. After tax registration, startup must declare the excise tax within 10 days from the date of the business registration certificate or the latest date is the last day of the month from the date of issuing the business registration.

Startups doing business pay license tax at the first month of the calendar year, no later than January 30 of the tax year. Business establishments have actual business but do not declare tax registration, must pay license tax for the whole year regardless of the time of detection is the first 6 months or the last 6 months of the year.

Therefore, startup registers to pay taxes with any tax authority, it will pay license tax at that tax office (for example, district 1-HCMC tax department, or tax department of Ba Dinh-Hanoi), and pay taxes at the State treasury

2. Company income tax (CIT):

Corporate income tax is a direct tax based on businesses’ profits.

Taxable income = Revenue from business activities minus – reasonable expenses related to such business activities.

Our state has preferential policies on corporate income tax for newly established businesses. For start-up, they will be exempted from CIT for the first 2 years from the time of taxable income  (since the start-up profits) and 50% reduction for the next 2 years.

In addition, for special fields that receive investment incentives, such as environmental protection, high-tech applications, … startups will receive more tax reductions depending on the specific areas. (Startups can read Decree 218/2013 / ND-CP for more details).

According to Clause 6 Article 1 Law No. 32/2013 / QH13 – Corporate Income Tax Law, issued on June 19, 2013, effective from January 1, 2014, enterprises in Vietnam will have tax rates rate as follows:

1. The corporate income tax rate was 22% from January 1, 2014 and converted to apply the tax rate of 20% from January 1, 2016.

2. The enterprise income tax rate is 20% for enterprises with the total turnover of the preceding year not exceeding 20 billion VND.

3. The enterprise income tax rate applied to oil and gas search, exploration and exploitation activities and other rare and precious natural resources in Vietnam is from 32% to 50%, suitable for each project and business establishment.

Thus, compared to the previous tax rate, enterprises have been reduced by 3% (previously 25%) to create opportunity for enterprises to develop and expand production during this integration period.

3. Annual financial report:

The system of financial statements includes 4 main reports: balance sheet, business results report, cash flow statement and notes on financial statements. These financial statements are very important because they provide information about the financial situation so that businesses can analyze and evaluate their business performance. In order to prepare the financial statements, the accounting report reflects the correct data generated on the invoices and vouchers, it must be done through completing the books and balancing the data step

Financial statements must be submitted within 90 days from the end of the financial year ( March 30 or March 31 of the following year).

In the case a first year accounting period is less than ninety days (startup establishes and registers tax in the last 3 months of the previous year) it is allowed to add (+) to the next annual accounting period to calculate into an annual accounting period. Note that the first year accounting period or the last year accounting period must be shorter than 15 months. These regulations are clearly stated in Circular 123/2012 / TT-BTC.

4. Changing tax information:

In case startup changes its address, office, registered capital or changes the recorded information in the tax registration file, startup must notify the direct management tax office (indicated on the Certificate. receive tax registration) within 10 working days from the date of change of information. At the same time, the startup must register the changes in the operating license of the company (such as the company headquarters) with the Department of Industry and Trade of the city or province registering the establishment license.

In case there is a change of the taxpayers’ head offices, lead to changing the tax agency directly managing them, taxpayers shall pay fully the declared tax amounts before changing their head offices and without having to make tax finalization with tax authorities (except when the time changing of head office coincides with the year of tax finalization).

In case the information in the tax registration certificate changes, the managing tax agency shall directly revoke the granted tax registration certificate and grant a new tax registration certificate to the enterprise.

5. Value added tax (VAT):

Value-added tax is an indirect tax (the end-user pays to the government through the enterprise providing such products or services) on the increased value of the goods and services after each transfer from manufacturer to distributor and final consumer. In case you are not the end-user (as an enterprise imports raw materials to produce and sell to the market), you will be refunded that input tax. Value added tax (VAT) is calculated and paid by month.

VAT included in the input invoice (red copy) when you buy goods and the service is called input VAT; VAT included on the output invoice (green or purple) when you sell goods and services to customers is the output VAT.

In a month,

  • If input VAT > output VAT: The company will be entitled to the deduction or refund of tax by the difference between the input and output tax.
  • If  input VAT < output VAT: the company will pay tax to the State with the tax payable equal to the difference.

In reality, VAT is levied on consumers, businesses are only tax collectors from consumers and then return to the state, so businesses are not the subject of VAT. However, whether a newly established enterprise is obliged to declare VAT and pay taxes or refund taxes from the state.

In our country, the state recently issued a new legal document on June 19, 2013. This is the “Law amending and supplementing a number of articles of the VAT Law” (collectively referred to as “Law on amendment and supplementation of VAT Law”) and takes effect from January 1, 2014. The amended and supplemented Law on VAT has amended some articles of VAT Law No. 13/2008 / QH12, including revising the tax deduction method and the direct calculation method on VAT. Startups should pay attention to apply new government regulations.

The conditions for VAT deduction are:

  • Enterprises have annual taxable turnover from selling goods or providing services from one billion VND or more and fully implement the accounting, invoice and voucher regimes according to the law on accounting and invoice.
  • Enterprises have annual taxable turnover from selling goods and providing services with less than one billion VND but registering (according to the form No. 06 / GTGT issued together with Circular No. 156/2013 / TT-BTC dated November 6 / 2013 of the Ministry of Finance) voluntarily apply the tax deduction method.

(Excerpt: Law on amending and supplementing some articles of VAT Law)

There are two ways to pay VAT. One is by the tax deduction method, two is the direct calculation method on the value added

1/ Tax deduction method:

Applicable to businesses that fully implement the accounting, invoice and voucher regimes according to the law on accounting, invoices and vouchers, including:

  • Business establishments have annual turnover from selling goods or providing services of billions VND or more, except for households and individuals businesses;
  • Businesses voluntarily register to apply the tax deduction method, except for households and individuals business.

This method is calculated by:

Amount of payable VAT = Output VAT – The deductible input VAT amount

2/ Direct calculation method on added value

Apply to startups:

  • Enterprises with annual turnover of under 1 billion VND, except for voluntary registration of tax deduction method specified in Clause 2, Article 10 of Law No. 31/2013 / QH13);
  • Business households and individuals;
  • Other economic organizations, except for cases of registration for tax payment according to the tax deduction method prescribed in Clause 2, Article 10 of this Law (No. 31/2013 / QH13);

Calculation:

Amount of payable VAT = Revenue x rate%

In which, the percentage is stipulated as follows:

  • Distribution and supply of goods: 1%;
  • Services and construction do not cover materials: 5%;
  • Production, transportation and services associated with goods and construction with material procurement: 3%;
  • Other business activities: 2%. “

(Particularly for trading, processing gold, silver and gems, there is another calculation; if the startup business in this field should read carefully the guiding circular).

Therefore, startups with annual revenue of less than 1 billion will have 2 choices of tax calculation methods:

  • One is by the direct method (default).
  • Two is the deduction method (to be notified with the tax agency that the enterprise chooses this method).

Of course, as a startup, you always want to have the most revenue and profit. Two ways of calculating, each calculation have different benefits. Depending on the situation and characteristics of each business, there is an optimal choice.

If the startup has an amount of VAT purchased close to the amount of VAT sold, which means that the difference between the sold VAT and the input VAT is not much, the amount of VAT payable is small, or no tax VAT. Enterprises of this type should choose to calculate VAT by deduction method.

For example, enterprises in the field of export, construction, international transport … apply the output tax rate of 0%; enterprises trading in goods and services are not required to declare and pay VAT, or trade in non-VAT goods and services such as cultivation products, livestock breeds, plant varieties and insurance services. services of credit, securities trading, medical services, postal services, public telecommunications, teaching and vocational training. And many other areas have negligible input tax differences.

For startups that do not have the VAT amount purchased, or the input VAT is too small compared to the amount of VAT sold, the difference is significant. If you choose a deduction method, the tax must be paid a lot. Enterprises of this type should choose to calculate VAT by the direct method.

For example, enterprises that provide services whose costs are mainly salaries or expenses without VAT invoices; Enterprises operating in the commercial sector, or other industries without VAT invoices of purchased goods such as buying and selling agricultural / forestry / fishery products, sand and gravel land (purchased from direct producers to sell out).

VAT rates range from % to 10% depending on the type of goods and services. The 0% tax rate applies to exported goods and services, international transportation and goods and services not subject to value added tax specified in Article 5 of the Value Added Tax Law, except for one some other cases (startups can read more in the Law).

The 5% tax rate applies to goods and services such as feed for cattle, poultry and other animal feed; country; unprocessed cultivation, husbandry and aquatic products; Street; other handicraft products using agricultural materials; machinery and equipment used exclusively for agricultural production; Teaching tools; cultural, exhibition, physical training and sports activities; performing Arts; making film; importing, releasing and film; toys for children; book; science and technology services in accordance with the Law on Science and Technology; …

The VAT rate (VAT rate) of 10% applies to the remaining goods and services. For more details on VAT rates, Startup should read carefully in the law.

Reference:

Startups can learn more and equip themselves with knowledge of the Law, especially on the tax system for businesses through the following documents:

  • Tax Administration Law No. 78/2006 / QH11 dated November 29, 2006.
  • Decree No. 98/2006 / ND – CP dated June 7, 2007 of the Government stipulating the handling of tax law violations and enforcement of tax administrative decisions.
  • Decree No. 97/2007 / ND – CP dated June 7, 2007 of the Government regulating the handling of administrative violations and enforcement of administrative decisions in the field of customs.
  • Circular No. 60/2007 / TT – BTC of June 14, 2007 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration and guiding the implementation of Decree No. 85 / ND – CP dated May 25 / 2007 of the Government detailing the implementation of a number of articles of the Tax Administration Law.
  • Circular No. 61/2007 / TT – BTC dated 14/06/2007 of the Ministry of Finance guiding the handling of tax law violations.
  • Circular No. 59/2007 / TT – BTC dated June 14, 2007 of the Ministry of Finance guiding the implementation of export, import and tax administration tax on import and export goods.
  • Circular No. 62/2007 / TT – BTC dated 14/06/2007 of the Ministry of Finance guiding the implementation of Decree No. 97 / ND – CP dated June 7, 2007 of the Government regulating the handling of administrative violations main and enforcement of administrative decisions in the field of customs.
  • Law on value added tax and guiding documents.
  • Corporate income tax law and guiding documents.
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