Vietnam Tax: Voluntary correction and payment of tax avoids tax evasion and tax fraud penalties
In Official Letter No. 1630/TCT-CS, dated 17 May 2010, Vietnam's General Department of Taxation (GDT) provided instructions to the Quang Ngai Province Department of Taxation concerning tax policies on foreign contractors and specifically payment of the Foreign Contractor Withholding Tax (FCWT, which is levied on foreign organizations or individuals that supply goods that are delivered in Vietnam or supply goods accompanied by services provided in Vietnam).
The Law on Tax Administration stipulates that:
If a taxpayer detects errors in a tax declaration dossier that already has been submitted to the tax authorities and that affects the payable tax amounts, the taxpayer may make additional declarations in such tax declaration dossier. A tax declaration dossier with additional declarations may be submitted to the tax authorities on any working day, not depending on the time limit for submission of subsequent tax declaration dossiers, before the tax authorities announce its decision on a tax examination or an inspection at offices of the taxpayer.
Thus, the tax law clearly allows for the amendment of previously submitted tax declarations. However, the Official Letter provides additional comfort to taxpayers by stating that it will be considered neither tax evasion nor tax fraud where a company makes a declaration of the VAT and corporate income tax amounts paid on behalf of foreign contractors upon discovery of noncompliance, self-calculates the monetary penalties for late payment (i.e. interest on the late payment at 18.25% per annum), remits the additional tax plus interest into the State Budget and does all of this before any tax audit/inspection by the General Department of Taxation.
In addition, the VAT (Value-Added Tax) and corporate income tax amounts of Foreign Contractor Withholding Tax (FCWT) that were paid by the company on behalf of the foreign contractors will be considered a creditable VAT input and a deductible expense for corporate income tax calculation purposes.
Taxpayers in Vietnam who are withholding agents for payments to foreign contractors subject to the Foreign Contractor Withholding Tax (FCWT) should review their compliance with the detailed Foreign Contractor Withholding Tax (FCWT) regulations. If underpayments or errors are discovered, affected taxpayers should consider immediate correction of prior tax dossiers and also make payment of the additional tax and accrued underpayment interest prior to any tax audit/inspection. Tax evasion and tax fraud penalties can thus be avoided. Tax evasion can trigger penalties of one to three times the amount of unpaid tax and tax fraud can result in criminal penalties.