Tax Management and Risk Solution for Foreign representative Office in Vietnam

Based on new tax laws and anti-money laundering laws, starting in 2012, after every 3 to 5 years of operation, Tax Department will require the office to provide books of receipts (cashbook, petty cash ), bank account statement, accompanied by valid vouchers and employee records, salary documents to carry out tax examination procedures of representative offices.

Tax officials will review each arising transaction to ensure that the costs of the office are legal, valid and do not violate tax regulations or anti-money laundering laws. In addition, when the office no longer needs to operate, before being allowed to close, the tax authorities will also carry out similar tax inspection and settlement procedures.

Common risks and solutions for managing tax declaration and settlement procedures of representative offices:

1.Risks:

  • The office has not prepared a valid income and expenditure report and a cash book;
  • After receiving money from the parent company, the office has to make the expenses but there is no valid voucher invoice, especially working expenses and office expenses, rental costs, Rent a car, pay to another supplier. Valid invoices and vouchers are prescribed in current tax laws and accounting.
  • The cost of purchasing machinery and direct materials to produce bonuses for employees … does not match the function of the representative office.
  • Commission payments for customers, per diem, and other food and beverage expenses will be considered as personal benefits for some people and will be subject to personal income tax.
  • Office for calculating and paying social insurance, health insurance based on basic salary (not calculated on total salary fund) but not yet registered salary scale system as prescribed; or insurance calculation on the total salary fund, resulting in a large salary deduction cost, reducing the ability to recruit new employees to serve business operations.
  • The office has more than 10 employees but has not yet completed the procedures for registration of labor regulations as prescribed;
  • The office has not made the bank account number for the tax authority as prescribed;
  • In particular, there is a case where the documentation system shows that the office is operating in the manner of a manufacturing company without declaring revenue, paying CIT, VAT, and so on. It leads serious risk when the relevant state agencies perform specialized inspection activities.

After reviewing the costs without reports – valid invoices, the tax agency will calculate and retrospectively collect payable tax, at least 10% plus a fine of about 17% / year. Because the tax inspection will be conducted after about 3 to 5 years of operation, the total amount of accumulated arrears and penalties changes may be huge. Paying a large amount of arrears and penalties plus consuming a lot of time to travel and explain, affecting the reputation of the parent company is undesirable of any office and this risk can be completely controlled.

2.Solution:

  • Clearly define the list of procedures, reports and records to comply with regulations. Do the right reports and compliance procedure from now on.
  • Complete documents related to invoices from suppliers, working trip records, wage labor records from 2019 before … in an explanation to avoid tax imposition and tax arrears.
  • Registering labor rules and collective labor agreements according to regulations. This procedure helps the office explain many actual payments such as per diem and other benefits for employees …
  • Actively prepare the book of receipts (cashbook, petty cash) for the office with the following main contents:

Collecting original voucher records every month, organizing and storing in folders (Business records management), including:

  • Bank account statement with valid documents and invoices;
  • Book of cash receipts (Cashbook, petty cash) with valid invoices and vouchers;
  • Wages and actual paid benefits with valid payroll and employee records.
  • Other records and compliance reports must be submitted to state agencies.

Making monthly reports and perform internal audit on compliance reports and documents:

  • Making Standard collection report (standard cashbook and petty cash);
  • Reviewing office activities according to current regulations, establish relationships between transactions in a legal and optimal manner according to state requirements.
  • Calculating and optimizing taxes, insurance to pay, overcome risks and prevent. Complete the legal documents for each transaction, making each set of documents become a legal basis for legal transactions;

Preparing tax reports, tax finalization reports, letter on confirming tax obligations, tax reduction records.

Sources: vivabcs

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