Tax Issue of Asset Lease Contracts

MINISTRY OF FINANCE
GENERAL DEPARTMENT OF TAXATION

SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness

No: 1368/TCT-DNNCN
Regarding the tax revenue for individuals leasing assets

Hanoi, April 3, 2024

To: Jollibee Vietnam Co., Ltd.

The General Department of Taxation has received your letter No. 281223/CV-JB dated December 28, 2023, regarding the tax revenue for asset leasing. In this regard, the General Department of Taxation has the following comments:

• According to Clause 1, Clause 2 of Article 4 of Circular No. 92/2015/TT-BTC dated June 15, 2015, by the Ministry of Finance, it provides guidance as follows:

Article 4. Tax calculation method for individuals leasing assets

1. Principles of application

   a) Individuals leasing assets are those who generate revenue from leasing assets, including leasing houses, premises, shops, factories, warehouses (excluding accommodation services); leasing transportation means, machinery, and equipment without operators; and leasing other assets without services.

   Accommodation services are not considered part of asset leasing as guided in this point, which includes providing short-term accommodation for tourists and transient guests, long-term accommodation for students, workers, and similar individuals, and providing accommodation with food services and/or recreational facilities. Accommodation services do not include providing long-term accommodation considered as a permanent residence, such as leasing apartments monthly or annually, classified under the real estate sector as per the legal provisions on Vietnam’s economic sector system...

2. Tax Calculation Basis

   The tax calculation basis for individuals leasing assets is the taxable revenue and the tax rate applied to that revenue.

   a) Taxable Revenue

   Taxable revenue for asset leasing activities is determined as follows:

   a.1) The taxable revenue for VAT on asset leasing is the revenue including tax (if subject to tax) from the rent paid by the lessee according to the lease agreement and any other income, excluding penalties or compensations that the lessor receives under the lease agreement.

   a.2) The taxable revenue for personal income tax (PIT) on asset leasing is the revenue including tax (if subject to tax) from the rent paid by the lessee according to the lease agreement and any other income, including penalties or compensations that the lessor receives under the lease agreement.

   a.3) If the lessee pays rent in advance for multiple years, the taxable VAT revenue and PIT revenue will be determined based on the one-time payment.

   b) Tax Rate Applied to Revenue

   • The VAT rate for asset leasing activities is 5%.

   • The PIT rate for asset leasing activities is 5%.

   c) Determining the Tax Payable

   VAT payable = Taxable VAT revenue x VAT rate 5%

   PIT payable = Taxable PIT revenue x PIT rate 5%

   Where:

   • Taxable VAT revenue and taxable PIT revenue as per point a, Clause 2 of this Article.

   • VAT rate and PIT rate as per point b, Clause 2 of this Article.

• According to point a, Clause 1, point a, Clause 2, Article 8 of Circular No. 40/2021/TT-BTC dated June 1, 2021, of the Ministry of Finance, which regulates the tax calculation method for organizations and individuals declaring and paying taxes on behalf of individuals:

Article 8. Tax calculation method for cases where organizations or individuals declare and pay taxes on behalf of individuals

1. Organizations or individuals declare and pay taxes on behalf of individuals in the following cases:

   a) Organizations leasing assets from individuals and the lease agreement specifies that the lessee is the taxpayer...

2. Organizations or individuals declaring and paying taxes on behalf of individuals according to Clause 1 of this Article shall declare and pay taxes on a monthly, quarterly, or as per each payment period or annual basis as per the regulations on tax management.

• According to Clause 1, Article 9 of Circular No. 40/2021/TT-BTC dated June 1, 2021, of the Ministry of Finance:

Article 9. Tax calculation method for certain special cases

1. Individuals leasing assets

   a) Individuals leasing assets are those who generate revenue from leasing assets, including leasing houses, premises, shops, factories, warehouses (excluding accommodation services)...”

• According to Article 10 of Circular No. 40/2021/TT-BTC dated June 1, 2021, of the Ministry of Finance:

Article 10. Tax calculation basis

The tax calculation basis for business households and individuals is the taxable revenue and the tax rate applied to that revenue.

1. Taxable Revenue

   The taxable revenue for VAT and PIT for business households and individuals includes the total income from sales, processing, commissions, service provision during the tax period, including bonuses, sales support, promotions, discounts, payments for support whether in money or not, and other compensation related to the business activities.

2. Tax Rate Applied to Revenue

   a) The tax rate applied to the revenue includes VAT and PIT rates as per the detailed guidance in Appendix I attached to this Circular.

3. Determining the Tax Payable

   VAT payable = Taxable VAT revenue x VAT rate

   PIT payable = Taxable PIT revenue x PIT rate

Where:

• Taxable VAT revenue and taxable PIT revenue as per Clause 1 of this Article.

• VAT rate and PIT rate as per Appendix I attached to this Circular.

• According to Appendix I attached to Circular No. 40/2021/TT-BTC dated June 1, 2021, by the Ministry of Finance, the VAT rate is 5% and the PIT rate is 5% for asset leasing activities.

Based on the above regulations and the Contract No. 03/16-JBVN signed on July 18, 2016, between the lessor (individual) and the lessee (Jollibee Vietnam Co., Ltd.), the individual lessor is subject to VAT and PIT for asset leasing activities as per the regulations. Since the taxable VAT revenue and taxable PIT revenue include tax (if subject to tax), if the lease agreement specifies that the rent does not include VAT and PIT, the tax authority will recalculate the VAT and PIT taxable revenue (=) Rent excluding tax paid to the individual lessor divided by 0.9. The tax authority will base its calculations on the tax declaration file for the individual asset leasing activity and determine the tax liability as per the regulations, ensuring the payment of all taxes (including VAT and PIT) related to the asset leasing activity. The responsibility for submitting tax declarations and paying taxes is a matter for both parties to agree upon in the contract according to civil law.