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Given the financial crises and its results for the financial markets Vietnam was like every other country thinking about a solution which boots the economy and encourages investments. Based on these aims Vietnam became aware of the fact that displayable money is needed.

Most people of Vietnam have a job but they are still too poor to spend their money without any reasonable care. Investors watch the market carefully before they place their money into a county’s market.

Therefore the National Assembly came to the conclusion that the easiest way of supporting its citizens could be achieved by an exemption of their duty to pay Personal Income Tax (“PIT”). For this reason Vietnam decided as first and only country in the world to exempt its citizens from the PIT for 6 month.

The basic idea behind the PIT deferral resulting in a surplus of money is that the surplus of money will stir people into spending their money and so boost the market. In order to that a mobilization of the capital needed for investment will be arranged.

For this purpose a governmental bond worth of 20,000 billion VND was issued as well which should stimulate the development of transportation, healthcare and other kinds of investment projects.

In addition, the National Assembly decided to amend the GDP growth target for 2009 to 5% and the CPC ratio of less than 10% as well as export increase of 3% and the national budget's over-expenditure of less than 7%.

The PIT exemption stipulates the deferment of PIT from 1 January to 30 June 2009. To guarantee the achievement of the underlying aims the exemption is applicable to nearly the whole income which is normally assessable. The beneficiaries are resident and non-resident persons.

In the case of residents the exemption covers business activities, salaries and wages, income resulting from capital investments or transfers as well as its security transfers, royalty or franchise activities, inheritance and any kind of gifts.

In contrast, the non-residents just benefit from the tax exemption of their income from capital investments and capital transfers (including security transfers). The reason for this is crystal clear: They do not deal with business activities in Vietnam but abroad. For this reason the different treatment is no disadvantage.

Beyond that, PIT exemption shall probably continue from 1 July 2009 to the end of 2009.

Formally this proposition has already been advertised by circular 2009 27/2009TT-BTC dated on 6 February 2009. Finally it has been granted by the decision of the National Assembly which agreed in the afternoon of 19 June 2009 to the idea of the exemption.

The whole process will have a huge influence on Vietnam’s market development. In fact, Vietnam is the only country on earth which exempted all its citizens from the duty to pay income tax. In contrast to other governments the Vietnamese government walks the talk. Its decision is unique in the world and shows how the government is willing to back up its country. This should be appreciated from all citizens as well as from the investors which enjoy the benefits.

Please direct your inquiry to the authors:
Oliver Massmann
General Director, Partner
Giles Cooper, Partner
Duane Morris Vietnam LLC
Pacific Place, Unit V1308, 13th Floor
83B Ly Thuong Kiet Street, Hoan Kiem District, Hanoi,
Cell: 84.90 4506167
Fixed line: 84.4.3 9461310
DID: 84.4.3 9462205
Fax: 84.4.3 9461311
Email:
omassmann@duanemorris.com
gtcooper@duanemorris.com

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