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THE
MINISTRY OF FINANCE
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SOCIALIST
REPUBLIC OF VIETNAM
Independence – Freedom – Happiness
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No. 7711 TC/TCT
Re: Strengthening the management on taxation
and finance in respect of ODA projects
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Hanoi,
July 13, 2004
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To:
- Ministries,
Ministerial-level Bodies, and Government Bodies
- People’s Committees of Provinces and centrally-managed Cities
- Taxation Department of Provinces and centrally-managed Cities
In implementation of Directive
No. 17/2004/CT-TTg of the Prime Minister dated May 24, 2004 on urging the
disbursement of Official Development Assistance (ODA); in order to properly
implement regulations on ODA management, tax regulations, value added tax (VAT)
refund applicable to ODA projects, the Ministry of Finance provides guidelines
for a number of the following issues:
1. Preparation of Financial
Plan:
1.1 Upon preparation of
financial plan in accordance with inter-ministerial Circular No.
02/2003/TTLT-BKH-BTC jointly issued by the Ministry of Finance and the Ministry
of Planning and Investment, project owners shall calculate all taxes that are
imposed on imported goods and domestically purchased goods and services in
order to carry out the project. Upon preparation of a financial plan, the
following taxes should be taken into consideration:
- Import duties, VAT, special
sales tax (SST), of imported goods (including the cases in which the project
owners import goods directly or contractors import goods and then the project
owners pledge to pay taxes at import stage).
- VAT levies on goods and
services purchased in Vietnam.
- Specially, direct taxes such
as corporate income tax (CIT) of contractors and personal income tax (PIT) of
individuals working for the contractors shall be taxes levied on income
earners. Therefore, in principle, the above taxes shall be included in the
tender price proposed by the contractors or shall be included in salary payable
to individuals.
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In cases where ODA projects are
allocated from the State Budget (including projects wholly granted or partly
granted, partly on-lent from the State Budget which are approved prior to May
29th, 2001 – the date that the Decree No. 17/2001/ND-CP of the Government on
the issuance of the Regulation on management and utilization of ODA takes
effect), based on guidelines on this Official letter, the project owners shall
enter into contracts in which VAT value shall be included in the value of the
contract and shall also proactively work out counterpart funding payable to VAT
in order to minimize procedures such as VAT refunding, recording an increase of
State-budget-allocated capital for the amount of VAT to be refunded (including
tax refundable to principal contractors), aims at avoiding the inaccurate
reflection of capital value of the projects and losses to the State Budget.
2. VAT Refund
VAT refund applicable to
projects using grant ODA and concessional ODA allocated from the State Budget
shall be carried out in accordance with Item 3, Section IV of the Circular No.
41/2002/TT-BTC of the Ministry of Finance dated May 3, 2002 providing
guidelines on tax regulations applicable to ODA programs, projects, the
Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December 12, 2003
providing guidelines for the implementation of the Decree No. 158/2003/ND-CP of
the Government dated December 10, 2003 detailing the regulations on
implementation of the Law on VAT and the Law on Supplement and Amendment to a
number of Articles of the Law on VAT, and the following supplementary
guidelines:
2.1. With respect to projects
using grant ODA and projects using concessional ODA granted from the State
Budget, the project owners shall, based on the contracts which are approved,
exactly identify VAT refundable objects and VAT payable objects, in particular:
(i) if the contracts, which were concluded and approved, have included the
amount of payable VAT and the project owners shall have not been allocated
capital from the State Budget for payment of VAT, such project owners shall be
subject to VAT refund and the principal contractors shall pay VAT in accordance
with current laws; (ii) if the contracts, which were concluded and approved,
have not included VAT, the project owners shall not be subject to VAT and the
principal contractors shall be subject to VAT refund.
2.2. Procedures and the dossier
for tax code registration of VAT refund shall be implemented in accordance with
guidelines of the Ministry of Finance on the implementation of the Decision No.
75/1998/QD-TTg of the Prime Minister dated April 4, 1998 providing tax code of
taxpayers.
In cases, in the first stage of
the implementation of the project, the project owners have not registered the
code of tax payer with tax agency due to certain objective reasons but have
purchased a number of goods and services for the project, the amount of payable
VAT recorded in invoices which have not tax code of the project owners and
named such projects or project owners as buyers and such invoices also included
all other necessary contents, shall be refunded provided that (i) the project
owners pledge the goods and services purchased for implementating the project,
and (ii) the tax agency shall inspect, collate and verify the suppliers who
declared tax with the above invoices. From the next time of VAT refund, the
project owners shall carry out procedures for tax refund in accordance with the
Circular No. 41/2002/TT-BTC dated May 3, 2002 and the Circular No.
120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance.
2.3. Procedures and files for a
VAT refund shall be carried out in accordance with Item 4, Section II, Part D
of the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December
12, 2003 detailing the implementation of the Law on VAT and the Law on
Supplement and Amendment to a number of Articles of the Law on VAT.
- The file for a tax refund
submitted to tax agencies shall be attached with the certification of the State
Treasury that the counterpart funding from the State Budget has not been made
to the project owners for payment of VAT.
- With respect to projects using
concessional ODA allocated from the State Budget, the files for VAT refund
applied to the principal contractors shall be attached with the certification
of VAT refund granted to the project owners in accordance with the Official
Letter No. 06 TC/TCT of the Ministry of Finance dated January 2, 2004.
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2.5. In case the counterpart
funding has been allocated to the project owners for payment of VAT, the VAT
shall not be refunded. In case the counterpart funding has been allocated to
the project owners for payment of VAT but the project owners have completed the
procedures for VAT refund and have been refunded, the project owners shall
repay to the State Budget the amount of VAT refunded in accordance with the
Circular No. 42/2001/TT-BTC of the Ministry of Finance dated June 12, 2001. The
tax agency shall verify the allocation of capital from the State Budget to the
project owners based on the certification of the State Treasury while inspecting
and verifying the VAT refundable to the project owners.
The Taxation Department of
localities shall submit the list of project owners and principal contractors
who have entitled to a VAT refund to the equivalent-level treasury bodies and
the Central State Treasury in the form attached hereto. Based upon such list,
the treasury bodies shall revise, collate and verify the amount of VAT which
the project owners must repay to the State Budget, and coordinate with relevant
bodies to request the project owners repay to the State Budget in accordance
with the Circular No. 42/2001/TT-BTC.
2.6. With respect to ODA
projects allocated from the State Budget, the accounting of the projects shall
be determined as follows:
- With respect to projects to
which the counterpart funding has been allocated in order to pay VAT, capital
value of the projects shall include VAT.
- With respect to projects to
which the counterpart funding has not been allocated in order to pay VAT,
capital value of the projects shall not include VAT value and the amount of
refundable VAT (including VAT refundable to the principal contractors)
- With respect to projects which
are already refunded the VAT but the project owners have not recorded an
increase of the State Budget allocated capital in accordance with the Circular
No. 42/2001/TT-BTC, the project owners shall provide a list of goods recorded
all of the VAT amount which have been refunded of the amount of VAT already
paid, copy of decisions on tax refund and submit them to the Ministry of
Finance (the Department of Investment) to complete procedures for recording an
increase of capital allocated by the State Budget.
2.7. Decisions on VAT refund
shall be made in compliance with the form No. 13/GTGT issued in conjunction
with the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December
12th , 2003.
With the projects using ODA
allocated from the State Budget, upon issuance of the decision on VAT refund,
the department of taxation shall supply one copy of the decision on VAT refund
applied to the project (including the case in which VAT refund applied to
principal contractors) and deliver them to the project owners and the Ministry
of Finance (the Department of Investment) in order to record an increase of
investment capital to the project in accordance with the Circular No.
42/2001/TT-BTC.
2.8. With respect to ODA
projects which is on-lent from the State Budget, including project which is
partly allocated, partly on-lent from the State Budget and which are approved
prior to May 29th , 2001 – the date that the Decree No. 17/2001/ND-CP on the
issuance of the regulation on management and utilization of ODA takes effect,
shall be deducted or refunded of VAT input arising from the implementation of
the projects in accordance with the Circular No. 122/2000/TT-BTC dated December
29th , 2000 and the Circular No. 120/2003/TT-BTC of the Ministry of Finance
dated December 12th , 2003.
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3.1. To enter into contracts
with contractors, the project owners shall calculate all payable taxes to
identify exactly the value of goods and services provided by the contractors in
order to avoid disputes when tax obligations arised from the implementation of
the project.
3.2. The project owners shall
give notice and guidelines to the foreign contractors regarding the tax
obligations in Vietnam.
- With respect to foreign
contractors adopting the Vietnamese accounting regime, the foreign contractors
shall carry out their tax payment directly with the tax agency. The project
owners shall not deduct and pay taxes on behalf of the foreign contractors.
- With respect to foreign
contractors not adopting the Vietnamese accounting regime, before making
payment to the foreign contractors, the project owners shall deduct VAT, CIT
paid by the foreign contractors (particularly, the consulting contractors). If
the value of the contracts entered into by the contractors and the project
owners was not included VAT and the principal contractors was not subject to
VAT refund, the project owners shall deduct and pay CIT on behalf of the
foreign contractors.
3.3. In case where the
international Treaty which the Government of Vietnam has signed or adhered to
contain provisions on CIT exemption applied to the contractors who originate
from the donor’s countries and participate in carrying out a particular ODA
project, such foreign contractors shall be exempted from CIT.
For being exempted from CIT, the
foreign contractors shall pay tax directly or the project owners (in case the
project owners pay tax on behalf of the foreign contractors) shall provide the
ODA Agreement containing provisions on the exemption of CIT to the tax agency
(notarized copy signed and sealed by the duly representatives).
For example: A diplomatic note
between the representatives of the Government of Vietnam and of the Government
of Japan in connection with the implementation of an ODA project aided by the
Government of Japan, provides that:
“Chính phủ nước Cộng hoà xã hội
chủ nghĩa Việt Nam sẽ miễn cho các Công ty Nhật Bản hoạt động với tư cách là
nhà cung cấp, nhà thầu và/hoặc nhà tư vấn tất cả các khoản thuế và phí tài
chính tại Việt Nam đối với thu nhập phát sinh từ việc cung cấp hàng hoá, dịch vụ
theo quy định của khoản vay”
“The Government of the Socialist
Republic of Vietnam will exempt Japanese companies operating as suppliers,
contractors, and/or consultants from all fiscal levies or taxes imposed in the
Socialist Republic of Vietnam on the income accruing from the supply of products
and/or services to be provided under the loan.”
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4. PIT:
4.1. Project owners shall be
responsible for deducting and paying PIT on behalf of Vietnamese individuals
and foreign individuals working for the Project Management Unit. In addition,
project owners shall be responsible for informing and instructing Vietnamese
individuals and foreign individuals working for the foreign contractors
regarding personal income tax in Vietnam. The project owners shall also inform
the tax agency, where the head office of the project owners or a construction
work of the project is located in order to coordinate on management of and
collection of PIT.
4.2 In case where international
Treaties which the Government of Vietnam has signed or adhered to contain
provisions that foreign individuals working for the contractors engaged in the
implementation of an ODA project shall be exempted from PIT, those foreigners
shall also be exempted from CIT.
For being exempted from PIT,
foreign individuals or organizations paying income shall provide one copy of
the ODA Agreement containing provisions on the exemption of PIT to the tax
agency (signed and sealed by the duly representatives).
For example: A diplomatic note
between the representatives of the Government of Vietnam and of the Government
of Japan provides that:
“Chính phủ nước Cộng hoà
xã hội chủ nghĩa Việt Nam sẽ miễn cho các người làm công Nhật Bản tham gia thực
hiện dự án được liệt kê trong Danh sách hoặc tham gia cung cấp các dịch vụ được
quy định tại tiết 1.b, khoản 3 của Phần II tất cả các khoản phí tài chính hoặc
thuế tại Việt Nam đối với thu nhập cá nhân phát sinh từ các công ty Nhật Bản hoạt
động với tư cách là nhà cung cấp, nhà thầu và/ hoặc nhà tư vấn.”
“The Government of the
Socialist Republic of Vietnam will exempt: Japanese employees engaged in the
implementation of the project enumerated in the List or engaged in the supply
of services mentioned in subparagraph (1) (b) of paragraph 3 of Part II from
all fiscal levels or taxes imposed in the Socialist Republic of Vietnam on
their personal income derived from Japanese companies operating as suppliers,
contractors and/or consultants.”
Therefore, Japanese individuals
working for Japanese contractors engaged in implementating one of the project
enumerated in the List (attached to the diplomatic note) shall be exempted from
PIT for all incomes arising from the implemention of such project. In case
where these individuals have other taxable incomes, other than incomes earned
from the implementation of the project or other foreign individuals who have
not Japanese nationality and earn incomes arising from the implementation of
such project, they shall pay PIT in accordance with the existing laws on PIT.
4.3 Foreign experts who are
certified by the Ministry of Planning and Investment as experts engaged in the
implementation of the ODA programs/projects shall be exempted from PIT for
incomes arising from the implementation of the programs/projects using ODA in
Vietnam. Procedures and files for PIT exemption shall be carried out in
accordance with the Circular No. 52/2000/TT-BTC of the Ministry of Finance
dated June 5th, 2000. Foreign experts earning incomes other than incomes from
the implementation of the programs or projects using ODA shall pay PIT in
accordance with the Ordinance on Income Tax of High Income Earners.
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In order to improve the
financial and tax management of the projects using ODA, the Ministry of Finance
proposes that ministries, ministerial-level bodies, government bodies, People’s
Committees of provinces and centrally-managed cities which have ODA projects
shall, based on the existing laws and guidelines on this Official Letter,
direct the Project Management Units to coordinate with the Departments of
Taxation and the Departments of Finance in localities in order to implement tax
and financial regulations on ODA projects as follows:
- The Departments of Taxation in
localities shall be responsible for guiding the implementation of regulations
on tax applicable to projects using ODA to the project owners and the
contractors carrying out the projects in localities (attached hereto the list
of ODA projects). The Departments of Taxation in localities shall proactively
held training course for project owners, contractors in connection with the
application of tax regulations and VAT refund for ODA projects.
- To strengthen the inspection
and finalization of tax for foreign contractors carrying out ODA projects. For
objects subject to VAT refund, the Departments of Taxation shall carry out
inspection after VAT refund and verification before VAT refund when foreign
contractors have completed the contracts signed with ODA project owners in
order to handle infringements (if any).
- The Departments of Planning
and Investment, the Departments of Finance and the treasury bodies shall
coordinate with the tax agency in management and accounting capital of the
State Budget applicable to the amount of VAT refunded (including the amount
refunded to the project owners and the amount refunded to the principal
contractors).
- The ODA project owners shall
submit periodical reports (monthly, quarterly, annually and finally) to the tax
agency in accordance with the Circular No. 41/2002/TT-BTC in order to
coordinate management on the implementation of the ODA projects.
- The Departments of Taxation
shall collect all encumbrances arising from the process of tax management, VAT
refund for projects using ODA and shall attach report on the implementation of
VAT refund in compliance with the form attached hereto (report for a year from
the date of commencing VAT refund) to the Ministry of Finance (the General
Department of Taxation) not later than July 30th, 2004.
In order to hasten the
disbursement of ODA and to intensify effectiveness on ODA management and
utilization, the Ministry of Finance proposes that the ministries, industries,
People’s Committees in localities shall direct relevant agencies to revise and
take measures to intensify management of State Budget allocated to the projects
by the State Budget, and shall request the Project Management Units to pay all
taxes arising from the implementation of the project. Upon carrying out the
project, the Ministry of Finance proposes that the above bodies shall give
notice to the Ministry of Finance in case encumbrances arise from counterpart
funding and the process of allocation from the State Budget, VAT refund, etc.
to promptly coordinate with the Ministry of Finance to settle such
encumbrances.
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REPORT
ON THE IMPLEMENTATION OF VAT REFUND FOR THE YEAR
Unit: VND
No.
Objects
subject to VAT refund
Decision
No.
Date
The
amount of VAT refunded
Objects
inspected after VAT refund
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Project A:
Project owner
1.
(Project Management Unit A)
Principal contractor
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2
Contractor B
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3
Contractor C
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Total