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THE
MINISTRY OF FINANCE
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No.
74/TC-TCT
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Hanoi
,October 20, 1997
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CIRCULAR
GUIDING THE IMPLEMEN-TATION OF TAX PROVISIONS APPLICABLE TO
THE INVESTMENT FORMS UNDER THE LAW ON FOREIGN INVESTMENT IN VIETNAM
Pursuant to the Law on Foreign Investment in
Vietnam adopted by the National Assembly of the Socialist Republic of Vietnam on
November 12, 1996;
Pursuant to the current tax laws and ordinances of the Socialist Republic of
Vietnam and the Government decrees detailing the implementation of the tax laws
and ordinances;
Pursuant to Decree No. 12-CP of February 18, 1997 of the Government detailing
the implementation of the Law on Foreign Investment in Vietnam;
Pursuant to the Regulation on branches of foreign banks and joint venture banks
operating in Vietnam, issued together with Decree No. 189-HDBT of June 15, 1991
of the Council of Ministers (now the Government) of the Socialist Republic of
Vietnam;
Pursuant to Decree No. 36-CP of April 24, 1997 of the Government issuing the
Regulation on industrial zones, export processing zones and high-tech zones;
The Ministry of Finance provides the following guidance for the implementation
of tax provisions applicable to the investment forms under the Law on Foreign
Investment in Vietnam:
PART I
GENERAL PROVISIONS
I. SCOPE OF APPLICATION:
1. This Circular shall apply to:
- Joint venture enterprises and enterprises with
100% foreign-invested capital established under the Law on Foreign Investment
in Vietnam.
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- Joint venture enterprises established under
the agreements concluded between the Government of the Socialist Republic of
Vietnam and foreign governments. If an agreement contains provisions regarding
the tax obligations of joint venture enterprises which vary with the guidance
in this Circular, such provisions of the agreement shall apply
- Foreign parties to business cooperation
contracts (or foreign business cooperation parties for short) under the Law on
Foreign Investment in Vietnam.
Particularly for the parties to
build-operate-transfer (BOT) contracts, build-transfer-operate (BTO) contracts
and build-transfer (BT) contracts, if the operation regulation issued by the
Government contains provisions regarding tax obligations of these parties which
vary with the guidances in this Circular, such provisions of the regulation
shall apply.
2. This Circular provides guidance for the
various taxes prescribed in the Law on Foreign Investment in Vietnam and other
taxes and financial obligations such as turnover tax, special consumption tax,
license tax, natural resources tax, land, water and sea surface rents, etc.,
applicable to foreign invested enterprises and foreign business cooperation
parties in accordance with the legal documents currently in force of the
Socialist Republic of Vietnam.
II. TERMS AND EXPRESSIONS
USED IN THIS CIRCULAR ARE CONSTRUED AS FOLLOWS:
The terms and expressions used in this Circular
are construed as the same as those already defined in the Law on Foreign
Investment in Vietnam and Decree No. 12-CP of February 18, 1997 of the
Government detailing the implementation of the Law on Foreign Investment in
Vietnam. Other terms and expressions in this Circular are construed as follows:
- "Tax year" is the calendar year
starting on January 1st and ending on December 31st every year. In case a
foreign invested enterprise or business cooperation party is allowed by the
Ministry of Finance to apply a twelve-month fiscal year other than the calendar
year, the tax year shall be the fiscal year that the foreign invested
enterprise or business cooperation party is allowed to apply.
- The "first year of profitable
business" is the first fiscal year during which profit is made without
offsetting losses carried forward from previous years.
- A "market price-free transaction or
trading contract " is a transaction or trading contract that is influenced
by unusual commercial relationship such as transaction between associated
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Two companies shall be regarded as associated
companies in the following cases:
(i) One company contributes to the prescribed
capital or stock capital of the other;
(ii) Both companies are subject to direct or
indirect control by another company, or both companies receive share capital
contributed by another company.
PART II
GUIDANCE FOR THE
IMPLEMENTATION OF TAX PROVISIONS
I. PROFIT TAX:
1, Taxable subjects:
All profits from any economic activity of
foreign invested enterprises, foreign business cooperation parties, joint
venture banks or branches of foreign banks in Vietnam shall be subject to
profit tax, including:
- Profits from business activities.
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2. Taxpayers:
Foreign invested enterprises, foreign business
cooperation parties, joint venture banks, and branches of foreign banks in Vietnam
shall pay profit tax.
In case a foreign company invests at the same
time in many enterprises or business cooperation contracts, profit tax shall be
calculated separately for each enterprise or each business cooperation contract
(each enterprise or each business cooperation contract is a tax payer).
3. Determination of taxable profit:
Taxable profit
of the tax year
=
Total income of
the year
-
Total valid and
reasonable expenditures of the year
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Other profits
For foreign invested enterprises, the taxable
profit may be reduced by the losses that can be carried forward under Article
61 of Decree No. 12-CP of February 18, 1997 of the Government detailing the
implementation of the Law on Foreign Investment in Vietnam.
The carry-forward of losses is made by carrying
forward all losses of any tax year to the profitable year subsequent to the
year of loss, and these losses may be offset by the profits of subsequent
years, or losses of one year may be divided evenly to subsequent years of
profit expected by the enterprise. Upon the commencement of its production and
business activities an enterprise must register with the tax agency its method
of loss carry-forward and follow through this registered loss carry-forward method
and time.
The period of loss carry-forward shall not
exceed 5 years.
a/ Total income of the year:
The total income of a foreign invested
enterprise or a foreign business cooperation party includes all incomes from
the sale of products, the provision of services and other incomes of the
enterprise or foreign business cooperation party in the tax year. The tax
office shall have the right to re-determine the incomes if the enterprises fail
to declare fully their incomes or the incomes have not been determined on the
basis of trading or transaction contracts according to the market price.
With regard to business cooperation contracts in
the form of production sharing, the income from the sale of products shall be
determined as follows:
- If the shared products are sold on the
Vietnamese market, the income shall be determined according to the selling
price of the products sold on the Vietnamese market.
- If the shared products are exported, the
income shall be determined on the basis of the FOB export price at Vietnamese
ports.
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b/ Reasonable and valid expenditures of the
year:
The expenditures related to the generation of
the taxable profit of the tax calculation period earned by a foreign invested
enterprise or foreign business cooperation party, regardless of the accounting
system in use, shall include the following:
b1- Costs of raw materials, materials, energy,
fuel and goods actually used in the production or business process or the
provision of services.
b2- Salaries, wages and payments having the
nature of salaries and wages, mid-shift meals and allowances paid to Vietnamese
and foreign employees under labor contracts and/or collective labor agreements
in accordance with the labor legislation applicable to foreign invested
enterprises
b3- Depreciation of fixed assets used in the
production or business process and the provision of services and expenses on
their repair. Depreciation of fixed assets shall be determined at a fixed rate
for the whole duration the fixed assets are used and in accordance with the
provisions of Decision No. 1062-TC/QD/CSTC of November 14, 1996 of the Minister
of Finance.
Fixed asset depreciation amounts which are in
excess of the rates stipulated by the Ministry of Finance, depreciation amounts
of fixed assets already fully depreciated, depreciation amounts of fixed assets
not being used in the production or business process such as fixed assets to be
liquidated or transferred for the establishment of a new joint venture, etc.,
shall not be included in the expenditures for determining the taxable profit.
In case a Vietnamese party contributes the value
of its land use right to the prescribed capital or to the business cooperation
capital with, the depreciation of the fixed assets being the value of such land
use right shall be effected for a period from the time the enterprise or
business cooperation parties start production and business operations to the
end of the period of the capital contribution by the Vietnamese party.
Example: Enterprise A received its
investment license on January 3, 1995 for an operating duration of 30 years.
The Vietnamese party contributed its capital by the value of its land use right
for 30 years from the date the investment license is granted. Enterprise A started
its operation on July 3, 1997. Thus the period for depreciation of the land use
right value contributed to the joint venture shall be 27 years and 6 months.
b4- Expenses on scientific and technological
research, innovations and technological modification.
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For branches of foreign banks and joint venture
banks, they are reasonable interest payments and discounts paid for deposits,
loans or other financial instruments
Interests paid for loans related to the
prescribed capital, statutory capital, or allocated capital (for banking
activities) shall not be included in reasonable and valid expenditures for
calculating the taxable profit.
b6- Expenses directly related to the circulation
and sale of products or the provision of services, such as maintenance
expenses, packaging expenses, loading and unloading expenses, transportation
costs.
b7- Payments to social and medial insurance
funds for employees as the obligation of the enterprise.
b8- Expenses for insurance over responsibilities
and assets under the insurance policies signed with Vietnamese insurance
companies or other insurance companies licensed to operate legally in Vietnam (hereafter
referred to as insurance enterprises). With regard to voluntary insurance
transactions for which, according to international practice, an enterprise
seeking for insurance may choose where to buy it, or if, at the time the
insurance need arises, which the insurance enterprises cannot satisfy, then the
to-be-insured enterprise may get insured at a foreign insurance company.
Insurance expenses shall be included in the expenditures for determination of
the taxable profit.
The Ministry of Finance may require, in case of
necessity, insured enterprises to prove that the insurance enterprises are not
able to meet the insurance need or the international practice related to
insurance. Any insurance expenses paid by an insured enterprise to a foreign
insurance company which are not in accordance with the provisions of Vietnamese
law shall not be included in the expenditures for determination of the taxable
profit.
b9- Mailing charges, printing costs, warehouse,
office and laboratory maintenance expenses, labor safety and environmental
protection costs; recruitment and training expenses; security guard, fire
prevention and fight expenses.
b10- Expenses on the procurement or use of
technical documentation and services. Expenses for the transfer of technology,
copyright, patents, trademarks under technology transfer contracts and license
contracts already approved by the Ministry of Science, Technology and
Environment or other competent agencies.
b11- Expenses on meetings of the Managing Board
of a joint venture enterprise in compliance with its Statute and/or resolutions
of the Managing Board.
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b13- Payments for lease of assets, machinery and
equipment. In a long-term lease, the rental shall be amortized throughout the
use duration.
b14- Expenses paid to management companies under
management-hiring contracts already approved by the Ministry of Planning and
Investment.
b15- Other expenses not yet specified above such
as those for advertising, marketing and sale promotion directly related to the
production and business activities of the enterprise, and brokerage. The total
expenses shall not exceed 5% of the total reasonable and valid expenditure
already mentioned for determination of the taxable profit. For enterprises
operating in the trade sector, the total allowable expenditure shall not
include the purchase costs of the goods sold.
b16- Payments of taxes, fees and charges having
the nature of tax (except for profit tax and profit remittance tax).
All the above expenses must be supported by
valid vouchers, any expense without valid vouchers shall not be included in the
allowable expenditure for determination of taxable profit.
c/ Other profits
Other profits of foreign invested enterprises
and foreign business cooperation parties include:
c1- Interests on bank deposits, loan interests
(excluding enterprises engaged in credit business), difference between foreign
exchange sale and purchase, securities acquisition and sale difference,
exchange rate difference (except for exchange rate difference resulting from
revaluation of the cash balance, deposits, cash in transit, debts recoverable
and payable originating from a foreign currency other than the currency
permitted for accounting purpose shall not be included in other profits).
c2- Profit earned from the right to own and use
the enterprise�s assets
including profit (or loss) from liquidation of assets. In case of losses and
damages caused to the enterprise�s
assets by subjective reasons, losses related to these assets shall not be
accounted into other profits or other losses, and the wrongdoer(s) must be
identified so that compensation shall be made in accordance with the
regulations .
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c4- Profits from an enterprise�s contributed capital
Profits earned from overseas business activities
shall be accounted into other profits for determination of taxable profit. With
regard to profits earned from business activities carried out in the countries
that have signed agreements on avoidance of double taxation with Vietnam, the
provisions of such agreements shall apply.
After-profit tax profits earned from the
transfer of the enterprise’s contributed capital and from joint venture or
cooperation activities with local enterprises shall not be accounted into other
profits for determination of taxable profit.
c5- Other profits
d/ With regard to enterprises operating in the
field of property leasing such as house or office leasing or infrastructure
businesses receiving advance rent payments for a number of years, the taxable
profit shall be determined as follows:
Taxable profit
of the year (A)
=
Taxable profit
derived from advance payment turnover (B)
+
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of which:
B
=
Total advance
payment turnover
-
Turnover tax
payable on advance payment turnover
-
Expenses
related to the generation of taxable turnover (D)
Expenses related to the generation of taxable
turnover (D) are determined for each of the following activities:
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For enterprises engaged in house- or
office-leasing or infrastructure businesses, these are the costs for
construction of infrastructure or houses and offices directly related to the
area for rent with rental to be collected in a lump sum. If the rental is
collected in advance and the leasing period is shorter than the minimum use
time specified in the use bracket for the use of fixed assets stipulated in
Appendix 1 issued together with Decision No. 1062-TC/QD/CSTC of November 14,
1996 of the Ministry of Finance, construction costs shall be amortized
throughout the actual leasing period. Enterprises may register the time for the
use of fixed assets in accordance with the provision in Point b3 above.
Example:
Enterprise A is engaged in office leasing. In
1996 it leased 1,000 m2 of office space to Enterprise B for 10 years with the
rental of 1,000,000 USD ($), 1,000 m2 to Enterprise C for 30 years with the
rental of 3,000,000 $, and 1,000 m2 to Enterprise D for 30 years with the
rental of 3,000,000 $. Assuming that the cost for construction of 1m2 of office
space for rent is 1,250 $ and pursuant to Appendix 1 of Decision No.
1062-TC/QD/CSTC the minimum use time of durable buildings is 25 years. In these
cases the construction cost shall be amortized as follows (assuming that
Enterprise A has registered a house depreciation time of 25 years):
- For turnover from leasing office to Enterprise
B, the amortized construction cost for determination of taxable profit for 1996
shall be:
Construction
cost
=
1,250 $/m2
x 1,000 m2
x 10 years
= 500,000$
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- For turnover from leasing office to
Enterprises C and D, the amortized construction cost for determination of
taxable profit shall be:
Construction cost
= (1,250 $/m2 x 1,000 m2) x 2 = 2,500,000 $
In case the actual costs of a number of
construction items have not yet been determined in the tax year, they shall be
temporarily determined on the basis of the cost estimate in the
economic-technical feasibility study, and shall be amortized to the area for
rent with rental to be collected in a lump sum. Upon the completion of the
construction, payment of the construction cost shall be made on the basis of
the actual cost, and any differences between the actual and estimated
construction costs shall be adjusted in the business results of the fiscal year
subsequent to the year of completion of the construction.
d2- Other costs arising in the year shall be
amortized to the advance payment turnover, specifically:
Expenses
arising in the year amortized to advance payment turnover
=
Total amount of
other costs arising in the tax year
x
Advance payment
turnover
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- For enterprises engaged in house and office leasing
or infrastructure business that are in the tax grace period, the taxable profit
on the advance payment turnover (B1) shall be determined as follows:
B1
=
B
x
The number of
years with advance payment
-
The number of
tax-free years
The number of
years with advance payment
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The number of
tax-free years
=
The number of
tax-free years under the investment license
-
The number of
years from the first year of profitable business
Two years of tax relief shall be calculated as a
year of tax exemption
* Profit derived from other activities (C):
C =
Turnover from
other activities
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Turnover tax
payable for other activities
-
Expenses
arising
+
Other profits
of which:
- Expenses excluding cost of infrastructure
construction
- Other expenses arising in the tax year
excluding expenses already armotized for calculating the profit on the advance
payment turnover.
- During the period of profit tax exemption or
reduction, profits from other activities shall be tax-exempted or reduced as
usual practice. If losses occur from such activities, they shall be off set
with the profit earned from the advance payment turnover for determination of
taxable profit of the year.
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In the above example, in addition to the
turnover earned from leasing offices to Enterprises B, C and D in 1996,
Enterprise A also gained an amount of 500,000 $ from other activities. The
total expenses arising in the year is 300,000 $ excluding construction cost and
turnover tax. Assuming that Enterprise A is entitled to profit tax exemption
for 2 years from the first profitable year and to 50% reduction of profit tax
for the two subsequent years, that the enterprise was granted an investment
license in 1993 for an operating duration of 40 years and did not make any
profit until 1996. The taxable profit of Enterprise A shall be determined as
follows:
* Taxable profit on the advance payment turnover
+ For turnover from leasing office to Enterprise
B:
- Total advance payment turnover is 1,000,000 $
- Armotized cost of construction is 500,000 $
Other costs
armotized
=
300,000 $
x 1,000,000 $
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7,500,000 $
- Tax payable on the advance payment turnover:
1,000,000 $ x 4%
= 40,000 $
- The number of years in which Enterprise A is
entitled to tax exemption is:
2 years + (2
years x 50%) = 3 years
The remaining
taxable profit
=
1,000,000$ -
540,000$ - 40,000 $
x (10years -
3years)
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10 years
- The amount of tax-free profit is 126,000 $
+ For turnover from leasing office to
Enterprises C and D:
- Total advance payment turnover is 6,000,000 $
- Amortized cost of construction is 2,500,000 $
Other costs
amortized
=
300,000 $
x 6,000,000 $
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7,500,000 $
- Tax payable on the advance payment turnover:
6,000,000 $ x 4%
= 240,000 $
+ The number of years in which Enterprise A is
entitled to tax exemption:
2 years + (2
years x 50%) = 3 years
The remaining
taxable profit
=
6,000,000$ -
2,740,000$ - 240,000$
x
(30years-3years)
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30 years
- The amount of tax-free profit: 302,000 $
* Taxable profit on other turnover:
- Other turnover of Enterprise A: 500,000 $
- Payable turnover tax: 20,000 $
- Amortized costs = 300,000 $ - 40,000 $ -
240,000 $ = 20,000 $
- Taxable profit = 500,000 $ - 20,000 $ - 20,000
$ = 460,000 $
In 1996, all these profits are not subject to
profit tax.
Hence, in 1996 Enterprise A must pay a profit
tax amount of 3,012,000 $ on the total taxable profit; is entitled to a profit
tax exemption amount of 888,000 $.
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4. Determination of tax payable:
The amount of
profit tax payable for the tax year
=
Taxable profit
x
Profit tax rate
of which:
- Taxable profit shall be determined in
accordance with Point 3 above.
- Profit tax rate is specified in the investment
license. In case the investment license does not specify the profit tax rate, a
profit tax rate of 25% shall apply.
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5. Procedure for profit tax payment
Profit tax shall be temporarily collected every
3 months starting from the first day of the tax year, at the end of the tax
year or upon the termination of the contract, the profit tax shall be collected
on the basis of the actual settlement of accounts.
With regard to business cooperation contracts
with a duration of under one year, profit tax shall be paid in two
installments, with the first installment temporarily paid in the middle of the
contract duration and the other to be paid on the basis of the actual
settlement of accounts at the termination of the contract.
With regard to business cooperation contracts
for which the investment license granted by an investment license granting
agency prescribes specifies the method of determination of business results or
a particular method of calculation of profit tax, the calculation of tax shall
be based on the provisions in the investment license.
- Within 5 days from the end of the
above-mentioned tax payment period, the foreign invested enterprise or foreign
business cooperation party shall make a profit tax declaration and submit it to
the tax agency of the locality where its head office is located and pay the tax
amount specified in the tax notice of the tax agency to the State Treasury.
Within 5 days from the date of receipt of the declaration, the tax agency shall
issue to the taxpayer a notice of the tax amount to be paid .
In case the enterprise or foreign business
cooperation party fails to submit a tax declaration within the prescribed time
limit for submission, the tax agency shall have the power to determine the
provisional tax amount to be paid, issue a tax notice and impose an overdue
declaration penalty.
Within 5 (working) days from the date of receipt
of the tax notice from the tax agency, the foreign invested enterprise or
foreign business cooperation party shall have to pay in full the tax amount
specified in the tax notice to the State Treasury designated by the tax agency.
- Within 90 days from the end of the fiscal
year, the foreign invested enterprise or foreign business cooperation party
shall submit the profit tax declaration for the whole year together with an
accounting report already audited by an independent auditing organization
licensed to operate in Vietnam to the tax agency of the locality where its head
office is located and, at the same time, pay the outstanding profit tax (if
any) to the State budget according to the tax notice of the tax agency.
6. Refunding reinvestment profit tax:
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- 100% for reinvestment in projects subject to a
profit tax rate of 10% .
- 75% for reinvestment in projects subject to a
profit tax rate of 15%.
- 50% for reinvestment in projects subject to a
profit tax rate of 20%.
In case a foreign investor uses his/her shared
profit for reinvestment in projects that are licensed before November 23, 1996,
the rates of reinvestment profit tax refund shall be as follows:
- 100% for reinvestment in projects subject to
profit tax rates up to 14%.
- 75% for reinvestment in projects subject to profit
tax rates from 15% to 20% .
- 50% for reinvestment in projects subject to
profit tax rates from 21% to under 25%.
In case a foreign investor uses his/her shared
profit of the years before 1996 for three or more year reinvestments to which
amended investment licenses had been granted, or which had been approved by the
Ministry of Planning and Investment before November 23, 1996, the profit tax
refund rate shall be 100%.
b/ The amount of profit tax refundable for the
reinvested profit shall be determined as follows:
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L
x S x T
100% - S
of which:
Th. is the profit tax amount refundable
L is the shared profit (after profit tax)
reinvested
S is the profit tax rate stated in the
investment license
T is the percentage of profit tax refundable as
stipulated above
c/ Procedures for refunding profit tax on
reinvestment profit.
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- A written request or application for the
refund of reinvested profit tax. The application must clearly state the name,
address and bank account number of the enterprise that receives the
to-be-refunded profit tax for reinvestment.
- The foreign investor�s commitment to use such profit for three or
more years reinvestment.
- The investment license (a notarized copy) or a
amended investment license granted by an investment license granting agency,
clearly stipulating that the investor is allowed to use his/her shared profit
for reinvestment and he/she satisfies all conditions for the refund of
reinvested profit tax.
- A written certification (the original or
notarized copy) of the Managing Board, for joint venture enterprises, or of an
auditing organization, for enterprises with 100% foreign invested capital or
foreign business cooperation parties, that the foreign party has fully contributed
its share to the prescribed capital .
- A declaration of reinvested profit
- Copies of documents on tax payments by the
enterprise and the State Treasury�s
certification of the profit tax amount already paid by the enterprise.
Upon full receipt of the above-mentioned
documents, the local tax agency shall examine the documents, determine the
amount of profit tax already paid by the enterprise and calculate the amount of
profit tax to be refunded to the investor, forward the profit tax refund
application dossier to the Ministry of Finance (Department of Budget) for
consideration and decision on a refund to the investor.
Within 30 days from the date of receipt of the
full dossier, the Ministry of Finance shall notify the investor of its
decision.
Where the investor fails to make the
reinvestment, he/she shall have to return the refunded profit tax, with
interest thereon calculated from the date he/she receives the refund to the
time when he/she returns such refund to the budget (based on the bank deposit
interest rate) and shall be handled in accordance with law.
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1. Taxable subjects:
Profits earned by foreign economic organizations
or foreign individuals from their investment in any of the forms prescribed in
the Law on Foreign Investment in Vietnam, including the refunded profit tax on
reinvested profits and profits from the transfer of capital, shall be subject
to profit remittance tax upon remittance out of Vietnamese territory or being
retained outside Vietnam.
Where a foreign party uses its shared profits to
pay debts of the parent company, or to fund expenses of the parent company�s representative office in
Vietnam, these transactions shall be considered a remittance of profits abroad,
and the foreign party shall have to pay profit remittance tax thereon.
Foreign economic organizations or foreign
individuals shall, upon remittance of profits abroad, declare and pay profit
remittance tax.
2. Determination of tax payable:
The profit remittance tax payable shall be
determined on the basis of the amount of profits remitted or considered being
remitted abroad, or retained by the investor outside the Vietnamese territory,
multiplied (x) by the profit remittance tax rate stipulated in the investment
license granted by an investment license granting agency, In case the profit
remittance tax rate is not prescribed in the granted investment license, it
shall be determined according to Article 57 of Decree No. 12-CP of February 18,
1997 of the Government.
3. Procedures for payment of tax:
Profit remittance tax shall be collected upon
each remittance of profits abroad. If an enterprise retains profits outside
Vietnam, tax declaration and payment shall be made on a monthly basis.
Prior to a remittance of profits abroad or not
later than the fifth day of the following month in cases where the profits are
used for purposes deemed to be a remittance of profits abroad, profits retained
outside Vietnam, a foreign economic organization or foreign individual shall
submit a tax declaration to the tax agency directly managing the enterprise in
which the foreign economic organization or individual has invested and, at the
same time, pay the declared tax amount to the State Treasury. Within 5 days
from the date of receipt of the tax declaration, the tax agency shall examine
the declaration, calculate the tax payable, and, in cases of discovery of any
errors in the tax declaration, issue a tax notice to the foreign investor
regarding the tax payable. The foreign investor shall have to pay the
outstanding tax amount to the State Treasury.
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Within 5 (working) days from the date of receipt
of the tax notice, the foreign invested enterprise or foreign business
cooperation party shall pay fully the profit remittance tax specified in the tax
notice to the State Treasury designated by the tax agency.
The State Treasury shall issue to the taxpayer a
receipt of the profit remittance tax payment so that the latter may complete
the procedure for the transfer of money abroad.
Every year, within 90 days from the end of the
fiscal year, the foreign investors shall report to the tax agency(ies) directly
managing the enterprises their shared profits, the use of profits and the
payment of profit remittance tax with regard to the shared profits of previous
years. Where a foreign investor has paid profit remittance tax but later fails
to remit the profit abroad and does not use it for purposes deemed to be a
remittance of profits abroad, he/she shall be refunded the paid tax from the
State budget. The dossier applying for a refund of the paid tax includes:
- An application for a refund of the paid tax.
The application must clearly state reasons for tax refund, the name, address
and bank account number of the applicant.
- A list of the paid tax amounts accompanied
with vouchers (copies) of the payments to the State Treasury.
- The State Treasury’s certification of the paid
tax amounts (stating clearly the chapter, category, clause and item of the
budget content where the tax has been paid to).
- The tax agency’s certification of the tax
amount paid in excess and its request to deal with this excess amount.
The tax refund application dossier shall be
submitted to the Ministry of Finance (Department of Budget) for examination and
decision on a refund of the paid tax.
III. CAPITAL TRANSFER TAX
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Vietnamese parties to joint venture enterprises
conducting a transfer of capital shall pay tax as guided in Circular No.
96-TC/TCT of December 30, 1995 of the Ministry of Finance.
Tax on transfer of capital shall includes profit
tax and profit remittance tax. Specifically:
1. Profit tax: Profits earned from
capital transfer activities shall be subject to profit tax under the Law on
Foreign Investment in Vietnam
Profit tax
payable
=
Taxable profit
x
Profit tax rate
for capital transfer
1.1 Taxable profit: Profit from a transfer of capital
shall be determined as follows:
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=
Transfer value
-
Initial value
of the transferred capital
-
Transfer
expenses
of which:
+ The transfer value shall be determined as the total
actual value that the transferor receives under the transfer contract. If the
transfer contract does not specify the payment price or the payment value or
the value is not determined according to the principle of market price-based
transactions between the transferor and the transferee, the tax agency shall be
entitled to examine and determine the payment value of the contract on the
basis of the market price and similar transfer contracts.
+ The initial value of the transferred capital
shall be determined on the basis of accounting books and vouchers on the
investor�s contributed
capital at the time of transfer which is confirmed by the Managing Board of the
joint venture enterprise, with regard to joint venture enterprises, or the
auditing results from auditing organizations, with regard to enterprises with
100% foreign invested capital and business cooperation parties in accordance
with the Vietnamese laws currently in force.
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+ Transfer expenses are actual expenses directly
related to the transfer, based on the original vouchers recognized by the tax
agency. In case transfer expenses arise overseas, such original vouchers must
be certified by a public notary or an independent auditing agency of the
country where the expenses arise.
Transfer expenses include expenses for the
completion of legal procedures necessary for the transfer, expenses and fees
payable upon the completion of the transfer procedures; expenses related to
public relation, negotiations and signing of transfer contracts... supported by
valid vouchers.
1.2. Profit tax rate:
- The rate of profit tax on capital transfer
shall be 25%.
- In case a foreign investor transfers capital
to a Vietnamese State enterprise or to an enterprise in which the State holds a
prevailing share, he/she shall be exempt from profit tax on the transfer of
capital. Exemption of profit tax on a transfer of capital shall be approved by
a competent agency in the written approval of the transfer of capital.
- If a foreign investor transfers capital to a
Vietnamese enterprise other than those mentioned above, he/she shall be subject
to profit tax on the transfer of capital at the rate of 10%.
1.3. Declaration and payment of profit tax on transfer
of capital:
Within 5 working days from the date of receipt
of the approval of the capital transfer by a competent agency, the transferor
or his/her mandatory (including cases where the transferor is entitled to
exemption from profit tax on transfer of capital) shall submit a declaration of
profit tax on the transfer of capital to the tax agency managing the enterprise
in which the transferor invests capital, accompanied with the transfer
contract, the competent agency�s
decision to approve the transfer, a copy of the decision on the establishment
of the enterprise to which the capital is transferred (in cases where such
enterprise is a Vietnamese enterprise), certification of capital contribution
and original expense vouchers, and, at the same time, pay in full the tax
payable to the State Treasury and forward a copy of the tax payment voucher to
the agency which has approved the transfer of capital.
In case of discovery of inaccurate tax
declaration or calculation, the tax agency shall, within 10 (working) days from
the date of receipt of the declaration, notify the taxpayer of the tax amount
to be paid or request the taxpayer to provide the necessary documents for an
accurate calculation of such tax amount.
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All goods which foreign invested enterprises and
foreign business cooperation parties are permitted to export or import across
Vietnamese borders, including goods from the Vietnamese market sold into export
processing zones and goods from enterprises in export processing zones sold
into the Vietnamese market, shall be subject to export and import duties in
accordance with the Law on Import and Export Duties.
1. Export and/or import duty exemption or
relief:
In addition to the cases of exemption and relief
provided for in the Law on Export and Import Duties, foreign invested
enterprises and business cooperation parties shall be entitled to tax exemption
or relief under Article 63 of Decree No. 12-CP of February 18, 1997 of the
Government. The agency competent to consider duty exemption for cases
prescribed in under Article 63 of Decree No. 12-CP shall be as follows:
- Based on the investment license and the
technical and economic report of each project, the Ministry of Trade shall
consider and approve the list of duty-free imports specified in Article 63 of
Decree No. 12-CP of February 18, 1997 for each enterprise.
- Based on the list of duty-free imports issued
by the Ministry of Trade, the Customs Departments of the provinces and cities
directly under the Central Government shall supervise the import activities of
enterprises. Quarterly, they shall report to the Ministry of Finance and the
General Department of Customs on the export and import values and the volumes
of the major exported and imported commodities of foreign invested enterprises
2. Declaration and collection of export and
import duty arrears:
- If the exported or imported goods of foreign
invested enterprises and foreign business cooperation parties which are exempt
from export or import duties as mentioned above, are used for purposes other
than that approved for export or import duty exemption or sold on the
Vietnamese market, they shall require permission from the Ministry of Trade and
be subject to the payment of export or import duties previously exempted.
With regard to goods which were imported at the
time when the Law on Special Consumption Tax was not effective and which were
exempt from import duties but were used for purposes other than the original
purpose or sold on the Vietnamese market after the Law on Special Consumption
Tax has taken effect, foreign invested enterprises and foreign business
cooperation parties shall pay, in addition to import duties (at the rate of
duty effective at the time of payment), special consumption tax thereon.
- Within 2 days from the date the imported goods
are used for purposes other than the purpose for which they are exempt from
import duty or for sale, the foreign invested enterprises or business
cooperation parties shall have to submit a declaration thereof to the customs
office of the province or city where the head office of the enterprise is
located, or the customs office of the place where such goods were sold, or the
customs office of the locality where the enterprise registers the import declaration,
Past this time limit if no declaration is submitted, the enterprise or business
cooperation party shall be subject to sanctions under the Law on Import and
Export Duties and the Law on Special Consumption Tax.
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- In the management of the taxation of foreign
invested enterprises and business cooperation parties, the tax agency managing
the taxation of an enterprise shall have to supervise the use of duty-free
import and export goods and, upon discovery of a sale of such duty-free goods,
the director of the provincial/municipal tax department, besides collecting
turnover tax in accordance with the Law on Turnover Tax, shall have the power
to issue a decision on the collection of import duty arrears and impose a fine
thereon in accordance with the Law on Import and Export Duties. The amounts of
duty arrears and fines shall be used as follows:
+ 100% of the import duty and special
consumption tax (if any) arrears shall be paid to the central budget.
+ 100% of the fines and confiscated goods shall
be paid to the local budget (provincial/municipal budget) in accordance with
Circular No. 09-TC/TCT of January 24, 1995 of the Ministry of Finance.
PART III
SETTLEMENT OF TAX
OBLIGATIONS AND EXAMINATION OF TAX PAYMENT BY ENTERPRISES
I. ANNUAL TAX SETTLEMENT
At the end of each fiscal year, foreign invested
enterprises and foreign business cooperation parties shall calculate and
fulfill their tax obligations, and submit reports of tax settlement to the tax
agency. The annual tax settlement shall be carried out in accordance with the
following provisions:
1. Within 90 days after the end of the fiscal
year, foreign invested enterprises and foreign business cooperation parties
shall submit their reports on production and business activities, reports on
audited accounts and reports on tax settlement to the tax agency where they
register their tax payment and, at the same time, pay the outstanding amounts
(if any) according to the tax settlement reports to the State Treasury.
In an annual tax settlement, an overpayment of
one tax shall not be permitted to be used to compensate the underpayment of
another tax.
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II. EXAMINATION OF TAX
PAYMENT BY ENTERPRISES
In the management of taxation of foreign
invested enterprises and foreign business cooperation parties, the taxation
department of the provinces and cities directly under the Central Government
shall be responsible for regular examinations or irregular examinations at
enterprises if necessary. They shall, at least once a year, examine the tax
payment by the following:
- Enterprises which, according to their
financial settlement reports, see no profits and are in the period of tax
exemption or reduction.
- Enterprises which have large a turnover.
- Enterprises which have inaccurate or unclear
tax settlement reports, or their tax settlement reports do not fully cover the
indice for tax calculation.
- Enterprises which do not submit tax settlement
reports or submit them belatedly.
- Enterprises which see highly fluctuant
financial status in the tax year as compared to the previous years.
For the other enterprises, the
provincial/municipal taxation departments shall examine at least once every
three years.
Before examining foreign invested enterprises or
foreign business cooperation parties, the tax agency shall have to issue an
examination decision clearly stating the contents and duration of the
examination. The examination decision shall be sent to the foreign invested
enterprise or the representative of the foreign business cooperation party 3
days before the examination begins. When it deems necessary to examine contents
other than those stated in the examination decision or to prolong the
examination time limit , the tax agency shall issue an additional decision.
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If the foreign invested enterprise or the
business cooperation party disagrees with the conclusion of the tax agency in
the record of examination, it has the right to make a complaint to the General
Department of Taxation and the Ministry of Finance. Pending the settlement of
the complaint, the enterprise or the foreign business cooperation party shall
have to strictly comply with the conclusion of the tax agency.
III. TAX SETTLEMENT UPON
EXPIRY OF OPERATING DURATION OR DISSOLUTION OF FOREIGN INVESTED ENTERPRISES OR
FOREIGN BUSINESS COOPERATION PARTIES
Upon the termination of a business cooperation
contract by the parties thereto, or the expiry of the operating duration or
upon the dissolution of a foreign invested enterprise under the Law on Foreign
Investment in Vietnam,, the foreign invested enterprise or the business
cooperation parties shall have to make its/their financial report(s) and the
tax settlement report(s) then submit them to the tax agency at the place where
they register their tax payment. The tax agency shall proceed immediately with
the following:
1. Examination of the tax settlement reports
according to the procedures applied to the annual tax settlements described in
Section 1 above;
2. Determination of the rights and obligations
of each party to the foreign invested enterprise or the business cooperation
contract with the following main contents:
- Determination of the invested amounts of
capital of the investors on the accounts of the enterprise, including capital
in cash, fixed assets, supplies and commodities... Confirmation of the invested
capital amount that the foreign investor is allowed to remit abroad.
- Determination of profits or losses, and the
rights and responsibilities of the investors related to such profits or losses.
Confirmation of the profits that the foreign investor is lalowed to remit
abroad. Calculation and determination of the amount of profit remittance tax on
the profits to be remitted abroad. The profit remittance tax shall immediately
be collected for the State Treasury, except where the foreign investor produces
documents proving that such profits will not be remitted abroad for one of the
following reasons:
+ Using the profits for reinvestment in Vietnam
under a decision of an investment license granting agency.
+ Using the profits for personal spending needs
in Vietnam, in addition to other incomes already declared.
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IV. MEASURES AGAINST THE
CHANGE OF PRICE
To guarantee the correct determination of tax
obligations of enterprises, during the periodical examination or examination of
tax settlement reports of enterprises, upon discovery of any irrationality in
prices or profits ratio in the transactions among associated companies, the tax
agency shall take the following measures to prevent the change of price and to
determine the exact taxable profits of enterprises:
1. Free-market price comparison method:
The tax agency may use the free-market prices of
goods, products or services to determine the price of the goods, products or
services exchanged or sold internally among associated companies. The
conditions for the application of this method are:
(i) There is no difference between the two
compared business transactions, which affects the transaction price, such as
quality of goods, trademarks, delivery conditions, terms of payment or
(ii) In case of differences, calculation methods
may be applied to exclude the factors affecting the transaction price.
Example: A British lubricant company
sells to Vietnam-based enterprise A, a joint venture between a British company
and another Vietnamese company, 1,200 liters of lubricant for 1,500 USD, to be
paid after 6 months. At the same time, the British company sells to enterprise
B, which is an independent enterprise in Vietnam 1,000 liters of lubricant for
1,000 USD, payable immediately, Assuming that the commercial credit interest
rate for 6-month loans is 10% in the determination of the profits of joint
venture enterprise A, the Vietnamese tax agency may re-determine the price of
lubricant in this contract on the basis of price comparison with the contract
with enterprise B as follows:
Price of 1 liter of lubricant, on the basis of
payment after 6 months:
1,000 $ + 1,000
$ x 10%
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1,000 liters
The determined price for the contract between
the joint venture company and the British company:
1,200 liters x
1.1 $/liter = 1,320 $
2. The method of using the selling price to
determine the purchase price
In case a trade unit purchases all its supplies
from an overseas associated company and it is impossible to determine the
actual price on the free market, the tax agency may base itself on the selling
price of the trade unit to determine the purchase price according to the
following formula:
Purchase price
=
Selling price
to independent enterprises (excluding import duty, if any)
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x
The average
aggregate profit margin of the trade service
The average aggregate profit margin of the trade
service may be determined on the basis of the aggregate profit margin of the
unit�s other goods
purchased from independent enterprises and sold to independent enterprises, or
the aggregate profit margin of all other independent trade units. The aggregate
profit margin shall be determined according to the following formula:
Aggregate
profit margin
=
Net turnover -
Cost of goods sold
x 100%
Net turnover
(The data shall be based on the reports on
business profits/losses of enterprises)
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- Where the goods and products, before being
sold, were processed, assembled, transformed or value added;
- Where the goods and products, before being
sold, were affixed with a trade mark trade name of high value on the market.
- The period between purchase and sale exceeded
one year and, during that period the market witnessed a great price
fluctuation.
Example: Enterprise A in Vietnam has 100%
of its capital invested by Company B which produces wine in France. Enterprise
A has the exclusive right to sell Company B�s
products in Vietnam. In 1995, Enterprise A imported from Company B 10,000
liters of wine, paid 75,000 USD as import duty determined by customs, and sold
all the wine for 185,000 USD within the year. At the end of 1995, the tax
agency determined the purchase price of the wine by Enterprise A as follows:
Net turnover
= Sale turnover - Import duty
= 185,000 $ - 75,000 $ = 110,000 $
Selling price
(less import duty)
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110,000 USD
= 11 $/liter
10,000 liters
Assuming that the average aggregate profit
margin for trading in wine is 10%
Purchase price =
11 $/liter - (11 $/liter x 10%) = 9.9 $/liter
3. The method of using total production cost to
determine the taxable profit
In case a production unit manufactures and
processes semi-products and delivers all to an associated enterprise, with no
sales on the free market. To determine the comparative price, the tax agency
may base itself on the accounting records of the units’ expenditures to
determine the profits of that unit according to the following formula:
Determined
profit
=
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x
Average net
profit percentage of the manufacturing industry
Total cost of
production for the period
=
Costs of goods
delivered in the period
+
Delivery
expenses in the period
+
Common
management expenses in the period
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The net profit percentage shall be determined according
to the following formula:
Net profit
percentage
=
Net profit
before profit tax
Costs of goods
sold
+
Sales expenses
+
Common
management expenses
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Example: Garment enterprise A in Vietnam
is a joint venture between a Korean company and a company in Vietnam.
Enterprise A manufactures under a processing contract apparel articles for
delivery exclusively to Company B in the Republic of Korea. Assuming that in
1995 Enterprise A delivered to Company B 10,000 items at a set price of 10
USD/item. The accounting records of Enterprise A for 1995 contain the following
data:
Cost of goods sold 80,000 $
Delivery expenses 6,000 $
Common management expenses 12,000 $
Total cost of production 98,000 $
Enterprise A and Company B in Vietnam are two
associated enterprises, the tax agency may determine the taxable profit as
follows:
Assuming that the tax agency determines the
average net profit percentage of the garment industry is 10%
The set profit shall be: 98,000 $ x 10%
In case where price irrationality is discovered
but there are no conditions for the application of the above methods, the tax
agency shall ask the enterprise to produce the relevant documents and request
it to attest in writing the legality of the documents produced. Copies of the
relevant documents shall be forwarded to the General Department of Taxation for
an exchange of information with the tax agencies of other countries.
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TAX PAYMENT CURRENCY AND
OTHER GUIDELINES
I. Tax payment currency
Foreign invested enterprises and foreign
business cooperation parties that have payable tax amounts as prescribed in
Part II of this Circular shall pay tax in Vietnam Dong or in a foreign currency
approved by the Ministry of Finance.
The conversion of a foreign currency into
Vietnam Dong or vice versa shall be made at the rate of exchange announced by
the State Bank of Vietnam at the time of tax payment.
All revenues for the budget from foreign
invested enterprises shall be included in the budget contents in accordance
with regulations currently in force.
II. Responsibilities of
foreign invested enter-prises and foreign business cooperation parties
1. Within 5 days at the latest from the
commencement of the investment licenses, dissolution, change of goods items or
change of the head office�s
address, an enterprise, its dependent business units or a foreign business
cooperation party shall have to complete registration procedures at the
provincial/municipal tax agency of the locality where the head office of the
enterprise is located.
2. To comply with all the regulations on tax
declaration in the course of business and production.
3. To present full accounting records and
necessary documents related to tax calculation and settlement at the request of
the tax agency.
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III. Responsibilities and
powers of the tax agency
1. To provide guidance for taxpayers to complete
tax registration and declaration as prescribed.
2.- To inspect tax declaration forms, accounting
records and necessary documents for tax calculation. To be entitled to request
taxpayers to clarify issues related to tax calculation.
3. To calculate tax and notify tax payers of tax
amounts to be paid. To be entitled to set payable tax amounts if the tax payer
deliberately fail to make tax declarations in a given time limit or make
incorrect tax declarations.
4. To make records and deal with tax violations
within its competence as prescribed by law.
5. To strictly enforce the tax legislation,
ensuring truthfulness, accuracy and objectiveness of its operations.
6. To inspect the registration of accounting
systems by enterprises and inspect the implementation of the registered
accounting systems.
7. To certify the tax amounts already paid by
foreign investors at the request of foreign investors.
IV. HANDLING OF VIOLATIONS
AND SETTLEMENTS OF COMPLAINTS
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- Failure to comply with the provisions on tax
registration prescribed in Point 1, Section II, Part IV of this Circular shall
be subject to sanctions defined in the Decree No. 22-CP of April 17, 1996 of
the Government on Sanctions against Administrative Violations in Taxation.
- Failure to comply with the regulations on tax
payment declarations shall be subject to fines prescribed in the Ordinance on
Sanctions against Administrative Violations, Decree No. 22-CP of the Government
and guiding documents currently in force.
- False declarations and tax evasion shall be
subject to fines of up to 5 times the tax amount evaded.
- Belated payment of tax shall be subject to a
fine of 0.2% (two thousandths) of the payment for each day in arrears.
2. Competence to deal with violations and
complaints
- Violations of tax regulations shall be handled
by the tax agency directly managing the tax collection.
- Complaints of taxpayers related to taxation shall
be examined and settled by the tax agency directly collecting taxes. In case a
taxpayer disagrees with the settlement, he/she shall be entitled to lodge a
complaint to the higher-level tax agency or the Ministry of Finance. The
settlement decision of the Minister of Finance shall be the final. Pending a
settlement of a complaint, the complainant shall have to strictly comply with
the decision of the tax agency.
V. ORGANIZATION OF
IMPLEMENTATION
The provincial/municipal tax departments shall
be responsible for providing guidance to foreign invested enterprises and
foreign business cooperation parties for the strict implementation of the
provisions of this Circular.
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This Circular shall replace Circular No.
51-TC/TCT of July 3, 1993, Circular No. 90-TC/TCT of November 10, 1993 and
relevant provisions in Circulars No. 96-TC/TCT of December 30, 1995 and No.
27-TC/CSTS of May 25, 1996 of the Ministry of Finance. All earlier regulations
of the Ministry of Finance which are contrary to this Circular are now
annulled. This Circular takes effect 15 days after its signing and shall apply
to the determination of profit tax payable in fiscal year 1997.
FOR THE
MINISTER OF FINANCE
VICE MINISTER
Vu Mong Giao