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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. 48/1998/TT-BTC
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Hanoi, April 11, 1998
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CIRCULAR
AMENDING AND SUPPLEMENTING CIRCULAR No.75A-TC/TCT OF AUGUST
31, 1993 OF THE MINISTRY OF FINANCE GUIDING THE IMPLEMENTATION OF DECREE
No.57-CP OF AUGUST 28, 1993 OF THE GOVERNMENT DETAILING THE IMPLEMENTATION OF
THE LAW ON PROFIT TAX AND THE LAW AMENDING AND SUPPLEMENTING A NUMBER OF
ARTICLES OF THE LAW ON PROFIT TAX
Pursuant to the Law on Profit Tax adopted on
June 30, 1990 by the VIIIth National Assembly; the Law on the Amending and
Supplementing a Number of Articles of the Law on Profit Tax adopted on July 6,
1993 by the IXth National Assembly;
Pursuant to Decree No.57-CP of August 28, 1993 of the Government detailing the
implementation of the Law on Profit Tax and the Law Amending and Supplementing
to a Number of Articles of the Law on Profit Tax;
Pursuant to Decree No.59-CP of October 3, 1996 of the Government promulgating
the Regulation on the financial management and cost accounting applicable to
State enterprises;
Pursuant to Decree No.114/1997/ND-CP of December 16, 1997 of the Government
amending Decree No.57-CP of August 28, 1993;
The Ministry of Finance hereby guides the supplements and amendments to
Circular No.75A-TC/TCT of August 31, 1993 as follows:
1. To amend the said
Circular's section on the tax calculation basis as follows:
Section II. 2- Regarding the turnover for
calculation of taxable profit.
The turnover for calculation of taxable profit
is the total goods sale money, processing remuneration, commissions, service
charges (including surcharges and price subsidies (if any) enjoyed by the
enterprise) and other revenues, not yet deducting any expenses of such business
establishment incurred in the taxation period. For the assignment of package
norms in the agricultural production, the turnover shall be money (including in
form of products) earned from the work assigned in the form of package norm to
employees in the enterprises engaged in agricultural and/or forestrial
production.
For products and goods subject to the special
consumption tax, the turnover for calculation of taxable profit is the sale
turnover that has included special consumption tax.
For the advances paid for several years in the
lease of houses and/or fixed assets, the turnover shall be the amount of rental
collected in advance.
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Enterprises shall have to register with their
direct managing tax agencies their lists of fixed assets, the use duration
thereof and the depreciation duration of each kind of fixed assets.
The purchase prices, use duration and method for
depreciation of fixed assets shall comply with Decision No.1062-TC/QD/CSTC of
November 14, 1996 of the Ministry of Finance on the regime of management, use
and depreciation of fixed assets.
- For fixed assets of all capital sources which
have been fully depreciated but are still in use, the depreciation thereof
shall no longer be accounted into the production and/or business costs.
- Expenses spent by the enterprises to upgrade
their fixed assets shall be reflected as the increase of purchase prices of
such fixed assets, but not accounted into the business costs in the period.
- Expenses for repair of fixed assets, accounted
or gradually charged into reasonable expenses shall be the actual amounts of
reasonable expenses for fixed asset repair in the period:
+ Expenses for hired repair of fixed assets
shall be calculated according to the amounts actually paid to the contracting
repairers.
+ Expenses for self-repair of fixed assets shall
be calculated according to reasonable expenses actually incurred.
For some special sectors where the expenses for
repair of fixed assets vary from period to period or year to year, the
enterprises that wish to deduct in advance the fixed asset repair expenses into
their business costs shall have to work out plans therefor and submit them to
the Ministry of Finance for consideration and decision; the enterprises shall
have to notify the tax authorities directly managing them of the written
decisions of the Ministry of Finance.
Enterprises shall have to make final settlement
of actually incurred repair expenses against those deducted in advance; if the
actual repair expenses are larger than those deducted in advance, the
difference shall be accounted or gradually charged into the business expenses
in the period; if the actual repair expenses are smaller than those deducted in
advance, the difference shall be accounted into the business expense reduction
in the period.
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Section II.3.c- Salary and wage expenses:
The salary and wage expense of an establishment
shall be calculated on the basis of number of laborers of such establishment
and the grade-based salaries and allowances (if any) thereof according to the
current regulations as well as the production and/or business results of such
establishment; more concretely:
- For State enterprises, Decree No.28-CP of
March 28, 1997 of the Government on renewing the management of salaries and
incomes in State enterprises, Circular No.13/LDTBXH-TT of April 10, 1997 of the
Ministry of Labor, War Invalids and Social Affairs guiding the application of
the method of setting wage unit prices and the management of wages and incomes
in State enterprises, and other documents guiding the implementation of the
said Decree shall apply.
- Non-State enterprises shall have to register
their wage unit prices with their direct managing tax agencies as defined in
Joint Circular No.20/LB-TT of June 2, 1993 of the Ministry of Labor, War
Invalids and Social Affairs and the Ministry of Finance guiding the management
of wages and bonuses in enterprises; specifically, the following documents are
required:
+ The index of wage unit prices (according to
the form prescribed in Joint Circular No.20/LB-TT of June 2, 1993 of the
Ministry of Labor, War Invalids and Social Affairs and the Ministry of Finance)
and the explanation of the specific calculation method).
+ The total number of laborers currently
employed, including those who have entered into labor contracts; the report on
wage fund, reward fund and other revenues of wage nature (according to the form
prescribed in Joint Circular No.20/LB-TT of June 2, 1993).
In cases where an enterprise fails to register
its wage unit price, the tax agency shall be entitled to determine the wage
expenses according to Decree No.26-CP of May 23, 1993 of the Government to
serve as basis for determining taxable profit.
- For non-State economic establishments
(cooperatives, production groups, private enterprises, proprietorial
households, joint stock companies), the salaries and wages of employees shall
be accounted into the expenses according to the remuneration and product-based
wage unit prices and the contracts between the employees and such enterprises.
To ensure the equality and rationality, the
provincial/municipal Tax Departments can base themselves on the wage regime
applicable to the State enterprises and the current prices to set the salary
and wage norms for each branch and each occupation, then submit them to the
provincial/municipal People's Committees for decision in each given period.
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- The heads of business households shall be
entitled to enjoy all incomes from the business activities after deducting all
reasonable and proper expenses and paying all taxes as prescribed (including
profit tax). For such reason, the salaries and wages for the heads of business
households shall not be considered expenses when determining taxable profit.
2. To supplement the
provisions on expenses in the said Circular's section on the tax calculation
basis, as follows:
Section II.3.d:
- Reserve expenses
The State enterprises shall be entitled to
deduct in advance their reserves into their expenses according to Circular
No.64-TC/TCDN of September 15, 1997 of the Ministry of Finance guiding the
setting up and use of the reserve for the price decrease of unsold goods, the
reserve for bad debts and the reserve for the price decrease of securities of
State enterprises. The non-State economic organizations shall not be entitled
to deduct in advance such reserves into their expenses, but shall be entitled
to account uncollectible debt amounts into their expenses in the following
cases:
+ For debtors being legal persons:
. There are court decisions to settle bankruptcy
of enterprises under the Law on Bankruptcy of Enterprises.
. There are decisions of competent agency(ies)
on dissolution of enterprises as stipulated in Decree No.50-CP of June 28, 1996
of the Government on the establishment, re-organization, dissolution and
bankruptcy of State enterprises and Circular No.25-TC/TCDN of May 15, 1997 of
the Ministry of Finance guiding the above-said Decree.
. Other decisions of competent agency(ies) as
prescribed by law.
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. The debtors are still alive but there exist
enough evidences proving that they have no individual property for debt
payment;
. There are arrest warrants against debtors who
have escaped or certifications by law enforcement agencies that they are
serving their sentences.
. In cases where the debtors are dead and,
therefore, incapable of paying debts; certifications thereon by local
authorities are required.
- Expenses for educational, training, scientific
research and health care activities under the prescribed regime.
3. To amend provisions on
tax rates in the said Circular's section on the tax calculation basis as
follows:
Section II.6.a- Profit tax rates:
The fixed profit tax rates prescribed in Clause
3, Article 1 of Decree No.114/1997/ND-CP of December 16, 1997 of the Government
amending Decree No.57-CP of August 28, 1993 of the Government detailing the
implementation of the Law on Profit Tax and the Law on the Amendments and
Supplements to a Number of Articles of the Law on Profit Tax, shall be applied
as follows:
Subjects liable to pay profit tax at the fixed
tax rates on the whole year's taxable profit for each group of business lines
and occupations shall include business establishments that can determine their
taxable profits (except for small business households and households engaged in
consignment trading). More concretely:
- The tax rate of 25% shall be applicable to the
following sectors:
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+ Mining, exploitation of minerals, forest
products, aquatic products, water supply in service of production and daily
life;
+ Metallurgy;
+ Machine building: machinery, equipment,
transport means and conveyors;
+ Production of basic chemicals, fertilizers,
insecticides;
+ Production of construction materials;
+ Construction activities, including survey and
designing activities, construction supervision services;
+ Construction of infrastructure for lease in
industrial parks, export processing zones and hi-tech parks;
+ Agricultural irrigation;
+ Transport, including loading-unloading
activities at ports, garbage collection and transport;
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+ Educational and vocational training
activities;
+ Agricultural products turned out and directly
processed by farms, central logging and forestation camps and production
stations, such as: sugar cane grown and processed into molasses; cotton grown
and processed into seed cotton; coffee grown, hulled, roasted and ground into
powder; preliminary processing of liquid rubber latex into dry latex of various
kinds;
+ Interests on treasury bonds and bills;
- The tax rate of 35% shall be applicable to
consumer goods production industry, foodstuff industry, food processing and
other production branches;
- The tax rate of 45% shall be applicable to
trade service, food catering and services of various kinds;
Repairing activities of industrial character,
such as: repair of transport means, machinery and equipment, shall be rated as
the corresponding industries on the basis of the characteristics of such
activities.
For example: Repair of ships and automobiles
shall be rated to the tax rate of 25%, applicable to the manufacture of transport
means.
The repairing activities in service of daily
life, such as repair of civil electric appliances, electronic appliances,
bicycles and motorbikes shall be subject to the tax rate of 45% applicable to
other services.
Other profits shall be subject to profit tax at
the rate applicable to basic business activities. In cases where the basic
business activities are subject to different tax rates, other profits shall be
taxed at the rate applicable to the business line with the largest proportion
of the gross taxable profit.
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Section II.6.b- Profit surtax rates:
Pursuant to Article 6 of Decree No.57-CP of
August 28, 1993 of the Government and provisions of Clause 4, Article 1 of
Decree No.114/1997/ND-CP of December 16, 1997 of the Government, if a business
establishment has its taxable profit exceeding the prescribed level, it shall,
besides paying the profit tax at the fixed tax rates as mentioned above, have
to pay the profit as follows:
- A State enterprise that has a high taxable
profit shall have to pay the profit surtax. The profit surtax shall be
calculated on the profit amount remaining after the payment of profit tax at
the fixed tax rate applicable to its business branch or trade and the deduction
for setting up three funds of the enterprise (production and business promotion
fund, welfare fund and reward fund).
+ The applicable profit surtax rates:
* The tax rate of 30% shall be applicable to
such sectors as: natural resource exploitation, production, construction and
transport.
* The tax rate of 40% shall be applicable to
trade service, food catering and services of various kinds.
+ Every business establishment shall pay the
profit surtax at only one tax rate. In cases where a business establishment is
engaged in several business branches and/or trades, the applicable profit
surtax rate shall be the one applicable to the branch or trade with the highest
taxable profit.
+ The basis for determining the profit surtax:
Profit surtax
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Profit subject to profit
surtax
x
Surtax rate
Profit subject to surtax
=
Taxable profit
-
Payable profit tax at the
fixed rate
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* The levels of deduction for setting up the
three funds of an enterprise to serve as basis for determining the profit subject
to profit surtax are stipulated as follows:
The production and business promotion fund shall
represent 50% of the taxable profit amount remaining after deducting the
payable profit tax amount calculated according to the fixed rates.
The welfare fund and reward fund: shall be equal
to three months' wages paid by the enterprise on the basis of the wage regime
prescribed by the Government in Decree No.28-CP of March 28, 1997 on renewing
the management of salaries and incomes in State enterprises and its guiding
documents.
+ In cases where the business establishments are
entitled to set up specialized funds: the statutory capital supplement fund,
the financial reserve fund,... the deductions therefor shall come from the
profit remaining after the payment of profit tax and profit surtax.
+ The profit to be distributed as dividends
shall be deducted from the profit amount remaining after the payment of profit
tax at the fixed tax rate and profit surtax.
For example: Enterprise X has the following taxable
profit amount:
Taxable profit
(mil VND)
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Profit tax
(mil VND)
Supply and services
2,500
45
1,125
Transport
50
25
12.5
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80
35
28
Other profits
120
45
54
Total
2,750
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1,219.5
+ The total actual reasonable wage fund for the
whole year as prescribed: 864 million.
+ Profit tax at the fixed tax rate: 1,219.5
million
+ The funds of the enterprise
{(2,750 mil - 1,219.5
mil) x 50%} +
864 mil x 3
= 981.2 mil.
12
+ The payable profit surtax (at the tax rates
applicable to trade and service activities):
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+ The total payable profit tax amount:
1,219.5 mil +
219.7 mil = 1,439.2 mil
- Non-State economic organizations, such as
joint stock companies, limited liability companies and economic collectives
having mobilized capital from individuals, business organizations, as well as
representatives of contributed capital of organizations or collectives and
State enterprises, and earning a monthly average taxable profit per capital
contributor of more than 10 million VND, shall pay the profit surtax according
to the following stipulations:
The profit surtax shall be determined on the
basis of the profit subject to the surtax and the tax rate. The profit subject
to the surtax is the profit remaining after the payment of profit tax at the
fixed tax rate, minus (-) the investment fund which represents 50% of the
profit amount left after the payment of the profit tax. The profit surtax rate
is 25%.
For example: Joint stock commercial bank A has
15 stockholders, including 10 individuals and 5 representatives of
organizations or State enterprises, and its taxable profit in 1997 was 2,000
million VND; the profit tax and surtax shall be calculated as follows:
1) Profit tax at the fixed tax rate:
2,000 mil VND x
45% = 900 mil VND
2) Profit surtax:
The monthly average taxable profit per capital
contributor is over 11 million VND (2,000 mil VND : 15 stockholders x 12
months). So, the payable profit surtax shall be as follows:
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2,000 mil VND -
900 mil VND = 1,100 mil VND
+ Investment fund to be deducted when
calculating payable profit surtax:
1,100 mil VND x
50% = 550 mil VND
+ Payable profit surtax:
(1,100 mil VND -
550 mil VND) x 25% = 137.5 mil VND
+ The total payable tax amount:
900 mil VND +
137.5 mil VND = 1,037.5 mil VND
The above-said payable profit tax calculation
method shall apply only to the calculation of profit surtax to be paid by
non-State economic organizations.
- If a private company or business household has
a monthly average taxable profit of over 10 million VND, it shall have to pay
the profit surtax on the taxable profit amount in excess of 10 million VND at
the tax rate of 25%.
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- Profit tax payment declaration by independent
cost-accounting units: For independent cost-accounting units having branches or
attached units that have paid profit tax thereat, when the final settlement of
tax is made, such profit tax shall be incorporated into the business results of
such independent cost-accounting units. In cases where a branch or an attached
unit suffers from loss, the loss caused by objective reasons shall be
determined and offset against the taxable income of the head office; the
remaining loss amount shall be transferred to the following year as stipulated by
the Law on Profit Tax.
- An enterprise that undertakes self-reliant
capital construction activities for the internal repair or construction
purpose, including planting and tending of perennial tree gardens shall, during
the capital construction period, be entitled to annually deduct a prescribed
amount or percentage (%) from the value of such capital construction volume as
profit for setting up reward and/or welfare funds. All revenues determined as
profits shall be subject to profit tax before being distributed to employees.
- An enterprise that is engaged in property
leasing activities, such as: lease of houses and/or offices or dealing in
infrastructure with rental collected in advance for years, shall have to
conduct separate cost-accounting and its taxable profit shall be calculated as
follows:
Taxable profit from
advance rental turnover
=
Total advance rental
turnover
-
Payable turnover tax on
advance rental turnover
-
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The expenses related to the generation of
taxable turnover shall be determined as follows:
* The expenses for construction of
infrastructure or expenses for construction of residential houses and/or
offices, with regard to enterprises leasing houses, offices or dealing in
infrastructure:
+ For dealing in infrastructure or leasing
houses and offices, they are the expenses for construction of infrastructure or
those for construction of residential houses and offices directly related to
the leased area with lump-sum rental. For cases where the rental is collected
beforehand and the lease term is shorter than the minimum use duration in the
fixed asset use duration bracket (Appendix 1 issued together with Decision
No.1062-TC/QD/CSTC of November 14, 1996 of the Minister of Finance), the
construction costs shall be charged upon the actual lease term. Enterprises may
register the use duration of fixed assets in accordance with Decision
No.1062-TC/QD/CSTC of November 14, 1996.
For example:
Enterprise A has the function of leasing
offices, in 1996 it leased to enterprise B 1,000 m2 of offices for 10 years and
with a rental of 1,000,000 USD, to enterprise C 1,000 m2 for 30 years and with
a rental of 3,000,000 USD and to enterprise D 1,000 m2 for 30 years and with a
rental of 3,000,000 USD. Assuming that the construction cost of one m2 of
leased office is 1,250 USD, and the minimum use duration of the firmly-built
houses as specified in Appendix 1 issued together with Decision
No.1062-TC/QD-CSTC is 25 years, the construction costs shall be charged in each
case as follows (if enterprise A registers a house depreciation duration of 25
years):
+ For turnover generated from the lease of
offices to enterprise B, the construction costs to be charged for determining
taxable profit in 1996 shall be calculated as follows:
Construction costs =
1,250USD/m2 x
1,000m2
x 10 years = 500,000 USD
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+ For turnover generated from the lease of
offices to enterprises C and D, the construction costs to be charged for determining
taxable profit shall be calculated as follows:
Construction
costs = (1,250 USD/m2 x 1,000 m2) x 2 = 2,500,000 USD
In cases where the actual construction costs for
construction project units in a taxation year cannot be determined, such costs
shall be temporarily determined on the basis of cost estimate according to the
techno-economic explanation and charged to the leased area with lump-sum
rental. The final settlement upon the completion of the project, the actual
construction costs shall be re-determined, the difference between the actual
costs and estimated ones shall be integrated into the business results of the
fiscal year following the year of completion of the project.
* Other expenses arising in the year shall be
charged into the advance rental turnover, concretely:
Expenses arising in the
year to be charged into the advance rental turnover
=
Total of other expenses
arising in the taxation year
x
The advance rental
turnover
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- In cases where an enterprise doing business
with the infrastructure or leasing houses and/or offices is in the period of
enjoying tax preference, the taxable profit from the advance rental turnover
shall be determined as follows:
Taxable profit from the
advance rental turnover
=
Taxable profit from the
advance rental turnover
x
Number of years with
advance rental
-
Number of years with tax
exemption
Number of years with
advance rental
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Number of years with tax
exemption
=
Number of years with tax
exemption according to the investment license
-
Number of years counted
from the year the enterprise makes profit
Every two years of tax reduction shall be tantamount
to one year of tax exemption
5. This Circular takes
effect 15 days after its signing and applies to the final settlement of profit
tax from 1997. The previous stipulations which are contrary to this Circular
are now annulled.
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