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MINISTRY OF FINANCE
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SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness
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No. 103/2014/TT-BTC
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Hanoi, August
06, 2014
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CIRCULAR
GUIDELINES FOR FULFILLMENT OF TAX LIABILITY OF
FOREIGN ENTITIES DOING BUSINESS IN VIETNAM OR EARNING INCOME IN VIETNAM
Pursuant to the Law
on Value-added tax No. 13/2008/QH12 dated June 03, 2008; the Law No. 31/2013/QH13 dated June 19, 2013 on amendments to the
Law on Value-added tax; the Government's Decree No. 209/2013/ND-CP dated
December 18, 2013 providing guidance on the implementation of the Law on
Value-added tax;
Pursuant to the Law
on Value-added tax No. 13/2008/QH12 dated June 03, 2008; the Law No.
31/2013/QH13 dated June 19, 2013 on amendments to the Law on Value-added tax;
the Government's Decree No. 209/2013/ND-CP dated December 18, 2013 providing
guidance on the implementation of the Law on Value-added tax;
Pursuant to the Law
on Tax administration No. 78/2006/QH11 dated November 29, 2006 and the Law No. 21/2012/QH13 dated November 20, 2012 on
amendments to the Law on Tax administration;
Pursuant to the
Government's Decree No. 215/2013/ND-CP dated December 23, 2013 defining the
functions, tasks, entitlements and organizational structure of the Ministry of
Finance;
At the request of
the Director of the General Department of Taxation;
The Ministry of
Finance promulgates a Circular on guidelines for fulfillment of tax liability
of foreign entities doing business in Vietnam or earning income in Vietnam.
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GENERAL
REGULATIONS
Article
1. Regulated entities
This Circular is
applied to the entities below (except for the cases in Article 2 Chapter I):
1. Foreign business organizations having permanent
establishments in Vietnam or not; foreign business individuals that are
residents of Vietnam or not (hereinafter referred to as foreign contractors and
foreign sub-contractors) who do business in Vietnam or earn income in Vietnam
under contracts, agreements, or commitments between the foreign contractor and
a Vietnamese entity or between a foreign sub-contractor and a foreign
sub-contractor to perform part of the main contract.
2. Foreign entities providing goods in Vietnam in the form of
domestic export and earn income in Vietnam under contracts between them and
Vietnamese companies (except for cases in which goods are processed and then
returned to foreign entities) or distribute goods in Vietnam or provide goods
under Incoterms rules that require the sellers to be responsible for goods that
have been taken into Vietnam’s territory.
Example 1:
- Case 1: Company X
who is located overseas signs a contract to buy cloth from Vietnamese company A
and requests company A to deliver the goods to Vietnamese company B (in the
form of domestic export defined by law). Company X earns an income in Vietnam under a contract between company X and company B (company X sells cloth to company
B).
In this case, company
X is regulated by this Circular and thus, company B shall declare and pay tax
on behalf of company X in accordance with this Circular.
- Case 2: Company Y
who is located overseas signs a contract to process cloth with Vietnamese
company C and requests company C to deliver the goods to Vietnamese company D
for further processing (in the form of domestic export defined by law). Company
Y earns an income in Vietnam under a contract between company Y and company D
(company Y sells goods to company D).
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- Case 3: Company Z
who is located overseas signs a contract to process or buy cloth with
Vietnamese company E (company Z provides raw materials for company E) and
requests company E to deliver the goods to Vietnamese company G for further
processing (in the form of domestic export defined by law). After processing,
company G returns the goods to company Z and company Z must pay company G for
the processing under the contract.
In this case, company
Z is not regulated by this Circular.
3. Any foreign entity that performs the whole or part of
goods distribution or service provision in Vietnam, who is still the owner of
goods that are delivered to Vietnamese organizations or take responsibility for
the cost of distribution, advertising, marketing, quality of goods/services
delivered to Vietnamese organizations, or impose prices (including the cases in
which the foreign entity authorities or hires some Vietnamese organization to
perform part of the distribution or service provision pertaining to goods sale
in Vietnam).
Example 2:
Company A who is
located overseas delivers goods to a Vietnamese company B or authorizes company
B to perform some services (delivery, distribution, marketing, advertising)
while company A is still the owner of goods delivered to company B or still
take responsibility for the cost, quality of goods/services delivered to
company B, or the one who impose prices for goods/services. In this case,
company A is regulated by this Circular.
4. Any foreign entity that negotiates or concludes contracts
via a Vietnamese entity.
5. Any foreign entity that exercises its right to export,
import, distribute goods in Vietnam, buy goods to export, or sell goods to
Vietnamese traders in accordance with trading laws.
Article 2. Entities not
regulated by this Circular
This Circular does not
apply to:
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2. Any foreign entity that provides goods for Vietnamese
entities without ancillary services in Vietnam in the form of:
- Delivery at the
foreign border checkpoint: the seller incurs all responsibility, costs, and
risk to the transport and delivery of goods at the foreign checkpoint; the
buyer incurs all the responsibility, cost and risk to the receipt and transport
of goods from the foreign checkpoint to Vietnam (even if goods are delivered at
a foreign border checkpoint under a contract which prescribes that the seller
is responsible for warranty).
- Delivery at a
Vietnam’s border checkpoint: the seller incurs all responsibility, costs, and
risk until goods reaches the Vietnam’s checkpoint; the buyer incurs all the
responsibility, cost and risk to the receipt and transport of goods from the
Vietnam’s checkpoint (even if goods are delivered at a Vietnam’s border
checkpoint under a contract which prescribes that the seller is responsible for
warranty).
Example 3:
Company C who is located in Vietnam signs a contract to import excavators and bulldozers with company D who is located overseas.
Goods are delivered at a Vietnam’s border checkpoint. Company D incurs all
responsibility and costs related to the goods until they arrive at the Vietnam’s border checkpoint; company C is incurs responsibility and costs related to the receipt and
transport of goods from the Vietnam’s checkpoint. The contracts prescribes that
the goods come with a one-year warranty by company D. Other than that, company
D does not provide any services related to such goods in Vietnam. In this case, company D’s provision of goods are not regulated by this Circular.
3. Any foreign entity that earns income from services
provided and used outside Vietnam.
Example 4:
Company H of Hong Kong
provides material handling services at a port in Hong Kong for company A in Vietnam. Company A pays company H for material handling services at the Hong Kong port.
In this case, material
handling services at Hong Kong port are provided in Hong Kong, thus they are
not taxable in Vietnam.
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Professional services,
bond management and issuance services, legal counseling, depository services,
roadshow services provided by a foreign organization for company A in Vietnam
at the countries where company A issues its GDRs (Global Depository Receipt)
and international bonds are not regulated by this Circular.
4. Any foreign entity that provides any of the services below
for Vietnamese entities, provided the services are provided overseas:
- Repair of means of
transport (aircraft, aircraft engine, aircraft and ship parts), machinery and
equipment (including undersea cables and transmission devices), with or without
spare parts;
- Advertising and
marketing (except for online advertising and online marketing);
Example 6:
When a Vietnamese
company signs a contract with an organization in Singapore to run
advertisements for products in Singapore, this advertising service provided by
the Singaporean organization is not regulated by this Circular. In case the
organization in Singapore runs online advertisements for sale of products in
Vietnam’s market, the advertising service is regulated by this Circular.
- Trade promotion and
investment encouragement;
- Brokering goods sale
and services provision overseas;
Example 7:
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- Training (except for
online training);
Example 8:
Company A in Vietnam signs a contract with University B of Singapore for provision of training for
Vietnamese employees at University B. The training services provided by
University B are not regulated by this Circular. In case Company A in Vietnam signs a contract with University B which requires University B to provide training for
Vietnamese employees in Vietnam in the form of online training, the online
training services provided by University B are regulated by this Circular.
- Division of charges
for international telecommunications services between Vietnam and foreign
contractors, which are provided outside Vietnam, lease of transmission lines
and satellite frequency bands overseas as prescribed by the Law on
telecommunications; division of charge for international postal services
between Vietnam and other countries as prescribed by the Law on Postal services
and international agreements on postal services to which Vietnam is a
signatory, provided such services are provided outside Vietnam.
5. Any foreign entity using a bonded warehouse or inland
clearance depot (ICD) as a warehouse serving international transport, transit
of goods, or storage of goods to be processed by other companies.
Article
3. Interpretation of terms
In this Circular, the
terms below are construed as follows:
1. “Main contract” means a contract or agreement between a
foreign contractor and a Vietnamese party.
2. “Subcontract” means a contract or agreement between a
foreign contractor and a subcontractor.
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3. Vietnam’s territory include Vietnam’s
territorial land, islands, inland waters, territorial sea and the sky above,
the waters beyond territorial sea, including sea bed and the underground earth
over which Vietnam exercises its full national sovereignty and jurisdiction.
Article
4. Taxpayers
1. Foreign contractors and foreign
sub-contractors who meet the requirements in Article 8 Section 2 Chapter II or
Article 14 Section 4 Chapter II, do business in Vietnam, or earn income in Vietnam. The business is done under the main contract with a Vietnamese entity or another
foreign entity doing business in Vietnam under the subcontract.
Foreign contractors and foreign sub-contractors
that have permanent establishments in Vietnam or are residents of Vietnam shall be determined in accordance with the Law on Corporate income tax, the Law on
Personal income tax, and guiding documents.
If permanent establishments and residents are
defined otherwise by a Double Taxation Agreement to which Vietnam is a signatory, such Agreement shall apply.
2. Organizations established and operated
under Vietnam’s law or registers its operation under Vietnam law; business
entities that purchase services, services attached to goods, or pay income in
Vietnam under main contracts or subcontracts; purchase goods in the form of
domestic import or under Incoterms; distribute goods or provide services on
behalf of foreign entities in Vietnam (hereinafter referred to as Vietnamese
entities) include:
- Business
organizations established under Company law, the Law on Investment, and the Law
on Cooperatives;
- Business
organizations of political organizations, socio-political organizations, social
organizations, socio-professional organizations, armed force units, public
service providers, and other organizations;
- Petroleum
contractors defined in the Law on Petroleum;
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- Foreign
organizations or representatives of foreign organizations permitted to operate
in Vietnam;
- Air ticket outlets
or agents in Vietnam of foreign airlines that are entitled to enter and leave Vietnam to provide transport services directly or in cooperation;
- Organizations and
individuals that provide sea transport services of foreign shipping companies;
agents in Vietnam of foreign logistics companies;
- Securities
companies, securities issuers, asset management companies, commercial banks
where securities investment funds or foreign organizations open their
securities investment accounts
- Other organizations
in Vietnam;
- Businesspeople in Vietnam.
Taxpayers defined in
Clause 2 Article 4 Chapter I are obliged to withhold VAT and corporate income
tax as prescribed in Section 3 Chapter II before paying foreign contractors and
foreign sub-contractors.
Article
5. Taxes
1. Taxpayers defined in Clause 2 Article 4 Chapter I are
obliged to withhold VAT and corporate income tax as prescribed in Section 3
Chapter II before paying foreign contractors and foreign sub-contractors.
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3. Foreign contractors and foreign
sub-contractors shall pay other taxes, fees and charges in accordance with
applicable regulations of law on taxes, fees and charges.
Chapter II
BASIS AND METHODS FOR
TAX CALCULATION
Section 1. Items subject to
VAT and income subject to corporate income tax
Article 6. Items subject to
VAT
1. Services or services attached to goods
subject to VAT that are provided by foreign contractors and foreign
sub-contractors under main contracts and subcontracts and used for manufacture,
sale, and consumption in Vietnam (except for the case in Article 2 of Chapter
I), including:
- Services or services attached to goods subject
to VAT that are provided in Vietnam by foreign contractors and foreign
sub-contractors and consumed in Vietnam;
- Services or services attached to goods subject
to VAT that are provided outside Vietnam by foreign contractors and foreign
sub-contractors and consumed in Vietnam.
2. If a contract stipulate that goods
shall be delivered to a location in Vietnam (except for the case in Clause 5
Article 2 Chapter I), or goods supply is attached to services provided in
Vietnam such as installation, test run, warranty, maintenance, replacement, or
other services (including complimentary services), the value of goods is only
subject to VAT at importation, whether or not such services are part of the
goods supply contract. The value of services is subject to VAT as prescribed in
this Circular. If the contract does not separate the value of goods from that
of attached services (including complimentary services), the whole contract is
subject to VAT.
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Company A in Vietnam signs a contract to buy a
production line for a cement factory contract with company B overseas. The
total contract value is USD 100 million, including USD 80 million of machinery
and equipment (some of them are subject to 10% VAT) and USD 20 million of
installation guide, supervision, warranty, and maintenance.
VAT payable by company B is determined as
follows:
- VAT applies to value of services (USD 20
million), not value of imported machinery and equipment.
- If the value of services cannot be separated
from the value of machinery and equipment, VAT shall apply to the whole
contract value (USD 100 million).
Article 7. Income subject to
corporate income tax
1. Income subject to corporate income tax
of foreign contractors and foreign sub-contractors are income from provision of
goods, services, and services attached to goods in Vietnam under main contracts
and subcontracts (except for the case in Article 2 Chapter I).
2. If goods is delivered to a location in
Vietnam (except for the case in Clause 5 Article 2 Chapter I), or goods
provision is attached to some services provided in Vietnam such as marketing,
sale promotion, installation, test run, warranty, maintenance, replacement, and
other services (including complimentary services), whether or not such services
are part of the goods supply contract, then income subject to corporate income
tax of foreign contractors and foreign sub-contractors is the total value of
goods/services.
Example 10:
Company A in Vietnam signs a contract to buy a
production line for a cement factory project with company B overseas. The total
contract value is USD 100 million (VAT-exclusive), including USD 80 million of
machinery and equipment and USD 20 million of installation guide, supervision,
warranty, and maintenance.
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- Corporate income tax on the value of imported
machinery and equipment (USD 80 million) and VAT on the value of services (USD
20 million) shall be calculated separately at specific rates.
- If the value of machinery and equipment cannot
be separated from the value of services, corporate income tax shall apply to
the total contract value (USD 100 million) at a specific rate.
3. Incomes earned in Vietnam by foreign contractors and foreign sub-contractors are any incomes they receive under main
contracts or subcontracts (except for the case described in Article 2 Chapter
I), regardless of their business locations. Taxable incomes of foreign
contractors and foreign sub-contractors in some cases:
- Income from transfer of the right to ownership
or the right to enjoyment of property, transfer of the right to participate in
business contracts/projects in Vietnam, transfer of right to property in
Vietnam.
- Income from copyright means any income paid
for the right to use, transfer of intellectual property rights and technology
transfer, software copyright (including payments for the right to use, transfer
of copyright, transfer of industrial property rights, transfer of technologies
and software copyright.
“Copyright”,
“industrial property rights”, “technology transfer” are defined in the Civil Code,
the Law on Intellectual property, the Law on Technology transfers, and their
guiding documents.
- Income from transfer
and liquidation of assets.
- Income from loan
interest means income of the creditor from loans, whether or not such loans are
secured, whether or not the creditor receive profits of the borrower; income
from deposit interest (except for deposit interest of foreigners and interest
derived from deposit accounts meant to sustain operation in Vietnam of
diplomatic missions, representative offices of international organizations and
non-governmental organizations in Vietnam), including associated bonuses (if
any); income from interest on late payment under contracts; income from bond
interest and bond discounts (except for tax-free bonds), treasury bills, income
from certificates of deposit.
Loan interest includes
the fees payable by the Vietnamese party under the contract.
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- Fines and damages
paid by parties breaching contracts.
- Other incomes
defined by law.
Section
2. PAYING VAT USING CREDIT-INVOICE METHOD, PAYING CORPORATE INCOME TAX
ACCORDING TO DECARED REVENUE AND EXPENSE
(hereinafter
referred to as declaration method)
Article
8. Requirements and regulated entities
A foreign contractor
or foreign sub-contractor shall pay tax in accordance with instructions in
section 2 Chapter II if the requirements below are satisfied:
1. The contractor/subcontractor has a
permanent establishment in Vietnam or the contractor/subcontractor is a
resident of Vietnam;
2. The period of business operation on Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the
contract.
3. The contractor/subcontractor applies Vietnam’s accounting practice, has applied for tax registration and issued with a taxpayer ID number
(TIN) by a tax authority.
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The Law on Value-added
tax and its guiding documents shall apply.
Article
10. Corporate income tax
The Law on Corporate
income tax and its guiding documents shall apply.
Section
3. PAYING VAT AND CORPORATE INCOME TAX ACCORDING TO FIXED RATES
(hereinafter
referred to as direct method)
Article
11. Requirements and regulated entities
If the foreign
contractor or foreign sub-contractor fails to meet any of the requirements
mentioned in Article 8 Section 2 Chapter II, the Vietnamese party shall pay tax
on their behalf in accordance with instructions in Article 12 and Article 13
Section 3 of Chapter II.
Article
12. VAT
The basis for tax
calculation is the revenue subject to VAT and tax rate (%).
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=
Revenue subject to VAT
x
VAT rate
Foreign contractors
and foreign sub-contractors paying tax using direct method must not deduct VAT
on goods/services purchased to execute main contracts and subcontracts.
1. Revenue subject
to VAT
a) Revenue subject to
VAT:
Revenue subject to VAT
is total revenue from provision of services and services attached to goods
subject to VAT received by the foreign contractor or foreign sub-contractor
inclusive of subtracting taxes payable and any costs (if any) paid by the
Vietnamese party instead of the foreign contractor or foreign sub-contractor.
b)
Determination of revenue subject to VAT in some cases:
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Revenue subject to VAT
=
VAT-exclusive revenue
1 - VAT rate
Example 11:
Foreign contractor A
signs a contract with a Vietnamese entity to supervise the construction of
cement factory Z. The contract value is USD 300,000 exclusive of VAT (but
inclusive of corporate income tax). Furthermore, the Vietnamese entity provides
accommodations and workplaces for managers of foreign contractor A, which are
valued at USD 40,000 exclusive of VAT. According to the contract, the
Vietnamese party is responsible for paying VAT on behalf of the foreign
contractor. The revenue subject to VAT earned by foreign contractor A is calculated
as follows:
Revenue subject to VAT
=
300,000 + 40,000
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b.2) If a foreign
contractor signs a contract with Vietnamese sub-contractors or foreign
sub-contractors who pay tax using declaration method or foreign sub-contractors
who pay tax using mixed methods to do part of the works in the main contract
signed with the Vietnamese entity, and a list of such Vietnamese
sub-contractors and foreign sub-contractors is enclosed with the main contract,
the revenue subject to VAT of the foreign contractor does not include the value
of works carried out by Vietnamese sub-contractors or foreign sub-contractors.
In case the foreign
contractor signs a contract with suppliers in Vietnam to buy raw materials,
machinery and equipment to execute the main contract, buy goods/services
serving internal use or the works other than those in the main contract, the
values of such goods/services shall not be deductible when calculating revenue
subject to VAT of the foreign contractor.
Example 12:
Foreign contractor A
signs a contract to build cement factory Z with a Vietnamese entity. The total
contract value is USD 10 million inclusive of VAT. According to the main
contract, foreign contractor A shall delegate part of the construction
(stipulated in the main contract signed with the Vietnamese entity) to
Vietnamese sub-contractor B, which is valued at USD 01 million exclusive of
VAT. Furthermore, during the construction process, foreign contractor A buys
building materials (bricks, cement, sand, etc.), other goods and services such
as stationery, car rental and hotel rooms for experts, etc. to serve the
contract execution.
In this case, the
revenue subject to VAT earned by foreign contractor A is calculated as follows:
Revenue subject to VAT
= USD 10 million – USD 1 million = USD 9 million
Do not subtract the
value of raw materials, goods and services such as car rental, hotel rooms,
stationery, etc. from the revenue subject to VAT of foreign contractor A.
b.3) If the foreign
sub-contractors that sign contracts with the foreign contractor pay tax using
direct method, the Vietnamese entity shall declare and pay VAT on behalf of the
foreign contractor and foreign sub-contractors at corresponding VAT rates under
the main contract and subcontracts. Foreign sub-contractors are not required to
declare and pay VAT on the value of works they carry out under subcontracts
signed with the foreign contractor, which has been paid by the Vietnamese
entity.
b.4) Revenue subject
to VAT from renting out vehicles, machinery and equipment is the total rent. If
the revenue from renting out vehicles machinery and equipment includes the
costs directly paid by the renters such as insurance, costs of maintenance,
registration, operators, and shipment to Vietnam, the revenue subject to VAT
does not include such costs if proving documents are presented.
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b.6) With regard to
outbound international delivery services (whether the service charge is paid by
the consignor or the consignee), revenue subject to VAT is the whole revenue
received by the foreign contractor.
Example 13:
Company A overseas
provide postal services from abroad to Vietnam and vice versa. The revenue
subject to VAT earned by company A is calculated as follows:
+ Revenue from inbound
(from abroad to Vietnam) postal services is not subject to VAT (whether service
charges are paid by the consignor or consignee);
+ The whole revenue
earned by company A from outbound postal services is subject to VAT (whether service
charges are paid by the consignor or consignee).
Example 14:
Vietnamese Company B
provides postal services from abroad to Vietnam and vice versa. To provide
these services, company B pays overseas company C an amount of x USD. VAT
incurred by company C is calculated as follows:
+ With regard to
inbound postal services (whether service charges are paid by the consignor or
consignee) the amount of x USD received by company C is not subject to VAT;
+ With regard to
outbound postal services (whether service charges are paid by the consignor or
consignee) the amount of x USD received by company C is not subject to VAT;
company B shall declare, withhold, and pay VAT on the x amount paid to company
C.
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a) VAT rates applied
to trade:
No.
Trade
VAT rate
1
Services, rental of
machinery and equipment, insurance; construction, installation exclusive of
raw materials, machinery and equipment.
5
2
Production,
transportation, services attached to goods; construction, installation
inclusive of raw materials, machinery and equipment.
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3
Other trades
2
b) Determination of
revenue VAT rates in some cases:
b.1) If the main
contract or subcontract consists of various business activities or part of the
contract value is not subject to VAT, VAT rates shall be applied separately on
each business activity carried out by the foreign contractor or foreign
sub-contractor. If the value of each business activity cannot be separated, the
highest VAT rate shall apply to the whole contract value.
With regard to construction/installation
inclusive of raw materials or machinery and equipment: if the value of each
activity can be separated, the foreign contractor is not required to pay VAT on
the value of raw materials or machinery and equipment, which has been paid during
importation or is exempt from VAT; corresponding VAT rate shall apply to the
remaining value. With regard to construction/installation inclusive of raw
materials or machinery and equipment: if the value of each activity can be
separated, the foreign contractor is not required to pay VAT on the value of
raw materials or machinery and equipment, which has been paid during
importation or is exempt from VAT; corresponding VAT rate shall apply to the
remaining value. Where the foreign contractor signs contracts with
subcontractors to delegate the works inclusive of raw materials or machinery
and equipment, and the foreign contractor only provide the other services under
the main contract, 5% VAT on service provision shall apply.
Example 15:
Foreign contractor A signs
a contract to build power plant X with a Vietnamese entity. The contract value
is USD 75 million (inclusive of VAT).
Case 1: Value of each
business activity can be separated:
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Value
of machinery and equipment subject to VAT: USD 30 million.
Value
of machinery and equipment not subject to VAT: USD 15 million.
Value of warranty
services attached thereto: USD 5 million.
+
Value of technological line design and other design services: USD 5 million.
+
Value of workshops, other auxiliary systems, construction, and installation:
USD 15 million.
+ Value of supervision
services and installation guide: USD 3 million.
+ Value of operation
training and test run services: USD 2 million.
During importation, VAT on USD 30 million of
machinery and equipment has been paid. Value of machinery and equipment not
subject to VAT is USD 15 million.
Foreign contractor shall only pay VAT on the
value of services and construction/installation in the contract signed with the
Vietnamese entity. Value of services (warranty, design, supervision,
installation guide, technical training, test run) is USD 15 million, which
applies 5% VAT on revenue from service provision; value of construction and
installation is USD 15 million, which applies 3% VAT on revenue from
construction and installation (VAT is not imposed on value of imported
machinery and equipment).
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Case 3: Where foreign
contractor A signs contracts with subcontractors to delegate the works
inclusive of raw materials and foreign contractor A only provide the other
services (such as supervision service, installation guide) the value of such
services shall apply 5% VAT.
b.2) With regard to
contracts to provide machinery and equipment that include services performed in
Vietnam, if value of machinery and equipment can be separated from value of
services, corresponding VAT rates shall apply to corresponding parts of the
contract. If the value of services cannot be separated from the value of
machinery and equipment, 3% VAT shall apply.
Example 16:
Korean contractor H,
who does not follow Vietnam’s accounting practice, signs a contract with
company B in Vietnam to provide machinery and equipment attached to
installation and test run services for USD 10 million. The contract does not
separate the value of machinery and equipment from the value of services, 3%
VAT shall apply.
3. VAT incurred by
foreign contractors and foreign sub-contractors that provide goods/services
serving petroleum exploration and extraction
a. Any foreign
contractor or foreign sub-contractor that provides goods/services serving
petroleum exploration and extraction fails to satisfy one of the requirements
in Article 8 Section 2 Chapter II, the Vietnamese entity shall withhold and pay
VAT before paying the foreign contractor or foreign sub-contractor. The amount
of tax paid on behalf of the foreign contractor or foreign sub-contractor
equals (=) the total payment exclusive of VAT multiplied by (x) VAT rate
applied to the goods/services provided by the foreign contractor.
b. In case the foreign
contractor or foreign sub-contractor provides goods/services serving petroleum
exploration and extraction satisfy all three requirements in Article 8 Section
2 Chapter II or two requirements in Clause 1, Clause 2 Article 8 Section 2
Chapter II, and adheres to regulations of law on accounting and instructions of
the Ministry of Finance:
- If the Vietnam entity pays the foreign contractor or foreign sub-contractor before they obtain the tax
registration certificate to declare and pay tax using credit-invoice method,
the Vietnam entity shall withhold and pay VAT on their behalf before making the
payment. The amount of tax paid on behalf of the foreign contractor equals (=)
the total payment exclusive of VAT multiplied by (x) VAT rate applied to the
goods/services provided by the foreign contractor.
- When the foreign
contractor or foreign sub-contractor is issued with the tax registration
certificate by the tax authority, they may transfer invoices and receipts made
during the tax period to the Vietnamese entity in order for the Vietnamese
entity to declare and pay VAT on their behalf.
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Example 17:
In January 2015, foreign contractor A signs a
contract with a Vietnamese entity to provide petroleum services for USD 01
million. Before obtaining the tax registration certificate, foreign contractor
A incurs a VAT of USD 5,000 on purchased goods/services. On March 15, 2015, the
Vietnamese entity pays USD 100,000 to foreign contractor A (exclusive of VAT
and inclusive of corporate income tax). The Vietnamese entity shall pay VAT on
behalf of foreign contractor A, which equals (=) 100,000 x 10% = 10,000 (USD).
On May 01, 2015, foreign contractor A applies
for a registration and is issued with a tax registration certificate by the tax
authority. In May 2015, the Vietnamese entity pays USD 200,000 to foreign
contractor A (exclusive of VAT and inclusive of corporate income tax). Thus, output
VAT incurred by foreign contractor A in May is USD 20,000 (= 200,000 x 10%).
Input VAT of foreign contractor A incurred
during the period from May 01, 2015 to May 30, 2015 is USD 2,000 (foreign
contractor A has a taxpayer ID number during this period). Foreign contractor A
shall transfer all invoices and receipts made in May 2015 to the Vietnamese
entity in order for the Vietnamese entity to declare and pay VAT on behalf of
foreign contractor A.
VAT payable by foreign contractor A in the tax
period May 2015 is 18,000 USD (= 20,000 USD – 2,000 USD).
Foreign contractor A must not deduct USD 5,000
of input VAT incurred before May 01, 2015.
Article
13. Corporate income tax
The basis for tax
calculation is the revenue subject to corporate income tax CIT and tax rate
(%).
CIT payable
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Revenue subject to CIT
x
CIT rate
1. Revenue subject
to CIT
a) Revenue subject to
CIT
Revenue subject to CIT
is the total revenue exclusive of VAT received by the foreign contractor or
foreign sub-contractor, inclusive of taxes payable. Revenue subject to CIT
includes the costs paid by the Vietnamese entity on behalf of the foreign
contractor or foreign sub-contractor (if any).
b) Determination of
revenue subject to CIT in some cases:
b.1) If the main
contract or subcontract stipulates that revenue received by the foreign
contractor or foreign sub-contractor is exclusive of CIT, the revenue subject
to CIT shall be calculated as follows:
Revenue subject to CIT
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CIT-exclusive revenue
1 - CIT rate
Example 18:
Foreign contractor A
signs a contract with a Vietnamese entity to supervise the construction of
cement factory Z. The contract value is USD 285,000 exclusive of VAT and CIT.
Furthermore, the Vietnamese entity provides accommodations and workplaces for
managers of foreign contractor A, which are valued as USD 38,000 exclusive of
VAT and CIT. According to the contract, the Vietnamese entity is responsible
for paying VAT and CIT on behalf of the foreign contractor. CIT payable by
foreign contractor A is calculated as follows:
Revenue subject to
CIT:
Revenue subject to CIT
=
285,000 + 38,000
=
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(1- 5%)
b.2) If a foreign
contractor signs a contract with Vietnamese sub-contractors or foreign
sub-contractors who pay tax using declaration method or foreign sub-contractors
who pay tax using mixed methods to do part of the works in the main contract
signed with the Vietnamese entity, and a list of such Vietnamese
sub-contractors and foreign sub-contractors is enclosed with the main contract,
the revenue subject to CIT of the foreign contractor does not include the value
of works carried out by Vietnamese sub-contractors or foreign sub-contractors.
In case the foreign
contractor signs a contract with suppliers in Vietnam to buy raw materials,
machinery and equipment to execute the main contract, buy goods/services
serving internal use or the works other than those in the main contract, the
values of such goods/services shall not be deductible when calculating revenue
subject to CIT of the foreign contractor.
Example 19:
Foreign contractor A
signs a contract to build cement factory Z with a Vietnamese entity. The total
contract value is USD 9 million exclusive of VAT. According to the main
contract, foreign contractor A shall delegate part of the construction
(stipulated in the main contract signed with the Vietnamese entity) to
Vietnamese sub-contractor B, which is valued at USD 01 million exclusive of
VAT. Furthermore, during the construction process, foreign contractor A buys
building materials (bricks, cement, sand, etc.), other goods and services such
as stationery, car rental and hotel rooms for experts, etc. to serve the
contract execution.
In this case, the
revenue subject to CIT earned by foreign contractor A is calculated as follows:
Revenue subject to CIT
= USD 9 million – USD 1 million = USD 8 million
Do not subtract the
value of raw materials, goods and services such as car rental, hotel rooms,
stationery, etc. from the revenue subject to CIT of foreign contractor A.
b.3) If the foreign
sub-contractors that sign contracts with the foreign contractor pay tax using
direct method, the Vietnamese entity shall declare and pay CIT on behalf of the
foreign contractor and foreign sub-contractors at corresponding CIT rates under
the main contract and subcontracts. Foreign sub-contractors are not required to
declare and pay CIT on the value of works they carry out under subcontracts
signed with the foreign contractor, which has been paid by the Vietnamese
entity on their behalf.
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b.5) Revenue subject
to CIT of a foreign airline is the revenue from selling tickets, airway bills,
and other revenues (except for those collected on behalf of the State or other
organizations as prescribed by Vietnam’s law) in Vietnam from transport of
passengers, cargo, and other objects by their own flights or flights in
cooperation with other airlines.
Example 20:
In the 1st
quarter of 2013, foreign airline A earns a revenue of USD 100,000, including
USD 85,000 from passenger air tickets, USD 10,000 from airway bills, and USD
5,000 from miscellaneous charges orders (MCOs); USD 1,000 of airport fees is
collected on behalf of the state; USD 2,000 is paid for returned tickets.
Revenue subject to CIT
earned by foreign airline A in the 1st quarter of 2013 is calculated
as follows:
Revenue subject to CIT
= 100,000 – (1,000 + 2,000) = 97,000 (USD)
b.6) Revenue subject
to CIT of a foreign marine shipping company is the total charge for transport
of passengers, cargo, and other surcharges received by the shipping company
from the loading port to the unloading port (including charge for the
consignments transit through intermediate ports) and/or charge fro transport of
cargo between Vietnam’s ports.
The charge being the
basis for calculating CIT does not include the charge on which CIT has been
paid at a Vietnam’s port and the charge paid to a Vietnamese courier for
transporting goods from a Vietnam’s port to an intermediate port.
Example 21:
Company A acts as an
agent of foreign marine shipping company X. According to the agent contract,
company A, on behalf of company X, receives goods to be transported abroad,
issues bills of lading, collects charges, etc.
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Company A hires ships
from Vietnamese or foreign companies to carry goods from Vietnam to Singapore for USD 20,000. From Singapore, goods shall be transported to the USA by ships of company X.
Revenue subject to CIT
of company X is calculated as follows:
Revenue subject to CIT
= 100,000 – 20,000 = 80,000 USD
b.7) Revenue subject
to CIT from outbound logistics services (whether the service charge is paid by
the consignor or consignee) is the whole revenue received by the foreign
contractor exclusive of international transport charge payable to the courier
(by air or by sea).
b.8) Revenue subject
to CIT from outbound postal services (whether the service charge is paid by the
consignor or consignee) is the whole revenue received by the foreign
contractor.
Example 22:
Overseas company A
provides postal services from Vietnam to abroad and vice versa. The revenue
subject to CIT of company A is calculated as follows:
+ Revenue from inbound
postal services is not subject to CIT (whether service charges are paid by the
consignor or consignee);
+ The whole revenue
earned by company A from outbound postal services is subject to CIT (whether
service charges are paid by the consignor or consignee).
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Vietnamese Company B
provides postal services from Vietnam to abroad and vice versa. To provide
these services, company B pays overseas company C an amount of x USD. CIT
incurred by company C is calculated as follows:
+ The amount of x USD
received by company C from inbound postal services is not subject to CIT
(whether service charges are paid by the consignor or consignee) is not subject
to CIT;
+ With regard to
outbound postal services (whether service charges are paid by the consignor or
consignee), the amount of x USD received by company C is not subject to CIT;
company B shall declare, withhold, and pay CIT on the x amount paid to company
C.
b.9) Revenue subject
to CIT from reinsurance is calculated as follows:
- Revenue subject to
CIT from ceding reinsurance abroad is the charge for ceding reinsurance abroad
received by the foreign contractor (including reinsurance commission and
indemnity paid to clients as agreed).
- Revenue subject to
CIT from receipt of reinsurance from abroad is the reinsurance commission
received by the foreign contractor.
b.10) Revenue subject
to CIT from securities transfer is calculated as follows:
Revenue subject to CIT
from transferring securities and certificates of deposit is the total revenue
from selling securities and certificates of deposit at that time.
b.11) Revenue subject
to CIT from interest rate swap (IRS) is the difference between the interest
receivable and interest payable received by the foreign contractor within a
calendar year. The determination of tax period according to calendar years is
specified in the Law on Corporate income tax, the Law on Tax administration,
and their guiding documents.
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Bank A has a loan of
USD 10 million with a monthly interest rate of 5.2%. The effective period of
the contract is 03 years from February 01, 2012 to February 01, 2015. Payments
shall be made every 06 months at the beginning of the period.
According to the loan
contract, A negotiates with bank B overseas to execute the IRS contract, in
particular:
- The effective period
of the contract is 03 years from February 01, 2012 to February 01, 2015.
Payments shall be made every 06 months at the beginning of the period.
- Floating interest
payable to B is libor + 0.25% and B has to pay A a fixed interest rate of 5.2%.
This means if libor + 0.25% is higher than the fixed interest rate in the IRS
contract, B will receive a difference of interest from A, which equals (=)
(libor + 0.25%) – interest payable at 5.2%. On the contrary, if libor + 0.25%
is lower than the fixed interest rate in the IRS contract, A will receive a
difference of interest from B, which equals (=) 5.2% - interest received by A
at an interest rate of libor + 0.25%.
Payment time
Libor interest rate (%)
The rate payable to B by A (%)
The rate payable to A by B
The rate received by B or A after offsetting
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A
B
A
B
1/2/2012- 31/7/2012
4.80
5.05
5.20
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-
15
1/8/2012 - 31/1/2013
5.00
5.25
5.20
0.05
5
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1/2/2013- 31/7/2013
4.90
5.15
5.20
0.05
-
5
1/8/2013 - 31/1/2014
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5.20
5.20
0.00
-
-
1/2/2014 - 31/7/2014
4.90
5.15
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0.05
5
1/8/2014- 30/1/2015
5.05
5.30
5.20
0.10
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10
Revenue subject to CIT
received by B is calculated as follows:
- In 2012 (from
January 01, 2012 to December 31, 2012): Total amount B receives from A: (15,000
- 5,000) = 10,000 (USD);
- In 2013 (from
January 01, 2013 to December 31, 2013): Total amount B receives from A: (5,000
- 0) = 5,000 (USD);
- In 2014 (from
January 01, 2014 to December 31, 2014): B has to pay A totally USD 5,000
(taxable revenue = 0)
- In 2015: The
contract stipulates that payments are made at the beginning of the period, thus
there is no transactions between A and B.
b.12) With regard to
treasury bills:
Revenue subject to CIT
from each type of treasury bills held by investors shall be determined on their
maturity date.
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Revenue subject to CIT
=
(
Face value of treasury bills
-
Weighted mean of buying prices of treasury bills held by
the investor on the maturity date
)
x
Weighted mean of buying price of treasury bills held by
the investor on the maturity date
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Step 1: determine the
amount of treasury bills held on the maturity date.
Step 2: Determine the
amount, time, and corresponding buying prices of the treasury bills held on the
maturity date (determined in Step 1) under First-in-first-out rules.
Step 3: Determine the
weighted buying price using the formula:
=∑( amount of treasury
bills held on the maturity date x corresponding buying prices at on the buying
date) ÷ amount of treasury bills held on the maturity date.
Example 25: On January
01, 2015, treasury bills with a face value of VND 100,000 and a term of 06
months are issued for VND 89,000 per treasury bill. After being issued,
treasury bills are posted on HNX. Investor A makes the transactions below from
January 02 to July 01, 2015 (maturity date):
Transaction date
Buy/Sell
Amount
Price
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Buy
100
90,000
1/2/2015
Buy
100
92,000
1/3/2015
Sell
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93,000
1/4/2015
Buy
40
94,000
1/5/2015
Sell
20
95,000
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Step 2: Determine the
amount, time, and corresponding buying prices of the treasury bills held on the
maturity date after subtracting the amount of sold treasury bills according to
First-in-first-out rules: 150 treasury bills are held on the maturity date,
including:
+ 10 treasury bills at
VND 90,000 bought on January 02, 2015
+ 100 treasury bills
at VND 92,000 bought on February 02, 2015
+ 40 treasury bills at
VND 94,000 bought on April 02, 2015
Step 3: Determine the
weighted buying price using the formula:
Weighted mean of
buying prices: [(40 x 94,000 + 100 x 92,000 + 10 x 90,000)/ 150] = 92.400 (VND)
Revenue subject to CIT
from the treasury bills received by the investor on the maturity date: (100,000
– 92,400) x 150 = 1,140,000 (VND).
2. CIT rate (%)
a) CIT rates (%)
applied to trading:
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Trade
CIT rate
1
Trading:
distribution, supply of goods, raw materials, supplies machinery and
equipment; distribution of goods, raw materials, supplies, machinery and
equipment attached to services in Vietnam (including those provided in the
form of domestic exports, except for goods processed under processing
contracts with foreign entities); supply of goods under Incoterms
1
2
Services, lease of
machinery and equipment, insurance, lease of oilrig.
5
- Restaurant, hotel,
casino management services
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- Derivative
financial services
2
3
Lease of aircraft,
aircraft engines, parts of aircrafts and ships
2
4
Construction,
installation, whether or not inclusive of raw materials, machinery and
equipment
2
5
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2
6
Transfer of
securities, certificates of deposit, ceding reinsurance abroad, reinsurance
commission
0.1
7
Loan interest
5
8
Income from
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b) CIT rates in some
cases:
b.1) If a main
contract or subcontract consists of various business activities, the
application of CIT rates to each business activity carried out by the foreign
contractor or foreign sub-contractor shall be specified in the contract. If the
value of each business activity cannot be separated, the highest CIT rate shall
apply to the whole contract value.
With regard to
construction and installation services inclusive of raw materials or machinery
and equipment: if the value of each business activity is separated in the main
contract, corresponding CIT rate shall apply to each of them. If the value of
each business activity cannot be separated, the 2% CIT shall apply to the whole
contract value. Where the foreign contractor signs a contract with
subcontractors to delegate the works inclusive of raw materials or machinery
and equipment, and the foreign contractor only provide the other services under
the main contract, 5% VAT on service provision shall apply.
Example 26:
Foreign contractor A
signs a contract to build power plant X with a Vietnamese entity. The contract
value is USD 75 million (exclusive of VAT and inclusive of CIT).
Case 1: Value of each
business activity can be separated:
+ Value of machinery
and equipment provided for the construction: USD 50 million.
Including:
Value of machinery and
equipment: USD 45 million
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+
Value of technological line design and other design services: USD 5 million
+ Value of workshops,
other auxiliary systems, construction, and installation: USD 15 million.
+ Value of supervision
and installation guide: USD 3 million.
+ Value of operation
training and test run services: USD 2 million.
1% CIT shall apply to
USD 45 million of machinery and equipment, 2% CIT shall apply to USD 15 million
of construction and installation; 5% CIT shall apply to USD 15 million of other
services (warranty, design, supervision, installation guide, technical training,
and test run).
Case 2: If the value
of each business activity cannot be separated, the 2% CIT shall apply to the
whole contract value which is USD 75 million.
Case 3: Where foreign
contractor A signs contracts with subcontractors to delegate the works
inclusive of raw materials and foreign contractor A only provide the other
services (such as supervision service, installation guide) the value of such
services shall apply 5% VAT.
b.2) With regard to
contracts to provide machinery and equipment that include services performed in
Vietnam, if value of machinery and equipment can be separated from value of
services, fixed CIT rates shall apply to corresponding parts of the contract.
If the value of services cannot be separated from the value of machinery and
equipment, 2% CIT shall apply.
Example 27:
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+ Value of machinery
and equipment provided for the construction: USD 60 million.
+ Value of
technological line design and other design services: USD 5 million
+ Value of supervision
and installation guide: USD 3 million.
+ Value of operation
training and test run services: USD 2 million.
If
the value of machinery and equipment can be separated from value of services,
the value of machinery and equipment shall apply CIT rate on trading; the value
of design, supervision, installation, training, and test run services shall
apply CIT rate on service provision.
Otherwise, 2% CIT
shall apply to the whole contract value (USD 70 million).
3. CIT on compensation paid by the party that breaches the
contract, which is higher than the damage and thus considered a taxable income:
Foreign contractor may
pay CIT on the income from compensation at the rate of CIT on taxable revenue
or according to the declaration of revenue and expense with the common tax
rate.
Section
4. PAYING VAT USING CREDIT-INVOICE METHOD, PAYING CORPORATE INCOME TAX
ACCORDING TO FIXED RATES
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Article
14. Requirements and regulated entities
Foreign contractors
and foreign sub-contractor that meet the requirements in Clause 1 and Clause 2
Article 8 Section 2 Chapter II, and the organizations that adhere to
regulations of law on accounting of the Ministry of Finance shall register with
tax authority to pay VAT using credit-invoice method and pay CIT according to
fixed rates.
Article
15. VAT
Article 9 Section 2
Chapter II shall apply.
Article
16. Corporate income tax
Article 13 Section 3
Chapter II shall apply.
Chapter III
IMPLEMENTATION
Article 17. Effect
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2. VAT and CIT on the contracts and subcontracts concluded
before this Circular takes effect shall be determined in accordance with
corresponding legislative documents effective on the conclusion dates.
3. In case any international agreements to which Vietnam is a signatory contains regulations tax liabilities of foreign contractors and
foreign sub-contractors that are at odds with instructions in this Circular,
such international agreements shall apply.
Difficulties that
arise during the implementation of this Circular should be reported to the
Ministry of Finance for consideration./.
PP THE MINISTER
DEPUTY MINISTER
Do Hoang Anh Tuan
ATTACHED FILE
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