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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 direct 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 direct 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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ĐT: (028) 3930 3279 DĐ: 0906 22 99 66
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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ĐT: (028) 3930 3279 DĐ: 0906 22 99 66
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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ĐT: (028) 3930 3279 DĐ: 0906 22 99 66
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 copyright
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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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