| THE MINISTRY OF FINANCE -------- | SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ---------- |
| No. 130/2008/TT-BTC | Hanoi, December 26, 2008 |
CIRCULAR
GUIDING THE IMPLEMENTATION OF A NUMBER OF ARTICLES OF ENTERPRISE INCOME TAX LAW NO. 14/2008/QH12, AND GUIDING THE IMPLEMENTATION OF THE GOVERNMENT’S DECREE NO. 124/2008/ ND-CP OF DECEMBER 11, 2008, WHICH DETAILS THE IMPLEMENTATION OF A NUMBER OF ARTICLES OF THE LAW ON ENTERPRISE INCOME TAX
Pursuant to June 3, 2008 Law No. 14/2008/QH12 on Enterprise Income Tax;
Pursuant to November 29, 2006 Law No. 78/2006/QH11 on Tax Administration;
Pursuant to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing the implementation of a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Government’s Decree No. 118/2003/ND-CP of November 27, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance,
The Ministry of Finance guides the implementation of enterprise income tax as follows:
Part A
SCOPE OF APPLICATION OF ENTERPRISE INCOME TAX
1. Enterprise income taxpayers are organizations engaged in goods production and trading or service provision which have taxable incomes (below referred to as enterprises), including:
1.1. Enterprises established and operating under the Law on Enterprises, the Law on Slate Enterprises, the Law on Foreign Investment in Vietnam, the Investment Law, the Law on Credit Institutions, the Law on Insurance Business, the Securities Law, the Petroleum Law, and the Commercial Law, and enterprises defined in other legal documents in the form of joint-stock company; limited liability company; partnership; private enterprise; state enterprise; law office and private notary public office; party to business cooperation contract; party to oil and gas production sharing contract, oil and gas joint-venture enterprise or jointly managed company;
1.2. Public or non-public non-business units engaged in goods production and trading or service provision that have taxable incomes in any domain;
1.3. Organizations established and operating under the Law on Cooperatives;
1.4. Enterprises established under foreign laws (below referred to as foreign enterprises) with Vietnam-based permanent establishments.
Foreign enterprises’ permanent establishments are production and business establishments through which foreign enterprises conduct some or all income-generating production and business activities in Vietnam, including:
- Branches, executive offices, factories, workshops, means of transport, mines, oil and gas fields, or other places for extraction of natural resources in Vietnam;
- Construction sites and construction, installation or assembly works;
- Providers of services, including consultancy services through employees or other organizations or individuals;
- Agents for foreign enterprises;
- Vietnam-based representatives that are competent to sign contracts in the name of foreign enterprises, or representatives that are incompetent to sign contracts in the name of foreign enterprises but regularly deliver goods or provide services in Vietnam.
In case a double taxation avoidance agreement which the Socialist Republic of Vietnam has signed otherwise provides for permanent establishments, the provisions of that agreement prevail.
1.5. Organizations other than those defined at Points 1.1, 1.2, 1.3 and 1.4, Clause 1 of this Part, which conduct goods production and trading or service provision activities and have taxable incomes;
2. Foreign enterprises or organizations that conduct production and business activities in Vietnam not under the Investment Law or Enterprise Law or have incomes generated in Vietnam shall pay enterprise income tax under the Finance Ministry’s specific guidance. When conducting capital transfer activities, these enterprises shall pay enterprise income tax under the guidance in Part E of this Circular.
Part B
ENTERPRISE INCOME TAX CALCULATION METHOD
1. The payable enterprise income tax amount in a tax period is the taxed income multiplied by the tax rate.
The payable enterprise income tax ii determined according to the following formula
Payable enterprise income tax = Taxed income x Enterprise income tax rate
For an enterprise making deductions for setting up a scientific and technological development fund, the payable enterprise income tax is determined as follows:
Payable enterprise income tax = (Taxed income - Deduction for setting up a scientific and technological development fund) x Enterprise income tax rate
An enterprise which has paid enterprise income tax or similar tax outside Vietnam is entitled to subtraction of the paid enterprise income tax amount which must not exceed the payable enterprise income tax amount under the Law on Enterprise Income Tax.
2. A tax period is determined according to the calendar year. If an enterprise applies a fiscal year other than the calendar year, the tax period shall be determined according to the applied fiscal year. The first tax period for a new enterprise and the final tax period for an enterprise established as a result of type or ownership transformation, merger, separation, split, dissolution or bankruptcy shall be determined to conform to the accounting period under the accounting law.
3. If the first year’s tax period of a new enterprise, counting from the time it is granted a business registration certificate, or the final year’s tax period of an enterprise established as a result of form conversion, ownership transformation, consolidation, merger, separation, split, dissolution or bankruptcy, is less than 3 months, it will be added to the subsequent year’s tax period (for new enterprises) or the preceding year’s tax period (for enterprises established as a result of type or ownership transformation, consolidation, merger, separation, split, dissolution or bankruptcy) to form an enterprise income tax period. The first or final year’s enterprise income tax period must not exceed 15 months.
4. Non-business units trading in goods or providing services liable to enterprise income tax (at the rate of 25%) that, after having enjoyed enterprise income tax relief (if any), can account turnover but cannot account and determine expenses for and incomes from business activities, shall declare and pay enterprise income tax at a percentage of the goods sale or service provision turnover, specifically:
- For service provision: 5%;
- For goods trading: 1%;
- For other activities: 2%.
5. Enterprises which have foreign-currency turnover, expenditures, taxable incomes and taxed incomes shall convert these foreign-currency amounts into Vietnam dong at the average exchange rate on the inter-bank foreign currency market, announced by the State Bank of Vietnam at the time such foreign-currency turnover, expenditures, taxable incomes and taxed incomes arise, unless otherwise provided for by law. A foreign currency having no exchange rate with Vietnam dong must be converted via another foreign currency having an exchange rate with Vietnam dong.
Part C
ENTERPRISE INCOME TAX BASES
I. TAXED INCOME
Taxed income in a tax period is taxable income minus tax-exempt income and losses carried forward from preceding years under regulations.
Taxed income is determined according to the following formula:
Taxed income = Taxable income - (Tax-exempt income + Losses carried forward under regulations)
II. TAXABLE INCOMES
Taxable incomes in a tax period include income from goods production and trading and service provision and other incomes.
Taxable income in a tax period is determined as follows:
Taxable income = (Turnover - Deductible expenses) + Other incomes
Income from goods production and trading or service provision is the turnover from goods production and trading or service provision activities minus deductible expenses for these activities. An enterprise which conducts different business activities subject to different tax rates shall separately calculate income from each activity, multiplied by the corresponding tax rate.
Income from real estate transfer must be separately accounted for enterprise income tax declaration and payment and may not be cleared against incomes or losses from other production and business activities.
III. TURNOVER
1. Turnover used for calculating taxable income is determined as follows:
Turnover used for calculating taxable income is the total of sales, processing remunerations or service provision charges, including price subsidies, surcharges and additional amounts enjoyed by enterprises, regardless of whether money has been collected or not.
1.1. For enterprises paying value-added tax according to the tax credit method, turnover used for calculating taxable income is exclusive of value-added tax.
Example: Enterprise A pays value-added tax according to the tax credit method. Its value-added invoice indicates the following details:
Selling price: VND 100,000.
Value-added tax (10%): VND 10,000.
Payment price: VND 110,000.
The turnover used for calculating taxable income will be VND 100,000.
1.2. For enterprises paying value-added tax according to the method of calculation of tax based directly on added value, turnover used for calculating taxable income is inclusive of value-added tax.
Example: Enterprise B pays value-added tax according to the method of calculation of tax based directly on added value. Its sale invoice only indicates the selling price of VND 110,000 (inclusive of value-added tax).
The turnover used for calculating taxable income will be VND 110,000.
2. The time of determining turnover used for calculating taxable income is as follows:
2.1. For goods sale, it is the time of transferring the right to own or use goods to the purchaser.
2.2. For service provision, it is the time of completing the provision of a service to the purchaser or the time of billing the service provision.
If the time of billing precedes the time of completing the service provision, the time of determining turnover will be the time of billing.
2.3. Other cases provided for by law.
3. Turnover used for calculating taxable income in some cases is determined as follows:
3.1. For goods sold or services provided on installment or deferred payment, it is the lump sum paid for the goods or service, excluding installment or deferred payment interest.
3.2. For goods and services used for barter, donation or internal consumption, it shall be determined based on the market selling price of products, goods or services of the same or similar categories at the time of barter, donation or internal consumption.
Goods and services used for internal consumption are those delivered or supplied by enterprises for consumption, excluding goods and services used for enterprises’ continued production and business activities.
3.3. For goods processing, it is the proceeds from processing activities, including remuneration, costs of fuel, power and auxiliary materials, and other expenses.
3.4. For goods consigned to agents or consignees for commissioned sale at prices fixed by principals or consignors under agency or consignment contracts, it shall be determined as follows:
- For enterprises acting as principals or consignors (including pyramid selling), it is the total sum of sales.
- For enterprises acting as agents or consignees and selling goods at prices fixed by principals or consignors, it is the commission earned under the agency or consignment contract.
3.5. For asset lease, it is the rent paid periodically by the lessee under the lease contract. In case the lessee advances the rent for many years, it shall be allocated to the number of years for which the rent has been advanced.
3.6. For credit and financial leasing activities, it is the receivable loan interest or financial lease turnover arising in a tax period.
3.7. For transportation activities, it is the whole turnover from passenger, cargo and luggage transportation arising in a tax period.
3.8. For electricity and clean water supply, it is the sum of money indicated on the value-added invoice. The time of determining turnover used for calculating taxable income is the day on which electricity meter readings are certified and recorded on electricity or clean water bills.
Example: An electricity bill is recorded with an electricity meter reading from December 5 to January 5. Turnover recorded on this bill will be used for January.
3.9. For golf course business activities, it is the proceeds from the sale of membership cards and golf playing tickets and other revenues in a tax period.
3.10. For insurance and reinsurance business activities, it is the receivable sum of principal insurance premiums, agency service charges (loss survey, indemnity consideration, claim for a third party’s to pay indemnity, disposal of cargo subject to 100% indemnity); re-insurance undertaking charges, re-insurance ceding commissions and other revenues after subtracting refunded or reduced premiums or re-insurance undertaking charges; and refunded or reduced re-insurance ceding commissions.
In case insurers provide co-insurance, turnover used for calculating taxable income of each insurer is the principal insurance premium allocated to each insurer based on the co-insurance ratio, exclusive of value-added tax.
For insurance policies containing an agreement on periodical payment of premiums, it is the receivable sum of money arising in each period.
3.11. For construction and installation activities, it is the value of the work, work item or work volume tested upon take over.
- For construction and installation activities involving the contracted contracted supply of materials, raw materials, machinery and equipment, it is the sum earned from these activities, inclusive of the value of materials, raw materials, machinery and equipment.
- For construction and installation activities not involving the contracted supply of materials, raw materials, machinery and equipment, it is the sum earned from these activities, exclusive of the value of materials, raw materials, machinery and equipment.
3.12. For business activities conducted under business cooperation contracts:
- If parties to a business cooperation contract divide business results based on the goods or service sales turnover, it is the turnover divided to each party under the contract.
- If parties to a business cooperation contract divide business results based on products, it is the turnover from products divided to each party under the contract.
- If parties to a business cooperation contract divide business results based on pre-tax profits, the turnover used for determining pre-tax profits is the sum of goods or service sales under the contract. The contracting parties shall appoint one of them as a representative to issue invoices, record turnover and expenditures and determine pre-tax profits divided to each party. Each party shall fulfill its enterprise income tax obligation under current regulations.
- If parties to a business cooperation contract divide business results based on after-tax profits, it is the sum of goods or service sales under the contract. The contracting parties shall appoint one of them as a representative to issue invoices, record turnover and expenditures and declare and pay enterprise income tax on behalf of the other parties.
3.13. For prize-winning game business activities (casinos, prize-winning video games and betting entertainment), it is the excise lax-inclusive proceeds from these activities, excluding prizes paid to customers.
3.14. For securities trading, it is the proceeds from securities brokerage, dealing, issuance underwriting, investment portfolio management, financial consultancy and investment, investment fund management, fund certificate issuance, market organization and other securities services under law.
3.15. For derivative financial services, it is proceeds from the provision of derivative financial services in a tax period.
III. DEDUCTIBLE AND NON-DEDUCTIBLE EXPENSES UPON DETERMINATION OF TAXABLE INCOME
1. Except for expenses specified in Clause 2 of this Section, enterprises may deduct any expenses which fully meet the following conditions:
1.1. They are actually paid for production and business activities;
1.2. They are evidenced with adequate lawful invoices and documents as prescribed by law.
2. Non-deductible expenses upon determination of taxable income include:
2.1. Expenses not fully satisfying the conditions specified in Clause 1 ol this Section, except the uncompensated value of losses caused by natural disasters, epidemics or other force majeure circumstances;
Enterprises shall themselves determine the total value of losses caused by natural disasters, epidemics or other force majeure circumstances in accordance with law.
Uncompensated value of losses caused by natural disasters, epidemics or other force majeure circumstances is the total value of losses minus the value which must be compensated by organizations or individuals responsible under law.
2.2. Fixed asset depreciation expense in one of the following cases:
a/ Expense for depreciation of fixed assets not used for goods production and trading or service provision activities.
Particularly for fixed assets serving laborers at enterprises, such as mid-shift rest houses, mid-shift eateries, locker rooms, toilet facilities, clean water tanks, roofed parking lots, health stations or clinics, cars for the transport of laborers to and from workplaces, job training facilities and laborers’ houses constructed by enterprises, their depreciations are allowed to be accounted as deductible expenses upon determination of taxable income.
b/ Expense for depreciation of fixed assets without papers evidencing that they belong to enterprises (except for finance-leased ones).
c/ Expense for depreciation of fixed assets which are not managed, monitored and reflected in enterprises’ accounting books under current regulations on fixed asset management and cost accounting.
d/ Depreciation in excess of the level prescribed in the Finance Ministry’s current regulations on fixed asset management, use and depreciation. For profit-earning enterprises which wish to apply a rapid depreciation method for renewing technologies for which the straight-line depreciation is applicable, it is the depreciation in excess of the prescribed rapid depreciation level.
Before making depreciation, enterprises shall register the fixed asset depreciation method with their managing tax agencies. Annually, enterprises shall themselves decide on the ratio of fixed asset depreciation under the Finance Ministry’s current regulations on fixed asset management, use and depreciation, including the case of rapid depreciation. In the course of conducting production and business activities, enterprises which change depreciation ratios not exceeding the prescribed ones may adjust them before the deadline for submitting enterprise income tax finalization declarations of the year of depreciation.
Enterprises receiving fixed assets used as contributed capital or transferred upon separation, split, consolidation, merger or transformation, which are re-valuated under regulations, may include their depreciations in deductible expenses according to their re-valuated historical costs. Enterprises receiving other assets not qualified as fixed assets used as contributed capital or transferred upon separation, split, consolidation, merger or transformation, which are re-valuated under regulations, may include their depreciations in deductible expenses according to their re-valuated prices.
For fixed assets created by enterprises themselves, their historical costs, of which depreciations are allowed to be included in deductible expenses, are the total of all production expenses for their creation.
e/ Depreciation corresponding to part of the historical cost in excess of VND 1.6 billion/car, for passenger cars of 9 seats or less for which use registration and Fixed asset depreciation accounting are made on or after January 1, 2009 (except cars exclusively used for the commercial passenger transportation or for tourism and hotel business); depreciation of fixed assets which are civil aircraft and yachts not used for commercial cargo, passenger or tourist transportation.
Passenger cars of 9 seats or less exclusively used for commercial passenger transportation or for tourism and hotel business include cars registered under the names of enterprises which register the passenger transportation, tourism or hotel business line in their business registration certificates.
Civil aircraft and yachts not used for commercial cargo, passenger or tourist transportation include civil aircraft and yachts of enterprises which register and account fixed asset depreciation but do not register cargo, passenger or tourist transportation in their business registration certificates.
g/ Depreciation of fixed assets which have been wholly depreciated.
h/ For works on land used for both production and business and other purposes, depreciations of the value of works on land corresponding to the area of land not used for production and business activities must not be included in reasonable expenses.
For works, such as offices, workshops ot shops for production and business activities, built on land leased or borrowed from organizations, individuals or households (not leased directly from the State or in industrial parks), enterprises may include their depreciations in deductible expenses if the following conditions are satisfied:
- The land lease or borrowing contract has been notarized at a notary public office under law; the lease or borrowing duration indicated in the contract must not be shorter than the minimum depreciation duration of fixed assets.
- Invoices of payment for the construction volumes, enclosed with the work construction contract and the documents on contract liquidation and finalization of the value of the works, bear the name, address and tax identification number of the enterprise.
- The works on land are managed, monitored and accounted under current regulations on fixed asset management.
2.3. Expense for raw materials, materials, fuel, energy and goods in excess of reasonable consumption limits.
Enterprises shall themselves set reasonable consumption limits for raw materials, materials, fuel, energy or goods used for production and business activities from the beginning of a year or a period of product manufacture and notify these limits to their managing tax agencies within 3 months after commencement of production using these consumption limits. In the course of production and business, if enterprises adjust and add these consumption limits, they shall notify such adjustment and addition to their managing tax agencies by the deadline for submitting enterprise income tax finalization declarations. If the State has set consumption limits for some raw materials, materials, fuels or goods, those limits shall be applied.
2.4. Expenses for the purchase of goods or services without invoices, for which lists of purchased goods and services (according to form No. 01/TNDN to this Circular, not printed herein) are allowed to be made, without such lists enclosed with payment documents for goods sellers or service providers in the following cases: purchase of agricultural, forest or fishery products from producers or fishermen; purchase of handicraft products made of jute, rush, bamboo, leaf, rattan, straw, coconut husk or shell, or raw materials taken from agricultural products, from non-business craftsmen; purchase of soil, rock, sand or gravel from local mining inhabitants; purchase of scraps from individual collectors; purchase of used domestic appliances from households or individuals, and purchase of some services from non-business individuals.
Enterprises’ at-law representatives or authorized persons shall sign lists of purchased goods and services and take responsibility for their accuracy and truthfulness. If listed goods or service purchasing prices are higher than market prices at the time of goods purchase, tax agencies shall, based on market prices of goods or services of the same or similar kinds at the time of purchase, re-determine these prices so as to re-calculate reasonable expenses upon determination of taxable income.
2.5. Salaries and wages in one of the following cases:
a/ Salaries, wages and other accounted amounts payable to laborers which have actually not been paid or have been paid without invoices or documents as prescribed by law.
b/ Bonuses to laborers which are not of salary nature, and bonuses for which the payment conditions are not specified in labor contracts or collective labor agreements.
c/ Salaries, wages and allowances payable to laborers which, upon the expiration of the time limit for submission of annual tax finalization dossiers, have actually not been paid, unless enterprises make deductions for setting up provision funds for addition to the subsequent year’s salary funds to ensure uninterrupted payment of salaries and not for any other purposes. Enterprises may decide on annual provision levels not exceeding 17% of their realized salary funds.
d/ Salaries and wages of owners of private enterprises or one-member limited liability companies (owned by a single individual); remunerations paid to founders and members of members’ councils or boards of directors who do not personally participate in administering goods production and trading or service provision activities.
2.6. In-kind expense for laborers’ clothing without invoice; in-kind expense for laborers’ clothing in excess of VND 1.5 million/person/ year; in-cash expense for laborers’ clothing in excess of VND 1 million/person/year.
2.7. Rewards for initiatives and innovations on which enterprises have no specific regulations or when councils for test of initiatives and innovations are not set up.
2.8. Expense for purchase of life insurance for laborers.
2.9. Travel allowances paid for annual leave in contravention of the Labor Code; allowances paid to laborers on domestic and overseas work-trips (excluding travel and accommodation expenses) in excess of twice the limit set by the Ministry of Finance for state cadres, public-servants and employees.
2.10. The following expenses paid for ineligible beneficiaries or improper purposes or in excess of prescribed limits:
a/ Additional expenses paid for female laborers which are allowed to be included in deductible expenses, including:
- Expense for job re-training for female laborers when their current jobs are no longer suitable and they must change to other jobs under enterprises’ development plannings.
This expense covers training fee (if any) + salary rank- or grade-based difference (covering 100% of trainees’ salaries).
- Salaries and allowances (if any) paid to teachers in crèches and kindergartens organized and managed by enterprises.
- Expense for additional medical check-ups in a year, such as examination of occupational and chronic diseases, or gynecological diseases for female laborers.
- Allowances paid to female laborers after the first or second delivery.
- Extra-time allowances paid under current regulations to female laborers who, for objective reasons, return to work during their post-natal or breastfeeding leave, including the case of payment of salaries in the form of products.
b/ Additional expenses for ethnic minority laborers which are allowed to be included in deductible expenses, including training fee (if any) plus salary rank- or grade-based difference (covering 100% salaries for trainees); housing subsidies, social insurance and health insurance premiums for ethnic minority laborers, if they have not yet received the State’s supports under regulations.
2.11. Deductions for contributing to social insurance funds, health insurance funds and trade union funds in excess of prescribed limits. Contributions to higher-level management funds and contributions to associations’ funds in excess of limits set by the associations.
2.12. Electricity or water charges paid under electricity or water contracts signed between owners of rented production and business places and electricity or water suppliers, without payment documents in one of the following cases:
a/ The renting enterprise paid electricity or water charges directly to the electricity or water supplier without making a list thereof (according to form No. 02/TNDN attached to this Circular, not printed herein) enclosed with electricity or water bills and the rent contract.
b/ The renting enterprise paid electricity or water charges directly to the owner of the rented place without making a list thereof (according to form No. 02/TNDN attached to this Circular, not printed herein) enclosed with electricity or water bills which match the actually consumed electricity and water volume, and the rent contract.
2.13. Rents for fixed assets in excess of the limits allocated according to the number of years for which the lessee has advanced rents.
Example: Enterprise A rents a fixed asset for 4 years and pays a lump-sum rent of VND 400 million. The fixed asset rent accounted as an annual expense is VND 100 million. The annual rent for fixed assets in excess of VND 100 million is not allowed to be included in reasonable expenses upon determination of taxable income.
Expenses for repair of rented fixed assets are allowed to be accounted as expenses or gradually allocated into expenses within 3 years, if it is indicated in the asset rent contract that the lessee is responsible for repairing the assets during the rent term.
Expenses for procuring assets other than fixed assets, such as expense for purchase and use of technical documents, patents, technology transfer licenses, trademarks, commercial advantages, etc., are allowed to be gradually allocated to business expenses within 3 years.
2.14. Interests on loans for production and business activities borrowed from entities other than credit institutions or economic organizations, in excess of 150% of the prime interest rate announced by the State Bank of Vietnam at the time of loan provision.
2.15. Interests on loans contributed to the charter capital or interests on loans paid corresponding to the insufficient charter capital amount to be contributed according to the schedule indicated in the enterprise’s charter, even when the enterprise has commenced production and business activities.
2.16. Deductions made for setting up of provisions for price decreases of goods left in stock, lost financial investments, bad debts and warranty for products, goods and construction and installation works, and such provisions used in contravention of the Finance Ministry’s guidance on deductions for setting up provisions.
2.17. Deductions made for setting up of job-loss allowance provision funds and severance allowances paid to laborers in contravention of current regulations.
2.18. Expenses pre-deducted for a certain period which have not yet been paid or have not been fully paid by the end of the period.
Pre-deducted expenses include those for regular overhaul of fixed assets and for activities of which turnover has been accounted but contractual obligations have not yet been fulfilled, and other pre-deducted expenses.
For fixed assets requiring regular overhaul, business establishments may pre-deduct estimated repair expenses in their annual expenses. If actual repair expenses are larger than pre-deducted estimated ones, business establishments may include the difference in reasonable expenses.
2.19. Expenses for advertisement, marketing, sales promotion and brokerage commission; expenses for reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies’ newspapers given as presents or gifts directly related to production and business activities, in excess of 10% of total deductible expenses; for a new enterprise, such expenses in excess of 15% of deductible expenses for the first 3 years from the date of establishment. Total deductible expenses exclude restricted expenses specified at this Point; for commercial activities, total deductible expenses exclude costs of goods sold;
The above restricted expenses for advertisement, marketing, sales promotion and brokerage commissions exclude insurance brokerage commissions under the law on insurance business; commissions paid to agents selling goods at fixed prices; and the following expenses arising at home or abroad (if any): expense for market research, such as survey, exploration, interview, and information collection, analysis and assessment; expense for market development and survey; expense for consultants to conduct research and development and assist with market survey; expense for product display and introduction and organization of trade fairs and exhibitions, such as expense for opening showrooms or stalls for product display and introduction; expense for hiring places for product display and introduction; expense for raw materials and instruments to support product display and introduction; and expense for the transportation of products for display and introduction.
The restricted level of 15% for the first 3 years is applicable only to new enterprises that are granted business registration certificates on or after January 1, 2009, but not to new enterprises established as a result of consolidation, separation, split, merger, type or ownership transformation.
Example: Company A was established in 2008. In 2009, it made an enterprise income tax finalization report containing the following expense data:
- Expense for advertisement, marketing, sales promotion and brokerage commissions; expense for reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies’ newspapers given as presents or gifts directly related to production and business activities, with adequate lawful invoices and documents: VND 250 million.
- Total expenses allowed to be included in expenses (excluding expenses for advertisement, marketing, sales promotion and brokerage commissions; expenses for reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies’ newspapers given as presents or gifts directly related to production and business activities): VND 2 billion.
So, the maximum deductible expenses for advertisement, marketing, sales promotion and brokerage commissions; reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies’ newspapers given as presents or gifts directly related to production and business activities, which are allowed to be included in expenses, will be:
VND 2 billion multiplied by (x) 10% equals (=) VND 200 million
Therefore, total deductible expenses included in the 2009 expenses will be:
VND 2 billion plus (+) VND 200 million equals (=) VND 2.2 billion
2.20. Foreign exchange rate difference loss resulting from the re-valuation of monetary items of foreign currency origin at the end of a fiscal year; exchange rate difference loss arising in the course of capital construction investment (in the stage before production and business activities are carried out).
2.21. Education aid granted to entities other than those defined in Clause a of this Section or paid without aid certification dossiers specified at Clause b below:
a/ Education aid covers aid for public, people-founded and private schools in the national education system under the education law, which is used for purposes other than contribution of capital to, or purchase of shares from, schools; material foundations for teaching, learning and other activities in schools; aid for regular school activities; scholarships granted directly or via agencies or organizations with the aid-mobilizing function under law to pupils and students in general education, vocational education and tertiary education institutions under the Education Law; aid for contests in subjects taught at schools with contestants being learners; aid for setting up study promotion funds under the law on education and training.
b/ An aid certification dossier comprises an aid certification record signed by the aid-granting business establishment’s representative, the aid-receiving lawful established education institution’s representative, and aid-receiving pupils and students (or agencies or organizations with the aid-mobilizing function) (made according to form No. 03/TNDN attached to this Circular, not printed herein), enclosed with goods purchase invoices and documents (if aid is in kind) or payment documents (if aid is in cash).
2.22. Healthcare aid granted to entities other than those defined in Clause a of this Section or granted without aid certification dossiers specified in Clause b below:
a/ Healthcare aid covers aid granted to healthcare establishments set up under the health law, which is used for purposes other than contribution of capital to, or purchase of shares from, those establishments; aid for medical equipment and instruments and medicines; aid for regular activities of hospitals and health centers; aid in cash for patients via agencies or organizations with the aid-mobilizing function under law.
b/ An aid certification dossier comprises an aid certification record signed by the aid-granting enterprise’s representative, the representative of aid recipient (or agency or organization with the aid-mobilizing function), made according to form No. 04/TNDN attached to this Circular (not printed herein), enclosed with goods purchase invoices and documents (for aid in kind) or payment documents (for aid in cash).
2.23. Aid for surmounting consequences of natural disaster to entities other than those defined in Clause a of this Section or provided without aid certification dossiers specified at Clause b below:
a/ Aid for surmounting consequences of natural disaster covers aid in cash or in kind for surmounting consequences of natural disaster provided directly to organizations established and operating under law; or provided to individuals suffering damage caused by natural disaster via agencies or organizations with the aid-mobilizing function under law.
b/ An aid certification dossier comprises an aid certification record signed by the aid-granting enterprise’s representative, the representative of the aid-receiving organization suffering damage caused by natural disaster (or agency or organization with the aid-mobilizing function) (made according to form No. 05/TNDN attached to this Circular, not printed herein), enclosed with goods purchase invoices and documents (for aid in kind) or payment documents (for aid in cash).
2.24. Aid for building houses of gratitude for the poor to entities other than those defined in Clause a of this Section or provided without aid certification dossiers specified in Clause b below:
a/ Eligible aid recipients include poor households as prescribed by the Prime Minister. Aid may be granted in cash or in kind directly or via agencies or organizations with the aid-mobilizing function under law for building houses for poor households.
b/ An aid certification dossier comprises an aid certification record signed by the aid-granting enterprise’s representative, the aid recipient (or agency or organization with the aid-mobilizing function) (made according to form No. 06/TNDN attached to this Circular, not primed herein); and the poor household certification document of the local administration, enclosed with goods purchase invoices and documents (for aid in kind) or payment documents (for aid in cash).
2.25. Business administration expenses allocated by an overseas company to its Vietnam-based permanent establishment in excess of the level calculated according to the following formula:
| Business administration expense allocated by an overseas company to its Vietnam-based permanent establishment in a tax period | = | Taxed turnover of the Vietnam-based permanent establishment in a tax period | x | Total business administration expenses of the overseas company in a tax period |
| Total turnover of the overseas company, including turnovers of permanent establishments based in other countries in a tax period |
Business administration expenses allocated by an overseas company to its Vietnam-based permanent establishment shall be counted from the time such Vietnam-based permanent establishment is set up.
The base for determining expenses and turnover of an overseas company is the overseas company’s financial statement audited by an independent audit company, indicating the overseas company’s turnover and management expenses, and management expenses allocated by the overseas company to its Vietnam-based permanent establishment.
Overseas companies’ Vietnam-based permanent establishments which do not yet implement accounting, invoice and voucher regulations and do not yet pay tax according to the declaration method may not account business administration expenses allocated by their overseas companies as reasonable expenses.
2.26. Expenses offset with other funding sources; expenses already paid from enterprises’ scientific and technological development funds.
2.27. Expenses not corresponding with taxed turnover.
2.28. Expenses for insurance business, lottery business and securities trading and other specific business activities in contravention of the Finance Ministry’s relevant guidance.
2.29. Fines for administrative violations, including violations of traffic law. violations of business registration or accounting and statistics regulations and violations of the tax law, and other fines for administrative violations as prescribed by law.
2.30. Expenses for capital construction investment at the investment stage for the formation of fixed assets; contributions to localities; contributions to mass and social organizations outside enterprises; charity aid, excluding aid for education, healthcare, surmounting consequences of natural disaster and building houses of gratitude for the poor as specified at Points 2.21, 2.22, 2.23 and 2.24 of this Part; expenses for purchase of golf course membership cards, and expense for golf playing.
2.31. Credited or refunded input value-added tax; enterprise income tax; personal income tax.
V. OTHER INCOMES
Other incomes are taxable incomes in a tax period which arise not from the business lines indicated in enterprises’ business registration certificates. Other incomes include:
1. Income from capital or securities transfer as guided in Part E of this Circular.
2. Income from real estate transfer as guided in Part G of this Circular.
3. Income from asset ownership or use right, including copyright royalties in any form paid for asset ownership or use right; royalties from intellectual property rights; and income from technology transfer under law. Asset lease in any form.
Income from intellectual property copyright royalties or technology transfer is the total collected sum of money minus (-) the prime cost or expense for the creation of the transferred intellectual property right or technology, minus (-) the expense for maintaining, upgrading or developing the transferred intellectual property right or technology and other deductible expenses.
Income from asset lease is the lease turnover minus (-) expenses for asset depreciation, renovation, repair and maintenance, expense for the lease of assets for sublease (if any) and other deductible expenses related to the asset lease.
4. Income from transfer or liquidation of assets (except real estate) and other valuable papers. This income is equals (=) turnover from asset transfer or liquidation minus (-) the residual book value of the transferred or liquidated asset at the time of transfer or liquidation, and deductible expenses related to the asset transfer or liquidation.
5. Income from savings and loan interests, including interests on savings deposited at credit institutions, interests on loans in any form under law, credit guarantee charges and other charges under loan provision contracts.
6. Income from foreign currency trading; foreign exchange rate difference profits actually arising from production and business activities in a period (excluding foreign exchange rate difference profits resulting from the re-valuation of monetary items of foreign currency origin at the end of a fiscal year and exchange rate difference profits arising at the stage of capital construction investment before production and business activities are carried out).
Income from foreign currency trading is the total sales of foreign currency minus (-) the total purchasing price of sold foreign currencies.
7. Refunded provisions for price decreases of goods in stock, lost financial investments, bad debts and warranty for products, goods and construction and installation works, which were previously deducted but are left unused or have not been used up in the period of their deduction.
8. Recovered bad debts which have been written off.
9. Payable debts with unidentifiable creditors.
10. Previous years’ omitted incomes from production and business activities, which are discovered by enterprises.
11. Difference between the amount of fines or compensations received from violators of economic contracts and the amount of fines or compensations paid for contract breaches under law.
12. Difference resulting from the re-valuation of assets under law for capital contribution or asset transfer upon enterprise separation, split, consolidation, merger or transformation, except the case of re-valuation of fixed assets upon transformation of state enterprises into joint-stock companies.
- For a fixed asset re-valuated upon capital contribution, it is the difference between the re-valuated price and the residual value of the fixed asset and shall be allocated to the years during which the fixed asset can still be depreciated at the enterprise receiving the contributed capital;
- For a fixed asset transferred upon enterprise separation, split, consolidation, merger or transformation (except the case of transformation of state enterprises into joint-stock companies), it is the difference between the re-valuated price and the residual book value of the fixed asset;
- For assets other than fixed asset, it is the difference between the re-valuated price and the book value.
13. Donations and gifts in cash or in kind; income in cash or in kind received from marketing or payment discounts, sales promotion prizes and other supports.
14. Compensations for fixed assets on land and monetary supports for relocation after subtracting related expenses, such as expense for relocation (transportation and installation expense), residual value of fixed assets and other expenses (if any). Particularly, after subtracting related expenses (if any), enterprises may use in accordance with relevant laws the remainder of compensations for fixed assets on land and monetary supports for enterprises to be relocated under competent state agencies’ plannings,.
15. Incomes related to goods sale or service provision which are not included in turnover, such as rewards for quick release of ships, tips for food and drink catering or hotel services, after subtracting expenses for generating such incomes.
16. Income from the sale of scraps and discarded products, after subtracting recovery and sale expenses.
17. Incomes from the contribution of equity capital, contribution of capital to joint ventures or economic cooperation at home, which are divided from pre-enterprise income tax incomes.
18. Income received from overseas goods production and trading or service provision activities.
Offshore-investing Vietnamese enterprises earning incomes from overseas production and business activities shall declare and pay enterprise income tax under Vietnam’s Law on Enterprise Income Tax currently in force, even when they are enjoying enterprise income tax exemption or reduction under the regulations of the host countries. The enterprise income tax rate used for calculating and declaring tax on incomes earned overseas is 25%. The incentive tax rate (if any) enjoyed by offshore-investing Vietnamese enterprises under the current Law on Enterprise Income Tax is not applicable.
Tax agencies may fix taxable income from overseas production and business activities of offshore-investing Vietnamese enterprises that violate regulations on tax declaration and payment.
When an income from an overseas investment project is already subject to enterprise income tax (or a similar tax) overseas, when calculating enterprise income tax payable in Vietnam, the offshore-investing Vietnamese enterprise is entitled to subtract the tax amount already paid overseas or paid on its behalf by its partner in the host country (including dividend tax), provided that the to-be-subtracted amount must not exceed the income tax amount calculated under Vietnam’s Law on Enterprise Income Tax. The exempt or reduced income tax amount of the offshore-investing Vietnamese enterprise for the profit earned from its overseas investment project under the law of the host country may also be subtracted upon determining the enterprise income tax amount payable in Vietnam.
Example 1: Vietnamese enterprise A receives an income of VND 800 million from an overseas investment project. This income is the remainder after an income tax is paid under the law of the host country. The payable income tax amount calculated under the host country’s Law on Enterprise Income Tax is VND 200 million. The paid enterprise income tax amount, after reduced by 50% under the host country’s Law on Enterprise Income Tax, is VND 100 million.
Tax on income from the overseas investment project under Vietnam’s Law on Enterprise Income Tax will be:
[(VND 800 million + VND 200 million) x 25%] = VND 250 million
The payable enterprise income tax amount (after subtracting the tax amount already paid in the host country) will be:
VND 250 million - VND 200 million = VND 50 million.
Example 2: Vietnamese enterprise A receives an income of VND 660 million from an overseas investment project. This income is the remainder after an income tax is paid in the host country. The enterprise income tax amount already paid under the host country’s regulations is VND 340 million.
Income tax declaration and payment will be made for the income from the enterprise’s overseas investment project under Vietnam’s Enterprise Income Tax Law as follows:
[(VND 660 million + VND 340 million) x 25%] = VND 250 million.
Enterprise A is entitled to subtract the tax amount already paid in the host country equivalent to the tax amount calculated under Vietnam’s Law on Enterprise Income Tax, which is VND 250 million. The tax amount already paid in the host country in excess of the tax amount calculated under Vietnam’s Law on Enterprise Income Tax, which is VND 90 million (340 - 250) is not allowed to be subtracted from the payable tax amount upon enterprise income tax declaration and payment in Vietnam.
The dossier to be submitted upon tax declaration and payment by an offshore-investing Vietnamese enterprise for the income from its overseas investment project comprises:
- The enterprise’s document on dividing the project’s profit.
- The enterprise’s financial statement certified by an independent audit organization.
- The enterprise’s income tax return for the project (copy certified by the project’s competent representative);
- The enterprise’s tax finalization record (if any);
- Certification of the tax amount paid overseas or document evidencing the tax amount paid overseas.
If an overseas investment project has not generated any taxable income (or is suffering losses), upon annual enterprise income tax declaration and finalization, the offshore-investing Vietnamese enterprise is only required to submit a financial statement certified by an independent audit organization or a competent agency of the host country and the project’s income tax return (copy certified by the project’s competent representative). Upon enterprise income tax calculation, losses arising from the overseas investment project are not allowed to be offset against incomes earned in Vietnam by the enterprise.
Income earned from an overseas investment project shall be declared in the enterprise income tax finalization of the year following the fiscal year when such income is earned or of the fiscal year coinciding the year when such income is earned if the enterprise has sufficient grounds and documents for determining the project’s income and paid income tax amount.
Example 3: Vietnamese enterprise A has an income from an overseas investment project in the 2009 fiscal year. It must declare this income in the income tax finalization declaration of the 2009 or 2010 fiscal year under Vietnam’s Law on Enterprise Income Tax.
For income from production and business activities of an investment project implemented in a country which has signed a double taxation avoidance agreement with Vietnam, Vietnamese enterprises investing in this country shall declare and pay tax in accordance with this agreement.
19. Incomes in cash or in kind received from aid sources, except aid specified in Clause 7, Section VI of this Part.
20. Other incomes provided for by law.
VI. TAX-EXEMPT INCOMES
1. Incomes from cultivation, husbandry and aquaculture of organizations established under the Law on Cooperatives.
2. Incomes from the provision of technical services directly for agriculture, including income from such services as irrigation and water drainage; soil ploughing and harrowing, and dredging of intra-field canals and ditches; prevention and control of crop and animal pests and diseases; and harvest of agricultural products.
3. For incomes from the performance of scientific research and technological development contracts; sale of products turned out from trial production and production with technologies applied for the first time in Vietnam, the maximum tax exemption duration is one (01) year from the date of commencing performance of the contracts or commencing trial production or production with technologies applied for the first time in Vietnam.
3.1. For tax-exempt income from the performance of scientific research and technological development contracts, the following conditions must be satisfied:
- The scientific research activity registration is certified;
- Such performance is certified by a competent science state management agency;
3.2. To be eligible for tax exemption for income from the sale of products turned out with technologies applied for the first time in Vietnam, such technologies must be certified by a competent science state management agency.
4. Income from goods production and trading or service provision activities of enterprises employing disabled, detoxified and HIV-infected laborers who account for at least 51% of the average number of laborers in a year.
Example: Enterprise A has 290 salaried laborers in January 2009; in April 2009. it employs other 12 laborers; in October, 2 laborers quit their jobs; in December, 3 other laborers quit their jobs. So, the average number of laborers in 2009 will be:
| 290 | + | (12 laborers x 9 months) - (2 laborers x 3 months) - (3 laborers x 1 month) | = 290 laborers + 8 laborers = 298 laborers |
| 12 |
Therefore, enterprise A’s average number of laborers in 2009 is 298; in case enterprise A employs 151 or more disabled laborers (298 x 51%), its income from goods production and trading or service provision activities will be exempt from tax.
- Tax-exempt incomes specified in this Clause exclude other incomes referred to in Section V, Part C of this Circular.
- For tax-exempt income specified at this Point, the following conditions must be fully satisfied:
4.1. For enterprises employing disabled laborers (including war invalids and diseased soldiers), a competent heath agency’s certification of the number of disabled laborers is required.
4.2. For enterprises employing detoxified laborers, detoxification establishments’ certification of the complete detoxification or a concerned competent agency’s certification is required.
4.3. For enterprises employing HIV-infected laborers, a competent heath agency’s certification of the number of HIV-infected laborers is required.
5. Income from job training activities exclusively reserved for ethnic minority people, the disabled, children in extremely disadvantaged circumstances and people involved in social evils. If an establishment also provides job training for other categories of people, tax-exempt income shall be determined based on the ratio between the number of ethnic minority people, the disabled, children in extremely disadvantaged circumstances and persons involved in social evils and the total number of trainees.
For tax-exempt income from job training activities specified at this Point, the following conditions must be fully satisfied:
- Job training establishments are set up and operate under regulations on job training.
- Lists of trainees being ethnic minority people, the disabled, children in extremely disadvantaged circumstances and persons involved in social evils are required.
6. Incomes divided from capital contribution, share purchase, joint venture or association with domestic enterprises, after contributed capital recipients, bond issuers or joint venture or association parties have paid enterprise income tax under the Law on Enterprise Income Tax, including those entitled to tax exemption or reduction.
