| THE MINISTRY OF FINANCE ------- | SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ---------- |
| No. 134/2007/TT-BTC | Hanoi, November 23, 2007 |
CIRCULAR
GUIDING THE IMPLEMENTATION OF THE GOVERNMENT’S DECREE No. 24/2007/ND-CP OF FEBRUARY 14, 2007, DETAILING THE IMPLEMENTATION OF THE LAW ON ENTERPRISE INCOME TAX
Pursuant to the Law on Enterprise Income Tax passed on June 17, 2003, by the XIth National Assembly;
Pursuant to the Government’s Decree No. 24/2007/ND-CP of February 14, 2007, detailing the implementation of the Law on Enterprise Income Tax;
Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the imposition of enterprise income tax as follows:
Pursuant to the Government’s Decree No. 24/2007/ND-CP of February 14, 2007, detailing the implementation of the Law on Enterprise Income Tax;
Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the imposition of enterprise income tax as follows:
Part A
SCOPE OF APPLICATION OF ENTERPRISE INCOME TAX
I. PAYERS OF ENTERPRISE INCOME TAX
The following organizations and individuals that produce and trade in goods or provide services (referred collectively to as business establishments) and have taxable incomes shall pay enterprise income tax under the guidance in this Circular.
1. Organizations engaged in goods production and trading and service provision, including:
a/ Business organizations established and operating under the Law on Enterprises; the Law on State Enterprises; the Law on Investment; the Law on Cooperatives.
b/ Unions of cooperatives and cooperatives (below referred to as cooperatives for short); cooperative groups (except for the case specified at Point 1, Section II, Part A of this Circular).
c/ Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people’s armed forces units; administrative agencies, non-business units, and other organizations.
2. Vietnamese individuals engaged in goods production and trading and service provision, including:
a/ Business individuals and groups of business individuals.
b/ Individual business households.
c/ Independent practitioners with or without fixed offices or practicing places (except for wage earners), such as medical doctors, accountants, auditors, painters, architects, musicians and other independent practitioners.
d/ Individuals who lease out such property as houses, land, means of transport, machinery, equipment or other kinds of property.
3. Foreign companies conducting goods production and trading and providing services through permanent establishments in Vietnam.
Permanent establishment is a business establishment through which a foreign company conducts some or all of its income-generating business operations in Vietnam. Foreign companies’ permanent establishments may take one of the following principal forms:
a/ Branch, executive office, factory, workshop, goods forwarding warehouse, means of transport, mine, oil or gas field, site of natural resource exploration and exploitation or equipment and facilities used for natural resource exploration;
b/ Building site; construction, installation or assembly project; activities of supervision of construction and construction, installation or assembly projects;
c/ Establishment providing services, including consultancy services provided by its employees or other entities;
d/ Agent of an overseas company;
e/ Representative in Vietnam in the following cases:
- Have competence to sign contracts in the name of an overseas company;
- Having no competence to sign contracts in the name of an overseas company but regularly conducting goods delivery or service provision in Vietnam.
In case a double taxation avoidance agreement signed by the Socialist Republic of Vietnam otherwise provides for permanent establishments, the provisions of that agreement shall be applied.
4. Foreign companies, foreign organizations or foreign individuals doing business in Vietnam not under the Law on Investment and the Law on Enterprises or having incomes generated in Vietnam shall pay enterprise income tax under separate guidance of the Ministry of Finance.
II. NON-PAYERS OF ENTERPRISE INCOME TAX
The following entities are not liable to pay enterprise income tax:
1. Cooperatives and cooperative groups engaged in agricultural production and earning incomes from cultivation, husbandry or aquaculture products.
2. Households and individuals engaged in agricultural production and earning incomes from cultivation, husbandry or aquaculture products, except for farming households and individuals engaged in large-scale commodity production and earning high incomes from cultivation, husbandry or aquaculture products.
Enterprise income tax is temporarily not collected from farming households and individuals engaged in large-scale commodity production and earning high incomes from cultivation, husbandry or aquaculture products until otherwise stipulated by the Government.
Part B
ENTERPRISE INCOME TAX CALCULATION BASES
The bases for enterprise income tax calculation are taxable income arising in the tax period and tax rate.
I. TAXABLE INCOMES
Taxable incomes in the tax period include taxable income from goods production and trading and service provision activities and other taxable incomes, including taxable incomes from goods production and trading and service provision activities conducted overseas.
Tax period is determined according to the calendar year. When a business establishment 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 newly set up business establishment and the final tax period for a business establishment set up from transformation of type of enterprise or form of ownership, merger, division, dissolution or bankruptcy shall be determined to conform to the accounting period prescribed by the accounting law.
If the first year’s tax period of a newly set up business establishment or the final year’s tax period of a business establishment set up from transformation of type of enterprise or form of ownership, merger, division, dissolution or bankruptcy is less than 03 months, it will be added to the subsequent year’s tax period (for newly set up business establishments) or the previous year’s tax period (for business establishments set up from transformation of type of enterprise or form of ownership, merger, division, dissolution or bankruptcy) into an enterprise income tax period. The first year’s enterprise income tax period or the final year’s enterprise income tax period must not exceed 15 months.
Taxable income in the tax period is determined according to the following formula:
Turnover for
Taxable calculating Reasonable Other taxable
income in the = taxable - in expenses + incomes in
tax period income in the the tax period the tax period
tax period
Taxable calculating Reasonable Other taxable
income in the = taxable - in expenses + incomes in
tax period income in the the tax period the tax period
tax period
Business establishments may subtract the losses carried forward from previous tax periods from taxable incomes determined according to the above formula before determining payable enterprise income tax amounts according to regulations.
When a double taxation avoidance agreement which the Socialist Republic of Vietnam has signed otherwise provides for the method of determining taxable income for permanent establishments, the provisions of that agreement shall be applied.
II. TURNOVER FOR CALCULATING TAXABLE INCOME
1. Turnover for calculating taxable income is determined as follows:
Turnover for calculating taxable income is the total sum earned from goods sale or service provision, including price subsidies, surcharges and additional amounts earned by business establishments, regardless of whether or not such amounts have been collected.
a/ For business establishments paying value added tax by the tax credit method, it is turnover exclusive of value added tax.
Example:Business establishment A pays value-added tax by the tax credit method. Its added value invoice shows the following details:
Selling price: VND 100,000.
VAT (10%): VND 10,000.
Payment price: VND 110,000.
The turnover for calculating taxable income is VND 100,000.
b/ For business establishments paying value-added tax calculated directly on the basis of added value, it is turnover inclusive of value added tax.
Example:Business establishment B pays value added tax calculated directly on the basis of added value. Its goods sale invoice only indicates the selling price of VND 110,000 (VAT-inclusive price).
The turnover for calculating taxable income is VND 110,000.
2. Time of determining turnover for calculating taxable income is as follows:
a/ For goods, it is the time of transferring the right to own goods or issuing an invoice.
b/ For services, it is the time of completing the service or issuing an invoice.
3. Turnover for calculating taxable income in some cases is determined as follows:
a/ For goods sold by installment payment, it is the proceeds from the sale of goods at the price paid in lump sum, excluding installment interests.
b/ For goods and services sold by deferred payment, it is the proceeds from the sale of goods at the price paid in lump sum, excluding deferred payment interests.
For a purchase and sale contract with an installment or deferred payment duration lasting through many tax periods, turnover is the amount receivable from the purchaser in the tax period excluding installment or deferred payment interests payable in the time limit prescribed in the contract.
For goods sold and purchased by installment or deferred payment, the determination of expenses for determining taxable income complies with the principle that expenses must be compatible with turnover.
c/ For goods and services made and used by business establishments for exchange; as gifts or donations; provision or rewarding to laborers, turnover is calculated according to the sale prices of goods and services of the same or similar kinds on the market at the time of exchange; presentation or donation; provision or rewarding to laborers.
d/ For goods and services made and used by business establishments in the process of production or business, such as electricity, products used as fixed assets and self-made capital construction products, turnover is the production cost of such products.
e/ For goods processing, turnover is earnings from the processing, including remuneration, fuel, power, auxiliary materials and other expenses paid for the processing of goods.
f/ For business establishments acting as agents or consignees selling goods at prices set by business establishments being principals or consignors, turnover is commissions paid under agency or consignment contracts.
g/ For property leasing activities, including the case in which business establishments build houses for lease to their employees, turnover is the rent collected in each period under property or house leasing contracts.
If the lessees pay rents in advance for many years, turnover for calculating taxable income is determined in conformity with the determination of expenses incurred by business establishments.
Depending on the conditions for the determination of reasonable expenses, business establishments may choose either of the following two methods of determining turnover for calculating taxable income:
- Turnover is the property rent determined for each year, which is equal to (=) the advanced rent divided (:) by the number of years for which the rent is advanced.
- Turnover is the total rent advanced for many years.
In case a business establishment currently enjoying tax incentives chooses to use the total rent advanced by the lessee for many years as turnover for calculating taxable income, the enterprise income tax amount for each year of tax exemption or reduction is the total enterprise income tax payable for the number of years for which the rent has been advanced divided (:) by the number of years for which the rent has been advanced.
For organizations and individuals that have not yet applied the prescribed accounting, invoice and document regimes, if they lease property and receive rents advanced by lessees for many years, turnover for calculating taxable income is the total rent received.
h/ For credit activities, turnover is receivable interests in the tax period on debts with their principals and interests determined to be recoverable on time:
- For receivable interests on undue loans which have been accounted as income but, when becoming due, are not paid (both principal and interest) by clients, credit institutions shall account them as business expenses and monitor them off-balance-sheet. After collecting these interests, they shall account them as income.
- For other receivable interests on debts in the tax period which, when becoming due, are not paid by clients, credit institutions shall monitor them off-balance-sheet, urge their payment and, after collecting them, account them as income.
- For deposit, bond and bill interests, turnover is interests receivable in the period.
i/ For air carriage, turnover is the total sum received from the transport of passengers, luggage and cargos, regardless of whether such sum has been collected or not. The time of determining turnover for calculating taxable income is the time when the carriage service is completed.
j/ For electricity sale, turnover is the sum specified on added-value invoices. The time of determining turnover for calculating taxable income is the day on which electricity meter readings are certified and recorded on electricity bills.
Example:An electricity bill is recorded with an electricity meter reading for the time from December 5 to January 5. Turnover recorded on the bill will be used for January.
k/ For other activities, such as supply of clean water, turnover for calculating taxable income is determined as for electricity sale.
l/ For insurance and reinsurance business, turnover is the receivable amounts, namely, original premiums, agency service charge (damage survey, consideration for payment of indemnity, claim for third party’s indemnity, handling of cargoes eligible for 100% indemnity); reinsurance charges, reinsurance commissions and other revenues from insurance business after subtracting payable amounts for revenue reduction, such as refunded premiums, reduced reinsurance charges; refunded reinsurance commissions and reduced reinsurance commissions.
m/ For construction and installation activities, turnover is the value of a work or work item already tested and taken over or the value of the construction or installation volume already tested and taken over.
- For construction and installation activities involving supply of materials, raw materials, machinery and equipment, turnover is the sum earned from construction and installation activities, including the value of materials, raw materials, machinery and equipment.
- For construction and installation activities not involving supply of materials, raw materials, machinery and equipment, turnover is the sum earned from construction and installation activities, excluding the value of materials, raw materials, machinery and equipment.
n/ For real estate business, turnover is the sum to be collected from real estate business. The time of determining turnover is the time of transfer of land use rights or the right to own works or architectural objects attached to land or the time of delivery of immovables from the transferor to the transferee or the time of issuance of the invoice.
o/ For business activities carried out under business cooperation contracts:
- If parties to a business cooperation contract share business results in the form of turnover, turnover for calculating the enterprise income tax payable by each party is the proceeds from goods or service sale divided to each party under the contract.
- If parties to a business cooperation contract share business results in the form of products, turnover for calculating the enterprise income tax payable by each party is the proceeds from the sale of those products.
- If parties to a business cooperation contract share business results in the form of profits, turnover for calculating the enterprise income tax payable by each party is the proceeds from goods or service sale under the contract. The parties shall appoint one of them as a representative to issue invoices, record turnover, declare and pay enterprise income tax on behalf of the other parties.
