| THE MINISTRY OF FINANCE --------- | SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ---------- |
| No. 134/2008/TT-BTC | Hanoi, December 31, 2008 |
CIRCULAR
GUIDING THE PERFORMANCE OF TAX OBLIGATIONS APPLICABLE TO FOREIGN ORGANIZATIONS AND INDIVIDUALS DOING BUSINESS OR EARNING INCOMES IN VIETNAM
Pursuant to the Socialist Republic of Vietnams current laws and ordinances on taxes, fees and charges and the Governments decrees detailing laws and ordinances on taxes, fees and charges;
Pursuant to June 3, 2008 Law No. 13/2008/QH12 on Value-Added Tax; and the Governments Decree No. 123/2008/ND-CP of December 8, 2008, detailing and guiding a number of articles of the Value-Added Tax Law;
Pursuant to June 3, 2008 Law No. 14/2008/QH12 on Enterprise Income Tax; and the Governments Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Governments Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the performance of tax obligations applicable to foreign organizations and individuals doing business or earning incomes in Vietnam as follows:
A. SCOPE OF APPLICATION
I. APPLICABLE SUBJECTS
1. Application of this Circular
The guidance under this Circular is applicable to the following subjects (other than those specified in Section II. Part A of this Circular):
- Foreign businesses with or without Vietnam-based permanent establishments; and resident or non-resident foreign businessmen doing business in Vietnam or earning incomes in Vietnam under contracts, agreements or commitments between them and Vietnamese organizations and individuals (below collectively referred to as foreign contractors).
- Foreign businesses with or without Vietnam-based permanent establishments; and resident or non-resident foreign businessmen doing business in Vietnam or earning incomes in Vietnam under contracts, agreements or commitments between them and foreign contractors to perform part of contractor agreements (below collectively referred to as foreign subcontractors).
2. Taxpayers
Taxpayers under the guidance of this Circular include:
2.1. Foreign contractors and subcontractors satisfying the conditions specified at Point 1, Section II, Part B of this Circular that do business or earn incomes in Vietnam, including Vietnams territorial seas, areas beyond and attached to Vietnams territorial seas, and in accordance with Vietnams laws and international laws, under which Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above. Such business is done under contractor contracts with Vietnamese organizations or individuals or under subcontractor contracts with other foreign organizations or individuals currently doing business in Vietnam.
Foreign contractors and subcontractors shall be identified as having Vietnam-based permanent establishments or as residents in Vietnam according to the Law on Enterprise Income Tax, the Law on Personal Income Tax and their guiding documents.
When double taxation avoidance agreements which the Socialist Republic of Vietnam has signed otherwise define permanent establish-ments and residents, those agreements prevail.
2.2. Organizations established and operating under the law of Vietnam, organizations registering operation under the law of Vietnam, other organizations and businessmen buying services or services accompanying goods, or paying incomes generated in Vietnam under contractor or subcontractor contracts (below collectively referred to as Vietnamese parties), including:
- Businesses established under the Enterprise Law, the State Enterprise Law (now the Enterprise Law), the Law on Foreign Investment in Vietnam (now the Investment Law) and the Law on Cooperatives;
- Economic institutions under political organizations, socio-political organizations, social organizations, socio-professional organizations, armed units, non-business organizations and other organizations;-
- Oil and gas contractors operating under the Petroleum Law;
- Branches of foreign companies licensed to operate in Vietnam;
- Foreign organizations or representatives of foreign organizations licensed to operate in Vietnam;
- Vietnam-based booking offices and agents of foreign airlines licensed for Vietnam-inbound and -outbound transportation on their own or in partnership;
- Organizations and individuals trading in shipping services of foreign shipping agencies; Vietnam-based agents of foreign forwarding and warehousing and delivery firms;
- Securities companies, securities issuing organizations, fund management companies and commercial banks where securities investment funds or foreign organizations open securities investment accounts;
- Other organizations in Vietnam;
- Individual producers and businessmen in Vietnam.
Before paying foreign contractors, taxpayers specified at Point 2.2, Section I, Part A of this Circular shall credit value-added tax and withhold enterprise income tax in accordance with Section III, Part B of this Circular.
3. Applicable taxes
3.1. Foreign contractors and subcontractors being business organizations shall pay value-added tax (VAT) and enterprise income tax (EIT) under this Circular.
3.2. Foreign contractors and subcontractors being business individuals shall pay VAT under this Circular and personal income tax under the law on personal income tax.
3.3. Foreign contractors and subcontractors shall pay other taxes, fees and charges in accordance with other current legal documents on taxes, fees and charges.
II. NON-APPLICABLE SUBJECTS
This Circular is not applicable to:
1. Foreign organizations and individuals doing business in Vietnam under the Investment Law, the Petroleum Law and the Law on Credit Institutions.
2. Foreign organizations and individuals supplying goods for Vietnamese organizations and individuals without accompanying services in Vietnam in the following forms:
- Goods delivery at foreign border gates: Sellers are liable for all obligations, expenses and risks related to the export and delivery of goods at foreign border gates; buyers are liable for all obligations, expenses and risks related to the receipt and transportation of goods from foreign border gates to Vietnam.
- Goods delivery at Vietnamese border gates: Sellers are liable for all obligations, expenses and risks related to the transportation of goods to places of delivery at Vietnamese border gates; buyers are liable for all obligations, expenses and risks related to the receipt and transportation of goods from Vietnamese border gates.
3. Foreign organizations and individuals earning incomes from services provided and used outside Vietnam.
For example:
Company H of Hong Kong provides the service of arranging cargos at ports in Hong Kong for the international fleet of Company A in Vietnam. Company A has to pay charges for this service to Company H.
In this case, such service is provided and used in Hong Kong and, therefore, is not subject to taxes in Vietnam.
4. Foreign organizations and individuals providing overseas the following services form Vietnamese organizations and individuals:
- Repair of means of transport (aircraft, aircraft engines, spare parts of aircraft and ships), machinery, equipment (including sea cables, transmission equipment) with or without accompanying spare parts of supplies and equipment;
- Advertising, marketing;
- Investment and trade promotion;
- Brokerage for goods sale;
- Training;
- Division of charges (paid charges) for international post and telecommunications services, which are provided outside Vietnam, among Vietnamese and foreign parties under the Ordinance on Post and Telecommunication; lease of foreign transmission lines and satellite frequency bands.
III. TERMS REFERRED TO IN THE CIRCULAR
In this Circular, the terms below are construed as follows:
1. Contractor contract means a contract, agreement or commitment between a foreign contractor and a Vietnamese party.
2. Subcontractor contract means a contract, agreement or commitment between a subcontractor and a foreign contractor.
Subcontractors include foreign and Vietnamese subcontractors.
B. TAX BASES AND TAX CALCULATION METHODS
I. VAT-LIABLE OBJECTS AND EIT-LI ABLE INCOMES
1. VAT-liable objects
1.1. Services or services accompanying VAT-liable goods provided by foreign contractors or subcontractors under contractor or subcontractor contracts for production, business and consumption in Vietnam (other than those specified in Section II, Part A of this Circular), comprising:
- Services or services accompanying VAT-liable goods provided in Vietnam by foreign contractors or subcontractors for consumption in Vietnam.
- Services or services accompanying VAT-liable goods provided outside Vietnam by foreign contractors or subcontractors for consumption in Vietnam.
1.2. When goods are supplied under a contract by mode of goods delivery at a place in the Vietnamese territory (including Vietnams territorial seas, areas beyond and attached to Vietnams territorial seas on which, under the law of Vietnam and in accordance with international laws. Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above); or these goods are supplied together with services provided in Vietnam, such as installation, trial operation, warranty, maintenance and replacement and other services accompanying goods supply, even when the provision of those services is included or not included in the value of the goods supply contract, the goods value is only subject to VAT at the stage of importation under regulations while the service value is subject to VAT under the guidance of this Circular. When it is impossible to separate the value of goods from that of accompanying services, the contracts total value will be subject to VAT.
For example:
Enterprise A in Vietnam signs with overseas enterprise B a contract to buy machinery and equipment for a cement plant project. The contracts total value is USD 100 million, including USD 80 million worth of machinery and equipment (including VAT-liable equipment with a 10% tax rate) and USD 20 million worth of installation instruction and supervision, and warranty and maintenance services.
When importing the machinery and equipment, enterprise A - the importer - has paid VAT for the VAT-liable equipment.
Company Bs VAT payment for the value of the contract signed with enterprise A shall be determined as follows:
- VAT shall be calculated based on the service value (USD 20 million), not on the value of imported machinery and equipment.
- When it is impossible to separate the value of machinery and equipment from that of services, VAT shall be calculated based on the contracts total value (USD 100 million).
2. EIT-liable incomes
2.1. Foreign contractors or subcontractors incomes earned from the provision of services or services accompanying goods in Vietnam under foreign contractor or subcontractor contracts (other than goods and services specified in Section II, Part A of this Circular).
2.2. When goods are supplied by mode of goods delivery at a place in the Vietnamese territory (including Vietnams territorial seas, areas beyond and attached to Vietnams territorial seas on which, under the law of Vietnam and in accordance with international laws. Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above); or these goods are supplied together with services provided in Vietnam such as installation, trial operation, warranty, maintenance and replacement and other services accompanying goods supply, even when the provision of those services is included or not included in the value of the goods supply contract. EIT-liable incomes of foreign contractors or subcontractors are the total value of goods and services.
For example:
Company A in Vietnam signs with overseas company B a contract to buy machinery and equipment for a cement plant project. The contracts total value is USD 100 million (VAT-exclusive), including USD 80 million worth of machinery and equipment and USD 20 million worth of installation instruction and supervision and warranty and maintenance services.
Company Bs EIT obligations for the contract value shall be determined as follows:
- EIT shall be calculated separately for the machinery and equipment value (USD 80 million) and the service value (USD 20 million) at respective EIT rates under regulations.
- When it is impossible to separate the value of machinery and equipment from that of services, EIT shall be calculated based on the contracts total value (USD 100 million) at EIT rates under regulations.
2.3. Foreign contractors or subcontractors incomes generated in Vietnam are incomes received in any form under foreign contractor or subcontractor contracts (other than cases of service provision specified in Section II, Part A of this Circular), regardless of the places of business activities of foreign contractors or subcontractors, including:
- Incomes from the transfer of rights over asset ownership or use.
- Incomes from copyrights are those in any form paid for the use or transfer of intellectual property rights and technology transfer (including amounts paid for the use and transfer of author rights and work owner rights; transfer of industrial property rights; and technology transfer).
Author rights, work owner rights, industrial property rights and technology transfer are defined in the Civil Code of the Socialist Republic of Vietnam and its guiding documents.
- Incomes from the transfer and liquidation of assets.
