Circular No. 90/TC-TCT dated November 10, 1993 of the Ministry of Finance guiding the implementation of the tax policies in respect of joint-venture bank and foreign banks' branches
THE FINANCE MINISTRY
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
Hanoi, November 10, 1993.
GUIDING THE IMPLEMENTATION OF THE TAX POLICIES IN RESPECT OF JOINT-VENTURE BANK AND FOREIGN BANKS' BRANCHES
Pursuant to the Investment Laws of Vietnam, the current tax policies, decree No 18-CP dated 16 April 1993 promulgated by the Government on the implementation of the Investment Laws of Vietnam, the decree November 55/CP dated 28 August 1993 promulgated by the Government on the amendments and supplements of the turnover tax policy and the regulations on the operations of the joint-venture banks and the branches of foreign banks, on behalf of the Finance Ministry, we would like to provide some guidance on the implementation of certain provisions of the tax policies in respect of joint-venture banks and branches of foreign banks (hereinafter referred to as Foreign Banks)
1. Turnover Tax
As it is stated in the Laws on turnover tax dated 30 June 1990 and the amendments and supplements of the Laws on turnover tax dated 5 July 1993, the foreign banks operating in Vietnam are subject to turnover tax for all incomes generated from their operations within the territory of Vietnam.
a. Taxable Income Incomes under turnover tax is computed as follows:
- For the credit activities: the difference between incomes from lending interest, deposits interest and the borrowing interest payment, deposits interest payment.
- For foreign currency transactions, trading transactions of valuable documents issued by the State bodies or Vietnamese economic entities , trading on gold, silver and gemstones: the difference between the selling and buying price of the above-mentioned items.
- For banking service activities as payment order, money transfer, guarantee: commissions, charges generated from the service.
- For other business activities such as leasing or transfer of assets: the total amount from such business.
b. Turnover tax rate
The turnover tax rate is computed as follows:
- For credit activities , the rate is 15% of the taxable income .
- For foreign currency transactions, trading transactions of the valuable documents ,the rate is 25% of the taxable income.
- For the trading on gold, silver and gemstones, the rate is 15% of the taxable income.
- For the banking services, the rate is 6% of the taxable income.
- For other business activities, the rate is in compliance with the turnover tax list promulgated in Decree No 55-CP dated 28 August 1993 by the Government with regards to the character of each kind of business activities.
2. Profit Tax
As stipulated in the Decree No 18-CP dated 16 April 1993 by the Government on the implementation of the Law on Foreign Investment in Vietnam, the foreign banks are subject to profit tax for all the profit generated from their business activities, from the possession or the right to use of properties in and outside the territory of Vietnam.
a. Taxable Profit
The taxable profit is identified by the difference between income under profit tax and the appropriate and acceptable expenses together with other profits.
- Income under profit tax includes incomes from credit activities, foreign currency transactions, trading transactions of valuable documents issued by the Government and the Vietnamese economic entities, trading on silver, gold and gemstones, banking services and other business activities excluding any expenses of the banks in the financial year under tax accounting .
- The appropriate and acceptable expenses including:
+ Expenses for materials, energy for the banks' operations.
+ Salaries, wages and allowances paid to the Vietnamese and foreign employees according to their employment contracts in compliance with the labour regulations in respect of the enterprises with foreign invested capital promulgated in the decree No 233-HDBT dated 22 June, 1990 by the Council of Ministers ( now the Government).
+ Depreciation of fixed assets: the depreciation expenses should be in compliance with the regulations stated at the Circular No 31 TC/TCDN dated 18 July 1993. In case that the depreciation expenses exceed the rates regulated in the Circular, approval in writing from the Finance Ministry should be required.
+ Expenses for purchase or payment for the right to use technical documents, invention licenses and technical services.
+ Expenses for advertisements.
+ Expenses for taxes, charges or fees (excluding profit tax, tax on the transfer abroad of profit and income taxes)
+ Expenses for SIF which is the foreign bank's responsibility as regulated in Article 46 of the decree No 233-HDBT dated 22 June
1990 by the Council of Ministers (now the Government).
+ Expenses for purchase insurance of assets of the foreign banks in compliance with the regulations of the Vietnamese Government.
+ Appropriate interest paid for deposits, borrowing capital or other financial facilities.
+ Management expenses including administrative expenses, expenses for storage safety, labour protection, environment protection, fire protection and security.
+ Other expenses apart from the above-mentioned but not exceeded 5% of
the total expenses.
+ Losses transferred from the previous years. The period of losses transfer is within 5 years from the financial year losses arisen.
The following expenses are not excluded from taxable profit:
+ Expenses for materials, energy, wages etc. to be used for the purposes that cannot generate taxable profit.
+ Damages caused the interruption of business operations by any reasons.
+ Damages that have been compensated by the insurance agencies.
+ Interest payment for the loans borrowed to contribute to the charter capital (or to form the funded capital) or interest payment for deposits that exceed the regulated amount ; interest payment for loans or deposits that are worked out on contrary to the regulations on interest rate.
- Other expenses including profit generated from assets transfer, capital transfer, assets liquidation, profit received from the original bank (in respect of the foreign banks' branches), profit from branches operating abroad (in respect of the joint- venture banks).
b. Profit tax rate
The foreign banks are subject to profit tax with the rate of 25% of their taxable profit.
In case that the profit tax rate is stipulated in a provision of the business license, the rate applicable is to be in compliance with those regulated in the business license.
c. Profit tax imposed on the profit of the joint-venture banks' branches-operating abroad
In case that Vietnam and the country in which the branch of the joint-venture bank is operating has signed the Agreement on double taxation of other agreements in which provisions relating to tax are set forth, the profit tax imposed on the profit from the joint-venture banks' branches abroad should be in compliance with such provisions. If the joint-venture bank's branch has to pay profit tax to the country in which it is located, such amount paid for profit tax is to be calculated in the expenses when the taxable profit of the joint-venture bank is levied. However, the reduction should not exceed 15% of the taxable profit of the branch as regulated in Article 2.a of this circular.
3. Tax on the transfer abroad of profit
The foreign banks which transfer their profit to abroad are subject to tax on the transfer abroad of profit at the rate regulated in Article 70 of the Decree No 18-CP dated 16 April 1993 by the Government. In case that a provision on the tax rate of the transfer abroad of profit is set forth on the business license, the tax rate will be in compliance with what are stipulated in the business license.
4. Import - Export Tax
Foreign banks are entitled to enjoy tax exemption from commodities under invested capital according to the standards and quantities stipulated at the directive No 102-CN -NH5 dated 10 March 1993 by the State Bank.
The import of such commodities should require the tax exemption formalities from the Finance Ministry in compliance with the current laws on import and export .
5. Land rent
Pursuant to the decision No 210-a/TC-VP dated 1 April 1990 and the circular No 50-TC/TCDN dated 3 July 1993 by the Finance Ministry , foreign banks are subject to pay land rents for the rented properties from the Vietnamese entities or individuals for their offices or for rented land from the Government of Vietnam for the construction of their offices.
If the foreign banks rent offices in "package" form which means that they have to pay both the house rent and the land rent, the Vietnamese entities or individuals who rent the properties to foreign banks are responsible to collect the lend rental from the Leasees for contribution to the State Budget.
The land rental applicable to each foreign bank is decided by the Finance Ministry with respect to the requests by the foreign banks, and the proposals from the People's Committee of the city or province where the land is rented.
Pending the decision of the land rental rate by Finance Ministry , the tax agencies are responsible to collect the land rent at an provisional rate based on the guidelines of the circular No 50 TC/TCDN dated 3 July 1993 by the Finance Ministry. Upon the official decision on land rent by the Finance Ministry, this amount will be adjusted, either to be further collected or refunded.
6. Other kind of taxes which are not mentioned in this Circular are implemented in accordance with the current Laws and the guidance at the Circular No 51-TC/TCT dated 31 June 1993 of the Finance Ministry.
7. Tax Registration
Within one month upon the granting of the Business License, the foreign banks operating in Vietnam must register their taxes with the local taxation department where they are located (including their branches or subsidiaries). In the process of operations, those banks must be under the supervision and the control of taxation of the local taxation departments and the Ministry of Finance.
This circular is to superseded the Circular No 07-TC/TCT dated 19 January 1993 of the Finance Ministry and effective from 1 September 1993.
FOR THE MINISTRY OF FINANCE
Phan Van Dinh