THE GOVERNMENT -------	SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness -----------
No. 124/2008/ND-CP	Hanoi, December 11, 2008

DECREE

DETAILING AND GUIDING THE IMPLEMENTATION OF A NUMBER OF ARTICLES OF THE LAW ON ENTERPRISE INCOME TAX

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the June 3, 2008 Law on Enterprise Income Tax;

At the proposal of the Minister of Finance,

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1.- Governing scope

This Decree details and guides the implementation of a number of articles of the June 3, 2008 Law on Enterprise Income Tax (below referred to as the Law on Enterprise Income Tax).

Article 2.- Taxpayers

Taxpayers are defined in Article 2 of the Law on Enterprise Income Tax.

1. Taxpayers defined in Clause 1, Article 2 of the Law on Enterprise Income Tax include:

a/ Enterprises established and operating under the Law on Enterprises, the Law on State 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 company; party to business cooperation contract; party to oil and gas production sharing contract, oil and gas joint-venture enterprise or jointly managed company;

b/ Enterprises established under foreign laws (below referred to as foreign enterprises) with or without Vietnam-based permanent establishments;

c/ Public or non-public non-business units producing and trading goods or providing services and having taxable incomes under Article 3 of this Decree;

d/ Organizations established and operating under the Law on Cooperatives;

dd/ Organizations other than those defined at Points a, b, c and d of this Clause that carry out production and business activities and have taxable incomes under Article 3 of this Decree.

2. Organizations established and operating (or registering operation) under Vietnamese law, business individuals paying tax according to the method of withholding tax in case of purchase of services (including services associated with goods) from enterprises defined at Points c and d, Clause 2, Article 2 of the Law on Enterprise Income Tax.

The Ministry of Finance shall specify the tax withholding referred to in this Clause.

Article 3.- Taxable incomes

1. Taxable incomes include income from goods production and trading and service provision and other incomes specified in Clause 2 of this Article. For enterprises having registered their business and earning incomes specified in Clause 2 of this Article, such incomes will be determined as incomes from their production and business activities.

2. Other incomes cover:

a/ Income from capital transfer, including income from the transfer of part or the whole of the capital amount invested in an enterprise, even in case of sale of enterprises, transfer of securities and transfer of capital in other forms under law;

b/ Income from real estate transfer under Article 13 of this Decree;

c/ Income from the right to own or use assets, including earned copyright royalties in any forms and earned royalties from intellectual property rights; income from technology transfer under law; and asset lease in any forms;

d/ Income from the transfer or liquidation of assets (excluding real estate) and other valuable papers;

dd/ Income from savings interests, loan interests or foreign currency sales, including interests on savings deposited at credit institutions, interests on loans in any forms under law, credit guarantee charges and other charges under loan provision contracts; and income from foreign currency sales;

e/ Refunded provisions and amounts previously accounted as expenses which are left unused or have not been used up in the period of their deduction;

g/ Recovered bad debts which have been written off;

h/ Payable debts of unidentifiable creditors;

i/ Omitted income from previous years business activities;

k/ Difference between the collected fines or damages for breaches of economic contracts and the paid fines or compensations for contract breaches under law;

l/ Received aid in cash or in kind, except that specified in Clause 6, Article 4 of this Decree;

m/ Difference resulting from the re-valuation of assets under law for capital contribution or transfer upon separation, split, merger, consolidation or transformation of enterprises, excluding the case of re-valuation of fixed assets upon transformation of state enterprises into joint-stock companies.

Asset-receiving enterprises may make accounting based on re-valuation prices upon the determination of deductible expenses specified in Article 9 of this Decree;

n/ Incomes from production and business activities carried out outside Vietnam;

o/ Other incomes provided for by law.

3. Vietnam-generated taxable incomes of enterprises defined at Points c and d, Clause 2, Article 2 of the Law on Enterprise Income Tax are incomes originating in Vietnam from the provision of services or loans and copyright royalties collected from Vietnamese organizations and individuals or foreign organizations and individuals doing business in Vietnam, regardless of their places of business.

Taxable incomes specified in this Clause exclude income from services provided outside the Vietnamese territory, such as overseas repair of means of transport, machinery or equipment; overseas advertisement, marketing and investment and trade promotion; overseas goods sale brokerage; overseas training; and international post and telecommunications service charges divided to foreign parties.

The Ministry of Finance shall specify taxable incomes referred to in this Clause.

Article 4.- Tax-exempt incomes

Tax-exempt incomes are specified in Article 4 of the Law on Enterprise Income Tax.

1. Tax-exempt incomes from the provision of technical services directly for agriculture include 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.

2. For income from the performance of scientific research and technological development contracts, sale of products turned out from trial production and with technologies applied for the first time in Vietnam, the maximum tax exemption duration is one year from the date of commencing production under scientific research and technological application contracts, trial production or production with new technologies.

The Ministry of Finance shall specify this Clause.

3. Income from goods production and trading and service provision activities of enterprises employing disabled, detoxified and HIV-infected persons who account for at least 51% of the average number of laborers in a year.

Tax-exempt incomes specified in this Clause exclude other incomes specified in Clause 2, Article 3 of this Decree.

4. Income from job-training activities exclusively reserved for ethnic minority people, the disabled, children in extremely disadvantaged circumstances and persons 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 job trainees of the establishment.

5. 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, including those enjoying tax incentives under Chapter IV of this Decree, have paid tax under the Law on Enterprise Income Tax.

6. Aid used for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam.

Aid beneficiaries that improperly use the aid shall pay enterprise income tax at 25% of the improperly used aid amount.

Aid beneficiaries defined in this Clause are organizations established and operating under law and strictly observing the laws on accounting and statistics.

Chapter II

TAX BASES AND TAX CALCULATION METHODS

Article 5.- Tax bases

Tax bases include taxed income in a tax period and tax rate.

Tax period is specified in Article 5 of the Law on Enterprise Income Tax and the provisions of the law on tax administration.

Enterprises may choose to apply a tax period according to a calendar year or fiscal year and must register it with tax agencies before application.

Article 6.- Determination of taxed incomes

1. Taxed income in a tax period shall be determined as follows:

Taxed income = Taxable income - (Tax-exempt income + Losses carried forward under regulations)

2. Taxable income shall be determined as follows:

Taxable income = (Turnover - Deductible expenses) + Other incomes

For an enterprise conducting different business activities, taxable income from production and business activities is the total of incomes from all business activities. If a business activity makes losses, the enterprise may offset such losses with the taxable income of an income-generating business activity selected by the enterprise. The remaining income after loss offsetting is subject to the rate of enterprise income tax on income-generating business activities.

Income from real estate transfer must be separately accounted for tax declaration and payment and must not be included in incomes or used to offset losses made by other business activities.

3. Taxable incomes from some production and business activities shall be determined as follows:

a/ For income from capital transfer (excluding income from securities transfer specified at Point b of this Clause), taxable income is the total sum of money collected under a transfer contract minus (-) the purchase price of the transferred capital amount, minus (-) expenses for the transfer;

b/ For income from securities transfer, taxable income is the selling price minus (-) the purchase price of the transferred securities, minus (-) expenses for the transfer;

c/ For income from intellectual property copyright or technology transfer, taxable income is the total collected sum of money minus (-) the cost or expense for creating 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;

d/ For income from asset lease, taxable income is the lease turnover minus (-) basic depreciation, expense for asset renovation, repair or maintenance, expense for lease of assets for sublease (if any) and other deductible expenses related to the lease;

dd/ For income from transfer or liquidation of assets (except real estate), taxable income is the sum of money collected from asset transfer or liquidation minus (-) the residual book value of assets at the time of transfer or liquidation and deductible expenses related to the transfer or liquidation;

e/ For income from foreign currency sales, taxable income is the total sum of money collected from foreign currency sales minus (-) the purchase price of the quantity of sold foreign currencies (excluding foreign exchange difference resulting from the re-valuation of monetary items of foreign currency origin at the end of a fiscal year or foreign exchange difference arising in the course of capital construction investment before production and business activities are carried out);

g/ For difference resulting from the re-valuation of fixed assets upon capital contribution, taxable income is the difference between the re-valuated value and the residual value of fixed assets, and shall be allocated to the number of years during which depreciation may be made for the re-valuated fixed assets at capital contributing enterprises.

For fixed assets transferred upon separation, split, consolidation, merger or transformation of enterprises, taxable income is the difference between the re-valuated value and the book value or the residual value of fixed assets.

For assets other than fixed assets, taxable income is the difference between the re-valuated value and the book value;

h/ For incomes received from overseas production, business or service activities, taxable income is the total of pre-tax incomes.

4. Incomes from oil and gas exploration and extraction activities shall be determined based on each oil and gas contract.

Article 7.- Determination and carrying forward of losses

1. Loss arising in a tax period is the negative (-) taxable income amount to be determined according to the formula specified in Clause 2, Article 6 of this Decree.

2. Loss-suffering enterprises may carry forward their losses to the subsequent year; these losses may be offset with taxable income. The maximum duration for carrying forward losses is five consecutive years, counting from the year following the year the losses arise.

3. Losses from real estate transfer must be separately accounted and may only be offset with this activity’s taxable income. The maximum duration for carrying forward losses is five consecutive years, counting from the year following the year the losses arise.

Article 8.- Turnover

Turnover used for calculating taxable income is specified in Article 8 of the Law on Enterprise Income Tax.

1. Turnover used for calculating taxable income is the total of sales, processing remunerations and service charges, including also subsidies and surcharges enjoyed by enterprises, regardless of whether money has been collected or not.

For enterprises declaring and paying value-added tax according to the tax credit method, turnover used for calculating enterprise income tax is exclusive of value-added tax. For enterprises declaring and paying value-added tax according to the method of calculation of tax based directly on added value, turnover used for calculating enterprise income tax is inclusive of value-added tax.

2. The time of determining turnover used for calculating taxable income for sold goods is the time of transfer of the right to own or use goods to purchasers.

The time of determining turnover used for calculating taxable income for services is the time of completing the provision of services to purchasers or the time of making service provision invoices.

3. Turnover used for calculating taxable income in some cases is specified as follows:

a/ For goods sold by installment payment, it shall be determined based on the lump-sum selling price, excluding installment or deferred payment interests;

b/ For goods and services used for barter, donation or internal consumption, it shall be determined based on the selling price of products, goods or services of the same or similar categories at the time of barter, donation or internal consumption;

c/ For goods processing activities, it is the proceeds from processing activities, including remuneration, expenses for fuel, power and auxiliary materials, and other expenses;

d/ For asset lease, it is the rental paid periodically by the lessee under the lease contract. In case the lessee advances the rental for many years, it shall be allocated to the number of years for which the rental has been advanced;

dd/ For credit or financial leasing activities, it is receivable loan interest or financial lease turnover arising in a tax period;

e/ 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;

g/ For transportation activities, it is the whole turnover from freights for passenger, cargo and luggage transportation arising in a tax period;

h/ For electricity and clean water supply activities, it is the sum of money indicated on the value-added invoice;

i/ For insurance or re-insurance business activities, it is the receivable sum of principal insurance premiums; agency service charges (including those for loss survey, indemnity consideration, claim for a third party to pay indemnities, disposal of goods subject to 100% indemnity); re-insurance undertaking charges; re-insurance commissions; and other revenues minus (-) refunded or reduced insurance premiums, re-insurance undertaking charges and refunded or reduced re-insurance transfer commissions;

In case of co-insurance, turnover used for calculating taxable income is principal insurance premiums allocated according to 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.

k/ For construction and installation activities, it is the value of the work, work item or work volume tested upon take-over. If construction or installation activities do not involve the supply of materials, machinery and equipment, it is exclusive of the value of materials, machinery or equipment;

l/ For business activities conducted under business cooperation contracts without the establishment of legal persons:

- If parties to a business cooperation contract divide business results based on the sales turnover of goods or services, 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 of products divided to each party under the contract;

- If parties to a business cooperation contract divide business results based on pre-tax profits, it is the goods or service sales under the contract.

m/ For casino, prize-winning video game or betting entertainment business services, it is the excise tax-inclusive proceeds from these services minus (-) prizes already paid to customers;

n/ For securities trading, it is the proceeds from securities brokerage, dealing, issuance underwriting and investment consultancy, investment fund management, fund certificate issuance, market organization and other securities services under law;

o/ For oil and gas prospecting, exploration and extraction activities, it is the whole oil and gas sales turnover under arms length contracts in a tax period.

p/ For derivative financial services, it is the proceeds from the provision of derivative financial services in a tax period;

The Ministry of Finance shall specify this Article and some other specific cases.

Article 9.- Deductible and non-deductible expenses upon determination of taxable incomes

1. Except for the expenses specified in Clause 2 of this Article, enterprises may deduct any expenses which fully meet the following conditions:

a/ They are actually paid for production and business activities;

b/ They are accompanied with adequate invoices and documents as prescribed by law.

In case of purchase of agricultural, forestry or fishery products from producers or fishermen; purchase of handicraft products made of jute, sedge, bamboo, leaf, rattan, straw, coconut husk or shell or materials taken from agricultural products, from craftsmen; purchase of soil, rock, sand or gravel from local mining inhabitants; purchase of scraps from individual collectors or second-hand domestic appliances from households or individuals, and purchase of services from non-business individuals, there must be documents of payment to sellers and lists of goods or services signed by responsible at-law representatives or authorized persons of enterprises.

2. Non-deductible expenses upon determination of taxable incomes provided for in Clause 2, Article 9 of the Law on Enterprise Income Tax are specified as follows:

a/ Expenses not fully satisfying the conditions specified in Clause 1 of this Article, except the uncompensated value of losses caused by natural disasters, epidemics, fires or other force majeure circumstances;

Uncompensated value of losses caused by natural disasters, epidemics, fires or other force majeure circumstances is the total value of losses minus (-) the value which must be compensated by insurance enterprises or other organizations or individuals under law.

b/ The business administration expense allocated by an overseas enterprise to its Vietnam-based permanent establishment in excess of the prescribed level shall be 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 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

c/ Expense in excess of the prescribed level of deduction for the setting up of provisions;

d/ Fixed asset depreciation made in contravention of the Finance Ministry’s regulations, including depreciation for passenger cars of 9 seats or less (except cars used for commercial transportation of passengers or for tourist or hotel business) corresponding to the historical cost in excess of VND 1.6 billion/car; depreciation for civil aircraft or yachts not used for commercial cargo or passenger transportation or for tourist or hotel business;

dd/ Advanced expenses in contravention of law;