Independence - Freedom – Happiness
No. 1760/TCT-PCCS
Re: Depreciation of termed land use rights
Ha Noi, May 19, 2006 
To: The Tax Department of Tay Ninh province
In response to the Tax Department of Tay Ninh province’s Official Letter No. 310/CT-TTr dated March 24, 2006, on depreciation of termed land use rights, the General Department of Taxation gives the following opinions:
1. Clause 2d, Article 4, Section II of the Regulation on management, use and depreciation of fixed assets defines that: “the historical cost of fixed assets being land use rights (including permanent and termed land use rights) comprises expenses spent to acquire the lawful land use rights; compensation, site clearance and ground leveling costs, and registration fees (excluding costs for constructing works on the land); or is the value of land use rights as capital contribution.”
Point 1.1, Section III, Part B of the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003, guides reasonable expenses to be deducted for calculating taxable incomes as follows: “Fixed assets to be depreciated as reasonable expenses must satisfy the following conditions: a/ Fixed assets used in production and business.”
According to the above provisions, the historical cost of fixed assets being termed land use rights includes expenses mentioned above and covers only the part of land area having land use rights and used for a certain term in production and business may be accounted as reasonable expenses for calculating incomes liable to business income tax.
2. Enterprises having had land use rights since 2004 which have not been depreciated for 2004 and 2005 shall be allowed to account the amounts depreciated for 2004 and 2005 as reasonable expenses of 2006 if such depreciations still ensure that the enterprises make profit in 2006 and do not affect the business income tax paid after the period of business income tax incentives. In case full depreciations for 2004 and 2005 result in the enterprises’ loss in 2006, the enterprises may gradually allocate the amounts which have not been fully depreciated as mentioned above in no more than five years, counting from the year the enterprises start the depreciation.
3. When the value of land use rights has been fully depreciated and the land use term expires, the issue of land use rights shall be handled according to the Land Law’s provisions.

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The General Department of Taxation informs the Tax Department of Tay Ninh province thereof for compliance.



Pham Duy Khuong

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