No: 353/TCT-CS Hanoi, 29 January Tax Department of provinces or cities under central authority

Transcription

1 MINISTRY OF FINANCE General Department of Taxation SOCIALIST REPUBLIC OF VIETNAM Independence Freedom Happiness No: 353/TCT-CS Hanoi, 29 January 2010 To: Tax Department of provinces or cities under central authority [Dear Sir/Madam] GUIDANCE ON THE 2009 BUSINESS INCOME TAX (BIT) FINALIZATION The National Assembly promulgated the Business Income Tax (BIT) Law No. 14/2008/QH12 on 3 June 29008, with effect as from 1 January The year of 2009 is also the year in which the government has developed many solutions to promote business and production activities, maintain economic growth and ensure social security. For the 2009 BIT finalization to be carried out in accordance with the provisions of the BIT Law No. 14/2008/QH12; the Tax Administration Law No.78/2006/QH11; Decree No.124/2008/ND-CP dated 11 December 2008; Circular No.130/2008/TT-BTC dated 26 December 2008 of the Ministry of Finance and some other Circulars of the Ministry of Finance and relevant legal documents, the General Department of Taxation (GDT) provides guidelines on a number of items that need to be noted when carrying out the 2009 BIT finalization as follows: PART 1: ON THE GENERAL BIT POLICY I. Method of calculating BIT: 1. With respect to business and production organizations (collectively called enterprises), BIT shall be calculated as follows: The BIT amount payable in the tax period shall equal the tax calculation income multiplied by (x) the tax rate. BIT payable = tax calculation income x BIT rate Where an enterprise sets aside an amount of money for its scientific and technological development fund, the BIT amount payable shall be determined as follows: BIT payable = Tax calculation - Amount set aside for the scientific and x BIT rate 1 _

2 income technological fund Where an enterprise has paid BIT or a kind of tax similar to BIT outside Vietnam, the enterprise shall be permitted to deduct the paid BIT amount which, at most, shall not exceed the BIT amount payable in accordance with the provisions of the BIT Law. 2. With respect to administrative bodies carrying out activities of dealing in goods or services subject to BIT, if such administrative bodies can calculate turnover but cannot calculate and determine expenses and income of their business activities, they shall declare and pay BIT as follows: The BIT payable shall be calculated at a percentage over the turnover from sale of goods or services, specifically: + In respect of services: 5%; + In respect of dealing in goods: 1%; + In respect of other activities: 2%. Where administrative bodies are permitted to apply the BIT preference to enjoy BIT incentives, they must maintain books of account, invoices and documents in accordance with regulations; register and pay BIT according to their declaration; and when applying the BIT preference, they shall not calculate BIT at a percentage over turnover as mentioned above. II. Tax calculation income The tax calculation income in the tax period shall be determined according to the following formula: Tax calculation income = Taxable income - Tax-exempt income + Losses carried forward as regulated III. Taxable income: The taxable income in the tax period shall include income from the production of or trading in goods or services, and other income. The taxable income in the tax period shall be determined as follows: 2 _

3 Taxable income = Turnover - Deductible expenses + Other incomes The income from production of or trading in goods or services shall equal turnover from the production of or trading in goods or services minus deductible expenses of such a production of trading. An enterprise with many business activities subject to different tax rates shall calculate separately the income from each activity corresponding with the tax rate applicable to that activity. Other incomes mean taxable incomes in the tax period, stipulated in Section V, Part C of Circular No.130/2008/TT-BTC. The enterprise shall apply the common tax rate (25%) to other incomes, and shall not be permitted to apply the preferential tax rate to them. IV. Turnover used to calculate taxable income 1. Turnover used to calculate taxable income shall be total sales revenue, processing fees, fees for provision of services including price subsidies, surcharges or extra fees earned by an enterprise, regardless of whether payment is made or not. - In respect of an enterprise paying VAT under the deduction method, turnover used to calculate taxable income shall exclude VAT. Example: Enterprise A is a taxpayer paying VAT under the deduction method. VAT invoice includes the following items: - Selling price: 100,000 dong - Value added tax (10%): 10,000 dong - Payment price: 110,000 dong Turnover used for calculation of the taxable income is 100,000 dong. 1.2 With respect to an enterprise paying VAT under the method of direct calculation on the value added, turnover used to calculate taxable income shall be the revenue inclusive of VAT. Example: Enterprise B is a taxpayer paying VAT under the method of direct calculation on the value added. The enterprise shall only record the selling price of VND 110,000 (inclusive of VAT) on the sale invoice. The turnover used to calculate taxable income is VND 110, _

4 2. The time for fixing turnover in order to calculate taxable income shall be as follows: 2.1 In respect of the sale of goods, it is the time when the title to goods or the right to use goods is transferred to the purchaser. 2.2 In respect of the provision of services, it is the time when the provision of services to customers is completed or the time when the sale invoice is issued. V. Expenses which are deductible and non-deductible upon determination of the taxable income: Principles of determining expenses which are deductible upon determination of the taxable income: Expenses which are deductible upon determination of the taxable income must meet all the following conditions: + Actually incurred expenses which are related to production or trading activities of the enterprise. + Expenses supported by legal invoices or documents as regulated by law. Expenses which are non-deductible upon determination of the taxable income are expenses which do not meet the above conditions and expenses stated in point 2, Section IV, Part C of Circular 130/2008/TT-BTC. The BIT Law and implementing documents formulate principles of determining deductible expenses upon determination of the taxable income, and stipulate 31 items of non-deductible expenses upon determination of the taxable income. Accordingly, enterprises shall base on the provisions in legal documents to determine deductible expenses when determining the taxable income, and should note a number of specific expenses as follows: 1. Depreciation costs of fixed assets: From 1 January 2009 to the end of 31 December 2009, depreciation cots of fixed assets shall be calculated in accordance with the guidelines in Circular No.130/2008/TT-BTC and Decision No.206/2003/QD-BTC dated 12 December 2003 of the Minister of Finance. The following points should be noted: 4 _

5 - When starting to charge depreciation costs of fixed assets, an enterprise must register its method of charging depreciation costs of fixed assets with the tax office directly managing it. On an annual basis, the enterprise itself shall decide the depreciation rate of fixed assets in accordance with the Ministry of Finance s current regulations on management, utilization, and charging depreciation costs of fixed assets, including the case where it applies the method of accelerated depreciation. During the period of carrying out its production or business activities, if an enterprise wants to change the depreciation rate of fixed assets, and if, with such a change, the depreciation rate is still within the regulated rate, the enterprise shall be permitted to adjust the depreciation rate. The deadline for making an adjustment to the depreciation rate shall be the one for submission of the final BIT return for the year in which the depreciation cost of fixed assets is charged. - Charging depreciation costs of fixed assets being passenger cars with 9 or less seats, civil airplanes or yachts The enterprise shall not be permitted to include the following depreciation costs in deductible expenses: the portion of depreciation cost charged more than the historical cost of VND 1.6 billion per car on cars with 9 or less seats, which are registered for use and for charging depreciation cost as from 1 January 2009 (except cars used for transportation of passengers, or used in the tourist and hotel sectors); the portion of depreciation costs charged on fixed assets being civil airplanes and yachts which are not used for transportation of goods, passengers or tourists. Example 1: In 2009 enterprise A purchased a 7-seat car with its value of VND 2 billion exclusive of VAT; enterprise A obtains full invoices or documents as regulated. According to the above provisions, enterprise A shall only be permitted to include the depreciation cost of fixed asset with a limit of VND 1.6 billion in deductible expenses when it determined the taxable income. Example 2: In 2009 enterprise B purchased a 7-seat car with its value of VND 1.5 billion; VAT is VND 75 million, the car registration fee is VND 100 million. As enterprise B bought this car in cash and did not make payment via a bank, it was not permitted to deduct the input VAT but had to include such input VAT in the historical cost of fixed asset. Thus, the total historical cost of the car in this case shall be VND billion ( ). Upon calculation of the taxable income, enterprise B shall only be permitted 5 _

6 to include the depreciation cost with a limit of VND 1.6 billion in deductible expenses. - Charging depreciation costs of structures on leased land: Where structures on land such as offices, buildings or business stores used for business activities are constructed on the land leased or borrowed from organizations, individuals or households (other than the land directly leased from the State or the land in industrial zones), the enterprise shall only be permitted to charge depreciation costs of these structures to deductible expenses if it meets the following requirements: + The land leasing contract or the land borrowing contract is notarized by the notary public office in accordance with law; the leasing or borrowing period on the contract shall not be less than the minimum period of charging depreciation cost on fixed assets. + The payment invoice for the structures is accompanied with the construction contract, the minutes on liquidation of the contract, and the statement of finalization of the structures bearing the name, address and tax code of the enterprise. + The structures on land are managed, monitored and accounted for in accordance with the current regulations on management of fixed assets. 2. Registration of the reasonable consumption levels of raw materials, materials, fuel, energy and goods used in business or production activities The reasonable consumption levels of raw materials, materials, fuel, energy and goods used in business or production activities shall be set by the enterprise itself. The reasonable consumption levels shall be set from the early year or the early period of manufacture of products, and notified to the tax office directly managing the enterprise within 3 months from the time when the enterprise begins its production activities. Where the enterprise makes additional adjustment to the reasonable consumption levels, the deadline for notifying the tax office of the additional adjustment to the reasonable consumption levels shall be the deadline for submission of final BIT return. 3. Salary expenses: 6 _

7 - An enterprise shall, upon determination of the taxable income, be permitted to include the following actual payments in deductible expenses: salaries, wages and allowances paid to employees in accordance with the regulations; with respect to bonuses with a nature of salaries given to employees, the conditions for being entitled to such bonuses must be specified in the labour contract or the collective labour agreement. Where the enterprise sets up a contingency fund which is used to add to the salary fund of the subsequent year so that the payment of salary is not interrupted and where such a fund is not used for other purposes, the established contingency fund shall not exceed 17% of the paid salary fund. - An enterprise shall not be permitted to include the following payments in deductible expenses: tuition fees of employees children, recorded in the labour contract. 4. Costs of mid-shift meals: In respect of costs in cash or in kind of mid-shift meals for employees, an enterprise shall be permitted to include such costs in deductible expenses if the costs are actually paid and supported by legal invoices or documents as regulated by law. In particular, with respect to State companies, Circular No.22/2008/TT-BLDTBXH dated 15 October 2008 (which came into effect until 30 April 2009) and Circular No.10/2009/TT-BLDTBXH dated 24 April 2009 (which has come into effect as from 1 May 2009) of the Ministry of Labour, War Invalids and Social Affairs, providing guidance on the mid-shift meal policy applicable to State companies, stipulate that: before 1 May 2009, the cost of mid-shift meal for an employee shall not exceed VND 450,000 per month; from 1 May 2009, such cost of mid-shift meal shall not exceed VND 550,000 per month. Thus, where state companies are permitted by competent bodies to pay costs of mid-shift meals in excess of the regulated limit mentioned above and where the costs of mid-shift meals are actually paid and supported by legal invoices and documents in accordance with the regulations, the State companies shall be permitted to include them in deductible expenses upon determination of the taxable income. 5. Costs of clothes An enterprise shall not be permitted to include the following payments in its deductible expenses: the portion of payment in kind for its employees clothes exceeding VND 1,500,000 per person per year; the portion of payment in cash for its employees clothes exceeding VND 1,000,000 per person per year. 7 _

8 6. An enterprise shall not be permitted to include the following payments in its deductible expenses: allowances for employees going on business trips at home and abroad (excluding travelling and accommodation fees) which exceed two times the level regulated by the Ministry of Finance for government officials and employees. Allowances for going on business trips at home or abroad shall be paid in accordance with the following documents: At home: Circular No.23/2007/TT-BTC dated 21 March 2007 of the Ministry of Finance. Abroad: Circular No.91/2005/TT-BTC dated 18 October 2005 of the Ministry of Finance. 7. Cost of interest on loans An enterprise shall not be permitted to include the following payments in its deductible expenses: Payment of interest on loans borrowed from lenders other than credit institutions or economic organizations, which exceed 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing, for business or production activities. Payment of interest on loans for making charter capital contribution; payment of interest on loans, corresponding with the portion of registered charter capital which remains insufficient compared with the capital that must be contributed as specified in the enterprise s charter, including the case where the enterprise has come into operation. Example: Enterprise A registers its charter capital of VND 90 billion and the charter of enterprise A stipulates that the charter capital of VND 90 billion shall be contributed fully within a definite period (3 years, VND 30 billion per year). If, every year, enterprise A contributes sufficiently the registered charter capital of VND 30 billion and pays the interest on loans borrowed for its business and production activities, and if the interest on loans is supported by full invoices and documents and does not exceed the limit, enterprise A shall be permitted to include such interest on loans in deductible expenses upon determination of the taxable income. Also with the above example, where, every year, enterprise A does not contribute sufficiently the registered charter capital as specified in its charter, and where it pays the interest on loans borrowed for its business and production activities, then the loan interest corresponding with the portion of charter capital which was registered but has not yet been contributed sufficiently shall not be included in deductible expenses upon determination of the taxable income. 8 _

9 8. Appropriation, establishment and use of provisions for reduction in inventory prices, for loss of financial investments, for bad debts, and for warranty on products, goods, and construction and installation works shall be carried out in accordance with Circular 228/2009/TT-BTC dated 7 December 2009 of the Ministry of Finance. With respect to provisions for investments in securities, the following items should be noted: a) Objects for which provisions are made: securities which meet all the following conditions: + Securities invested by an enterprise in accordance with the regulations of law. + Securities which are traded freely in the market and at the time of inventory or preparation of financial statements, their market prices are reduced in comparison with the prices recorded on the books of account. With respect to securities which are not permitted to trade freely in the market such as securities of which the transfer is limited as regulated by law, and fund s shares, the enterprise shall not be permitted to make provisions for reduction in their prices. With respect to organizations registering for trade in securities such as securities companies or fund management companies which are established and operating in accordance with the provisions of the Law on Securities, the provisions for reduction in prices of securities shall be made in accordance with separate regulations. b) Method of making provisions: The level of provisions for reduction in investment prices of securities shall be calculated in accordance with the following formula: 9 _

10 Level of provisions for reduction in investment prices of securities = Number of securities whose prices are reduced at the time when financial statements are prepared x Prices of securities recorded in the books of account - Actual prices of securities in the market - With respect to listed securities: the actual market price of securities shall be calculated based on the actual price on the Hanoi stock exchange, which is the average trading price on the date on which the provisions are made; or on the Ho Chi Minh city stock exchange, which is the closing price on the date on which the provisions are made. - With respect to kinds of securities which have not been listed on the stock market, the actual market price of securities shall be determined as follows: + For companies which have registered for trading in the transaction market of unlisted public companies, the securities actual market price is the average trading price in the system on the date on which provisions are made. + For companies which have not yet registered for trading in the transaction market of public companies, the securities actual market price is the average price which is calculated based on the trading prices provided by at least three (3) securities companies at the time at which provisions are made. Where the market price of securities cannot be determined, enterprises shall not be permitted to make provisions for reduction in prices of securities. - With respect to listed securities in which the transaction is cancelled or ceased from the 6 th transaction date onwards, their actual market price shall be the book value on the nearest date on which the balance sheet is prepared. Enterprises are required to make separate provisions for each kind of invested securities with its price reduced at the time of preparation of financial statements, and shall be permitted to summarize them in the detailed statement of provisions 10_

11 for reduction in prices of invested securities, which serves as a basis for including such provisions in financial costs of the enterprise. 9. Contributions to the unemployment insurance fund of an enterprise The Law on Social Insurance, Decree No.127/2008/ND-CP dated 12 December 2008, stipulating in detail the implementation of the Social Insurance Law on unemployment insurance and coming into effect as from 1 January 2009, and Circular No.130/2008/TT-BTC of the Ministry of Finance stipulates that: Sources of money forming the unemployment insurance fund in accordance with Article 102 of the Law on Social Insurance: - The employee shall contribute a sum equal to one percent (1%) of his/her monthly salary or wage used to make unemployment insurance contribution. - The employer shall contribute a sum equal to one percent (1%) of the salary or wage fund used to make unemployment insurance contribution for employees taking part in unemployment insurance. - On a monthly basis, the state shall provide a supporting sum funded by the State budget, which is equal to one percent (1%) of the salary or wage fund used to make unemployment insurance contribution for employees taking part in unemployment insurance. The supporting fund shall be transferred once a year. Unemployment insurance contributions made for employees of an enterprise in accordance with the above provisions are compulsory insurance contributions, therefore, the enterprise shall be permitted to include them in its deductible expenses upon calculation of BIT (1% of the salary or wage fund). 10. Appropriation, establishment and use of contingency reserves for payment of retrenchment or severance allowances to employees: In 2009, if an enterprise made unemployment insurance contributions for its employees and set up a contingency reserve fund for payment of retrenchment allowances to employees in accordance with the current regime, it shall be permitted to include such contributions in deductible expenses upon calculation of BIT. The appropriation and establishment of contingency reserves for payment of retrenchment allowances, and the payment of severance allowances shall be carried out in accordance with Circular No.82/2003/TT-BTC dated 14 August _

12 of the Ministry of Finance, guiding the appropriation, establishment and use of, and accounting for, the enterprise s contingency reserves for retrenchment allowances. 11. Foreign exchange differences According to the provisions in Circular No.177/2009/TT-BTC dated 10 September 2009 of the Ministry of Finance, if an enterprise has debts payable in a foreign currency, its foreign exchange loss incurred in the period and arising from reassessment of debts payable in foreign currency at the end of the financial year shall be included in its expenses when it determines the BITable income in the period. Where the inclusion of such foreign exchange differences in expenses causes a loss for the enterprise, it can allocate part of the foreign exchange differences to the following year so that it does not suffer the loss, but the enterprise must ensure that the portion of foreign exchange difference included in its expenses of a year shall at least equal the portion of foreign exchange difference of the amount of foreign currency which must be paid in that year. Example 1: In 2009, enterprise A has a closing income of VND 300 million including foreign exchange differences due to revaluation of debts payable in foreign currency at the end of the financial year. In 2009: The foreign exchange difference due to revaluation of debts payable in foreign currency at the end of the financial year is (-) VND 250 million, in which the foreign exchange difference of debts payable in foreign currency which fall due in 2009 is (-) VND 100 million. Thus, in 2009, enterprise A shall, upon determination of the taxable income, be permitted to include VND 250 million, which are foreign exchange losses due to revaluation of debts payable in foreign currency at the end of the financial year, in its deductible expenses. Example 2: In 2009, enterprise B has a taxable income of VND 200 million including foreign exchange differences due to revaluation of debts payable in foreign currency at the end of the financial year. In 2009: The foreign exchange difference due to revaluation of debts payable in foreign currency at the end of the financial year is (-) VND 250 million, in which the foreign exchange difference of debts payable in foreign currency which fall due in 2009 is (-) VND 100 million. In 2009, if enterprise B includes all foreign exchange differences due to revaluation of debts payable in foreign currency at the end of the financial year in its deductible expenses, it shall suffer a loss. Thus, in 2009, enterprise B shall, upon 12_

13 determination of the taxable income, be permitted to include foreign exchange differences in its deductible expenses as follows: - With respect to the foreign exchange difference equaling 100 million dong of debts payable in foreign currency which falls due in 2009, enterprise B shall include it all in its deductible expenses in the period. - With respect to the foreign exchange difference due to revaluation of debts which must be paid in foreign currency at the end of the financial year but has not yet fall due, enterprise B shall be permitted to include the maximal amount of (-) 100 million dong in its deductible expenses. 12. An enterprise shall not be permitted to include the following payments in its deductible expenses: Costs of advertisement, marketing, promotion, brokerage commissions; payments for reception, festivities, conferences; marketing supporting payments, cost supporting payments, payment discount costs; costs of newspapers given by press agencies as gifts or presents, which are in excess of 10% of the total deductive expenses. In respect of a newly-established enterprise, the non-deductible expense mentioned here is the one exceeding 15% of the total deductive expense in the first three years from the date of its establishment. The total deductive costs shall not include the limited expenses stated in this point. In respect of trading activities, the total deductive expenses shall not include the purchase price of goods sold. Expenses for advertisement, marketing, promotion, brokerage commission which are limited as mentioned above shall not include the insurance brokerage commission in accordance with the regulations on insurance business; commission paid to agents selling goods at the price set by the principal; and the following payments which are made at home or abroad (if any): expenses for market research: exploration, survey, interview, collection, analysis and evaluation of information; expenses for development of and support for market research; expenses for hiring consultants to carry out the tasks of research on, development of and support for market research; expenses for display and introduction of products, and organization of trade fairs and exhibitions: costs of setting up showrooms or stalls for display or introduction of products; costs of hiring space for display or introduction of products; expenses for materials and tools in support of display and introduction of products; expenses for transportation of products to places of display or introduction. The limit of 15% in the first three years shall only apply to newly-established enterprises which are issued with a business registration certificate as from 1 January 2009; and shall not apply to enterprises established from consolidation, 13_

14 division, demerger, merger, conversion of their business type or conversion of the ownership form. Example: Company A was established in In 2009, when making out a report on its final BIT, Company A has the data as follows: - Expenses for advertisement, marketing, promotion, brokerage commission; expenses for reception, festivities, conferences; marketing supporting payments, cost supporting payments; payment discount costs; costs of newspapers given by press agencies as gifts or presents, which are directly related to business and production activities and fully supported by legal invoices and documents: 250 million dong. - The total payments which are included in deductible expenses (excluding expenses for advertisement, marketing, promotion, brokerage commission; expenses for reception, festivities, conferences; marketing supporting payments, cost supporting payments; payment discount costs; costs of newspapers given by press agencies as gifts or presents, which are directly related to business and production activities): 2 billion dong. Accordingly, the deductible expenses for advertisement, marketing, promotion, brokerage commission; expenses for reception, festivities, conferences; marketing supporting payments, cost supporting payments; payment discount costs; costs of newspapers given by press agencies as gifts or presents, directly related to business and production activities, shall be limited as follows: 2 billion dong x 10% = 200 million dong. The total deductible costs which are included in the expenses of 2009: 1 billion dong billion dong = 2.2 billion dong. 13. Enterprises are permitted to include the following payments in deductible expenses: social and medical insurance contributions, labour union fees which do not exceed the regulated level; contributions paid to form the source of management costs of their superior bodies; contributions paid to the association s funds as regulated by law and not exceeding the regulated level. 14. Enterprises are not permitted to include the following payments in deductible expenses: payments which do not correspond with the taxable turnover; expenses which were advanced for a period but have not been spent or used up when the period is over. Advances shall include: advances for major repair to fixed 14_

15 assets on a cycle basis; advances for activities from which turnover has been recorded but the enterprise still have to fulfill its obligations under the contract, and other advances. Thus, an enterprise shall be permitted to include the following payments in its deductible expenses: payments which correspond with the taxable turnover if they are supported by legal invoices or documents, and other advances. Example 1: Company A writes a piece of software for Company B but has not yet completed the service of providing software. Where Company A has temporarily collected money and recorded the turnover subject to BIT but has not yet paid all expenses corresponding with the recorded turnover, it shall, upon calculation of the taxable income, be permitted to advance a portion of expense which corresponds with the declared turnover so as to conform to the principle that expenses should match with turnover subject to BIT. Example 2: Company B sells air tickets to customers in December 2009 but the customers will fly in February Thus, Company B issued invoices to customers and recorded turnover subject to BIT in 2009 but has not yet paid all expenses corresponding with the recorded turnover, it shall, upon calculation of the BITable income, be permitted to advance a portion of expenses corresponding with the declared turnover. 15. Enterprises are not permitted to include the following payments in deductible expenses: fines for administrative breaches including breach of the traffic law, breach of the business registration regime, breach of the statistical and accounting regime and breach of the tax laws, and other fines for administrative offences as regulated by law. With respect to penalties and compensatory payments for violation of economic contracts which are not included in the items of fine mentioned above, if they are supported fully by legal invoices or documents, the enterprise shall, when determining the taxable income, be permitted to include them in deductible expenses. 15. Taxes - The PIT which is not included in deductible expenses upon determination of the taxable income is the tax amount that an enterprise deducts from income of the taxpayer to pay into the State budget. Where the labour contract signed between the enterprise and the employee specifies that the salaries or wages paid to the employee are exclusive of PIT, then the PIT paid by the enterprise on behalf of the employee shall be the salary 15_

16 expenses which are charged to deductible expenses of the enterprise when it determines the taxable income. - The BIT (foreign contractor withholding tax) paid on behalf of the foreign contractor shall be charged to deductible expenses upon calculation of taxable income where the foreign contractor or subcontractor contract specifies that the turnover received by the foreign contractor or subcontractor is exclusive of BIT. VI. Other incomes Other incomes are stipulated in Section V, Part C of Circular No.130/2008/TT-BTC. Some other incomes should be further noted as follows: - According to the provisions in Circular 177/2009/TT-BTC dated 10 September 2009 of the Ministry of Finance, if an enterprise has debts payable in a foreign currency, its foreign exchange gains made in the period and arising from reassessment of debts payable in foreign currency at the end of the financial year shall be included in other income when it determines the BITable income in the period. - Receipts received by an enterprise from fines or from compensatory payments for violation of economic contracts shall be included in other income. Where the enterprise both pays fines for violation of economic contracts and receives receipts from violation of economic contracts, the difference between the receipts from and the fines for violation of economic contracts shall be included in other income upon determination of the taxable income. Where an enterprise only pays fines or makes compensatory payments for violation of economic contracts, it shall conform to the guidelines in point 14, Section V mentioned above. - Receipts received from the interest on deposits shall be included in other income upon determination of the taxable income. Where an enterprise makes payments for the interest on deposits, which relate to its business or production activities, such payments shall be included in the operating expenses in the period. - With respect to provisions for reduction in prices of inventory, for loss of financial investments, for bad debts, for warranty on products, goods, construction and installation works, which have been appropriated but, upon 16_

17 expiry of the period of appropriation, have not been spent or used up, such provisions shall be recovered and included in other income when the enterprise determines the taxable income. - Incomes received in cash or in kind from sources of financing shall be included in other income when the enterprise determines the taxable income. Where an organization receives an amount of finance to use for educational, scientific research, cultural, artistic, charitable or humanitarian activities or for other social activities in Vietnam, such income is tax-exempt and shall be deducted upon determination of the taxable income. VII. TAX-EXEMPT INCOME 1. Income from cultivation, animal husbandry or aquatic culture of organizations established under the Law on Cooperatives. 2. Income from providing technical services which directly serve agricultural production, including: income from services of irrigation or drainage; ploughing and harrowing land; dredging canals and ditches which lead water into fields; services of killing insects as well as preventing and curing diseases for cultivated plants and domestic animals; services of harvesting agricultural products. 3. Income from performing scientific research and technological development contracts; income from selling products in the trial production period and income from selling products manufactured from a new technology first applied in Vietnam. The maximum period of tax exemption shall not exceed one (1) year from the date of performing the scientific research and technological development contract; the date of commencing the trial production of products; the date of applying the new technology first applied in Vietnam for production of products. 3.1 For the income from performing the scientific research and technological development contract to be exempt from tax, the taxpayer must meet the following conditions: - Having a certificate of registration for carrying out activities of scientific research. - Certified by a body responsible for State management of science. 17_

18 3.2 For the income from selling products manufactured from a new technology first applied in Vietnam to be exempt from tax, the taxpayer must ensure that the new technology first applied in Vietnam is certified by the body responsible for State management of science. 4. Income from production, business or services activities of an enterprise using an average number of employees being disabled people, people having undergone drug detoxification or people infected with HIV in a year accounts for 51% of its total employees in that year. Example: Enterprise A has 290 employees whose names are included in its payroll of January 2009; in April 2009, enterprise A recruits 12 more employees; in October, 2 employees leave their job; in December, 3 employees leave their job. Thus, the average number of employees in the year 2009 shall be calculated as follows: (12 people x 9 months) (2 people x 3 months) (3 people x 1 month) = 290 employees + 8 employees = 298 employees. Thus, the average number of employees in 2009 of enterprise A is 298 employees; where enterprise A has a number of 151 employees or more being disabled people (298 x 51%), the income from the production of goods or provision of services by enterprise A shall be exempt from tax. - The tax-exempt income specified in this item shall not include other income stipulated in Section V, Part C of this Circular. - For the income to be exempt from tax, enterprises stated in this point must meet fully the following conditions: 4.1 With respect to an enterprise using employees being disabled people (including war invalids, sick soldiers), it must obtain certificates of competent medical organizations regarding the employees being disabled people. 4.2 With respect to an enterprise using employees being people who have undergone drug detoxification, it must obtain certificates of detoxification centers, certifying that such employees have completed their drug detoxification period, or certificates of relevant competent bodies. 18_

19 4.3 With respect to an enterprise using employees being people infected with HIV, it must obtain certificates of competent medical organizations regarding the employees infected with HIV. 5 Income from vocational training activities especially for ethnic minorities, disabled people, children living in particularly difficult conditions and people involved in social evils. Where a vocational training establishment has learners from other social strata, the tax-exempt income shall be determined based on the ratio of learners being ethnic minorities, disabled people, children with especially difficult circumstances to the total amount of learners. For the income from vocational training activities stated in this point to be exempt from tax, the taxpayer must meet following conditions: - The vocational training establishment is established and operates in accordance with the implementing documents on vocational training. - Having a list of learners being ethnic minorities, disabled people, children living in particularly difficult conditions and people involved in social evils. 6 Income distributed from activities such as capital contribution to, purchase of shares from, or conducting a joint venture or an association with, a domestic enterprise after the party receiving capital contribution, the party issuing shares or the party to the joint venture or association has paid BIT in accordance with the provisions of the BIT Law, including the case where the party receiving capital contribution, the party issuing shares or the party to the joint venture or association is entitled to tax exemption and reduction. Example: Enterprise B receives capital contributed by Enterprise A. The pre-tax income corresponds with the portion of capital contributed by Enterprise A to Enterprise B is 100 million dong. Case 1: [Where] Enterprise B is not entitled to BIT incentives and has fully paid BIT on its income including the income received from Enterprise A, then the income that Enterprise A receives from the capital contribution is 75 million dong [(100 million (100 million x 25%)]; enterprise A is exempt from BIT on this amount of 75 million dong. Case 2: [Where] Enterprise B is entitled to a reduction of 50% of BIT payable, and has fully paid BIT on its income including the income received 19_

20 from Enterprise A, the income that Enterprise A receives from the capital contribution is 87.5 million dong [100 million (100 million x 25% x 50%)], enterprise A is exempt from BIT on this amount of 87.5 million dong. Case 3: [Where] Enterprise B is entitled to BIT exemption, then the income that Enterprise A receives from the capital contribution is 100 million dong, enterprise A is exempt from BIT on this amount of 100 million dong. 7. The amount of finance received and used for educational, scientific research, cultural, artistic, charitable and humanitarian activities, and for other social activities in Vietnam. Where the finance receiving organization uses the amount of finance for improper purpose, such organization must repay BIT at the tax rate of 25%, calculated on the finance used for improper purpose. The finance receiving organization stated in this point shall be the one which is established and operates in accordance with the law, and which implements properly the regulations on accounting and statistics. VIII. Guidance on determination of loss and on loss carried forward Loss arising in a tax period shall equal the negative amount (-) of taxable income, After making tax finalisation with the tax office, an enterprise which suffers loss in the tax finalisation year shall be entitled to carry forward such losses to the following years; and these losses shall be deducted from taxable income of the following years. Losses shall be carried forward for a maximum period of no more than 5 years from the year following the loss year. Losses incurred from 2009 onwards shall be carried forward to a continuous period not exceeding five years from the year subsequent to the loss year. Losses incurred before 2009 shall be carried forward in accordance with the provisions in legal documents taking effect in that period. If, up until 2009, the enterprise still has the remaining period for carrying loss forward, then the remaining period for carrying loss forward must be calculated continuously. Where the body having the authority to examine and inspect BIT finalisation determines that the loss which is permitted to carry forward by a business establishment is different from the loss calculated by the business 20_

21 establishment itself, then the loss permitted to carry forward shall be determined in accordance with the conclusion of the competent body, and it is required to ensure that the period of carrying continuously such loss forward shall not exceed 5 years from the year subsequent to the loss year. Beyond 5 years from the year following the loss year, if losses have not been offset completely, the business establishment shall no longer be permitted to offset such losses against income of the following years. Example: Enterprise A had a total loss of VND 5 billion in 2008 and declared that the loss shall be carried forward to the following period of 5 continuous years. In 2009, when making tax finalization, it declared the taxable income (profit) of one billion dong and carried forward the loss of one billion dong to 2009 so as to offset such loss against the 2009 taxable income. When carrying out an inspection of the 2009 BIT finalization, the tax office re-determines expenses and turnover of enterprise A and recalculates that its taxable income in 2009 is 1.5 billion dong. Thus, the loss of enterprise A in 2008 shall be offset against the taxable income determined by the tax office (the loss which is offset against the taxable income is 1.5 billion dong). Depending on the fault of the enterprise, the tax office shall impose penalties on its violation of the tax law as regulated. IX. BIT rates From the tax year of 2009, the general BIT rate is 25%. In addition, there are some other tax rates (such as preferential tax rates applicable to lines of business or regions to which investment incentives are given; preferential tax rates applicable to socialization activities; and tax rates applicable to activities of prospecting, exploration, exploitation of petroleum and other rare and precious resources in Vietnam) An enterprise which has a financial year other than the calendar year shall apply the BIT policy specified in Circular 134/2007/TT-BTC to the tax year 2008, and the BIT policy specified in Circular 130/2008/TT-BTC to the tax year Where the enterprise has a financial year other than the calendar year and is not entitled to the preferential BIT rate, it shall, when calculating the BIT payable, be permitted to apply the BIT rate of 25% to the months of Example: An enterprise has its tax period from 1 October 2008 to 30 September If this tax period of the enterprise is the tax year of 2008, the enterprise shall apply the BIT policy in accordance with the provisions in Circular No.134/2007/TT- BTC. Where the enterprise is applying the general tax rate and is not entitled to 21_

22 the preferential tax rate, it shall, when making the final BIT calculation, be permitted to calculate the tax amount payable as follows: Taxable income in Taxable income in the tax period the tax period BIT payable = x 3 months x 28% x 9 months x 25% 12 months 12 months X. Place where BIT is paid 1. Principle of determination: An enterprise shall pay tax in the locality where its head office is located. Where the enterprise has its dependent production establishment (including the processing or assembly establishment) operating in a province or city other than the locality where the enterprise s head office is located, the BIT shall be paid in the locality where the enterprise s head office is located and in the locality where the production establishment is located. The tax payment stipulated in this point shall not apply to the construction works, items of the construction works, or construction establishments practicing dependent cost accounting. 2. Determination of the tax amount, and the procedures for declaration and payment of tax: The BIT paid in a province or city where the dependent production establishment is located shall equal the BIT payable in the tax period multiplied by (x) the ratio of expense incurred by the dependent production establishment to the total expenses incurred by the enterprise. Where an operating enterprise has dependent production establishments in localities, the data used to determine the ratio of expense incurred by the head office to the expenses incurred by dependent production establishments shall be calculated by the enterprise itself, based on the 2008 BIT finalization data and the data shall be used stably from 2009 onwards. Where a new enterprise or an operating enterprise sets up more or lessens dependent production establishments in localities, the enterprise itself must calculate the ratio of expense for the first tax period in this case. From the following tax period, the ratio of expense shall be calculated in accordance with the principle mention above. 22_

23 The enterprise with head office shall be responsible for declaration and payment of BIT on the income earned by the head office and by its dependent production establishments, using Form No.07/TNDN issued together with Circular 130/2008/TT-BTC. 3. Procedures for circulation of documents between the treasury and the tax office: An enterprise shall pay BIT incurred by its head office to the treasury of the locality where its head office is located, and at the same time shall, on behalf of their dependent production establishments, pay the BIT amount that these establishments must pay in localities. Tax payment documents shall be prepared separately for each state treasury which collects tax revenues, accompanied by a photocopy of the BIT return Form 07/TNDN issued together with Circular 130/2008/TT-BTC. 4. Tax finalization An enterprise shall carry out its BIT finalization at the head office; the BIT amount yet to be paid shall equal the BIT amount that must be paid according to the finalization minus (-) the BIT amount temporarily paid by the head office and by dependent production establishments. When carrying out the annual BIT finalization at the head office, if there is a BIT amount larger or smaller than the total BIT amount temporarily declared in four (4) quarters, the BIT amount yet to be paid or refunded upon tax finalization shall also be allocated to the head office and the dependent production establishments based on their ratio of tax payment. XI. BIT from transfer of properties 1. Income subject to BIT 1 Income from transfer of properties includes income from transfer of land use right, transfer of land lease right, or sublease of land by enterprises trading in properties in accordance with the land law, irrespective of whether or not infrastructures or architectural structures are constructed on the land. Thus, as from 1 January 2009, enterprises of all economic sectors which have income from transfer of land use right or land lease right; and enterprises trading in properties which have income from sublease of land must pay income tax on transfer of properties. 23_