CIRCULAR No CIRCULAR No. 13/2001/TT-BTC OF MARCH 8, 2001 GUIDING THE IMPLEMENTATION OF TAX PROVISIONS FOR VARIOUS INVESTMENT FORMS UNDER THE LAW ON FOREIGN INVESTMENT IN VIETNAM Pursuant to the Law on Foreign Investment in Vietnam, passed on November 12, 1996 by the National Assembly of the Socialist Republic of Vietnam; and the Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam, passed on June 9, 2000 by the National Assembly of the Socialist Republic of Vietnam; Pursuant to the current tax laws and ordinances of the Socialist Republic of Vietnam; as well as the Government�s decrees detailing the implementation of tax laws and ordinances; Pursuant to the Government�s Decree No.24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam; Pursuant to the Government�s Decree No.36/CP of April 24, 1997 promulgating the Regulation on industrial parks, export-processing zones and hi-tech parks; Pursuant to the Government�s Decree No.62/CP of August 15, 1998 promulgating the Regulation on Build-Operate-Transfer (BOT) Contracts, Build-Transfer-Operate (BTO) Contracts and Build-Transfer (BT) Contracts applicable to foreign investment in Vietnam, and Decree No.02/1999/ND-CP of January 27, 1999 amending and supplementing a number of Articles of Decree No.62/CP; The Finance Ministry hereby guides the implementation of tax provisions for various investment forms under the Law on Foreign Investment in Vietnam as follows: Part I GENERAL PROVISIONS 1. This Circular shall apply to the following subjects: - Joint-venture enterprises and enterprises with 100% foreign capital, which are established under the Law on Foreign Investment in Vietnam (hereinafter called foreign-invested enterprises for short). - Joint-venture banks between Vietnamese banks and foreign banks, which are licensed by the State bodies managing foreign investment under the Law on Foreign Investment in Vietnam. - Foreign-invested insurance enterprises and insurance brokerage enterprises, which are established and operating under the Law on Foreign Investment in Vietnam and the Law on Insurance Business. - Joint-venture enterprises established on the basis of agreements concluded between the Government of the Socialist Republic of Vietnam and foreign governments. Where an agreement contains provisions on tax obligations of joint-venture enterprises, which are different from this Circular�s guidance, such agreement�s provisions shall apply. - Foreign parties to business cooperation contracts (hereinafter referred to as foreign business cooperation parties) under the Law on Foreign Investment in Vietnam. - BOT, BTO and BT enterprises established under the Law on Foreign Investment in Vietnam. In cases where operation regulations of enterprises issued by the Government or the BOT, BTO or BT contracts already approved by the Government contain provisions on tax obligations other than this Circular�s guidance, such provisions shall apply. All the above-mentioned subjects shall, depending on each specific context, be called enterprises for short. Tax obligations of subjects conducting oil and gas prospection, exploration and exploitation in Vietnam under the Petroleum Law shall comply with separate guidance. 2. A number of definitions: -"Tax calculation year" is the calendar year starting on January 1 st and ending on December 31 every year. In cases where enterprises are allowed by the Finance Ministry to apply a fiscal year other than the calendar year, the tax calculation year shall be that fiscal year. - "The first year with profit in business" is the first fiscal year when an enterprise earns profit, without offsetting losses transferred from the previous years. - "Market price-free transaction contracts" are the transaction or trading contracts affected by abnormal commercial relationships such as the relationships between associated enterprises, which are bound together by set or imposed conditions other than those set among independent enterprises. Enterprises shall be considered associated enterprises when: (i) One enterprise directly or indirectly takes part in the management or control of, or contributes legal capital or stock capital to, another enterprise. (ii) Two enterprises are subject to the direct or indirect management or control by another enterprise or both enterprises are contributed with capital by another enterprise. Part II GUIDANCE FOR THE IMPLEMENTATION OF TAX PROVISIONS I. ENTERPRISE INCOME TAX 1. Taxable objects: All income amounts earned from any economic activity of enterprises shall be subject to enterprise income tax. 2. Taxpayers: Enterprises shall be the payers of enterprise income tax. In cases where a foreign organization or individual simultaneously invests in different business cooperation contracts, the enterprise income tax shall be calculated separately for each business cooperation contract (including cases where foreign companies set up general executive offices in Vietnam). 3. Determination of taxable income: Taxable Turnover for Total income calculation reasonable and in the tax = of taxable - valid expenses + Other calculation income in the in the tax incomes year tax calculation calculation year year When determining taxable incomes, enterprises may offset losses of previous years as prescribed in Article 55 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam. As for foreign business cooperation parties, they may carry forward losses incurred in the fiscal year of 2000 to the subsequent year for each business cooperation contract. For foreign business cooperation parties that apply a fiscal year other than the calendar year, if their 1999-2000 fiscal year ends before July 1, 2000 while losses still arise, such losses of the 1999-2000 fiscal year shall not be carried forward to the subsequent years. The carrying forward of losses shall be effected according to enterprises� plans. On the basis of its production and business plan, within 15 days after elaborating the final tax settlement report and determining the loss amount incurred in the fiscal year, an enterprise shall take initiative in registering with the tax authority plan for the carrying forward of loss of that fiscal year for deduction from taxable incomes in the subsequent years (within 5 years as from the year following the year when the loss arises) and strictly comply with the already registered loss transfer schedule. Example: In 2000 enterprise A suffered from a loss of USD 500,000. It is expected that as from 2001, enterprise A starts to earn profit of USD 150,000, then USD 200,000 in 2002, USD 300,000 in 2003, USD 400,000 in 2004 and USD 550,000 in 2005. According to the provisions of its investment license, enterprise A shall be exempt from enterprise income tax for 2 years. As a result, according to the provisions of Article 48, Decree No.24/2000/ND-CP, enterprise A shall be exempt from enterprise income tax for 2 years of 2001 and 2002 (2001 is the first year with profit in business). Enterprise A may opt for the transfer of its loss in the year 2000 to the years from 2003 to 2005 so as to enjoy the whole tax exemption for 2 years. The year to which its loss will be transferred shall be decided and registered by enterprise A itself (it may transfer the total loss amount of the year 2000 to the year 2005 or divide evenly such loss for the transfer thereof within 3 years from 2003 to 2005). a/ Turnover for calculation of taxable income in the tax calculation year: The turnover for calculation of taxable income of an enterprise is the whole proceeds from the sale of goods and provision of services (without value added tax) and other revenues of the enterprise in the tax calculation year. In a number of specific cases, the turnover for calculation of taxable income shall be determined as follows: * For goods sold by the mode of installment payment, it is the turnover of the sold goods calculated according to the lump-sum payment selling price, excluding the deferred payment interest. * For asset-leasing activities such as the lease of houses, offices or infrastructure, it is the rent amount to be collected in each period according to the leasing contract. In cases where the rent is collected in advance for many years, the turnover for calculation of taxable income in each year shall be determined as equal to the advance rent amount divided evenly to the number of years with advance collection. * For goods or services used for exchange, as donations or gifts, it is calculated according to the selling prices of products, goods or services of the same or equivalent type on the market at the time they are exchanged, donated or presented. * For products for internal use, it is the production costs of such products. * For goods-processing activities, it is the money earned from the processing, including remuneration, costs of fuels, power, auxiliary materials and other expenses in service of goods processing. * For credit activities, it is the loan interest amounts that must be collected in the tax calculation year. * For insurance and reinsurance business activities, it is the collectible insurance premium principals, expertise agency charge, reinsurance charge, reinsurance commissions and other revenues. * For business cooperation contracts in form of product sharing, it is the proceeds from the sale of products, which shall be calculated as follows: + If the shared products are sold on the Vietnamese market, the turnover shall be determined according to the selling prices of such products on the Vietnamese market. + If the shared products are exported to foreign countries, the turnover shall be determined according to the FOB prices at the Vietnamese border gates. When determining tax obligations of foreign business cooperation parties, if the business cooperation parties fail to provide the products� selling prices or the sale of products fails to comply with the market price-based trading transaction principles, the turnover shall be determined according to the principles prescribed in Section IV, Part III of this Circular. b/ Reasonable expenses in the tax calculation year: The expenses related to the generation of taxable income in the tax calculation year of an enterprise, regardless of the applicable accounting regime, shall be determined to include the following: b1. Depreciation expense and expense for the repair of fixed assets used for production, business and/or provision of services. The fixed asset depreciation rate shall be determined on the basis of such assets� use duration registered by the enterprise itself with the tax authority directly managing it on the principle of straight-line depreciation in accordance with the provisions of the Finance Minister�s Decision No. 166/1999/QD-BTC of December 30, 1999. b2. Expenses for raw materials, materials, fuels, energy, labor tools and goods actually used in production or services provision related to the taxable turnover and income in the tax calculation year. b3. Salaries, wages, remuneration and payments of salary and wage nature; mid-shift meal expenses and allowances as well as subsidies paid to Vietnamese and foreign laborers on the basis of labor contracts or collective labor agreements in compliance with the labor legislation applicable to enterprises, which are established and operating under the Law on Foreign Investment in Vietnam. b4. Expenses for scientific and technological research; innovations; environmental protection; maintenance of storehouses, buildings, fire prevention and fight; education, training and health care, including expenses in outward support of health care and education, such as contributions to study promotion funds, assistance for schools of handicapped, homeless and supportless pupils. b5. Expenses for services purchased from outside: - Expenses for power, water, telephone, stationery, audit hiring, printing of documents. - Liability or property insurance premiums according to insurance policies signed with Vietnamese insurance enterprises or other insurance enterprises licensed to lawfully operate in Vietnam. - Expenses for hiring the overhaul of fixed assets in order to restore their capacity shall be accounted into production and business costs in the year. If an overhaul-expense amount is too large, the concerned enterprise may make a plan on the distribution thereof to the following years. For particular fixed assets requiring regular repair, the enterprise is entitled to make an advance deduction of the overhaul expense from the production and business costs on the basis of its overhaul expense estimate. If the advance deduction is lower than the actual overhaul expense, the enterprise may additionally account the difference into its expenses; if the advance deduction is higher than the actual overhaul expense, the expenses shall be accounted with decrease in the year. - The rentals of houses and land for head offices or workshops. In cases where the house- and/or land-renting enterprises pay in advance the rentals for many years, these rentals shall be distributed to each year according to the number of years with the advance payment. - The rentals of fixed assets (machinery, equipment and facilities), which shall be accounted into the production and/or business costs according to the amounts actually paid under renting contracts. In cases where the fixed asset rental is paid in lump-sum for many years, such rental shall be gradually accounted into the production and/or business costs according to the number of years during which the fixed assets are used. - Expenses for the procurement of or payment for, technical documents, services or techniques; expenses for copyright and technology transfer; expenses for the use of objects of industrial property such as patents or trademarks under the technology transfer contracts or license contracts already approved by the Ministry of Science, Technology and Environment or the competent agencies. - Expenses for consultancy or hiring of management companies under the management hiring contracts already approved by the Ministry of Planning and Investment and expenses for hiring other services from outside. b6. Payments for female laborers as prescribed by law; expenses for labor safety, safeguarding of business establishments; remittances to the funds for social and health insurance for laborers, which fall within the enterprises� obligations, or to the trade union operation fund according to the prescribed regime. b7. Loan interests within the limit of the ceiling lending interest rate announced by the State Bank of Vietnam for domestic loans; banking fees and loan interest rates paid under credit contracts already approved by the State Bank for foreign loans. If a credit contract has not yet been approved by the State Bank, the interest rate and fee shall be determined according to the actual payments in accordance with the provisions of the credit contract but must not exceed the highest lending interest rate of the State commercial credit institutions. For joint-venture banks, they are reasonable interest rates and discounts paid for deposits, loans or other financial instruments. All expenses for interests on loans related to the contribution of legal capital or charter capital (for banking activities) shall not be accounted into the reasonable and valid expenses when determining the taxable profit. b8. Reserves for the decrease of prices of unsold goods, bad debts or decrease of securities prices at enterprises shall comply with the guidance of the Finance Ministry. b9. Severance allowance for laborers according to the current regime. b10. Expenses related to the operation of the Managing Board (for example: expenses for meetings of the Managing Board) of a joint-venture enterprise in compliance with the joint venture�s charter or resolution of the Managing Board. b11. Expenses directly related to the circulation and sale of products or provision of services such as expenses for goods preservation and packing, loading and unloading, transportation, storehouse and store-yard rent, product or goods warranty. b12. Expenses for advertisement, marketing, sale promotion, guest reception, festive occasions, transactions, external relations and conferences as well as other expenses, which must not exceed the restricted levels prescribed below: - For production, construction or transportation enterprises which have newly been established and started operation, they must not exceed 7%, for the first 2 years, then 5%, for the subsequent years, of the total amount of expenses prescribed in Clauses b1 to b11 above. - For trading, food and drink catering and service business activities, they must not exceed 7%, for the first 2 years after the enterprises� establishment, then 5%, for the subsequent years, of the total amount of expenses prescribed in Clauses of from b1 to b11 above (excluding the cost prices of the sold goods). - For enterprises in such branches as production and trading of electricity, gas, oil refinement, petrol and oil trading, post and telecommunications as well as aviation, they must not exceed 5%, for the first 2 years after the enterprises� establishment, then 3%, for the subsequent years, of the total amount of expenses prescribed in Clauses of from b1 to b11 above (excluding the cost prices of the sold goods for trading activities). In some particular cases where these expenses should be restricted to levels higher than the above-mentioned ones, they must be approved in writing by the Finance Ministry, but must not exceed 7% of the total amount of expenses prescribed in Clauses b1 to b11 above. b13. Contributions to Vietnamese organizations for charity or humanitarian purposes such as contributions to overcoming consequences of natural calamities, accidents; contributions to the funds in support of heroic Vietnamese mothers, families of fallen combatants and people with meritorious services to the revolution, disabled people, homeless and supportless people and funds for social disease prevention and fight. b14. Payable taxes, charges and fees of tax nature, which are related to production activities, goods trading and/or services provision but do not include: value added tax (VAT), enterprise income tax and tax on income transferred abroad. Particularly for enterprises engaged in the production and/or trading of goods not subject to VAT or enterprises paying VAT by the direct method, the expenses used for taxable income calculation shall cover also the VAT amount in the input goods and/or services buying prices. All the above-mentioned expenses must be evidenced by valid vouchers; any expense amount without vouchers or with invalid vouchers must not be accounted into the expenses when determining income liable to enterprise income tax. Enterprises must not account into their expenses fines and expenses which are not related to their turnovers and taxable incomes, such as expenses for capital construction investment and expenses covered by other funding sources. Enterprises established and operating in Vietnam under the Law on Foreign Investment in Vietnam must not allocate the management expenses of their parent companies overseas. c/ Other incomes: Other incomes of enterprises include: c1. Bank deposit and loan interests (excluding enterprises engaged in credit business); interests on deferred payment for sold goods. c2. Foreign currency purchase and sale difference, securities purchase and sale difference; exchange rate difference under the guidance of the Finance Ministry. c3. Income earned from the right to own and use the enterprise�s assets, including income from the asset assignment or liquidation. In cases where the enterprise�s assets are lost or damaged due to subjective causes, those losses related to such assets must no

Thông tư 13/2001/TT-BTC