Circular No. 169/1998/TT-BTC of December 22, 1998, providing guidance on taxes applicable to foreign organisations and individuals doing business in Vietnam, which are not subjected to investment forms regulated in the law on foreign investment in Vietnam đã được thay thế bởi Circular no. 05/2005/TT-BTC of January 11, 2005 guiding the tax regime applicable to foreign organizations without vietnamese legal person status and foreign individuals doing business or earning incomes in Vietnam và được áp dụng kể từ ngày 16/02/2005.
Nội dung toàn văn Circular No. 169/1998/TT-BTC of December 22, 1998, providing guidance on taxes applicable to foreign organisations and individuals doing business in Vietnam, which are not subjected to investment forms regulated in the law on foreign investment in Vietnam
MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Hanoi, December 22, 1998
PROVIDING GUIDANCE ON TAXES APPLICABLE TO FOREIGN ORGANISATIONS AND INDIVIDUALS DOING BUSINESS IN VIETNAM, WHICH ARE NOT SUBJECTED TO INVESTMENT FORMS REGULATED IN THE LAW ON FOREIGN INVESTMENT IN VIETNAM
Pursuant to Law on Value Added Tax 02/1997/QH9 dated May 10, 1997; Law on Corporate Income Tax 03/1997/QH9 dated May 10, 1997;
Pursuant to Decree No.28/1998/ND-CP dated May 11, 1998 of the Government providing detailed regulations on the implementation of the Law on Value Added Tax; Decree N0.30/1998/ND-CP dated May 13, 1998 of the Government providing detailed regulations on the implementation of the Law on Corporate Income Tax;
Pursuant to relevant legal documents;
The Ministry of Finance hereby provides guidance on the implementation of tax obligations applicable to foreign organisations and individuals doing business in Vietnam, which are not subject to investment forms regulated in the Law on Foreign Investment in Vietnam:
A. SCOPE OF APPLICATION
I- APPLICATION OF THIS CIRCULAR:
Tax obligations stated in this circular are applicable to foreign organisations and individuals doing business in Vietnam, which are not subject to investment forms regulated in the Law on Foreign investment in Vietnam.
II- THIS CIRCULAR IS NOT SUBJECT TO:
- Foreign organisations and individuals that provide aeroplane and ship repairing services for Vietnamese organisations and individuals abroad;
- Foreign organisations and individuals that provide goods for Vietnamese organisations and individuals at Vietnamese or foreign border gates under ordinary trading contracts.
- Foreigners in Vietnam working for Vietnamese organisations or individuals under employment contracts, or those who are sent to Vietnam to work and paid by foreign organisations and individuals. These foreigners are obliged to pay individual income tax.
If the Socialist Republic of Vietnam joins an international organisation or signs an international treaty with one or more nations, and these charters or treaties provide relevant regulations other than those stated in this circular, the regulations in the charter or treaty and in other documents guiding the implementation of such charter or treaty shall be applied.
III- TERMS MENTIONED IN THIS CIRCULAR ARE DEFINED AS FOLLOWS:
1. "Contractor" is a foreign organisation or individual operating a business in Vietnam, which is not subject to investment forms regulated in the Law on Foreign Investment in Vietnam. Business operations of a contractor can be carried out through contracts signed between them and a Vietnamese organisation or individual, hereinafter referred to as the Vietnamese contract signing party.
Contractor includes foreign organisations and individuals that provide oil and gas services in accordance with the Law on Oil and Gas.
2. "Sub-contractor" is an organisation or individual that provides services for the contractor or carries out parts of work for the contractor.
3. "Vietnamese contract signing party" includes:
- Legal organisations established under Vietnam’s laws;
- Joint venture companies, wholly foreign invested companies and their partners operating under the Law on Foreign Investment in Vietnam;
- Oil and gas contractors signing oil and gas contracts under the Law on Oil and Gas;
- Joint venture banks and branches of foreign banks in Vietnam licensed by the State Bank of Vietnam;
- Affiliates of foreign companies operating in Vietnam;
- Foreign organisations in Vietnam;
Other organisations and individuals in Vietnam.
4. "Contract" is a contract signed between a contractor and the Vietnamese contract signing party.
5. "Subcontract" is a contract signed between a sub-contractor and the contractor.
6. "Technology transfer" is a mode of selling and buying technology under contracts on technology transfer agreed in accordance with lawful regulations. The seller is responsible for transferring all the general knowledge about the technology, or to provide machinery, equipment, services and training courses attached to the technology to the buyer. The buyer is responsible for paying the seller for the transferred technology and knowledge under the mutually agreed conditions stated in the contract on technology transfer.
Technology transfer includes:
a) Transferring industrial property: inventions, active solutions, industrial forms, and trade marks that are under the protection of Vietnam�s laws, and are allowed to be transferred.
b) Transferring technical know-how, technical solutions, production lines, documents on preparatory designs, technical designs, formulas, technical calculations, drawings, technical diagrams, computer software (transferred under contracts on technology transfer), and data on the transferred technology (hereinafter referred to as technical information), attached or not attached to machines and equipment.
c) Transferring logical solutions to production process, and technological renovation.
d) Providing services supporting technology transfer so as the buyer can improve their production technological capacity, and/or services described in specific contracts, including:
- Support in choosing technology, guiding the installation of equipment, testing production lines of the transferred technology;
- Consulting in technology management, business management, and guiding the implementation of the transferred technology;
- Training and helping improve professional and management skills of technical workers, technicians and managers on the transferred technology.
e) Machines, equipment and technical facilities attached to the above-mentioned description.
B. TAX OBLIGATIONS APPLIED TO FOREIGN CONTRACTORS AND SUBCONTRACTORS APPLYING VIETNAM'S ACCOUNTING SYSTEM
I. TAX OBLIGATIONS:
1. Value added tax (VAT): Foreign contractor and sub-contractor pay VAT in the mode of tax regulated by the Law on VAT and other existing guidance documents.
The price subject to VAT is the price based on which contractor and sub-contractor are paid to supply goods and services to the Vietnamese contract signing party, or the contractor, excluding VAT.
The followings are some specific VAT calculation cases:
+ If the contractor agrees to have a part of the contract value paid in other goods and services, the price subject to VAT is the price including the value of goods and services provided to the contractor as agreed in the signed contract.
For instance: Contractor A signed a construction observation services providing contract with a Vietnamese company. According to the contract, the Vietnamese party has to pay US$100,000 to the contractor, and in addition to this, accommodation and catering services for the contractor’s two experts are also paid by the Vietnamese party. In this case, the price subject to VAT will be: $100,000 + the sum paid for the accommodation and catering services for the contractor’s two experts.
+ If the contractor signs a business co-operation contract with a Vietnamese partner and takes the responsibility for sharing the profit under the form of dividing the turnover, after each time the shared turnovers is divided, as per in the contract, the turnover receiver is required to issue VAT receipts applied to the sum of shared turnover, which will be sent to the Vietnamese contract signing party. Based on the settled receipts, the turnover receiver will be responsible for balancing the turnover and outgoing VAT, which will be used as a basis to calculate VAT which the contractor has to pay.
2. Corporate Income Tax (CIT): the contractor and sub-contractor have to pay CIT as regulated by the Law on CIT and other existing guidance documents.
2.1 With respect to incomes subject to tax applied to foreign airlines currently operating and providing aviation transportation services in Vietnam, these incomes include all incomes which the airline earns from providing aviation transportation services in Vietnam, and are calculated on the basis of sharing the firm’s total income earned from its world-wide aviation transportation services to aviation transportation activities in Vietnam. The income allotted to aviation transportation activities in Vietnam must be respective to the proportion between the firm�s aviation transportation turnover in Vietnam and its total transportation turnover.
The aviation transportation turnover in Vietnam includes all already paid transportation charges calculated according to the real number of passengers and commodities transported by the airline from a Vietnam airport to an overseas airport which must be the final destination of the passengers and commodities as agreed in the signed contract or transportation documents officially materialised by the foreign airline operating and providing aviation transportation services in Vietnam, but not airports which are the transit destinations of the passengers and commodities. In cases when the foreign airline does not provide documents to be taken as a basis to share incomes subject to tax, the income bearing tax will be fixed at five per cent of the firm�s total transportation turnover in Vietnam.
2.2 Corporate Income Tax rate:
The business income tax rate is defined in accordance with the guidance provided in Item V.1 of Circular No.99/1998/TT-BTC dated July 14, 1998 by the Ministry of Finance.
In the case when the contractor and sub-contractor�s accounting systems haven’t got enough basis to fix the income subject to tax, the contractor and sub-contractor have to pay income tax in accordance with the form fixed in Item I.2 of this circular.
3. Such other taxes as import - export taxes and individual income tax are subject to the regulations of laws and ordinances on tax and existing guidance documents.
II. TAX DECLARATION AND REGISTRATION PROCEDURES
1. Tax registration procedures:
Within a period of 20 days since the date of signing contracts with the Vietnamese party or the main contractor, the contractor or the sub-contractor has to register tax and ask for a granting tax code with the local taxation body where its head-office is located. Tax registration procedures include:
+ A tax registration declaration according to Form No.04-DK-TCT promulgated in connection with Circular No.79/1998/TT-BTC dated June 12, 1998 by the Ministry of Finance.
+ A copy of the contract signed with the Vietnamese party or the main contractor. With respect to oil and gas service contracts or contracts concerning technical and professional activities, a copy of the contract’s summary is required, including some main contents with concrete targets, such as objectives to carry out the contract, payment mode, contract deadline, and obligations as well as responsibilities of parties involved in signing the contract. Foreign organisations and individuals must take responsibility for these contents.
+ A copy of the business license or other operational licenses granted by the Vietnam’s authorised body (if any).
+ A dispatch by the Ministry of Finance approving the accounting system. Procedures asking for the approval of the accounting system are carried out in accordance with regulations applied to foreign-invested enterprises as stipulated in Circular No.60 TC/CDKT dated September 1, 1997 by the Ministry of Finance, in which investment licenses are allowed to be replaced by business licenses or other operational licenses granted by Vietnam's authorised bodies (These procedures are not applied to foreign airlines' representative offices licensed to provide semi transportation services).
Within a period of five days since the date of fully receiving the above-listed documentation, the authorised taxation body has responsibility for granting a certificate on tax code to the tax payer.
Soon after receiving the certificate on tax code granted by the authorised taxation body, the contractor has to send one copy to the Vietnamese contract signing party to examine and declare the additional tax with the taxation body. The certificate on tax code granted to the contractor by the authorised taxation body is the document used to certify that the contractor directly declares to pay tax. The Vietnamese contract signing party must not pay tax instead of the foreign contractor.
2. Tax declaration :
Foreign contractor and sub-contractor have responsibility for declaring to pay VAT and CIT in accordance with guidelines provided in the legal document regulating and providing guidelines on the implementation of the laws on VAT and CIT.
With respect to foreign airlines operating and providing aviation transportation services in Vietnam, the declaration to pay the CIT is carried out as follows:
- Within a period of the first 10 days of each quarter (Solar calendar), meaning that within the first 10 days of January, April, July and October, the foreign airline’s representative office allowed to provide semi transportation services or agencies must declare their CIT according to Form No.01/NT-TCT promulgated in connection with this circular with the local taxation body where its head-office is located and put the declared tax into the State Budget. In case when foreign airlines set up some semi transportation agencies, the foreign airlines have to send a list including names and addresses of these semi transportation agencies and copies of agency contracts to the local taxation bodies where the firms’ semi transportation offices are located. Based on the list of agencies, the local taxation body is responsible for managing and collecting taxes levied on agency operation in accordance with existing regulations and laws.
C. TAX OBLIGATIONS APPLIED TO FOREIGN CONTRACTORS AND SUB-CONTRACTORS NOT APPLYING VIETNAM’S ACCOUNTING SYSTEM
I. TAX OBLIGATIONS:
1. Value Added Tax: Foreign contractor, sub-contractor operating business and subject to VAT in Vietnam must pay VAT directly calculated on the added value.
Payable VAT = Added value x VAT rate
a- Added value of each sector must be calculated in accordance with the percentage of the taxable turnover as follows:
VAT rate on turnover (%)
Commerce (including services on water, food, foodstuff and chemical materials supplies for oil and gas contractors)
Services on construction and installation without providing materials, equipment or machinery; surveys, design and supervisions.
Services on construction and installation with providing materials, equipment and machinery.
Other services on production and transportation.
b- VAT rate: Specific regulations state in Article 8 of the Law on VAT and other existing guidance documents.
2. Corporate income tax (CIT): The contractor, and sub-contractor are obliged to pay CIT to the State Budget.
CIT shall be calculated in accordance with the percentage of taxable turnover of each business sector as follows:
CIT rate on turnover (%)
Commerce (including services on water, food, foodstuff and chemical materials supplies for oil and gas contractors)
Services on production, transportation, construction (including services on surveys, design and supervisions).
Taxable turnover for calculation of VAT and CIT is the turnover received by contractor, including the tax and expenses payable by the Vietnamese party for the contractor. If the contractor receives a turnover that does not include payable tax, the taxable turnover shall be calculated as follows:
Real received turnover
1 - (% of added value on turnover x VAT rate + % of CIT on turnover)
E.g.: Foreign contractor A signs a contract to construct hotel Z in the mode of turn-key. Hotel Z has to pay contractor A US$200,000. In addition, the hotel has to pay for accommodation and food expenses of $50,000 for experts of the contractor. According to the contract, hotel Z is responsible for paying all the taxes applicable by the state of Vietnam for the operations of contractor A.
According to the above formula, taxable turnover of contractor A is as follows:
($200,000 - $50,000)
1- (0.3 x 0.1- 0.02)
For some cases, taxable turnover shall be calculated as follows:
- If the contractor gives parts of his contracted work to Vietnamese sub-contractors, his taxable turnover will not include the value of the contracts fulfilled by the sub-contractors. If the sub-contractor is a foreign organisation and/or an individual, the taxable turnover will be the lumpsum he receives. The foreign sub-contractor must not pay tax, if he has written proof that the contractor has paid taxes on the turnover fulfilled by them.
- With respect to leases of machinery, equipment and transportation means, turnover subject to tax excludes expenditures directly paid by the lessee, such as vehicle insurance, maintenance services, registration certification and salary paid for machinery operators or vehicle drivers.
- With respect to express mail services (including goods and postal items), taxable turnover is all collected from these activities.
- Lending rate is all incomes earned from loans under any form of lending, including incomes from securities, and bonds. Lending rate includes all charges which the Vietnamese contract signing party has to pay in accordance with regulations of the lease.
- Copyright income is all sums paid for the contractor under any forms for transferring technologies, industrial property right, or the usage of or the right to use the copyright of an art - cultural and scientific works, including movies or all kinds of tapes used for radio and television broadcasting programmes via contracts in writing in accordance with existing regulations and laws. In cases when the copyright income earner is an individual, the individual must pay individual income tax applied to the income earned from the possession of copyright in accordance with regulations stipulated in the Ordinance on Tax applied to high income earners.
3. Other taxes:
Import and export tax and individual income tax are also paid according to the regulations, laws and ordinances on tax and existing guidance documents.
II. TAX DECLARATION AND REGISTRATION PROCEDURES:
1. Tax registration procedures:
Within a period of 10 days since the date of signing the contract with the contractor, the Vietnamese contract signing party must declare and register the contractor's activities in Vietnam with the authorised taxation body according to Form 02NT-TCT promulgated in connection with this circular.
2. Tax declaration:
Within a period of five days since the date of paying for the contractor, the Vietnamese contract signing party must declare VAT and corporate income tax according to Form 03 NT-TCT promulgated in connection with this circular and has responsibility for putting the declared taxes into the State Budget. VAT paid by the Vietnamese contract signing party instead of the contractor is the incoming VAT applied to the Vietnamese contract signing party and is deducted in accordance with guidelines provided on Circular No.89/1998/TT-BTC dated June 27, 1998 by the Ministry of Finance when fixing the VAT which the Vietnamese party has to pay.
With respect to contractors and subcontractors operating in the field of oil and gas exploration and development, the Vietnamese Oil and Gas Corporation is authorised by the Ministry of Finance to deduct and collect tax. The local taxation body has responsibility for providing guidelines and examining the tax deduction and collection carried out by the Vietnam Oil and Gas Corporation’s members.
III. TAX BALANCE:
The tax collection is balanced in accordance with each contract. Within a period of at least 10 days since the date of liquidating the contract, the contractor ( in cases when the contractor directly registers to pay tax) or the Vietnamese party must balance the tax to send to the authorised taxation body.
In cases when balancing the tax, the tax subject to the payment is higher than paid tax, the tax payer must put the remainder into the State Budget in accordance with the notice of the taxation body.
In cases when balancing the tax, the tax subject to the payment is lower than paid tax, the Ministry of Finance has responsibility for returning the overpaid tax to the tax payer. Tax returning procedures include the following documents:
- An application for having the overpaid tax returned, which includes reasons. In cases when the Vietnamese party is authorised by the contractor to prepare procedures to ask for a tax return, a legal letter of attorney is required.
- Minutes to balance tax and liquidate the contract:
- Local taxation bodies’ certificates on the total tax subject to tax and the total paid tax of the entire contract.
- State Treasury’s certificates on the paid tax of the contract.
Within a period of 30 days since the date of receiving the above-said documentation, the Ministry of Finance has responsibility for returning the overpaid tax to the Vietnamese party’s account.
D. VIOLATION TREATMENT AND COMPLAINT SETTLEMENT
I. VIOLATION TREATMENT:
Foreign organisations and individuals operating and doing business in Vietnam (including foreign sub-contractors) and Vietnamese contract signing parties have responsibility for properly implementing every regulation of existing legal documents and laws on tax and guidelines provided in this circular.
Any violation(s), such as not declaring and registering tax, not paying tax in time, evading tax, and wrongly declaring tax will be subject to punishment in accordance with the existing regulations and laws.
II. COMPLAINT SETTLEMENT:
All complaints on tax, pursuant to this circular, are handled by the taxation body directly managing and collecting tax. If having yet to be satisfied with the settlement of the taxation body directly managing and collecting tax, the claimant can send complaints to the General Department of Taxation and Ministry of Finance. The Finance Ministry’s settlement measure is the final decision. While waiting for the decision by the authorised body, the claimant still has to seriously implement the decision issued by the local taxation body which directly manage and collect tax.
Complaints on tax related to regulations of an Agreement signed between the Government of Vietnam and the government of another country are handled according to procedures applied to the complaint and dispute settlement regulated in the Agreement.
I. The Vietnamese party by which tax is deducted and put into the State Budget instead of the contractor is provided a wage equal to 0.8 per cent of the already collected tax. The wage is deducted from the collected tax before being put into the State Budget and used to pay for expenditures arising from the tax collection and payment and reward individuals involved in the tax collection and payment.
II. The circular comes into force from January 1, 1999. The lending rate is only applied to lending contracts signed from January 1, 1999.
With respect to on-going contracts and sub-contracts signed before January 1, 1999, all sums paid to the contractor and sub-contractors before January 1, 1999 are subject to the tax obligations regulated in guidance documents at the point of time that the payment is carried out. All sums paid to the contractor and subcontractor since January 1, 1999 are subject to the tax obligations regulated in this circular. In cases when the main contractor paid turnover tax applied to construction and assembly activities for the total value of the contract before January 1, 1999, the sub-contractor is not required to pay VAT applied to the amount of money paid by the main contractor from January 1, 1999.
This circular replaces the following circulars by the Ministry of Finance: Circular No.08 TC/TCT dated February 5, 1994 proving guide-lines on tax applied to copyright incomes; Circular No.37 TC/TCT dated May 10, 1995 providing guidelines on the regulation on tax applied to foreign organisations and individuals doing business in Vietnam which are not subjected to investment forms regulated in the Law on Foreign Investment in Vietnam; Circular No.61 TC/TCT dated October 23, 1996 providing guidelines on tax obligations applicable to foreign organisations and individuals leasing machinery, equipment and transportation means in Vietnam; and Circular No.83 TC/TCT dated December 25, 1996 providing guidelines on the implementation of turnover and revenue tax applied to foreign organisations and individuals providing express mail services (including goods and postal items) in Vietnam.
P/P MINISTER OF FINANCE