Thông tư 63/1998/TT-BTC

CIRCULAR

GUIDING THE IMPLEMENTATION OF A NUMBER OF TAX REGULATIONS AIMED AT ENCOURAGING AND ENSURING THE ACTIVITIES OF FOREIGN DIRECT INVESTMENT IN VIETNAM AS STIPULATED IN DECREE No. 10/1998/ND-CP OF JANUARY 23, 1998 OF THE GOVERNMENT

Pursuant to the Law on Foreign Investment in Vietnam of November 12, 1996;
Pursuant to Decree No. 10/1998/ND-CP of January 23, 1998 of the Government on a number of measures to encourage and ensure the activities of foreign direct investment in Vietnam;
The Ministry of Finance hereunder guides the implementation of a number of regulations on tax aimed at encouraging and ensuring the activities of foreign direct investment in Vietnam:

A. OBJECTS OF REGULATION

The objects of application of the regulations on tax as directed in this Circular include:

- Joint venture enterprises, enterprises with 100% foreign capital set up under the Law on Foreign Investment in Vietnam.

- Foreign sides participating in contracts of business cooperation on the basis of contracts under the Law on Foreign Investment in Vietnam.

- Other enterprises with foreign investment established on the basis of the Treaty signed between the Government of the Socialist Republic of Vietnam and the foreign Government. In case the Treaty stipulates otherwise on taxes, the provisions of that Treaty shall be complied with.

The objects mentioned above are called foreign-invested enterprises.

B. MEASURES TO ENSURE THE RIGHTS AND INTERESTS OF INVESTORS

I. PROFIT TAX

1. Rate of profit tax:

Foreign-invested enterprises which are granted investment licenses prior to November 23, 1996 shall pay profit tax as stipulated in the investment licenses. In case the rate of profit tax specified in documents newly promulgated by the Vietnam Government is lower than the rate of profit tax stipulated in the investment license, the ensuring of the rights and interests of the investor with regard to the profit tax rate shall be conducted as follows:

1.1. The agency issuing the investment license shall readjust the rate of profit tax for the enterprises according to the new regulation in the following cases:

- The enterprises under the project shall have to meet these two conditions: The project lies in the list of projects to receive special encouragement in investment and in the list of localities where investment is encouraged according to the stipulations in Appendix 1 of Decree No.10/1998/ND-CP of January 23, 1998 of the Government applicable to preferential profit tax interest rate throughout the remaining operational period of the project.

- The enterprises investing in the localities which later become Industrial Parks, Export Processing Zones or High-Tech Zones shall enjoy preferential profit tax as prescribed in Decree No.36-CP of April 24, 1997 of the Government.

- The enterprises which are in the period of enjoying preferential tax rate as provided for in the investment licenses but the period of application of the preferential tax rate according to the new regulations is longer than the applicable period under the investment license.

- The enterprises which do not come under the category eligible for preferential profit tax rate as stipulated in the investment license but in practice have assured the conditions for enjoying preferential profit tax rate under the new regulation.

1.2. The above-mentioned enterprises shall be eligible for readjustment of profit tax rate by the investment license issuing agency only if they meet the two following conditions:

-They are still in the period covered by the preferential profit tax rate according to the new regulation.

- They are meeting the conditions for enjoyment of preferential profit tax rate under the new regulation.

1.3. The preferential profit tax rate under the new regulation shall apply from the fiscal year when the readjustment permit takes effect.

1.4. In case the enterprise enjoys the readjustment of preferential profit tax rate under the new regulation because it meets the condition on using labor or the export products rate. However, if after the point of time for the readjustment of the profit tax rate it no longer meets the conditions for enjoying such a preference, the preferential profit tax rate shall apply only to the fiscal years when the enterprise meets the conditions for preferential profit tax rate. Each year, the enterprise shall have to report to the investment license agency and the tax managing agency on the implementation of the above criteria and make declarations for profit tax payment according to the tax rate appropriate for the conditions which the enterprise has met. The tax managing agency shall make a check to determine the extent in the realization of the above criteria and determine the level of profit tax which each enterprise shall have to pay each year.

Example: Enterprise A is granted an investment license in 1994 and begins production and business in 1996. Under the terms of the investment license the enterprise shall enjoy a profit tax rate of 20% for five years from the year following the year when it is granted the investment license.

Supposing that in 1998 the enterprise exports 80% of its consumed products. Under the stipulation of Article 54, Decree No.12-CP the enterprise shall have to pay profit tax at the rate of 15%. In 1998 the license issuing agency agrees to readjust the profit tax rate of the enterprise to 15%. The period of application of the profit tax rate of 15% is 12 months from the time the enterprise begins its production and business operations. If from 1998 onward every year the enterprise achieved an export rate of 80% it will continue to pay a profit tax of 15% until the end of 2007 (12 years as from 1996). However, if from 1998 to 2007 in certain years the enterprise achieves an export rate of from only 50% up to less than 80% that year the enterprise shall have to declare its profit tax at the rate of 20%. If in some years, the enterprise achieves only an export rate of 30% which is less than required for the application of the preferential profit tax rate, then in that year the enterprise shall have to declare a profit tax payment of only 25%.

In case the provisions on profit tax rate stipulated in the new regulation is more unfavorable to the enterprise, the enterprise shall be allowed to continue paying profit tax at the rate stipulated in the investment license.

2. Exemption and reduction of profit tax.

Enterprises shall be eligible for the preferential terms concerning the exemption and reduction of profit tax according to the investment licenses. If the preferences stipulated in the new regulation are more favorable than those stipulated in the investment license the enterprise shall be eligible for the preferences under the new regulation on the following conditions:

- The enterprise is in the period of exemption or reduction of profit tax according to the license issued to it. For the enterprises where the licenses do not provide for exemption or reduction of profit tax, they are eligible only for exemption or reduction of profit tax under the new regulation if its earlier business has not brought profit.

- At the point of time when it applies for readjustment of the period of profit tax exemption or reduction, the enterprise must be fully qualified to enjoy such preferences under the new regulation.

The preferences on profit tax exemption or reduction under the new regulation shall begin to take effect from the fiscal year when the permit for readjustment becomes effective.

3. Procedures for the readjustment of profit tax rate and exemption or reduction of profit tax rate:

Enterprises eligible for readjustment of profit tax rate and preferences in the exemption and reduction of profit tax as prescribed above must send an official dispatch to the agency which issues the investment licenses in which they shall have to specify the reason for the application for readjustment of profit tax rate and preferences in the exemption and reduction of profit tax, the tax rate which it applies for and the realization of the criteria as basis for the application for prefential treatment under the new regulation of the previous year and the reporting year up to the time of the application for readjustment. The investment license agency shall issue the readjustment permit to the enterprise.

If for three consecutive years the enterprise does not meet the conditions for the enjoyment of preferences in profit tax and of the period of exemption and reduction of profit tax stipulated in the investment license (including the permit for readjustment), the enterprise shall have to report to the agency which has issued the investment license in order to readjust the investment license to make it conform with the new situation.

II. TAX ON TRANSFERRING PROFIT ABROAD

Foreign invested enterprises are eligible for more preferential terms on the transfer of profit abroad with regard to the profits transferred abroad from the date of the decision to readjust the investment license of the agency which issues the investment license.

III. IMPORT TAX

1. Procedures for exemption of import tax:

1.1. As for the cases where import tax is exempted under Point 1, Article 10 of Decree No.10/1998/ND-CP of January 23, 1998 of the Government, the procedures for exemption of import tax shall comply with Circular No.74-TC/TCT of October 20, 1997 of the Ministry of Finance.

If the foreign invested enterprises do not directly import material, raw materials to manufacture machinery and equipment... but sign subcontracts to manufacture machinery and equipment with enterprises in the country, the latter enterprises shall be exempted from import tax with regard to the materials and raw materials imported to subcontract and manufacture these machinery and equipment as prescribed by the Prime Minister in Official Dispatch No.4417-KTTH of September 5, 1997 of the Government. The procedure for import tax exemption shall be as follows:

- An official dispatch of the enterprise in the country sent to the Ministry of Trade asking to import duty free goods to manufacture machinery and equipment under the contract with the foreign invested enterprise.

- A subcontract to manufacture machinery and equipment, components and parts signed between the enterprise in the country and the foreign invested enterprise.

- The list and quantities of imported materials and raw materials to manufacture and subcontract the equipment, machinery, components and parts for the foreign invested enterprise.

- A copy of the investment license or the readjustment permit granted to the foreign invested enterprise for founding or expansion of the size, or to the change or renewal of technology.

Basing itself on the above dossier, the Ministry of Trade or the agency empowered by the Ministry of Trade shall ratify the list of duty free imports after the Prime Minister agrees to exempt it from tax. On the basis of the list of duty free goods already ratified, the Customs Departments in the provinces and cities directly under the Central Government shall monitor the import activities of the enterprises.

1.2. In cases where the goods are exempted one time from import tax for their equipment as stipulated in Point 2, Article 10 of Decree No.10/1998 ND/CP of January 23, 1998 of the Government, the procedures for import tax exemption shall comply with the regulation in Inter-ministerial Circular between the Ministry of Planning and Investment, the Ministry of Trade, the Ministry of Finance and the General Tourist Corporation No.11/TT-LB of July 21, 1997.

1.3. In cases where tax exemption applies to the import of tax material for production stipulated in Point 3, Article 10 of Decree No.10/1998/ND-CP:

The foreign invested enterprises which invest in projects listed as projects receiving special encouragement in investment or projects of investment in the mountainous areas, deep-lying areas and remote areas defined in Appendix 1 attached to Decree No.10-CP shall be exempted from import tax with regard to materials for production for five years after production begins. The enterprises which are under operation shall be exempted from import tax for the lots of imported raw materials according to the Customs declarations opened from February 7, 1998 for a maximum duration of five years after production begins. The procedures for exemption of import tax for these enterprises are stipulated as follow:

- An official dispatch sent to the Ministry of Trade asking for duty free importation of raw materials for production.

- The production plan for the year and the projected volume of raw materials to be imported to cater for production.

Basing itself on the annual production plan of the enterprise, the Ministry of Trade shall supply to the enterprise the list of duty free import raw materials to cater for production. With regard to the enterprises under operation, the list of duty free raw materials in 1998 does not include the amount of raw materials which the enterprise has imported according to the declarations opened at the Customs Office prior to February 7, 1998.

Basing itself on the list of duty free import raw materials issued by the Ministry of Trade, the Customs Office in the provinces and cities shall monitor the import activities of the enterprises.

1.4. With regard to the exemptions of import tax for raw materials used for the production of semi-finished products for other enterprises with a view to direct production of export products stipulated in Point 2, Article 13 of Decree No.10/1998/ND-CD of January 23, 1998 of the Government:

In importing materials and raw materials to make products for sale to other enterprises for the manufacture of export products, enterprises must pay fully the import tax as prescribed. After the enterprises producing export goods have exported the products, the enterprise importing raw materials has to fill procedures and send an application to the Ministry of Finance for retrieval of import tax for the imported raw materials used to manufacture products to be sold to the enterprises producing export goods. The procedures for retrieval of import tax includes:

- An official dispatch applying for retrieval of tax of the enterprise in which the enterprise shall have to calculate and propose the concrete amount of import tax on raw materials to be retrieved.

- The norm of consumption of materials and raw materials in the manufacture of the products.

- The Customs declaration on import and the receipt of import tax payment for the materials and raw materials used for the production of goods sold to other enterprises for the production of export goods.

- Contracts on the sales of goods to other enterprises with specification of the goods used for the production of export goods.

- Receipts of sales by the enterprise to the enterprise producing export goods.

The Customs declaration on the delivery of goods by the enterprise producing export goods with certification by the Customs service at the border gate that the goods have been exported (notarized copy).

- A declaration of the enterprise producing export goods on the quantity and value of the semi products produced by the enterprise which have been used to produce goods that have been exported. The Director of the enterprise producing export goods shall have to bear responsibility for this declaration.

Basing itself on the above-mentioned dossier the Ministry of Finance shall issue a decision to reimburse the import tax to the enterprise importing raw materials.

2. Back collection of import tax:

Imported goods of foreign invested enterprises are exempted from import tax as provided for in Article 10 of Decree No.10/1998/ND-CP of January 23, 1998 of the Government. If they are used at variance with the declared purposes or reassigned or sold at the Vietnamese market, they shall have to pay the import tax which they are exempted from. The procedures for the declaration and back collection of import tax shall comply with the instructions in Circular No.74-TC/TCT of October 20, 1997 of the Ministry of Finance.

With regard to the enterprises which are exempted from import tax for raw materials over a period of five years as stipulated in Point 3, Article 10 of Decree No.10/1998/ND-CP in the first quarter of each year at the latest the enterprise shall have to report on the import and use of the duty free raw materials to the Ministry of Trade and the tax agency directly managing the enterprise. For the duty free imported raw materials which the enterprise does not use up within five years from the day when the enterprise begins production or which the enterprise uses at variance with the declared purposes, they shall have to pay retroactive import tax and shall be fined according to law.

In case the enterprise in the country imports raw materials and materials to produce or subcontract the production of machinery and equipment for foreign invested enterprises, every six months and after the subcontract on manufacture expires the enterprise shall have to report to the Ministry of Finance, the Ministry of Trade and the tax agency managing the enterprise on the import and use of the tax-free imported materials. The enterprise shall have to declare and pay import tax as prescribed for the materials which are imported but not used up and are allowed to be consumed in Vietnam.

The Taxation Departments of the provinces and cities shall have to inspect and settle the accounts regarding the import and use of materials and raw materials of the enterprises which are imported tax free.

3. The time for payment of import tax of the raw materials imported for the production of export goods shall be stipulated by the Ministry of Finance in a separate guidance.

4. Price for calculation of import tax:

The foreign-invested enterprises importing goods shall have to pay import tax according to the prices stated on the receipts of imported goods if they meet all the conditions stipulated in Circular No.82/1997/TT/BTC of November 11, 1997 of the Ministry of Finance.

The enterprises which misuse the prices for tax calculation to commit tax fraud shall be dealt with according to the stipulations in Section D of Circular No.82/1997/TT/BTC mentioned above.

IV. OTHER PROVISIONS

Foreign invested enterprises shall enjoy deductions when determining taxable profits for the support funds to the activities of charitable and humanitarian purposes of Vietnamese organizations and individuals. These expenditures shall be determined as belonging to Point b15, Section 1, Part II of Circular No.74 -TC/TCT of October 20, 1997 of the Ministry of Finance.

Joint venture enterprises, enterprises with 100% foreign capital are entitled to carry the losses of any tax year over to the following years and to use profits of the following years to make up for the losses but for not more than 5 years from the year right after the year when they begin to incur losses. The enterprises shall register the transfer of losses with the tax departments of the provinces and cities which directly manage taxes as prescribed in Circular No.74-TC/TCT of October 20, 1997 of the Ministry of Finance.

C. IMPLEMENTATION PROVISIONS

This Circular takes effect on the day of its signing. The earlier guiding instructions which are contrary to those in this Circular shall cease to be effective.