Công văn 6142/BTC-CST

To: Provincial Departments of Taxation

Post Deputy Prime Minister Hoang Trung Hai’s Official Dispatch No. 903a/VPCP-KTTH dated February 04, 2016 and Office of the Government’s Official Dispatch No. 6208/VPCP-KTTH dated August 06, 2015, in consideration of opinions offered by the Ministry of Transport in Official Dispatch No. 14399/BGTVT-VT dated October 28, 2015 and Official Dispatch No. 4348/BGTVT-VT dated April 20, 2016, the Ministry of Finance hereby provide guidance on taxes on freights and surcharges for shipping services provided by Vietnamese and foreign shipping companies as follows:

I. Taxes on shipping freights and shipping surcharges imposed provided by foreign shipping companies:

1. Regarding shipping surcharges

Surcharges included in shipping freight (hereinafter referred to as shipping surcharges) are meant to be aggregated with the shipping freight in case of a major fluctuation which affects the shipper’s revenue from shipping freights and will be removed when the fluctuation ceases to exist. Such surcharges shall be paid by the freight payer, which include: terminal handling charge; EBS/BUC/FRC; container imbalance charge; freight-based ASC-STS-ARS-EBS; exchange rate fluctuation surcharge; port congestion surcharge; peak season surcharge; winter surcharge; bad weather surcharge; emergency risk surcharge; war risk surcharge.

Pursuant to Point b Clause 3 Article 2 of the Government's Decree No. 209/2013/NĐ-CP: where an organization or individual doing business in Vietnam purchases services from a foreign organization without a permanent establishment in Vietnam, an overseas individual who is not a Vietnamese resident, including repairs of vehicles, machinery and equipment (including supplies and spare parts); advertising, marketing; investment and trade promotion; brokerage; training; division of international postal and telecommunications service charges between Vietnam and foreign partners where such services are performed overseas, such service buyers are not required to pay VAT.

Pursuant to Point b.6 Clause 1 Article 13 of Circular No. 103/2014/TT-BTC: “b.6) Revenue subject to corporate income tax (CIT) is total charge for transport of passengers, cargo and other surcharges received by the shipping company from the port of loading to the port of unloading (inclusive of freights of shipments that have to be transshipped through intermediate ports) and/or shipping freights between ports in Vietnam.

The shipping freight subject to CIT is exclusive of the freight on which CIT is paid at the Vietnam’s port by the foreign ship owner and the freight paid to the Vietnamese shipping company which ships the cargo from a Vietnam’s port to an intermediate port”.

Pursuant to Point a Clause 2 Article 13 of Circular No. 103/2014/TT-BTC the rate of CIT on taxable revenue from shipping (including shipping by sea and by air) is 2%.

Accordingly, shipping surcharges imposed by a foreign shipping company is not subject to VAT; 2% CIT shall be applied to surcharges for shipping from Vietnam to abroad (the Vietnamese party exports goods under CIF term). Where the Vietnamese party imports goods under FOB terms, shipping surcharges are not subject to CIT.

2. Regarding surcharges not included in shipping freights:

Surcharges not included in shipping freights imposed by foreign shipping companies comprise the following:

- Surcharges payable by Vietnamese exporters and importers to foreign shipping companies other than those specified in Point 1;

- Surcharges specified in Point 1 under FOB or CIF terms payable to foreign shipping companies.

Pursuant to Clause 1 Article 1 of Circular No. 103/2014/TT-BTC the Circular applies to “foreign business organizations that have permanent establishments in Vietnam or do not have permanent establishments in Vietnam but earn income in Vietnam under contracts or agreements between foreign contractors and Vietnamese entities".

Pursuant to Clause 3 Article 2 of Circular No. 103/2014/TT-BTC foreign contractor withholding tax does not apply to “foreign entities earning income from services provided and used outside Vietnam.”

Pursuant to Point a Clause 2 Article 12, Point a Clause 2 Article 13 of Circular No. 103/2014/TT-BTC the rate of VAT on taxable revenues from services is 5%; the rate of CIT on taxable revenues from services is 5%.

Pursuant to Point b2 Clause 1 Article 13 of Circular No. 103/2014/TT-BTC: “Where a foreign contractor signs a contract with Vietnamese sub-contractors or foreign sub-contractors that pay tax by declaration or by both declaration and deduction to carry out part of the works in the main contract signed with the Vietnamese entity, and a list of such Vietnamese sub-contractors and foreign sub-contractors is enclosed with the main contract, the revenue subject to CIT of the foreign contractor is exclusive of the value of works carried out by Vietnamese sub-contractors or foreign sub-contractors”.

According to the aforementioned provisions and Point b Clause 3 Article 2 of Decree No. 209/2013/NĐ-CP surcharges not included in shipping freights earned by a foreign shipping company from services provided outside Vietnam are not subject to foreign contractor withholding tax (VAT and CIT) in Vietnam. The surcharges shall be subject to foreign contractor withholding tax in Vietnam where such a service is provided in Vietnam to be specific: 5% VAT and 5% CIT. Where a foreign shipping company hires a Vietnamese company to perform certain services in Vietnam, the revenue earned by the foreign shipping company is exclusive of the value of work carried out by the Vietnamese company.

3. Regarding surcharges not included in shipping freights 100% of which is earned by agents:

Pursuant to Point d Clause 5 Article 5 of Circular No. 219/2013/TT-BTC and the Government's Decree No. 209/2013/NĐ-CP a business establishment shall not pay VAT on amounts collected on behalf of another entity that are not related to its goods or services”.

Pursuant to Point b.6 Clause 1 Article 13 of Circular No. 103/2014/TT-BTC during the process of collection or payment on behalf of a foreign shipping company, surcharges other than shipping freights (such as surcharges on procedures, invoice adjustment, etc.) imposed by such foreign shipping company, collected and wholly retained by companies that are agents in Vietnam of such foreign shipping company are not subject to foreign contractor withholding tax. The agents shall declare, pay VAT and CIT of such amounts as if services they provide.

4. Regarding commissions earned by agents in Vietnam from foreign shipping companies

Pursuant to Point dd Clause 7 Article 5 of Circular No. 219/2013/TT-BTC a business establishment shall not pay VAT on revenues from goods/services sold as an agent and commissions earned from selling goods/services at fixed prices for postal and telecommunications services, lottery tickets, air tickets, bus tickets, train tickets, ship tickets, international transport brokerage, agents of air services and maritime services to which 0% VAT is applied, insurance brokerage”.

Accordingly, where an agent in Vietnam of a foreign shipping company collects freights and surcharges not included in shipping freights specified in Point a and Point 2 above from exporters and importers as fixed by the foreign shipping company, fully transfer them to the foreign shipping company and earn commissions thereon, the agent shall not pay VAT and CIT on the amounts collected on behalf of the foreign shipping company but shall deduct taxes before transferring them to the foreign shipping company (regarding services on which foreign contractor withholding tax is imposed), declare and pay foreign contractor withholding tax on behalf of the foreign shipping company.

The agent shall declare and pay CIT on the commissions earned. Where foreign shipping company allows the agent to retain 100% of certain surcharges not included in shipping freights specified in Point 3 above, the agent shall declare and pay VAT and CIT as prescribed.

II. Taxes on shipping freights and surcharges not included in shipping freights imposed by Vietnamese shipping companies

1. Regarding VAT and CIT on shipping freights and surcharges not included in shipping freights imposed by Vietnamese shipping companies

Pursuant to Clause 1 Article 9 of Circular No. 219/2013/TT-BTC: ”1. 0% tax is applied to exported goods and services; construction and installation overseas and in free trade zones; international transport; exported goods and services not subject to VAT, except for the cases in Clause 3 of this Article, in which 0% VAT is not applied.”

…

c) International transport consists of transport of passengers, luggage, goods from Vietnam to abroad and vice versa, or from one foreign country to another regardless of availability of direct means of transport. Where an international transport contract includes a domestic segment, international transport also includes the domestic segment”.

Pursuant to Article 11 of Circular No. 219/2013/TT-BTC 10% tax is applied to goods/services other than those specified in Article 4, Article 9 and Article 10 of the Circular.

Pursuant to Point a Clause 1 Article 2 of Circular No. 78/2014/TT-BTC dated June 18, 2014: “1. Payers of CIT are manufacturers, traders of goods/services earning taxable incomes (hereinafter referred to as enterprises), which consist of:

a) Enterprises that are established and operated under Company law, the Law on Investment, the Law on credit institutions, the Law on Insurance Business, the Law on Securities, the Law on Petroleum, the Law on Commerce, and other legislative documents in the form of: joint-stock companies, limited liability companies, partnerships, private companies, law firms, private notary offices, partners to business contracts; partners to petroleum product contract, petroleum partnerships.”

According to aforementioned provisions:

- A shipping company in Vietnam licensed to provide international transport services may apply 0% VAT if the conditions specified in Point c Clause 2 Article 9 of Circular 219/2013/TT-BTC are satisfied.  10% VAT shall apply to services provided in Vietnam other than international transport services by Vietnamese shipping companies.

- Vietnamese shipping companies shall declare and pay CIT on their entire revenues as prescribed.

2. Regarding commissions earned by agents in Vietnam from Vietnamese shipping companies

Where 0% VAT is applied to commissions on international transport services or maritime services earned by agents in Vietnam of a Vietnamese shipping company, it is not required to declare and pay VAT. CIT shall be declared and paid as prescribed.

VAT and CIT declared or paid before the issuance date of this document shall remain unchanged. Where VAT and CIT have not been declared or have been declared but not paid, they shall be declared and paid in accordance with this document.

Difficulties that arise during the implementation of this document should be reported to the Ministry of Finance for consideration./.