Công văn 5181/BTC-TCT

To: Provincial Departments of Taxation

In response to enquiries from Provincial Departments of Taxation and enterprises about corporate income tax on incomes from farming, livestock production, agro-processing and fish processing in tax year 2015, the Ministry of Finance sent Official Dispatch No. 18646/BTC-TCT on December 15, 2015 to the Ministry of Agriculture and Rural Development to seek its opinions regarding the issue. According to the response of the Ministry of Agriculture and Rural Development in Official Dispatch No. 1083/BNN-QLDN dated February 16, 2016, the Ministry of Finance hereby offers its opinions as follows:

- Pursuant to Clause 2 Article 1 of the Government's Decree No. 12/2015/NĐ-CP dated February 12, 2015 (hereinafter referred to as Decree No. 12/2015/NĐ-CP) below are incomes exempt from corporate income tax:

“1. Incomes from farming, breeding, aquaculture, agro-processing, fish processing, salt production of cooperatives; incomes of cooperatives from farming, forestry, aquaculture, salt production in disadvantaged areas or extremely disadvantaged areas; incomes of enterprises from farming, breeding, aquaculture, agro-processing, fish processing in extremely disadvantaged areas; incomes from fishing.

…

Income from agro-processing or fish processing eligible for tax incentives prescribed in this Decree must satisfy all of the conditions below:

- The ratio of value of raw materials (agriculture or aquaculture products) to production cost is at least 30%.

- Products derived from agro-processing or fish processing are not subject to special excise tax, except for the cases prescribed by the Prime Minister at the request of the Ministry of Finance.”

- Pursuant to Clause 13 Article 1 of Decree No. 12/2015/NĐ-CP: 10% corporate income tax is applied to:

“dd. Incomes of enterprise from: planting, cultivation, protection of forests; farming, breeding, aquaculture, agro-processing, fish processing, salt productions in disadvantaged areas; forestry in disadvantaged areas; production, multiplication, and cross-breeding of plant varieties and animal breeds; salt production, extraction, and refinement, except for the case of salt production prescribed in Clause 1 Article 4 of this Decree; investment in post-harvest preservation, preservation of farm produce, aquaculture products, and foods, including investment in direct preservation an investment in preservation services;”

- Pursuant to Clause 14 Article 1 of Decree No. 12/2015/NĐ-CP: 15% corporate income tax is applied to:

 “3a. 15% tax is applied to incomes of enterprises from farming, breeding, and agro-processing and fish processing in areas other than disadvantaged areas and extremely disadvantaged areas.”

- Pursuant to Article 4 of Decree No. 218/2013/NĐ-CP:

“…

The farming, husbandry, aquaculture activities by cooperatives and enterprises in extremely disadvantaged areas eligible for tax exemption specified in this Clause and Point e Clause 2 Article 15 are determined according to the codes in Vietnam’s Economic Branch System".

- Pursuant to Point a Clause 3 Article 4 of Circular No. 83/2014/TT-BTC providing guidelines for imposition of VAT on products that have undergone insufficient working or processing.

In consideration of opinions offered by the Ministry of Agriculture and Rural Development, The Ministry of Finance hereby provides instructions as follows:

1. Determination of raw materials for agro-processing and fish processing eligible for preferential corporate income tax:

From the tax period 2015, an agro-processor or fish processor that satisfies the following conditions is eligible for corporate income tax incentives for agro-processing and fish processing:

+ The ratio of value of raw materials (aquaculture or aquaculture products) to production cost is at least 30%; the raw materials have undergone insufficient working or processing (including by-products thereof). A product that has undergone insufficient working or processing means one that has only been cleaned, dried, threshed, stemmed, cut, ground, chopped, peeled, minced, flaked, polished, canned or otherwise preserved (cooled, frozen) in accordance with regulations, instructions, standards or procedures promulgated by regulatory bodies and the Ministry of Agriculture and Rural Development.

+ Products derived from agro-processing or fish processing are not subject to special excise tax, except for the cases prescribed by the Prime Minister at the request of the Ministry of Finance.

2. Determination of corporate income tax incentives for agro-processing and fish processing

(i) Corporate income tax incentives for agro-processing and fish processing where all conditions are satisfied

Pursuant to the Law No. 71/2014/QH13, Decree No. 12/2015/NĐ-CP and Circular No. 96/2015/TT-BTC: from the tax period 2015:

- Income of an enterprise from agriculture, husbandry, agro-processing or fish processing in an extremely disadvantaged area is exempt from corporate income tax.

- 10% corporate income tax shall be applied to income of an enterprise from agriculture, husbandry, agro-processing or fish processing in a disadvantaged area throughout its operation.

- 15% corporate income tax shall be applied to income of an enterprise from agriculture, husbandry, processing of agriculture or aquaculture products in an area other than a disadvantaged area or extremely disadvantaged area throughout its operation.

Pursuant to documents cited above, corporate income tax incentives shall be applied to incomes of an enterprise from agriculture, husbandry, agro-processing or fish processing. Accordingly, if an enterprise satisfies conditions for another incentive while enjoying corporate income tax incentives, such other incentive shall be provided in addition to corporate income tax incentives as prescribed in Decree No. 12/2015/NĐ-CP and Circular No. 96/2015/TT-BTC

Example 1: In 2014, enterprise A had a fish processing project in a disadvantaged area and started to earn taxable income. Pursuant to Decree No. 218/2013/NĐ-CP and Circular No. 78/2014/TT-BTC enterprise A is eligible for tax exemption for 2 years (2014 and 2015), 50% tax reduction for the next 04 years (2016 – 2019), and 20% tax for 10 years (starting from 2014). Pursuant to Decree No. 12/2015/NĐ-CP and Circular No. 96/2015/TT-BTC 10% corporate income tax shall apply to income from fish processing in disadvantaged areas from 2015. Accordingly, enterprise A’s income from fish processing in the disadvantaged area is exempt from corporate income tax (at the rate of 10%) in 2015, eligible for 50% reduction in tax payable (at the rate of 10%) from 2016 to 2019, and applies 10% corporate income tax  from 2020 until the project is shut down.

Example 2: Enterprise B is an agro-processor and located in an area that is not disadvantaged area nor extremely disadvantaged area. Enterprise B is provided with corporate income tax incentives in accordance with Decree No. 64/2002/NĐ-CP At the end of the tax year 2013, enterprise B is no longer eligible for preferential tax rate. Enterprise B is still eligible for 50% tax reduction until the end of the tax year 2015. Pursuant to Decree No. 12/2015/NĐ-CP and Circular No. 96/2015/TT-BTC 15% corporate income tax shall apply to incomes from agro-processing in areas other than disadvantaged areas and extremely disadvantaged areas from 2015. Accordingly, enterprise B is eligible for 50% reduction in tax payable on income from agro-processing (at the rate of 15%) in 2015. From 2015, 15% tax shall apply to income from agro-processing.

(ii) Corporate income tax incentives in case of outsourced agro-processing and fish processing.

- In case of outsourced agro-processing or fish processing, the hirer shall be provided with corporate income tax incentives if all of the conditions below are satisfied:

+ The ratio of value of raw materials (aquaculture or aquaculture products) to production cost is at least 30%.

+ Products derived from agro-processing or fish processing are not subject to special excise tax, except for the cases prescribed by the Prime Minister at the request of the Ministry of Finance.

- Income of the hired processor from agro-processing or fish processing shall be eligible for corporate income tax incentives if all of the conditions below are satisfied:

+ The ratio of value of raw materials serving the outsourced processing other than those provided by the hirer to production cost is at least 30%.

+ Products derived from agro-processing or fish processing are not subject to special excise tax, except for the cases prescribed by the Prime Minister at the request of the Ministry of Finance.

- Where a trading enterprise purchases raw agriculture or aquaculture products for sales, income from the sale is not eligible for corporate income tax incentives whether the conditions specified in Clause 2 Article 1 of Decree No. 12/2015/NĐ-CP are satisfied or not).

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