Công văn 1706/TCT-PCCS

To: Tax Departments of provinces and centrally-run cities

The General Department of Taxation has received official letters of a number of localities, inquiring about business income tax exemption or reduction for units which have goods production or trading projects and export over 50% of the total value of goods produced or traded under these projects in a fiscal year. Concerning this matter, the General Department of Taxation gives the following opinions:

- In Section III of List A of branches, trades and domains eligible for investment incentives (promulgated together with the Government's Decree No. 164/2003/ND-CP of December 22, 2003, detailing the implementation of the Business Income Tax Law), it is stipulated that: Export goods production and trading include: "Goods production or trading projects which export over 50% of the total value of goods produced or traded under these projects in a fiscal year."

- Point 4, Section III, Part E of the Finance Ministry's Circular No. 128/2003/TT-BTC of December 22, 2003, guiding business income tax stipulates: "Establishments producing and/or trading in export goods in list-A branches, trades or domains, apart from enjoying business income tax exemption or reduction under the guidance at Points 1, 2 and 3 of this Section, shall also enjoy the following business income tax preference:

A 20% reduction of payable tax amount for the income earned from exports in the fiscal year for establishments which have an export turnover accounting for over 50% of the total turnover. The tax reduction consideration shall be made on a yearly basis."

According to the aforesaid guidance, newly set up units which have an export value accounting for over 50% of the total value of produced or traded goods shall, apart from enjoying business income tax exemption or reduction based on their branch, trade or domain eligible for investment incentives, be entitled to an additional 20% reduction of the payable business income tax on export income. The reduced business income tax amount for export income shall be cleared against the business income tax amount payable after subtracting exempted or reduced tax amount for based on the branch or domain eligible for investment incentives, provided that the total exempted or reduced business income tax amount that not exceed the payable business income tax amount arising in the period.

For example: Enterprise A is a newly set up one and has a goods production and trading project with an export turnover accounting for over 50% of its total turnover (in the listed branch or domain eligible for investment incentives). In 2004, enterprise A had a total taxable income of VND 30 billion, 60 % of which came from export. In that year, it was entitled to a 50% reduction of business income tax and the business income tax rate of 20%. The specific business income tax preference for enterprise A is determined as follows:

1. Preferential business income tax amount for branches or domains eligible for investment incentives:

- The payable business income tax amount of 2004 = VND 30 billion x 20% = VND 6 billion.

- The (50%) reduced business income tax amount for branches or domains eligible for investment incentives = VND 6 billion x 50% = VND 3 billion.

2. Preferential business income tax amount based on the export ratio:

- Taxable income from export at the said ratio (60% of total income)

= VND 30 billion x 60% = VND 18 billion.

- Payable business income tax amount for export income:

= VND 18 billion x 20% = VND 3.6 billion.

- Reduced business income tax amount for export income:

= VND 3.6 billion x 20% = VND 720 million.

3. The business income tax amount to be paid:

= VND 6,000,000,000 – VND 3,000,000,000 – VND 720,000,000 = VND 2,280,000,000 (two billion two hundred and eighty million dong).

Above is the General Department of Taxation's answer to provincial/municipal Tax Departments' inquiries for the latter's knowledge and compliance.