Công văn 7711TC/TCT

In implementation of Directive No. 17/2004/CT-TTg of the Prime Minister dated May 24, 2004 on urging the disbursement of Official Development Assistance (ODA); in order to properly implement regulations on ODA management, tax regulations, value added tax (VAT) refund applicable to ODA projects, the Ministry of Finance provides guidelines for a number of the following issues:

1. Preparation of Financial Plan:

1.1 Upon preparation of financial plan in accordance with inter-ministerial Circular No. 02/2003/TTLT-BKH-BTC jointly issued by the Ministry of Finance and the Ministry of Planning and Investment, project owners shall calculate all taxes that are imposed on imported goods and domestically purchased goods and services in order to carry out the project. Upon preparation of a financial plan, the following taxes should be taken into consideration:

- Import duties, VAT, special sales tax (SST), of imported goods (including the cases in which the project owners import goods directly or contractors import goods and then the project owners pledge to pay taxes at import stage).

- VAT levies on goods and services purchased in Vietnam.

- Specially, direct taxes such as corporate income tax (CIT) of contractors and personal income tax (PIT) of individuals working for the contractors shall be taxes levied on income earners. Therefore, in principle, the above taxes shall be included in the tender price proposed by the contractors or shall be included in salary payable to individuals.

1.2. In order to approve ODA projects or tender results, the competent authorities shall request the project owners to calculate all taxes in accordance with the current regulations on tax, which may arise during the process of project implementation, in order to account for financial plan of the project and for counterpart funding. Annually, the project owners shall calculate all taxes for that year in order to make plan for counterpart funding.

In cases where ODA projects are allocated from the State Budget (including projects wholly granted or partly granted, partly on-lent from the State Budget which are approved prior to May 29th, 2001 – the date that the Decree No. 17/2001/ND-CP of the Government on the issuance of the Regulation on management and utilization of ODA takes effect), based on guidelines on this Official letter, the project owners shall enter into contracts in which VAT value shall be included in the value of the contract and shall also proactively work out counterpart funding payable to VAT in order to minimize procedures such as VAT refunding, recording an increase of State-budget-allocated capital for the amount of VAT to be refunded (including tax refundable to principal contractors), aims at avoiding the inaccurate reflection of capital value of the projects and losses to the State Budget.

2. VAT Refund

VAT refund applicable to projects using grant ODA and concessional ODA allocated from the State Budget shall be carried out in accordance with Item 3, Section IV of the Circular No. 41/2002/TT-BTC of the Ministry of Finance dated May 3, 2002 providing guidelines on tax regulations applicable to ODA programs, projects, the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December 12, 2003 providing guidelines for the implementation of the Decree No. 158/2003/ND-CP of the Government dated December 10, 2003 detailing the regulations on implementation of the Law on VAT and the Law on Supplement and Amendment to a number of Articles of the Law on VAT, and the following supplementary guidelines:

2.1. With respect to projects using grant ODA and projects using concessional ODA granted from the State Budget, the project owners shall, based on the contracts which are approved, exactly identify VAT refundable objects and VAT payable objects, in particular: (i) if the contracts, which were concluded and approved, have included the amount of payable VAT and the project owners shall have not been allocated capital from the State Budget for payment of VAT, such project owners shall be subject to VAT refund and the principal contractors shall pay VAT in accordance with current laws; (ii) if the contracts, which were concluded and approved, have not included VAT, the project owners shall not be subject to VAT and the principal contractors shall be subject to VAT refund.

2.2. Procedures and the dossier for tax code registration of VAT refund shall be implemented in accordance with guidelines of the Ministry of Finance on the implementation of the Decision No. 75/1998/QD-TTg of the Prime Minister dated April 4, 1998 providing tax code of taxpayers.

In cases, in the first stage of the implementation of the project, the project owners have not registered the code of tax payer with tax agency due to certain objective reasons but have purchased a number of goods and services for the project, the amount of payable VAT recorded in invoices which have not tax code of the project owners and named such projects or project owners as buyers and such invoices also included all other necessary contents, shall be refunded provided that (i) the project owners pledge the goods and services purchased for implementating the project, and (ii) the tax agency shall inspect, collate and verify the suppliers who declared tax with the above invoices. From the next time of VAT refund, the project owners shall carry out procedures for tax refund in accordance with the Circular No. 41/2002/TT-BTC dated May 3, 2002 and the Circular No. 120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance.

2.3. Procedures and files for a VAT refund shall be carried out in accordance with Item 4, Section II, Part D of the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December 12, 2003 detailing the implementation of the Law on VAT and the Law on Supplement and Amendment to a number of Articles of the Law on VAT.

- The file for a tax refund submitted to tax agencies shall be attached with the certification of the State Treasury that the counterpart funding from the State Budget has not been made to the project owners for payment of VAT.

- With respect to projects using concessional ODA allocated from the State Budget, the files for VAT refund applied to the principal contractors shall be attached with the certification of VAT refund granted to the project owners in accordance with the Official Letter No. 06 TC/TCT of the Ministry of Finance dated January 2, 2004.

2.4. The time-limit for declaration of VAT refund: monthly, the project owners or the principal contractors who are subject to VAT refund shall declare the amount of VAT levied on goods and services purchased for implementing ODA projects or contracts concluded between the project owners and the principal contractors. Where VAT invoice or a voucher for payment of input VAT on the purchased goods and services arises in a month but is not declared within that month, it should be declared in the following months; the maximum period for declaration shall be three (3) months from the month in which deductible input VAT arises. The amount of refundable VAT shall not be refunded if invoices and vouchers are declared later (than three (3) months), and it shall be accounted to investment costs of the project or expenditures of the contractor.

2.5. In case the counterpart funding has been allocated to the project owners for payment of VAT, the VAT shall not be refunded. In case the counterpart funding has been allocated to the project owners for payment of VAT but the project owners have completed the procedures for VAT refund and have been refunded, the project owners shall repay to the State Budget the amount of VAT refunded in accordance with the Circular No. 42/2001/TT-BTC of the Ministry of Finance dated June 12, 2001. The tax agency shall verify the allocation of capital from the State Budget to the project owners based on the certification of the State Treasury while inspecting and verifying the VAT refundable to the project owners.

The Taxation Department of localities shall submit the list of project owners and principal contractors who have entitled to a VAT refund to the equivalent-level treasury bodies and the Central State Treasury in the form attached hereto. Based upon such list, the treasury bodies shall revise, collate and verify the amount of VAT which the project owners must repay to the State Budget, and coordinate with relevant bodies to request the project owners repay to the State Budget in accordance with the Circular No. 42/2001/TT-BTC

2.6. With respect to ODA projects allocated from the State Budget, the accounting of the projects shall be determined as follows:

- With respect to projects to which the counterpart funding has been allocated in order to pay VAT, capital value of the projects shall include VAT.

- With respect to projects to which the counterpart funding has not been allocated in order to pay VAT, capital value of the projects shall not include VAT value and the amount of refundable VAT (including VAT refundable to the principal contractors)

- With respect to projects which are already refunded the VAT but the project owners have not recorded an increase of the State Budget allocated capital in accordance with the Circular No. 42/2001/TT-BTC the project owners shall provide a list of goods recorded all of the VAT amount which have been refunded of the amount of VAT already paid, copy of decisions on tax refund and submit them to the Ministry of Finance (the Department of Investment) to complete procedures for recording an increase of capital allocated by the State Budget.

2.7. Decisions on VAT refund shall be made in compliance with the form No. 13/GTGT issued in conjunction with the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December 12th , 2003.

With the projects using ODA allocated from the State Budget, upon issuance of the decision on VAT refund, the department of taxation shall supply one copy of the decision on VAT refund applied to the project (including the case in which VAT refund applied to principal contractors) and deliver them to the project owners and the Ministry of Finance (the Department of Investment) in order to record an increase of investment capital to the project in accordance with the Circular No. 42/2001/TT-BTC

2.8. With respect to ODA projects which is on-lent from the State Budget, including project which is partly allocated, partly on-lent from the State Budget and which are approved prior to May 29th , 2001 – the date that the Decree No. 17/2001/ND-CP on the issuance of the regulation on management and utilization of ODA takes effect, shall be deducted or refunded of VAT input arising from the implementation of the projects in accordance with the Circular No. 122/2000/TT-BTC dated December 29th , 2000 and the Circular No. 120/2003/TT-BTC of the Ministry of Finance dated December 12th , 2003.

3. Taxes Levied on Foreign Contractors Carrying Out ODA projects:

3.1. To enter into contracts with contractors, the project owners shall calculate all payable taxes to identify exactly the value of goods and services provided by the contractors in order to avoid disputes when tax obligations arised from the implementation of the project.

3.2. The project owners shall give notice and guidelines to the foreign contractors regarding the tax obligations in Vietnam.

- With respect to foreign contractors adopting the Vietnamese accounting regime, the foreign contractors shall carry out their tax payment directly with the tax agency. The project owners shall not deduct and pay taxes on behalf of the foreign contractors.

- With respect to foreign contractors not adopting the Vietnamese accounting regime, before making payment to the foreign contractors, the project owners shall deduct VAT, CIT paid by the foreign contractors (particularly, the consulting contractors). If the value of the contracts entered into by the contractors and the project owners was not included VAT and the principal contractors was not subject to VAT refund, the project owners shall deduct and pay CIT on behalf of the foreign contractors.

3.3. In case where the international Treaty which the Government of Vietnam has signed or adhered to contain provisions on CIT exemption applied to the contractors who originate from the donor’s countries and participate in carrying out a particular ODA project, such foreign contractors shall be exempted from CIT.

For being exempted from CIT, the foreign contractors shall pay tax directly or the project owners (in case the project owners pay tax on behalf of the foreign contractors) shall provide the ODA Agreement containing provisions on the exemption of CIT to the tax agency (notarized copy signed and sealed by the duly representatives).

For example: A diplomatic note between the representatives of the Government of Vietnam and of the Government of Japan in connection with the implementation of an ODA project aided by the Government of Japan, provides that:

“Chính phủ nước Cộng hoà xã hội chủ nghĩa Việt Nam sẽ miễn cho các Công ty Nhật Bản hoạt động với tư cách là nhà cung cấp, nhà thầu và/hoặc nhà tư vấn tất cả các khoản thuế và phí tài chính tại Việt Nam đối với thu nhập phát sinh từ việc cung cấp hàng hoá, dịch vụ theo quy định của khoản vay”

“The Government of the Socialist Republic of Vietnam will exempt Japanese companies operating as suppliers, contractors, and/or consultants from all fiscal levies or taxes imposed in the Socialist Republic of Vietnam on the income accruing from the supply of products and/or services to be provided under the loan.”

Therefore, under the provisions of the above diplomatic note, Japanese companies shall be exempted from CIT on the income accruing from the supply of products and services to such projects using ODA loans. However, companies incorporated in other countries such as Netherlands, Switzerland or 100% foreign invested companies of Japan operating under the Law on Foreign Investment in Vietnam, etc. entering into contracts on the supply of goods and services to the project owners using the above ODA capital, shall not be exempted from CIT.

4. PIT:

4.1. Project owners shall be responsible for deducting and paying PIT on behalf of Vietnamese individuals and foreign individuals working for the Project Management Unit. In addition, project owners shall be responsible for informing and instructing Vietnamese individuals and foreign individuals working for the foreign contractors regarding personal income tax in Vietnam. The project owners shall also inform the tax agency, where the head office of the project owners or a construction work of the project is located in order to coordinate on management of and collection of PIT.

4.2 In case where international Treaties which the Government of Vietnam has signed or adhered to contain provisions that foreign individuals working for the contractors engaged in the implementation of an ODA project shall be exempted from PIT, those foreigners shall also be exempted from CIT.

For being exempted from PIT, foreign individuals or organizations paying income shall provide one copy of the ODA Agreement containing provisions on the exemption of PIT to the tax agency (signed and sealed by the duly representatives).

For example: A diplomatic note between the representatives of the Government of Vietnam and of the Government of Japan provides that:

 “Chính phủ nước Cộng hoà xã hội chủ nghĩa Việt Nam sẽ miễn cho các người làm công Nhật Bản tham gia thực hiện dự án được liệt kê trong Danh sách hoặc tham gia cung cấp các dịch vụ được quy định tại tiết 1.b, khoản 3 của Phần II tất cả các khoản phí tài chính hoặc thuế tại Việt Nam đối với thu nhập cá nhân phát sinh từ các công ty Nhật Bản hoạt động với tư cách là nhà cung cấp, nhà thầu và/ hoặc nhà tư vấn.”

 “The Government of the Socialist Republic of Vietnam will exempt: Japanese employees engaged in the implementation of the project enumerated in the List or engaged in the supply of services mentioned in subparagraph (1) (b) of paragraph 3 of Part II from all fiscal levels or taxes imposed in the Socialist Republic of Vietnam on their personal income derived from Japanese companies operating as suppliers, contractors and/or consultants.”

Therefore, Japanese individuals working for Japanese contractors engaged in implementating one of the project enumerated in the List (attached to the diplomatic note) shall be exempted from PIT for all incomes arising from the implemention of such project. In case where these individuals have other taxable incomes, other than incomes earned from the implementation of the project or other foreign individuals who have not Japanese nationality and earn incomes arising from the implementation of such project, they shall pay PIT in accordance with the existing laws on PIT.

4.3 Foreign experts who are certified by the Ministry of Planning and Investment as experts engaged in the implementation of the ODA programs/projects shall be exempted from PIT for incomes arising from the implementation of the programs/projects using ODA in Vietnam. Procedures and files for PIT exemption shall be carried out in accordance with the Circular No. 52/2000/TT-BTC of the Ministry of Finance dated June 5th, 2000. Foreign experts earning incomes other than incomes from the implementation of the programs or projects using ODA shall pay PIT in accordance with the Ordinance on Income Tax of High Income Earners.

5. Financial and Tax Management of the Projects Using ODA Fund:

In order to improve the financial and tax management of the projects using ODA, the Ministry of Finance proposes that ministries, ministerial-level bodies, government bodies, People’s Committees of provinces and centrally-managed cities which have ODA projects shall, based on the existing laws and guidelines on this Official Letter, direct the Project Management Units to coordinate with the Departments of Taxation and the Departments of Finance in localities in order to implement tax and financial regulations on ODA projects as follows:

- The Departments of Taxation in localities shall be responsible for guiding the implementation of regulations on tax applicable to projects using ODA to the project owners and the contractors carrying out the projects in localities (attached hereto the list of ODA projects). The Departments of Taxation in localities shall proactively held training course for project owners, contractors in connection with the application of tax regulations and VAT refund for ODA projects.

- To strengthen the inspection and finalization of tax for foreign contractors carrying out ODA projects. For objects subject to VAT refund, the Departments of Taxation shall carry out inspection after VAT refund and verification before VAT refund when foreign contractors have completed the contracts signed with ODA project owners in order to handle infringements (if any).

- The Departments of Planning and Investment, the Departments of Finance and the treasury bodies shall coordinate with the tax agency in management and accounting capital of the State Budget applicable to the amount of VAT refunded (including the amount refunded to the project owners and the amount refunded to the principal contractors).

- The ODA project owners shall submit periodical reports (monthly, quarterly, annually and finally) to the tax agency in accordance with the Circular No. 41/2002/TT-BTC in order to coordinate management on the implementation of the ODA projects.

- The Departments of Taxation shall collect all encumbrances arising from the process of tax management, VAT refund for projects using ODA and shall attach report on the implementation of VAT refund in compliance with the form attached hereto (report for a year from the date of commencing VAT refund) to the Ministry of Finance (the General Department of Taxation) not later than July 30th, 2004.

In order to hasten the disbursement of ODA and to intensify effectiveness on ODA management and utilization, the Ministry of Finance proposes that the ministries, industries, People’s Committees in localities shall direct relevant agencies to revise and take measures to intensify management of State Budget allocated to the projects by the State Budget, and shall request the Project Management Units to pay all taxes arising from the implementation of the project. Upon carrying out the project, the Ministry of Finance proposes that the above bodies shall give notice to the Ministry of Finance in case encumbrances arise from counterpart funding and the process of allocation from the State Budget, VAT refund, etc. to promptly coordinate with the Ministry of Finance to settle such encumbrances.

REPORT ON THE IMPLEMENTATION OF VAT REFUND FOR THE YEAR

Unit: VND