Circular No. 05/2005/TT-BTC dated January 11, 2005 of the Ministry of Finance guiding the tax regime applicable to foreign organizations without Vietnamese legal person status and foreign individuals doing business or earning incomes in Vietnam

CIRCULAR

GUIDING THE TAX REGIME APPLICABLE TO FOREIGN ORGANIZATIONS WITHOUT VIETNAMESE LEGAL PERSON STATUS AND FOREIGN INDIVIDUALS DOING BUSINESS OR EARNING INCOMES IN VIETNAM

Pursuant to Value Added Tax (VAT) Law No. 02/1997/QH9; Law No. 07/2003/QH11 Amending and Supplementing a Number of Articles of the VAT Law; the Government’s Decree No. 158/2003/ND-CP of December 10, 2003 detailing the implementation of the VAT Law; Decree No. 148/2004/ND-CP of July 23, 2004 amending and supplementing a number of articles of the Government’s Decree No. 158/2003/ND-CP of December 10, 2003 detailing the implementation of the VAT Law and the Law Amending and Supplementing a Number of Articles of the VAT Law;

Pursuant to Enterprise Income Tax Law No. 09/2003/QH11; the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 detailing the implementation of the Enterprise Income Tax Law; Decree No. 152/2004/ND-CP of August 6, 2004 amending and supplementing a number of articles of the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 detailing the implementation of the Enterprise Income Tax Law;

Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks, powers and organizational structure of the Finance Ministry;

The Finance Ministry hereby guides the performance of the tax obligations by foreign organizations without Vietnamese legal person status and foreign individuals doing business or earning incomes in Vietnam as follows:

A. SCOPE OF APPLICATION

I. APPLICABLE SUBJECTS

The guidance provided in this Circular shall apply to the following subjects:

1. Foreign organizations without Vietnamese legal person status, foreign individuals providing independent professional services in Vietnam, even in Vietnam’s territorial seas, areas beyond and attached to Vietnam’s territorial seas, and in accordance with Vietnam’s laws and international law under which Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above. Such businesses are carried on under contracts, agreements or commitments with Vietnamese organizations or individuals or with other foreign organizations or individuals currently doing business in Vietnam.

Foreign organizations or individuals supplying goods through  goods-forwarding spots situated within the Vietnamese territory, even in Vietnam’s territorial seas, areas beyond and attached to Vietnam’s territorial seas, and in accordance with Vietnam’s laws and international law under which Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above; or supplying goods accompanied with services provided in Vietnam, such as installation, trial operation, warranty, maintenance, replacement, training or other services accompanying the supplied goods, including also cases where the provision of the above-said services is or is not included in the value of the goods supply contracts, shall also be taxpayers under the guidance of this Circular.

2. Foreign organizations and individuals that do business in Vietnam but are not present therein, earn incomes in Vietnam, including those from technology transfer, royalties, incomes from other business activities and services earned by foreign individuals that are not commercially present in Vietnam.

Foreign organizations and individuals falling into the applicable subjects defined in Section I, Part A of this Circular shall, depending on the specific contexts mentioned below, be referred to as foreign contractors or foreign subcontractors for short.

II. NON-APPLICABLE SUBJECTS

The guidance provided in this Circular shall not apply to:

1. Foreign organizations without Vietnamese legal person status, doing business in Vietnam under the Law on Foreign Investment in Vietnam, the Petroleum Law or the Law on Credit Institutions.

2. Foreign organizations or individuals supplying goods to Vietnamese organizations and/or individuals in the following forms:

- Goods delivery at foreign border gates whereby the sellers bear all responsibilities, expenses and risks related to the export and delivery of goods at the foreign border gates and the buyers bear all responsibilities, expenses and risks related to the receipt and transport of goods from the foreign border gates to Vietnam.

- Goods delivery at Vietnamese border gate whereby the sellers bear all responsibilities, expenses and risks related to the goods up to the point of delivery at the Vietnamese border gates and the buyers bear all responsibilities, expenses and risks related to the receipt and transport of goods from the Vietnamese border gates.

3. Foreign individuals having incomes taxable under the legislation on income tax on high income earners, including foreign individuals entering Vietnam to work under labor contracts signed with Vietnamese organizations or individuals; foreign individuals earning in Vietnam incomes liable to income tax on high income earners (excluding income items listed at Point 2, Section I, Part A of this Circular); foreign individuals doing business or earning incomes in Vietnam but having no documents evidencing that they are licensed to provide independent professional services relevant to their activities that bring about incomes derived in Vietnam.

Documents evidencing that individuals are licensed to provide independent professional services include independent professional service licenses, tax registration certificates or tax identification numbers issued by the countries of which the foreign individuals are residents.

4. Foreign organizations and individuals having incomes from securities investments in Vietnam shall perform the tax obligations according to documents guiding taxation on securities business activities.

III. IMPOSED TAXES

Foreign organizations or individuals doing business or earning incomes in Vietnam shall perform the tax obligations prescribed by current tax laws, including:

1. Value added tax (VAT) on VAT-liable goods and services;

2. Special consumption tax (SCT) on SCT-liable goods and services;

3. Enterprise income tax (EIT) on incomes from business activities in Vietnam, incomes earned in Vietnam;

4. Export tax, import tax on export or import goods;

5. Income tax on high-income earners, imposed on taxable incomes of individuals employed by foreign contractors, foreign subcontractors or foreign individuals doing business or earning incomes in Vietnam but having no documents evidencing that they are licensed to provide independent professional services;

6. Other taxes, charges and fees.

The contents of this Circular below shall only concretely guide the payment of VAT and EIT by foreign organizations and foreign individuals providing independent professional services in the course of doing business in Vietnam or earning incomes in Vietnam. For other kinds of tax, charge and fee, foreign organizations and individuals shall comply with current legal documents.

IV. CONCEPTS USED IN THE CIRCULAR

In this Circular, the following terms are construed as follows:

1. Foreign contractors mean foreign organizations without Vietnamese legal person status, foreign individuals providing independent professional services, doing business or earning incomes in Vietnam under written contracts or agreements between them and Vietnamese organizations or individuals (the Vietnamese parties).

2. Subcontractors mean organizations or individuals providing independent professional services and signing written agreements with foreign contractors to perform part of the jobs under the contracts.

Subcontractors include foreign subcontractors and Vietnamese subcontractors.

3. Vietnamese parties include:

- State enterprises established under the State Enterprise Law;

- Enterprises established under the Enterprise Law;

- Foreign-invested enterprises and foreign parties to business cooperation contracts under the Law on Foreign Investment in Vietnam;

- Petroleum contractors operating under the Petroleum Law;

- Branches of foreign companies licensed to operate in Vietnam;

- Foreign organizations licensed to operate in Vietnam or their representatives;

- Other organizations and individuals in Vietnam.

4. Contracts mean contracts or agreements between foreign contractors and Vietnamese parties.

5. Subcontracts mean contracts or agreements between subcontractors and foreign contractors.

6. Incomes earned in Vietnam mean incomes in any form paid to foreign contractors or subcontractors by the Vietnamese parties under the agreements signed between the foreign contractors and the Vietnamese parties (except for the cases of goods supply stated at Point 2, Section II, Part A of this Circular), regardless of the locations of business establishments through which foreign contractors or subcontractors carry on their business activities.

7. Royalties mean incomes in any form paid for the use right, the intellectual property right transfer and technology transfer (including money amounts paid for the right to use works, the transfer of copyright over, and the right to own, works; the industrial property right transfer; technology transfer); including also the transfer of the use right in the form of leasing machinery, equipment or means of transport.

7.1. Copyright, the right to own works are defined in Chapter I, Part Sixth of the Civil Code of the Socialist Republic of Vietnam and guiding documents.

7.2. Industrial property rights are defined in Chapter II, Part Sixth of the Civil Code of the Socialist Republic of Vietnam and guiding documents.

7.3. Technology transfer is defined in Chapter III, Part Sixth of the Civil Code of the Socialist Republic of Vietnam and guiding documents.

7.4. Lease of machinery, equipment means activities of leasing machinery, industrial equipment, scientific equipment, commercial equipment, transport means and other movables in all forms, including accompanying parts such as control software, auxiliary equipment.

8. Interests mean incomes of the lenders from loans in any form regardless of whether such loans are or are not secured with mortgage, the lenders are or are not entitled to receive the profits of the borrowers; deposit interests (except for deposit interests of foreign individuals and deposit interests arising from the deposit accounts of Vietnam-based diplomatic missions, representative offices of international organizations, and non-governmental organizations for maintenance of their operation in Vietnam), including also rewards (if any) accompanying deposit interests; interests paid for deferred payment as stipulated in the economic contracts.  

Interests also include charges payable by the Vietnamese parties as stipulated in the loan contracts.

B. TAX CALCULATION BASES AND METHODS

I. FOR FOREIGN CONTRACTORS AND SUBCONTRACTORS IMPLEMENTING VIETNAMESE ACCOUNTING REGIME

Foreign contractors and subcontractors applying Vietnamese accounting regime shall pay value added tax by tax deduction method and enterprise income tax on the basis of declared turnover as well as expenses for determination of taxable incomes.

1. Value added tax (VAT):

The tax calculation bases are taxable price and VAT rate.

Taxable price means the selling price of VAT-liable goods or services of foreign contractors or foreign subcontractors, exclusive of VAT.

VAT rates for VAT-liable goods or services sold shall be those set in the VAT Law and guiding documents.

Deductible input VAT means VAT amount recorded on added value invoices and VAT payment documents of the goods or services bought and used for the production or trading of VAT-liable goods or services.

2. Enterprise income tax (EIT):

The tax calculation bases are taxable income and EIT rate.

Taxable income is business income plus (+) other income (if any). Taxable income is turnover used for the calculation of taxable income minus (-) reasonable expenses related to goods and service production and business activities in the taxable period and determined on the principles provided for in the EIT Law and guiding documents.

The applicable EIT rate is 28% as prescribed in the EIT Law.

Foreign contractors and subcontractors shall declare and pay EIT under the provisions of the EIT Law, guiding documents and the guidance in Section I, Part C of this Circular.

3. For foreign contractors or subcontractors that have permanent establishments in Vietnam, keep invoices and documents and fully reflect on accounting books turnover from goods and services sold; the value of goods and services bought, output VAT; deductible input VAT and payable VAT, they shall register with the tax offices to pay VAT by deduction method as guided at Point 1, Section I, Part B of this Circular and to pay EIT as guided at Point 2, Section II, Part B of this Circular.

If foreign contractors or subcontractors having registered and paid taxes as guided in Section I, Part B of this Circular continue to sign contracts or subcontracts, they shall continue the tax registration and payment as guided in Section I, Part B of this Circular.

The determination that foreign contractors or subcontractors have permanent establishments in Vietnam shall comply with the provisions of the Enterprise Income Tax Law and guiding documents.

II. FOR FOREIGN CONTRACTORS AND SUBCONTRACTORS NOT IMPLEMENTING VIETNAMESE ACCOUNTING REGIME

Foreign contractors and subcontractors not implementing Vietnamese accounting regime shall pay value added tax by method of direct calculation based on added value and pay enterprise income tax in a percentage (%) of turnover, specifically as follows:

1. Value added tax (VAT):

The tax calculation bases are added value of VAT-liable goods or services and VAT rate:

Payable VAT amount = Added value x VAT rate

1.1. Added value:

The added value of VAT-liable goods or services shall be determined to be VAT-liable turnover multiplied by the percentage (%) of added value on turnover. 

- VAT-liable turnover means total turnover received by foreign contractors or subcontractors from the supply of goods or provision of services liable to VAT before subtracting payable tax amounts, including also expenses (if any) paid by the Vietnamese parties on behalf of the foreign contractors or subcontractors. Where, as agreed upon in the contracts, turnover received by foreign contractors or subcontractors is exclusive of payable VAT (the contract value is exclusive of tax), VAT-liable turnover must be converted into VAT-inclusive turnover determined according to the following formula:

      VAT-                    Turnover exclusive of VAT
      liable        =     ————————————————
    turnover                       percentage % of 
                           1    -        added value          x     VAT rate  
                                          on turnover

Particularly, when determining VAT-liable turnover received by foreign contractors or subcontractors from service, construction or installation contracts accompanying the supply of machinery, equipment and supplies, the value of the following machinery, equipment and supplies shall be allowed to be subtracted therefrom:

+ Machinery, equipment and/or special-used transport means included in the technology chains and construction supplies of types not yet locally produced for the creation of fixed assets of the Vietnamese parties being enterprises;

+ Machinery, equipment and transport means of types not yet locally produced, which should be imported for direct use in scientific research and technological development activities of the Vietnamese parties;

+ Aircraft, ships, drilling derricks of types not yet locally produced, which are  hired from abroad by the Vietnamese parties for production and business;

+ Equipment, machinery, spare parts, special-use transport means and supplies of types not yet locally produced, which will be supplied to organizations and individuals engaged in the exploration, prospection and development of oil and gas mines.

The bases for determination of the above-said import goods of foreign contractors and subcontractors not to be liable to VAT shall be the lists of machinery, equipment, construction supplies, supplies and spare parts which can be locally produced, issued by the Planning and Investment Ministry. The value of import goods to be subtracted from taxable turnover shall be determined under the provisions of the Law on Export Tax, Import Tax.

Where foreign contractors sign contracts with Vietnamese subcontractors to assign part of the value of the jobs stipulated in the contracts signed with the Vietnamese parties, VAT-liable turnover of the foreign contractors shall exclude the value of the jobs performed by the Vietnamese subcontractors. This provision shall, however, not apply to foreign contractors that sign contracts with suppliers in Vietnam to purchase goods and/or services for the performance of the contracts.

- The percentages of added value on taxable turnover for several business lines are as follows:

- For contracts or subcontracts each covering various business activities, the application of the percentage of added value on taxable turnover to the determination of payable valued added tax must be based on the VAT-liable turnover of each business activity carried on by foreign contractors or subcontractors in accordance with the provisions of the contracts. Where it is impossible to separate the value of each business activity, the VAT rate applicable to the business activity subject to the highest tax rate shall apply to the whole value of the contract.

1.2. VAT rates:

VAT rates for VAT-liable goods and services sold shall be those prescribed in the VAT Law and guiding documents.

Foreign contractors and subcontractors liable to pay VAT by method of direct calculation based on added value, as prescribed at this Point 1, shall not be allowed to deduct VAT with regard to goods and services bought for the performance of contracts signed with the Vietnamese parties.

2. Enterprise income tax (EIT):

The tax calculation bases are EIT-liable turnover and percentage (%) of EIT calculated on taxable turnover.

Payable EIT amount = Taxable turnover  x  percentage of EIT calculated on taxable turnover

2.1. EIT-liable turnover:

- EIT-liable turnover means total turnover before subtracting payable taxes (if any), exclusive of VAT, which is received by foreign contractors or subcontractors. EIT-liable turnover may include also expenses (if any) paid by the Vietnamese parties on behalf of the foreign contractors or subcontractors.

Where, as agreed upon in the contracts or subcontracts, turnover received by foreign contractors or subcontractors is exclusive of payable EIT, EIT-liable turnover shall be determined according to the following formula:

       EIT-                                        Turnover exclusive of EIT
      liable        =             —————————————————————
    turnover                 1 - percentage of EIT calculated on taxable turnover   

Example: Contractor A provides the Vietnamese party the service on supervision of the volume of construction of cement plant Z under a contract worth USD 300,000 in tax-exclusive value. Besides, the Vietnamese party arranges accommodations and working offices for managerial staff of the foreign contractor, with a value of USD 23,000. Under the contract, the Vietnamese party shall be responsible for paying EIT and VAT on behalf of the foreign contractor. The determination of the EIT and VAT payable by the foreign contractor shall be as follows:

a/ Determination of taxable turnover:

   EIT-                   300,000 + 23,000
  liable        =        ————————      =    USD 340,000.00
turnover                        (1 - 0.05)

                                      
    VAT-                       340,000
    liable      =         ———————       =      USD 357,894.73
  turnover               (1 - 50% x 10%)

b/ Determination of payable taxes:

- Payable EIT amount = 340,000.00 x 5% = USD 17,000.00 (1)

- Payable VAT amount = 357,894.73 x 50% x 10% = USD 17,894.73 (2)

  Total (1) + (2) = USD 34,894.73

* Determination of EIT-liable turnover in a number of specific cases:

a/ Where a foreign contractor signs a subcontract with a Vietnamese subcontractor to assign part of the value of the jobs under a contract signed with the Vietnamese party, the foreign contractor’s taxable turnover shall be exclusive of the value of the jobs performed by the Vietnamese subcontractor.  This provision shall, however, not apply to foreign contractors that sign contracts with suppliers in Vietnam to purchase goods and/or services for the performance of the contracts.

b/ EIT-liable turnover in the case of letting out machinery, equipment and/or transport means shall be exclusive of expenses directly paid by the lessors such as means insurance, maintenance, registry certification and means or machinery operators, if these expenses are evidenced with vouchers.

Particularly, EIT-liable turnover in the case of charter of sea-going ships shall be determined as follows:

+ If the charteree has to pay such expenses as those for the operator, insurance, maintenance, registry certification, EIT-liable turnover for the sea-going ship charter shall be equal to 50% of the charter money.

+ If the charterer has to pay such expenses as those for the operator, insurance, maintenance, registry certification, EIT-liable turnover for the sea-going ship charter shall be equal to 20% of the charter money.

c/ EIT-liable turnover of foreign airlines engaged in air transport in Vietnam shall be the freight actually collected for the number of passengers and the volume of cargoes actually boarded and loaded aboard the aircraft of these airlines from the departure airports in Vietnam to the overseas destination airports, which are the final destination airports of the passengers and cargoes under the contracts or transport documents, directly transported by the foreign airlines  which sell air transport in Vietnam, and such destination airports are not airports at which the passengers and cargoes stop for the transit purpose.

d/ Interests: as prescribed at Point 8, Section IV, Part A of this Circular.

Particularly, interests on loans under foreign-loan contracts signed before January 1, 1999 shall not be taxed under the guidance of this Circular. In cases where these contracts see adjustments or extensions:

+ If the debt extension or the debt term adjustment results in no change in the interest rate and payment conditions already agreed upon in the loan contract and the extended time for short-term debts neither exceeds a production and business cycle nor 12 months or the extended time for medium-term or long-term debts does not exceed half of the lending term as agreed upon in the loan contract, interest thereon shall not be liable to EIT.

+ In case of signing a new loan contract which, however, provides for a loan in replacement of the old loan with the same lender and more favorable interest rate and payment conditions compared to the old loan contract, interest thereon shall not be liable to EIT.

+ If the debt extension or the debt term adjustment results in no change in the interest rate and payment conditions already agreed upon in the loan contract but the extended time for the debts exceeds the above-said maximum extended time, interests that arise as from the expiration of the above-said maximum extended time shall be liable to EIT.

+ For cases of adjustment of loan contracts resulting in changes in the contracts’ principal contents such as interest rate, lending mode, payment conditions, interests that arise as from the time of termination of the validity of the original loan contracts shall be liable to EIT.

2.2. Percentage (%) of EIT calculated on taxable turnover:

- For contracts or subcontracts each covering various business activities, the application of the EIT percentage to the determination of payable EIT must be based on the EIT-liable turnover of each business activity carried on by foreign contractors or subcontractors in accordance with the provisions of the contracts. Where it is impossible to separate the value of each business activity, the EIT percentage applicable to the business activity subject to the highest tax rate shall apply to the whole value of the contract.

- Particularly for contracts for supply of machinery, equipment accompanied with installation guidance, training and/or trial operation services, if the value of machinery and equipment is not separated from that of the services, the common EIT percentage of 2% (applicable to other production and business activities) shall apply to the whole value of the contracts.

Example: Foreign contractor A signs with a Vietnamese party a contract for construction of power plant F worth USD 70 million in value. The contract’s value consists of:

+ The value of machinery and equipment supplied for the project: USD 50 million

+ The value of technological chain design, other designs: USD 5 million

+ The value of workshops, other auxiliary systems, construction, installation: USD 10.5 million

+ The value of installation supervision and guidance: USD 3 million

+ The value of technical training, trial operation services: USD 1.5 million.

In this case the application of the VAT and EIT percentages is as follows: For the value of machinery and equipment, the percentage applicable to commerce  (exclusive of VAT for machinery and equipment of types not yet locally produced) shall apply; for the value of design, installation supervision, training, trial operation services, the percentage applicable to services shall apply; for the value of construction and installation jobs (USD 10.5 million) the tax percentage applicable to the construction industry shall apply.

C. TAX REGISTRATION, DECLARATION AND PAYMENT, TAX SETTLEMENT

I. FOR FOREIGN CONTRACTORS AND SUBCONTRACTORS IMPLEMENTING VIETNAMESE ACCOUNTING REGIME

1. Tax registration:

Foreign contractors or subcontractors shall make tax registration in order to be granted tax identification numbers by the tax offices of the localities where their offices of management are based, within 15 working days as from the date of signing of contracts or subcontracts or as from the date of being granted the business licenses or professional service licenses (in cases where such licenses are required).

A tax registration dossier shall consist of:

+ The application for a tax identification number, under the current guidance of the Finance Ministry on tax identification number registration for foreign contractors;

+ The tax registration declaration, made according to form No. 04-DK-TCT issued together with the Finance Ministry’s Circular No. 80/2004/TT-BTC of August 13, 2004 guiding the grant of taxpayers’ tax identification numbers;

+ A copy of the contract or subcontract and a Vietnamese-language summary of the contract with the main contents, namely the scope of work, the contract’s value (including detailed appendices constituting the contract’s value, if any), payment mode, contract term, obligations and responsibilities of the parties to the contract. Foreign contractors or subcontractors shall be responsible before law for the accuracy of the contents sent to the tax offices;

+ A copy of the business license or professional service license (if any) granted by a competent Vietnamese agency;

+ Copies and the Vietnamese translations of the business license or independent professional service license (for foreign contractors, subcontractors being individuals) and the tax registration certificate issued by the country of which the foreign contractor is a resident;

The above-said copies must be signed and certified as true copies by competent representatives of foreign contractors or subcontractors.

The Vietnamese parties shall have to notify the tax offices of the registration by the foreign contractors or subcontractors to directly pay taxes to the tax offices within 10 working days as from the signing of the contracts.

After receiving the complete dossiers as stated above, the tax offices shall grant tax registration certificates to taxpayers and send one copy of the tax registration certificate of the foreign contractors or subcontractors to the Vietnamese parties or the foreign contractors. Tax registration certificates granted by the tax offices to foreign contractors or subcontractors shall serve as certification that foreign contractors or subcontractors directly perform their tax obligations with the tax offices and the Vietnamese parties, or that foreign contractors shall not be responsible for deducting and paying taxes on behalf of foreign contractors or subcontractors as from the time of receipt of the copies of the tax registration certificates of the foreign contractors or subcontractors. Where arise payments to foreign contractors pending the receipt by the Vietnamese parties of the copies of the foreign contractors’ tax registration certificates, the Vietnamese parties shall temporarily deduct and pay VAT and EIT amounts payable by the foreign contractors, which are determined under the guidance in Section II, Part B of this Circular, before making such payments to the foreign contractors.

2. Tax declaration and payment:

Foreign contractors and subcontractors shall declare and pay VAT by tax deduction method in accordance with the provisions of the VAT Law and guiding documents and declare and pay EIT in accordance with the provisions of the EIT Law and guiding documents.

Foreign contractors and subcontractors falling into the subjects defined at Point 3, Section I, Part B of this Circular shall declare and pay VAT by tax deduction method in accordance with the provisions of the VAT Law and guiding documents and declare and pay EIT by imposition method guided at Point 2, Section II, Part C of this Circular.

Where a foreign contractor or subcontractor has its office of management in one locality but performs the construction and installation contract in another, it shall declare and temporarily pay VAT according to current regulations in the locality where exists the construction and installation project and settle VAT and EIT in the locality where its office of management is based.

3. Tax settlement:

Foreign contractors or subcontractors applying Vietnamese accounting regime shall settle VAT and EIT in accordance with the provisions of the VAT Law, the EIT Law and guiding documents.

Other foreign contractors or subcontractors, which directly pay VAT by deduction method and pay EIT as imposed to the tax offices, shall settle taxes for each contract. Within 10 working days after the termination of the contracts, foreign contractors or subcontractors shall submit settlement declarations for each kind of tax according to regulations to the tax offices that directly manage the tax collection.

II. FOR FOREIGN CONTRACTORS AND SUBCONTRACTORS NOT IMPLEMENTING VIETNAMESE ACCOUNTING REGIME

The tax registration, declaration and payment as well as settlement by foreign contractors and subcontractors not implementing Vietnamese accounting regime shall be made by the Vietnamese parties.

1. Tax payment registration:

The Vietnamese parties shall register, declare and pay taxes on behalf of the foreign contractors or subcontractors to the tax offices of the locality where the Vietnamese parties base their offices of management, within 15 working days as from the time of signing of the contracts.

A tax payment registration dossier shall consist of:

+ The tax registration declaration used for the Vietnamese party paying taxes on behalf of the foreign contractors under the Finance Ministry’s current guidance on registration of tax identification numbers by foreign contractors; enclosed with the list of foreign contractors and/or subcontractors, made according to a set form;

+ A copy of the contract or subcontract and a Vietnamese-language summary of the contract with the main contents, namely the scope of work, the contract’s value (including detailed appendices constituting the contract’s value, if any), payment mode, contract term, obligations and responsibilities of the parties to the contract. The Vietnamese parties and foreign contractors shall be responsible before law for the accuracy of the contents sent to the tax offices;

+ A copy of the business license or professional service license (if any) granted by a competent Vietnamese agency;

+ Copies and the Vietnamese translations of the business license or independent professional service license (for foreign contractors, subcontractors being individuals) and the tax registration certificate issued by the country of which the foreign contractor is a resident;

The above-said copies must be signed and certified as true copies by competent representatives of the Vietnamese parties or foreign contractors.

For construction contracts: The Vietnamese parties shall additionally compile a tax registration dossier for each foreign contractor and send one set to the tax office of the locality where the Vietnamese parties base their offices of management for supervision and one set to the tax office of the locality where exist the construction projects for tax registration, declaration, payment and settlement on behalf of the foreign contractors and/or subcontractors.

Particularly, the tax registration dossiers of foreign airlines shall each consist of:

+ The tax registration declaration, made under the Finance Ministry’s current guidance on registration of tax identification numbers by foreign contractors;

+ Copies and the Vietnamese translations of the business license, tax registration certificate or tax identification number issued by the country of which the foreign airlines is a resident (with the certification of the Vietnam-based representative office of the foreign airlines).

2. Tax declaration, deduction and payment:

Within 15 working days as from the date of making payments for the foreign contractors, the Vietnamese parties shall make written declarations, determining the VAT and EIT amounts payable by the foreign contractors, and pay the declared tax amounts into the state budget.

Where a foreign contractor has foreign subcontractors, the Vietnamese party shall determine the VAT and EIT amounts payable by the foreign contractor and subcontractors, deduct and pay them on behalf of the foreign contractor and subcontractors.

Where many foreign contractors and subcontractors are involved in performing a contract and the contractors need to have their payable tax amounts separately determined, the Vietnamese party shall make registration in order to be granted separate tax identification numbers for separate tax declaration and payment for each foreign contractor or subcontractor. The Vietnamese party shall write the VAT and EIT amounts payable by each foreign contractor or subcontractor separately in the state budget remittance papers.

The VAT amounts already paid by the Vietnamese parties on behalf of the foreign contractors shall be the input VAT amounts of the Vietnamese parties and be deducted in accordance with the VAT Law and current guiding documents. Documents for the determination of the deductible input VAT amounts of the Vietnamese parties shall be VAT payment invoices or state budget remittance papers, affixed with the stamps of the state treasuries certifying the paid VAT amounts.

Where the Vietnamese parties concurrently sign many contracts, the tax declaration and payment on behalf of foreign contractors shall be made separately for each contract.

Where the Vietnamese parties fail to declare, deduct and pay VAT and EIT for foreign contractors and/or subcontractors, they shall be subject to retrospective collection, sanctioned under current regulations and must pay such tax amounts for the foreign contractors.

The Vietnamese parties must neither deduct VAT and EIT amounts retrospectively collected and paid on behalf of foreign contractors from their payable VAT amounts nor account them as expenses when determining their business results and payable EIT amount.

3. Tax declaration and payment in some specific cases:

3.1. Where foreign contractors supply goods or provide services in Vietnam through agents being Vietnamese organizations or individuals, these agents must deduct, declare and pay taxes on behalf of the foreign contractors under the guidance in Section II, Part B of this Circular.

3.2. For foreign airlines engaged in air transport in Vietnam, the EIT declaration and payment shall be as follows:

Within the first 10 days of the first month of the quarters of a year (January, April, July and October), the foreign airlines’ representative offices permitted to sell transport or the foreign airlines’ agents shall make EIT declarations (according to a set form) and send them to the tax offices of the localities where they are based and pay the declared tax amounts into the state budget.

Where a foreign airline organizes transport sale agents in Vietnam, its representative office must submit the list of the names and addresses of such agents together with the agency contracts (copies) to the tax offices of the localities where the airline’s representative office permitted to sell transport is based.

3.3. Tax declaration and payment procedures in cases where foreign contractors enter into partnerships with other partners or with Vietnamese economic entities to do business in Vietnam on the basis of contracts:

- Where the partners set up an executive board, which practices cost accounting, has bank accounts and is responsible for issuing invoices; or if the Vietnamese economic entity to the partnership is responsible for practicing cost accounting for the whole partnership and distributing profits to the partners, the partnership’s executive board, or the Vietnamese economic entity, shall have to declare, pay and settle VAT and EIT according to the above-said provisions for the whole turnover received under the contract.

- Where the partnership’s partners apply the mode of turnover sharing, product sharing, or accept to jointly perform the contractual job but each of them performs a separate part of the job and issues its own invoices for its turnover portion, each partner may directly register its tax payment with the tax offices as guided in Part B and Part C of this Circular.

The Vietnamese parties shall have to declare, deduct and pay VAT and EIT on behalf of foreign contractors and subcontracts that do not directly register tax payment with the tax offices.

3.4. Where foreign contractors or subcontractors have registered their tax payment in the capacity as subjects applying Vietnamese accounting regime but fail to strictly comply with the regulations on accounting, invoices and documents, resulting in the lack of bases for the accurate determination of their VAT and EIT obligations, the tax offices shall determine the tax obligations of these foreign contractors or subcontractors under the guidance applicable to  foreign contractors and subcontractors not implementing Vietnamese accounting regime.

3.5. Vietnam-based representative offices of foreign organizations which carry on business activities, which turn them into permanent establishments as prescribed in the EIT Law and current guiding documents, shall have to make declaration and registration with the tax offices as guided in Section I, Part C and calculate and pay taxes as guided in Section II, Part B of this Circular.   

4. Tax settlement:

The tax settlement shall be made for each contract. The Vietnamese party shall have to settle tax amounts payable by foreign contractors and subcontractors within 20 working days as from the date of termination of the contracts.

Dossiers of tax settlement for foreign contractors or subcontractors addressed to the tax offices where the tax registration and payment on behalf of the foreign contractors or subcontractors are made shall each consist of:

+ The tax settlement declaration, made according to a set form;

+ The list of foreign contractors and/or subcontractors participating in the performance of the contract (made according to a set form).

+ The declaration on tax settlement for foreign contractors shall be made in three copies and sent to the tax office. Where a tax settlement dossier is incomplete, within three working days the tax office must notify in writing the Vietnamese party thereof for supplementation. Within 15 working days as from the date of receipt of the complete dossier, the tax office shall settle the tax amounts payable by the foreign contractor or subcontractor and send to the Vietnamese party two copies of such tax settlement. The Vietnamese party shall keep one copy and send another to the foreign contractor. Where more than one foreign contractor and/or subcontractor participate in the contract performance, the Vietnamese party shall have to make copies of the tax settlement and send them to the involved foreign contractors and/or subcontractors.

Tax settlement data shall serve as official certification of the fulfillment of the tax obligations by foreign contractors and subcontractors. Where, as stipulated in the contract, additional payments must be made between the Vietnamese party and the foreign contractor after the contract liquidation, the tax settlement for the foreign contractor and/or subcontractor shall be also based on the contract value upon the expiration of the contract. Once the Vietnamese party has actually made such additional payments to the foreign contractor, it shall have to declare and pay taxes on the additional payments.

If, upon tax settlement, the payable tax amount is bigger than the temporarily paid VAT or EIT amount, the Vietnamese party shall pay the deficit into the state budget within five working days as from the date of receipt of the tax settlement.

If, upon tax settlement, the payable tax amount is smaller than the paid amount, the Finance Ministry shall refund the overpaid amount to the foreign contractor or subcontractor through the Vietnamese party or a lawful representative authorized by the foreign contractor or subcontractor. A dossier of request for tax refund shall consist of:

+ The written request for tax refund, clearly stating the reason for tax refund (made according to a set form);

+ The lawful paper of authorization of the Vietnamese party or the lawful representative of the foreign contractor to carry out tax refund procedures and receive refunded tax amounts (in case of tax refund authorization by the foreign contractor);

+ The contract settlement and liquidation minutes (a copy certified and sealed by a competent representative);

+ The tax settlement, with the certification by the local tax office of the payable, paid and overpaid VAT and EIT tax amounts of the whole contract.

+ Written certification of the paid tax amount by the state treasury.

Dossiers of request for tax refund shall be sent to the local Taxation Departments where the Vietnamese parties have made registration and paid taxes on behalf of the foreign contractors. The Taxation Departments shall have to check and determine the tax amounts to be refunded to the foreign contractors or subcontractors, then send documents thereon to the Finance Ministry (the General Department of Taxation) together with the foreign contractors’ or subcontractors’ dossiers of request for tax refund.

Within 30 days as from the date of receipt of complete dossiers, the Finance Ministry shall refund the overpaid tax amounts to the foreign contractors and subcontractors.

Where the Vietnamese party has deducted the VAT amount overpaid by the foreign contractor, when the foreign contractor receives the VAT refund decision, the Vietnamese party must return the VAT amount which the foreign contractor is refunded. 

D. HANDLING OF VIOLATIONS AND SETTLEMENT OF COMPLAINTS

I. HANDLING OF VIOLATIONS

Foreign contractors and subcontractors and the Vietnamese parties shall have to strictly observe the provisions of current tax laws and the guidance in this Circular.

Such law-breaking acts as failing to make tax declaration and registration, paying taxes late, making false declaration to evade taxes shall be sanctioned according to current laws.

The Vietnamese parties that fail to fully and on schedule declare, and notify the tax offices of, information on contracts and subcontracts shall be sanctioned for declaration violations. If the state’s tax money is lost due to the above-said fault of the Vietnamese parties, the Vietnamese parties shall be sanctioned according to the regulations on sanctioning of administrative violations in the tax domain.

II. SETTLEMENT OF COMPLAINTS

Complaints about taxation under this Circular shall be handled by the local tax offices directly managing the tax collection. A complainant who is not satisfactory with the handling by the tax office directly managing the tax collection may send a written complaint to the General Department of Taxation and the Finance Ministry. The handling decisions of the Finance Minister are final ones. Pending the issuance of the handling decisions of competent authorities, the complainants must still comply with the conclusions made by the local tax offices directly managing the tax collection.

Complaints about taxation related to the provisions of a treaty signed between the Vietnamese Government and the Government of another country shall be settled according to the complaint and dispute settlement procedures provided for in such treaty.

E. ORGANIZATION OF IMPLEMENTATION

I. RESPONSIBILITIES OF TAXPAYERS

1. Foreign contractors and subcontractors (for cases of direct tax payment), or the Vietnamese parties (for cases of tax payment on behalf) shall strictly comply with the provisions on tax and tax payment method registration as guided in this Circular. In case of relocation of business place or office of management, they must carry out tax registration procedures required for such relocation with the provincial/municipal tax offices according to current regulations.

2. In the course of doing business, the Vietnamese parties, foreign contractors and subcontractors must observe the regulations on tax declaration and settlement as guided in this Circular and current guiding documents.

3. To fully produce accounting books and documents as well as necessary materials related to tax calculation and settlement when it is so requested by the tax offices.

4. Upon the termination of the contracts or subcontracts or the termination of business activities in Vietnam, the Vietnamese parties signing the contracts and/or the concerned foreign contractors or subcontractors must notify the tax offices thereof and submit tax settlement reports according to regulations.  

II. RESPONSIBILITIES OF TAX OFFICES

1. To guide taxpayers to register and declare taxes according to the prescribed regime, notify them of budget accounts and indexes for payment of different kinds of tax.

2. To check tax declarations, accounting books and vouchers as well as materials necessary for tax calculation.

3. To notify taxpayers in cases where the latter:

- Have not yet sent tax declarations and tax settlements or have sent incomplete ones;

- Have not yet paid taxes on schedule or have paid insufficient tax money.

4. To request taxpayers to supply accounting books, invoices, documents and other dossiers and materials related to the tax calculation and payment; to request credit institutions, banks, other concerned organizations as well as individuals to supply materials related to the tax calculation and payment by business establishments.

5. To be entitled to impose payable tax amounts on taxpayers that fail to voluntarily declare on set schedule, or incompletely or inaccurately declare, or fail to fully and accurately supply information related to the tax calculation or in cases where revenues are affected by financial and commercial relations under unfair transaction contracts.

6. To supervise and inspect the tax payment and settlement by foreign contractors and subcontractors according to current law provisions.

7. To make written records on, and handle, tax-related violations, within their competence prescribed by law.

8. To be responsible for enforcing tax legislation, ensure honesty, accuracy and objectivity.

9. To confirm tax amounts already paid by foreign contractors and subcontractors and take responsibility for the accuracy of the certified tax amounts.  

III. CERTIFICATION OF PAID TAX AMOUNTS

Certificates of tax amounts already paid in Vietnam directly by foreign contractors and subcontractors shall be granted after the foreign contractors and subcontractors have fulfilled the tax obligations according to annual tax settlements. The tax offices shall grant such certificates within 10 working days after making tax settlement.

Certificates of tax amounts already paid by the Vietnamese parties on behalf of foreign contractors and subcontractors shall be granted after the foreign contractors and subcontractors have fulfilled the tax obligations according to the tax settlement made for each contract. The tax offices shall grant such certificates within 10 working days after making tax settlement. For contracts or subcontracts performed over many years, the foreign contractors or subcontractors that need to be granted certificates of tax amounts paid every fiscal year, shall request the local tax offices to grant such certificates. The tax offices shall grant certificates to the foreign contractors or subcontractors within 10 days after receiving the requests of the Vietnamese parties or foreign contractors or subcontractors.

The certification of paid tax amounts shall be made according to a set form.

Where tax inspection gives rise to the tax payment by foreign contractors or subcontractors different from the tax settlement and the tax amounts already certified, the tax offices must make readjustment accordingly.

IV. REMUNERATION FOR TAX DEDUCTION AND PAYMENT

1. The Vietnamese parties that sign the contracts shall have to deduct tax amounts payable by the foreign contractors or subcontractors not registering to implement Vietnamese accounting regime and pay them into the budget as guided in Section II, Part C of this Circular.

For foreign contractors or subcontractors that sign contracts with the Vietnamese parties to carry on oil and gas exploration, prospection and exploitation activities under the provisions of the Petroleum Law and, under the provisions of the contracts, the Oil and Gas Corporation shall be responsible for paying taxes on the behalf of such foreign contractors or subcontractors, the Oil and Gas Corporation shall deduct and pay taxes of the foreign contractors or subcontractors to the state treasuries. Where Vietnam Oil and Gas Corporation does not directly deduct and pay taxes on behalf of the foreign contractors or subcontractors, it shall authorize in writing its attached units to do so.

2. For EIT amounts of foreign contractors or subcontractors deducted and paid into the state treasuries by the Vietnamese parties, the Vietnamese parties shall enjoy a remuneration equal to 0.8% of the deducted EIT amounts, which shall, however, not exceed VND 50 million per tax deduction and payment.  

This remuneration shall be deducted from the collected tax amounts before they are remitted into the state treasuries and be used to cover expenses for tax declaration, deduction and payment and to reward individuals involved in the tax declaration and payment management.

V. IMPLEMENTATION EFFECT

This Circular takes effect 15 days after its publication in the Official Gazette and replaces the Finance Ministry’s Circular No. 169/1998/TT-BTC of December 22, 1998 and Circular No. 95/1999/TT-BTC of August 6, 1999, which guide the tax regime applicable to foreign organizations and individuals doing business in Vietnam not in any investment forms under the Law on Foreign Investment in Vietnam.

For contracts and subcontracts already signed with foreign contractors and subcontractors before the effective date of this Circular, the determination of the tax payment method, payable tax amounts and tax settlement shall continue to comply with the guidance in Circular No. 169/1998/TT-BTC of December 22, 1998 and Circular No. 95/1999/TT-BTC of August 6, 1999 till the termination of the contracts. Where as from January 1, 2005, the contracts or subcontracts already signed before the effective date of this Circular are extended, the tax calculation, declaration and payment as from the date of extension of the contracts shall comply with the guidance of this Circular.

Where the Socialist Republic of Vietnam enters into an international treaty or agreement which contains provisions on the tax payment by foreign contractors or subcontractors different from the guidance in this Circular, the provisions of such international treaty or agreement shall apply. Foreign contractors and subcontractors shall send written requests to the tax offices where they register their taxes for the performance of the tax obligations as agreed upon in the above-said international treaties or agreements. On the basis of such requests and the signed international agreements, the tax offices shall issue documents confirming that the foreign contractors and subcontractors are allowed to perform the tax obligations under the concerned international agreements or to perform the tax obligations in accordance with current tax laws.