Circular No. 11/2010/TT-BTC dated January 19, 2010 of the Ministry of Finance guiding the fulfillment of tax obligations by Vietnamese investors making offshore investment

THE MINISTRY OF FINANCE

Circular No. 11/2010/TT-BTC of January 19, 2010, guiding the fulfillment of tax obligations by Vietnamese investors making offshore investment

Pursuant to the current tax laws and ordinances of the Socialist Republic of Vietnam and government decrees detailing these tax laws and ordinances;

Pursuant to the Government’s Decree No. 78/2006/ND-CP of August 9, 2006, stipulating offshore direct investment;

Pursuant to the Government’s Decree No. 121/2007/ND-CP of July 25, 2007, stipulating offshore direct investment in petroleum activities;

Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance guides the fulfillment of tax obligations by Vietnamese investors making offshore investment under the Government’s Decree No. 78/2006/ND-CP of August 9, 2006 (below referred to as Decree No. 78/2006/ND-CP), and Decree No. 121/2007/ND-CP of July 25, 2007 (below referred to as Decree No. 121/2007/ND-CP), as follows:

Article 1. Scope of regulation and subjects of application

1. This Circular stipulates tax obligations of Vietnamese investors defined in Article 2 of Decree No. 78/2006/ND-CP and in Article 2 of Decree No. 121/2007/ND-CP permitted to make offshore direct investment under Decrees No. 78/2006/ND-CP and No. 121/2007/ND-CP.

2. In case a treaty signed or acceded to by the Vietnamese Government and concerning offshore investment by Vietnamese investors contains tax provisions different from the guidance of this Circular, tax obligations comply with the signed treaty.

Article 2. Import and export duties

1. For exported goods

1.1. Machinery, equipment, detached parts, supplies, materials and fuels exported by investors to create fixed assets of offshore investment projects comply with the current Law on Import and Export Duties.

For cases of exemption from export duty under regulations, a dossier submitted to the customs office for export duty exemption comprises:

- A written request of the Vietnamese enterprise making offshore investment;

- The export goods customs declaration;

- A list of exported goods for the implementation of an offshore investment project which are exempt from export duty, made by the enterprise itself (specifying categories, quantities and values of goods);

- A copy of the offshore investment license granted by a competent agency, certified by the Vietnamese enterprise making offshore investment;

- A copy of the export entrustment contract (in case of entrusted export), certified by the Vietnamese enterprise making offshore direct investment.

For multiple exportation of goods, the documents at the fourth and fifth em rules above need to be submitted for the first exportation only.

For exported goods not liable to export duty, on the basis of the list of exported goods for the implementation of an offshore project declared by the enterprise itself, the customs office shall supervise the exportation of these goods and write the categories, quantities and values of actually exported goods in the export customs declaration.

1.2. For goods exported in the form of temporary export for re-import for the implementation of an offshore investment project, when exported, export duty shall be declared and paid under the law on import and export duties. When re-imported, no import duty shall be paid and the paid export duty amount (if any) corresponding to the actually re-imported quantity of goods shall be refunded.

2. For imported goods

2.1. For machinery, equipment and detached parts already exported for creating fixed assets of an offshore investment project which are re-imported into Vietnam after they are liquidated or upon completion of the project, they are not liable to import duty while the paid export duty amount corresponding to the actually re-imported quantity of goods shall be refunded.

A dossier submitted to the customs office for consideration of refund of paid export duty and non-collection of import duty comprises:

- A written request of the Vietnamese enterprise making offshore investment;

- A list of documents in the dossier of request for export duty refund (if any);

- Documents on payment of export duty (for cases in which export duty has been paid);

- A list of exported goods;

- The export customs declaration (with the certification of the completion of customs procedures and actually exported goods), for the export of goods for creating fixed assets of an offshore investment project- the original or a copy certified by the Vietnamese enterprise making offshore investment;

- The re-imported goods declaration indicating that these goods were previously exported under which export dossier and results of physical inspection of goods by the customs office certifying that the re-imported goods are the ones previously exported by the enterprise. If the previously exported goods were exempt from physical inspection, the customs office shall compare results of inspection of actually re-imported goods with the dossier of exported goods in order to certify whether the re-imported goods are exactly the exported ones;

- A document certifying completion of the offshore investment project, made by a competent agency of the host country, or the asset liquidation decision of the board of directors or equivalent entity under regulations of the host country - a copy and its translation certified by the Vietnamese enterprise making offshore investment or by a competent agency;

- The import entrustment contract (in case of entrusted import), a copy certified by the Vietnamese enterprise making offshore direct investment.

For multiple importation of goods, the documents at the seventh and eighth em rules above need to be submitted for the first importation only.

On the basis of the above dossier and the actually imported goods, the customs office shall issue a decision not to collect import duty on each lot of imported goods.

2.2. When imported into Vietnam, divided goods after liquidation or upon completion of an offshore investment project invested in cash and goods being divided revenues or profits of an offshore investment project are liable to import duty under the Law on Import and Export Duties

2.3. Specimens, technical documents (magnetic tapes, paper tapes and other documents) imported for research and analysis purposes for the implementation of an offshore petroleum investment project are exempt from import duty.

A dossier submitted to the customs office for import duty exemption complies with the guidance of the Ministry of Finance on customs procedures, customs inspection and supervision; import and export duties, and tax administration of imports and exports.

2.4. Special-use equipment and supplies for petroleum activities which cannot be domestically made are exempt from import duty when they are temporarily imported for processing into products before re-export for the performance of contracts signed with competent representatives of offshore petroleum investment projects. Re-exported products are exempt from export duty.

Specific matters comply with the guidance of the Ministry of Finance on customs procedures, customs inspection and supervision; import and export duties, and tax administration of imports and exports.

Special-use equipment and supplies which cannot be domestically made shall be identified based on the list of supplies and equipment serving petroleum operations which can be domestically made, which is promulgated by the Ministry of Planning and Investment.

Article 3. Value-added tax

1. Machinery, equipment and detached parts and supplies, materials and fuels (excluding exploited natural resources and minerals not yet processed into other products) exported abroad for creating fixed assets of offshore investment projects are liable to value-added tax at the rate of 0% and have their input value-added tax credited like exports under the Law on Value-Added Tax and its guiding documents.

To be eligible for credit and refund of input value-added tax, exported goods specified in this Clause must satisfy procedure and dossier conditions required in the Law on Value- Added Tax and its guiding documents. Particularly, the sale contract signed with a foreign country and documents on payment for goods shall be substituted with a list of exported goods for the implementation of an offshore investment project declared by the enterprise itself (specifying categories, quantities and values of goods).

2. Goods exported in the form of temporary export for re-import for the implementation of offshore investment projects; materials imported for export production or processing under export production or processing contracts signed with overseas enterprises in the form of temporary export for re-import or temporary import for re-export are not liable to value-added tax upon import.

Dossiers and procedures for identification and non-imposition of value-added tax in these cases comply with the guidance of the Ministry of Finance on customs procedures, customs inspection and supervision; import and export duties, and tax administration of imports and exports.

3. Machinery, equipment and detached parts exported for creating fixed assets of offshore investment projects, when liquidated or upon completion of the projects, if permitted for re-import into Vietnam; divided goods after liquidation or upon completion of offshore investment projects invested in cash; goods received as shared revenues or profits of offshore investment projects, when imported into Vietnam, are liable to value-added tax under the current Law on Value-Added Value like other ordinary imports.

Article 4. Enterprise income tax

1. Vietnamese enterprises making offshore investment and earning incomes from overseas production and business operations shall declare and pay enterprise income tax under the double taxation avoidance agreements (if any) between Vietnam and countries in which the enterprises implement investment projects, Vietnam’s Enterprise Income Tax Law and guiding documents, including cases in which enterprises currently enjoy enterprise income tax incentives under regulations of investment-receiving countries.

Enterprise income tax rates used for calculating and declaring tax on incomes earned overseas is 25%; the preferential tax rate (if any) currently enjoyed by Vietnamese enterprises making offshore investment under the current Enterprise Income Tax Law shall not be applied.

2. In case incomes from an offshore investment project were already imposed an enterprise income tax (or a tax of similar nature) overseas, when calculating enterprise income tax payable in Vietnam, Vietnamese enterprises making offshore investment are entitled to subtraction of the tax amount which they have directly paid or their partners have paid on their behalf in the investment-receiving countries (including tax on dividends), provided that the subtracted amount must not exceed the income tax amount calculated under Vietnam’s Enterprise Income Tax Law. Exempted or reduced income tax amounts on profits from offshore investment projects enjoyed by Vietnamese enterprises making offshore investment under the laws of the investment-receiving countries are also subtracted when determining enterprise income tax amounts they are obliged to pay in Vietnam (not liable to tax).

Example 1: In the fiscal year of 2009, Vietnamese enterprise A has an income of VND 1 billion from an offshore investment project. The payable enterprise income tax calculated under the Enterprise Income Tax Law of the investment-receiving country is VND 200 million in case there is no tax incentive. Since the enterprise is eligible for 50% reduction of the payable enterprise income tax amount under the Enterprise Income Tax Law of the investment-receiving country, the enterprise income tax amount actually paid by the enterprise in the investment-receiving country is VND 100 million.

The enterprise income tax payable by enterprise A under Vietnam’s Enterprise Income Tax Law is:

VND 1 billion x 25% = VND 250 million

The enterprise income tax to be paid (after subtracting the tax amount paid in the investment-receiving country) is:

VND 250 million – VND 200 million = VND 50 million

Example 2: In the fiscal year of 2009, Vietnamese enterprise A has an income of VND 660 million from an offshore investment project. This amount is the remainder after paying an enterprise income tax in the investment-receiving country. The enterprise income tax amount which the enterprise has to pay and has paid under regulations of the investment-receiving country is VND 340 million.

The income from the offshore investment project that the enterprise must declare and pay tax income under Vietnam’s Enterprise Income Tax Law is:

[(VND 660 million + VND 340 million) x 25%] = VND 250 million

In this case, since the tax amount to be declared and paid under Vietnam’s Enterprise Income Tax Law (VND 250 million) is lower than the tax amount enterprise A has paid under the law of the investment-receiving country, it does not have to pay enterprise income tax on the income earned from the implementation of the offshore investment project when declaring and paying enterprise income tax in Vietnam. However, it is not entitled to the difference between the tax amount payable in Vietnam calculated under Vietnam’s Enterprise Income Tax Law and the tax amount paid in the investment-receiving country, which is VND 90 million (340 – 250 = 90).

3. A dossier to be submitted upon tax declaration and payment by a Vietnamese enterprise making offshore investment for incomes from an offshore investment project comprises:

- The enterprise’s document on the divided profit of the offshore investment project or the enterprise owner’s certification of the level of divided profit of the offshore investment project;

- The enterprise’s financial statement audited by an independent audit organization;

- The enterprise income tax return for incomes from the offshore investment project (a copy certified by a competent representative of the offshore investment project);

- The minutes of tax finalization for the enterprise if any);

- The certification of the tax amount already paid or paid on its behalf and exempted or reduced tax amount, by the foreign tax agency, or documents evidencing the tax amount already paid or paid on its behalf, exempted or reduced in the foreign country.

In case an offshore investment project has not yet generated any taxable income (or is incurring loss), when making declaration for annual enterprise income tax finalization, the Vietnamese enterprise making offshore investment is only required to submit a  financial statement certified by an independent audit organization or competent authorities of the  investment-receiving country and the income tax declaration of the offshore investment project (a copy certified by a competent representative of the project). Losses incurred by the offshore investment project are not allowed to be subtracted from domestically generated incomes of the enterprise when calculating enterprise income tax.

4. Incomes from an offshore investment project shall be declared in the enterprise income tax finalization of the year following the fiscal year in which such incomes are generated or in that of the fiscal year coinciding with the year in which incomes are generated if the enterprise have sufficient grounds and documents to prove the incomes and the paid income tax of the offshore investment project.

Example 3: Vietnamese enterprise A earns an income from an offshore investment project in the fiscal year of 2009. It may declare this income in the income tax finalization declaration of 2009 or 2010 under Vietnam’s Law on Enterprise Income Tax.

5. Tax agencies may assess taxable incomes from overseas production and business operations of Vietnamese enterprises making offshore investment in case the latter violate tax declaration and payment provisions of the Tax Administration Law.

Article 5. Personal income tax

Vietnamese investors that are business households or individuals implementing or working for offshore investment projects shall pay personal income tax under the double taxation avoidance agreements (if any) between Vietnam and investment-receiving countries, Vietnam’s Personal Income Tax Law and guiding documents.

Article 6. Other taxes, charges and fees

In addition to fulfilling tax obligations for production and business operations of offshore investment projects under the guidance in this Circular, Vietnamese enterprises making offshore investment shall pay taxes, charges and fees under the current laws on taxes, charges and fees applicable to production and business operations in Vietnam through the provision of goods and services and other economic transactions with offshore investment projects.

Article 7. Organization of implementation and effect

1. This Circular takes effect 45 days from the date of its signing.

This Circular replaces the Ministry of Finance’s Circular No. 97/2002/TT-BTC of October 24, 2002, guiding the fulfillment of tax obligations by Vietnamese enterprises making offshore investment.

2. Any problems arising in the course of implementation should be reported to the Ministry of Finance for timely guidance and settlement.-

For the Minister of Finance
Deputy Minister
DO HOANG ANH TUAN