Circular No. 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance guidance on the implementation of a number of articles of Law on Enterprise Income Tax No.14/2008/QH12 and guidelines on implementation of Decree No.124/2008/ND-CP dated December 11, 2008, Decree No.122/2011/ND-CP dated December 27, 2011 of the Government detailing the implementation of a number of articles of Law on Enterprise Income Tax

THE MINISTRY OF FINANCE

Circular No. 123/2012/TT-BTC of July 27, 2012, guiding the implementation of a number of articles of Law No. 14/2008/QH12 on Enterprise Income Tax and guiding the implementation of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, and Decree No. 122/2011/ND-CP of December 27, 2011, detailing a number of articles of the Law on Enterprise Income Tax

Pursuant to June 3, 2008 Law No. 14/2008/QH12 on Enterprise Income Tax;

Pursuant to November 29, 2006 Law No. 78/2006/QH11 on Tax Administration;

Pursuant to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing a number of articles of the Law on Enterprise Income Tax;

Pursuant to the Government’s Decree No. 122/2011/ND-CP of December 27, 2011, amending and supplementing a number of articles of the Government’s Decree No. 124/2008/ND-CP detailing and guiding the implementation of a number of articles of the Law on Enterprise Income Tax;

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

At the proposal of the Director General of Taxation, the Minister of Finance guides the payment of enterprise income tax as follows:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

This Circular details and guides the implementation of a number of articles of June 3, 2008 Law No. 14/2008/QH12 on Enterprise Income Tax; the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing a number of articles of the Law on Enterprise Income Tax and Decree No. 122/2011/ND-CP of December 27, 2011, amending and supplementing a number of articles of Decree No. 124/2008/ND-CP.

Article 2. Taxpayers

1. Payers of enterprise income tax are organizations engaged in production and trading of goods or provision of services with taxable income (below referred to as enterprises), including:

a/ Enterprises established and operating under the Enterprise Law, the Investment Law, the Law on Credit Institutions, the Insurance Business Law, the Securities Law, the Petroleum Law, the Commercial Law or other legal documents in the forms of joint-stock company; limited liability company; partnership; private enterprise; state enterprise, lawyer office, private notary public office; party to business cooperation contract; party to petroleum product-sharing contract, oil and gas joint-venture enterprise and joint operating company.

b/ Public and non-public non-business units engaged in production and trading of goods or provision of services and having income in all areas.

c/ Organizations established and operating under the Cooperative Law.

d/ Enterprises established under foreign law (below referred to as foreign enterprises) and having permanent establishments in Vietnam.

Permanent establishments of foreign enterprises are manufacturing and trading establishments through which foreign enterprises carry out some or all of their production and trading activities in Vietnam to earn income, mainly including:

- Branches, executive offices, factories, workshops, means of transport, mines, oil and gas fields or other sites of exploitation of natural resources in Vietnam;

- Construction sites and construction, installation or assembly works;

- Establishments providing services, including consultancy services, through employees or another organization or individual;

- Agents for foreign enterprises;

- Representatives in Vietnam, for representatives authorized to sign contracts in the name of foreign enterprises or representatives not authorized to sign contracts in the name of foreign enterprises but regularly delivering goods or providing services in Vietnam.

In case a double taxation avoidance agreement which the Socialist Republic of Vietnam has signed has different provisions on permanent establishments, the provisions of that agreement apply.

e/ Organizations other than those referred to at Points a, b, c and d, Clause 1 of this Article which are engaged in production and trading of goods or provision of services and have taxable income.

2. Foreign organizations engaged in production and business activities in Vietnam not under the Investment Law or the Enterprise Law or earning income in Vietnam shall pay enterprise income tax under separate guidance of the Ministry of Finance. These organizations, if having capital transfer activities, shall pay enterprise income tax under the guidance in Article 14, Chapter IV of this Circular.

Chapter II

METHOD AND BASES OF TAX CALCULATION

Article 3. Method of tax calculation

1. The tax amount an enterprise shall pay in a tax period is taxed income multiplied by tax rate.

The payable enterprise income tax is determined by the following formula:

In case an enterprise deducts a science and technology development fund, the payable enterprise income tax is determined as follows:

In case an enterprise has paid enterprise income tax or a tax similar to enterprise income tax outside Vietnam, it may deduct the paid enterprise income tax amount not exceeding the maximum payable enterprise income tax amount under the Law on Enterprise Income Tax.

2. Tax period is determined according to calendar year. For enterprises that apply a fiscal year different from the calendar year, the tax period shall be determined according to the applied fiscal year. The first tax period for newly established enterprises and the last tax period for enterprises transforming their type, changing their form of ownership, merged, separated, split, dissolved or going bankrupt are determined in accordance with the accounting period provided by the accounting law.

3. If the tax period of the first year of a newly established enterprise counting from the time of receiving an enterprise registration certificate, a business registration certificate, an establishment license or an investment certificate, or the tax period of the last year for enterprises transforming their type, changing their form of ownership, merged, separated, split, dissolved or going bankrupt is shorter than 3 months, it may be added to the tax period of the subsequent year (for newly established enterprises) or the tax period of the previous year (for enterprises transforming their type, changing their form of ownership, merged, separated, split, dissolved or going bankrupt) to form an enterprise income tax period. The enterprise income tax period of the first year or the enterprise income tax period of the last year must not exceed 15 months.

4. In case an enterprise converts its enterprise income tax period (including conversion of the tax period from calendar year to fiscal year or vice versa), the enterprise income tax period of the conversion year must not exceed 12 months. If an enterprise enjoying enterprise income tax incentives converts its tax period, it may choose to enjoy incentives in the year of tax period conversion or pay tax at the common rate in the year of tax period conversion and enjoy tax incentives in the subsequent year.

Example 1: For enterprise A, the tax period of 2011 is the calendar year. At the beginning of 2012, it converts to the fiscal year from April 1, 2012, to March 31 of the following year. The tax period of the year of conversion (2012) is counted from January 1, 2012, to the end of March 31, 2012 (3 months), while the tax period of the following year starts from April 1, 2012, to the end of March 31, 2013.

Example 2: In the same case, but enterprise A enjoys enterprise income tax incentives (2 years’ tax exemption and 50% tax reduction in the subsequent 3 years), with tax exemption starting in 2009. Then enterprise A may enjoy the tax incentives as follows: tax exemption in 2009 and 2010; and 50% tax reduction in 2011, 2012 and 2013.

If the enterprise chooses to enjoy 50% tax reduction in the tax period of the year of conversion 2012, it may enjoy such 50% tax reduction in the year of conversion and the subsequent tax year (the fiscal year 2012 lasts from April 1, 2012, to March 31, 2013).

If the enterprise does not choose to enjoy 50% reduction of enterprise income tax in the tax period of the year of conversion 2012 (the tax is declared and paid at the common rate in the year of conversion 2012), it may enjoy 50% reduction of enterprise income tax in the fiscal year 2012 from April 1, 2012, to March 31, 2013, and the fiscal year 2013 (from April 1, 2013, to March 31, 2014).

5. For non-business units trading in goods or providing services liable to enterprise income tax which can account the revenue but can not account and determine the cost and income of these business activities, they shall declare and pay enterprise income tax at the following percentage of the revenue from the sale of goods or services:

+ For services: 5%;

+ For goods trading: 1%;

+ For other activities (including education, health and art performance activities): 2%.

Example 3: Non-business unit A leases a house and earns an annual revenue of VND 100 million. It does not account and cannot determine the cost and income from this activity, so it chooses to declare and pay enterprise income tax at the percentage of the revenue from the sale of goods and services as follows:

Payable enterprise income tax amount = VND 100,000,000 x 5% = VND 5,000,000.

6. Enterprises which have revenues, expenses, taxable income and taxed income in foreign currency shall convert these amounts into Vietnam dong at the average exchange rate on the interbank foreign exchange market announced by the State Bank of Vietnam at the time of arising of these amounts, unless otherwise provided by law. For a foreign currency without exchange rate with Vietnam dong, conversion must be carried out via a foreign currency with an exchange rate with Vietnam dong.

Article 4. Determination of taxed income

1. The taxed income in a tax period is determined to be taxable income minus tax-exempted income and losses carried forward from previous years as per regulations.

Taxed income is determined by the following formula:

2. Taxable income

Taxable income in a tax period includes income from the production and trading of goods and provision of services and other incomes.

Taxable income in a tax period is determined as follows:

Income from the production and trading of goods and provision of services is the revenue from the production and trading of goods and provision of services minus deductible expenses of these activities. An enterprise that has different production and trading activities subject to different tax rates shall separately calculate the income of each activity multiplied by the corresponding tax rate.

Income from real estate transfer or project transfer (not associated with the transfer of the right to use or to lease land); income from the transfer of the right to implement projects and the right to explore, exploit and process minerals as provided by law must be separately accounted to declare and pay enterprise income tax at the rate of 25%, and are ineligible for enterprise income tax incentives, and must not be offset against the incomes or losses of other business and production activities. When an enterprise is engaged in real estate transfer, project transfer (not associated with the transfer of the right to use or to lease land); transfer of the right to implement projects, the right to explore, exploit and process minerals as provided by law, it may offset profits against losses of these activities to declare and pay enterprise income tax.

Article 5. Revenue

1. Revenue for calculating taxable income is determined as follows:

The revenue for calculating taxable income is total proceeds from the sale of goods, remuneration for processing and charges for provided services, including price subsidies, surcharges or extra fees that enterprises earn, regardless of whether or not they have collected these amounts.

a/ For enterprises paying value-added tax by the method of tax credit, the revenue is exclusive of value-added tax.

Example 4: Company A is liable to pay value-added tax by the credit method. The VAT invoice contains the following items:

Selling price: VND 100,000.

VAT (10%): VND 10,000.

Price paid: VND 110,000.

The revenue for calculating taxable income is VND 100,000.

b/ For enterprises paying value-added tax by the method of calculation directly based on added value, the revenue is inclusive of value-added tax.

Example 5: Enterprise B is liable to pay value-added tax by the method of calculation directly based on added value. The sale invoice only indicates the selling price of VND 110,000 (VAT-inclusive price).

The revenue for calculating taxable income is VND 110,000.

2. The time for determining the revenue for calculating taxable income is determined as follows:

a/ For the sale of goods, it is the time of transfer of the right to own or use goods to the buyer.

b/ For the provision of services, it is the time of completion of the provision of services for the buyer or the time of invoicing the service provision.

In case the time of invoicing precedes the time of service completion, the time for determining taxed revenue is the time of invoicing.

c/ Other cases as provided by law.

3. The revenue for calculating taxable income in a number of cases is determined as follows:

a/ For goods and services sold by the installment or deferred payment method, the revenue is proceeds from the sale of goods and services paid in a lump sum, excluding interests on installment or deferred payments.

b/ For goods and services used for exchange; donation and presentation as gifts; and internal consumption (excluding goods and services used to continue the process of production and business of enterprises), the revenue is determined by the selling prices of products, goods and services of the same or similar kind on the market at the time of exchange; donation or presentation as gifts or internal consumption.

c/ For goods processing activities, the revenue is proceeds from processing activities, including remuneration, cost of fuel, power, auxiliary materials and other costs for the processing.

d/ For units selling their goods through agents or consignees and units operating as agents or consignees under agency or consignment contracts selling goods at set prices to enjoy commissions, the revenue is determined as follows:

- For enterprises selling their goods through agents or consignees (including multi-level sales agents), the revenue is the total amount of goods sales.

- For enterprises acting as agents or consignees for goods sale at prices set by enterprises delivering or consigning their goods, the revenue is the commission enjoyed under goods agency or consignment contracts.

e/ For asset leasing activities, the revenue is the amount the lessee pays on a periodical basis under the lease contract. In case the lessee prepays the rent for many years, the revenue for calculating taxable income will be allocated to the number of years of prepayment or is the revenue paid in a lump sum.

Enterprises may, based on the conditions of implementation of the accounting regime, actual invoices and documents and the determination of costs, select either of the two following methods to determine the revenue for calculating taxable income:

- The revenue is the annual rental which is the prepaid rent divided by (:) number of years of prepayment.

- The revenue is the total rent of the number of years of prepayment.

In case an enterprise that is enjoying enterprise income tax incentives has chosen the method of determining the revenue for calculating taxable income which is the total rent prepaid by the lessee for many years, the determination of the income tax amounts exempted and reduced for each year will be based on the total enterprise income tax of the number of years of prepayment divided by (:) the number of years for which the rent has been prepaid by the lessee.

g/ For credit and finance leasing activities, the revenue is the loan interest or revenue from finance leasing to be collected in the tax period.

h/ For transport activities, the revenue is the total revenue from passenger, cargo and luggage transportation arising in the tax period.

i/ For electricity and clean water supply, the revenue is the charge for supplied electricity or clean water recorded on VAT invoices. The time of determining the revenue for calculating taxable income is the date of certification of electricity or water meter readings recorded on electricity or clean water bills.

Example 6: On an electricity bill, the meter reading is recorded for the days from December 5 to January 5. The revenue recorded on this bill is calculated for January.

j/ For golf course business, the revenue is proceeds from the sale of membership cards and golf playing tickets and other revenues in the tax period which are determined as follows:

- For the form of sale of daily golf tickets and cards, the revenue for determining taxed income is proceeds from the sale of tickets and cards arising in the tax period.

- For the form of sale of tickets and membership cards prepaid for several years, the revenue for determining taxed income for each year is the proceeds actually collected from the sale divided by the number of years of card use.

k/ For insurance business, the revenue for calculating taxable income is total proceeds from the provision of insurance services and other goods and services, including VAT-exclusive surcharges and extra fees that insurance enterprises earn, including:

- Revenue from insurance business:

For insurance and reinsurance business, the revenue includes collected original insurance premiums; reinsurance premiums, commissions of reinsurance cession; fees for insurance policy management, charges for agency services including loss assessment, consideration for compensation, request for a third party to pay indemnities and handling of 100% compensated goods (excluding free assessment among internal-accounting member enterprises in the same independent-accounting insurer) after deduction of all payables to reduce revenue such as refunded insurance premiums, reduced insurance premiums; refunded reinsurance premiums; reduced reinsurance premiums; refunded commissions for reinsurance cession; and reduced commissions for reinsurance cession.

For insurance enterprises participating in co-insurance, the revenue for calculating taxable income of each party is the collected original premiums allocated in proportion to their co-insurance to each party excluding value-added tax.

For insurance contracts with agreement on payment by each period, the revenue for calculating taxable income is the receivable amount arising in each period.

In case there are authorized collection operations between affiliated enterprises or between dependent-accounting enterprises and the head office of the insurer, the revenue for calculating taxable income excludes the revenue from these authorized collection operations.

- Revenue from insurance brokerage: Collected commissions for insurance brokerage after deducting insurance brokerage commissions, reduced and refunded insurance brokerage commissions.

l/ For construction and installation activities, the revenue is the value of constructions or construction items or the value of volume of constructions and installation already accepted.

- In case of construction and installation involving contracted supply of materials, machinery and equipment, the revenue is the amount from construction and installation activities, including the value of materials, machinery and equipment.

- In case of construction and installation without contracted supply of materials, machinery and equipment, the revenue is the amount earned from construction and installation activities, excluding the value of materials, machinery and equipment.

m/ For business activities under business cooperation contracts:

- In case the parties to a business cooperation contract divide the business result being the revenue from the sale of goods and services, the revenue for tax calculation is the revenue of each party divided under the contract.

- In case the parties to a business cooperation contract divide their business result being product, the revenue for tax calculation is the revenue of products divided to each party under the contract.

- In case the parties to a business cooperation contract divide their business result being pre-enterprise income tax profit, the revenue for determining the pre-tax income is the proceeds from the sale of goods or provision of services under the contract. The parties to the business cooperation contracts shall appoint a party as a representative to produce invoices, record revenues and costs and determine the pre-enterprise income tax profit divided to each party. Each party shall perform its enterprise income tax obligation under current regulations.

- In case the parties to a business cooperation contract divide their business result being after-enterprise income tax profit, the revenue for calculating taxable income is the proceeds of the sale of goods or provision of services under the contract. The parties to the business cooperation contract shall appoint a party as a representative to produce invoices, record revenues and costs and declare and pay enterprise income tax on behalf of other parties.

n/ For prize-winning game business (casino, prize-winning electronic games, and betting entertainment business), the revenue is the proceeds from these activities including excise tax but minus the prizes paid to customers.

o/ For securities trading, its revenue is the proceeds from brokerage services, securities dealing, securities issuance underwriting, investment portfolio management, financial and securities investment consultancy, investment fund management, issuance of fund certificates, market organization services and other securities services as provided by law.

p/ For derivative financial services, their revenue is the proceeds from the provision of derivative financial services performed in the tax period.

Article 6. Deductible and non-deductible expenses for determining taxable income

1. Except for expenses specified in Clause 2 of this Article, enterprises may deduct all expenses that fully satisfy the following conditions:

a/ Actual expenses arising in relation to production and business activities of enterprises;

b/ Expenses with adequate lawful invoices and documents as required by law.

2. Non-deductible expenses for determining taxable income include:

2.1. Expenses failing to fully meet the conditions specified in Clause 1 of this Article.

In case an enterprise has expenses related to the value of losses caused by natural disaster, epidemic, fire and force majeure events without any compensation, these expenses may be regarded as deductible expenses for determining taxable income, specifically as follows:

The enterprise shall determine by itself the total value of losses caused by natural disaster, epidemic, fire and force majeure events as provided by law.

The value of losses caused by natural disaster, epidemic, fire and other force majeure events without compensation are determined to be the total value of losses minus compensations to be paid by responsible organizations and individuals in accordance with law.

a/ For assets and goods lost due to natural disaster, epidemic or fire which are included in deductible expenses, their dossiers include:

- Document of the concerned enterprise addressed to the direct managing tax agency explaining about assets and goods lost due to natural disaster, epidemic or fire.

- The written record of inventory of the value of lost assets and goods made by the enterprise.

The record of inventory of the value of lost assets and goods must specify the value of lost assets and goods, the cause of loss, responsibilities of organizations and individuals for losses; types, quantities and values of assets and goods (if any), stock movement statement of the lost goods certified with the signature of a legal representative of the enterprise who shall take responsibility before law.

- Written certification of the People’s Committee of the commune or ward or the management board of the industrial park, export processing zone or economic zone where the disaster, epidemic or fire occurred, that a natural disaster, epidemic or fire actually occurred during that time.

- The dossier of compensation accepted by the insurance agency (if any).

- The dossier identifying responsibilities of organizations and individuals obliged to pay compensation (if any).

b/ Goods damaged due to expiry or change of the natural biochemical process without compensation are allowed to be included in deductible expenses for determining taxable income.

Dossiers for goods damaged due to expiry or change of the natural biochemical process without compensation allowed to be included in deductible expenses include:

- Document of the enterprise addressed to the direct managing tax agency explaining about the goods damaged due to expiry or changes in the natural biochemical process without compensation.

- Written record of inventory of the value of damaged goods made by the enterprise.

The written record of inventory of the value of damaged goods must specify the value of damaged goods, causes of damage, types, quantities, recoverable value of goods (if any) enclosed with the stock movement statement of the damaged goods certified with the signature of a legal representative of the enterprise who shall take responsibility before law.

- The dossier of compensation accepted by the insurance agency (if any).

- The dossier identifying responsibilities of organizations and individuals obliged to pay compensation (if any).

c/ The enterprise shall send to the direct managing tax agency the document explaining about assets and goods lost due to natural disaster, epidemic or fire, goods damaged due to expiry or change of the natural biochemical process without any compensation when submitting according to regulations a dossier for enterprise income tax declaration and finalization of the year of occurrence of the lost and damaged goods. Other dossiers (including the written record of inventory of the value of assets and goods lost or damaged; the written certification of the commune or ward People’s Committee, the management board of the industrial park, export processing zone or economic zone; dossier of compensation for losses accepted by the insurance agency (if any); dossier identifying responsibilities of organizations and individuals obliged to pay compensations (if any) and other documents) must be kept at the enterprise for production to tax authorities upon request.

2.2. Depreciation expense for fixed assets in one of the following cases:

a/ Depreciation expense for fixed assets not used for the production and trading of goods and provision of services.

Particularly for fixed assets serving employees working at enterprise such as mid-shift rest houses and canteens, locker rooms, toilets, infirmaries, and vocational and training facilities and equipment and furniture qualified as fixed assets installed in mid-shift rest houses and canteens, locker rooms, toilets, infirmaries, and vocational and training facilities, clean water tanks, garages, commute cars, houses for workers built by enterprises, they may be depreciated and included in deductible expenses for determining taxable income.

b/ Depreciation expense of fixed assets without any papers proving that they are owned by enterprises (except fixed assets from finance leasing).

c/ Depreciation expense of fixed assets that are not managed, monitored and accounted in accounting books of enterprises under the current regime of management of fixed assets and cost-accounting.

d/ The portion of depreciation exceeding the rate prescribed in the Ministry of Finance’s current regulations on the management, use and depreciation of fixed assets.

Enterprises shall notify the direct managing tax agencies of the method of depreciation of fixed assets that enterprises have chosen to apply before depreciation (for example, notifying their choice of straight-line depreciation method...). Every year, enterprises shall decide by themselves the rate of depreciation of fixed assets according to the Ministry of Finance’s current regulations on the management, use and depreciation of fixed assets, including cases of accelerated depreciation (if meeting conditions).

Enterprises operating with high economic efficiency are entitled to apply accelerated depreciation not exceeding 2 times the rate of depreciation determined by the straight-line method for rapid technology renovation. When applying accelerated depreciation, enterprises shall ensure profitable business.

For fixed assets contributed as capital or fixed assets transferred upon division, split, consolidation, merger or transformation with re-valuation as prescribed, enterprises receiving these assets may include their depreciation into deductible expenses based on their re-valued historical costs. For other assets not qualified as fixed assets contributed as capital or transferred upon division, split, consolidation, merger or transformation, which are re-valued as prescribed, enterprises receiving these assets may include their depreciation in deductible expenses based on their re-valued prices.

For fixed assets made by enterprises themselves, their historical costs that are allowed to be depreciated and included in deductible expenses are total production costs to form those assets.

For assets being tools, instruments, circulating packages, etc., which are not qualified as fixed assets as prescribed, the expenses for purchasing these assets may be amortized to production and business expenses in the period but not exceeding 2 years.

e/ The depreciation corresponding to the historical cost in excess of VND 1.6 billion/car for passenger cars of 9 seats or under with new use registration and accounting of depreciation of fixed assets from January 1, 2009, onward (except automobiles exclusively used for passenger transport, travel and hotel business); the depreciation of fixed assets being civil airplanes and yachts not used for cargo, passenger and tourist transport.

Passenger cars of 9 seats or under exclusively used for passenger transport, travel and hotel business are cars registered under the names of enterprises which, in their enterprise or business registration certificates, have registered one of these business lines: passenger transport, travel or hotel business, and have been licensed for doing business as prescribed in legal documents on transport, travel or hotel business.

Civil airplanes and yachts not used for cargo, passengers and tourist transport are those of enterprises having registered and accounted the depreciation of fixed assets but not registered the passenger transport, travel or hotel business in their business or enterprise registration certificates.

f/ Depreciation of fixed assets that have been fully depreciated.

g/ Depreciation for constructions on land used for production and business and other purposes may not be included in deductible expenses with regard to the value of constructions on land corresponding to the area not used for production and business.

In case constructions on land like office buildings, workshops and business stores used for production and business activities are built on leased land, land borrowed from organizations, individuals or households (not directly leased land by the state or in industrial parks), enterprises may only include their depreciation in deductible expenses at the rate of depreciation of fixed assets in accordance with the Ministry of Finance’s current regulations for these constructions if they meet the following conditions:

- Having a contract of land lease or borrowing with the land-owning unit, with the enterprise’s representative taking responsibility before law for the accuracy of the contract.

- The invoice of payment for the handed-over construction volume enclosed with the construction contract, contract liquidation document and financial settlement of the construction value bearing the name, address and tax identification number of the enterprise.

- Constructions on land are managed, monitored and cost-accounted according to current regulations on management of fixed assets.

h/ In case fixed assets owned by enterprises and used for production and business have to be temporarily left unused due to seasonal production for a period of less than 9 months, temporarily left unused for repair or relocation or periodic maintenance for a period of less than 12 months, then continue to be used for production and business activities, during that temporary non-operation, enterprises may depreciate these assets and include the depreciation expenses during the time of temporary non-operation in deductible expenses for determining taxable income.

Enterprises shall keep complete dossiers and provide them and the reason for the temporary non-operation of fixed assets upon request of tax agencies.

i/ Long-term land use rights may not be depreciated and allocated to deductible expenses for determining taxable income; termed land use rights, if there are sufficient invoices and documents and the procedures provided by law are complied with and they are used in business and production activities, may be amortized to deductible expenses during the land use term indicated in the land use right certificates.

In case an enterprise purchases tangible fixed assets being houses or architectural objects associated with long-term land use rights, the value of land use rights must be separately calculated and recorded as intangible fixed assets. For tangible fixed assets being houses or architectural objects, their original price is the actual purchase price plus (+) expenses directly related to the putting of tangible fixed assets into use. The value of land use rights is determined to be the contractual purchase price of real estate matching the market price but not lower than the land price set by the provincial-level People’s Committee at the time of asset purchase. In case an enterprise purchases tangible fixed assets being houses or architectural objects associated with long-term land use rights and the value of these land use rights cannot be separated, then the value of land use rights will be determined to be the price set by the provincial-level People’s Committee at the time of asset purchase.

2.3. Expenses for raw materials, materials, fuel, energy and goods in excess of reasonable consumption norms.

Enterprises shall themselves build and manage consumption norms of raw materials, materials, fuel, energy and goods used in production and business. These norms must be elaborated from the beginning of the year or the product manufacturing period and kept at the enterprises and fully presented to tax agencies upon request.

Particularly for major norms of their principal products, enterprises shall inform them to their direct managing tax agencies within the first 3 months of the year or 3 months after the commencement of production and business (for newly established enterprises or enterprises that produce new products subject to notification of norms but these norms are not informed yet). The lists of major norms of principal products of enterprises must be decided by enterprises themselves.

In case an enterprise, during the time of production and business, adjusts and supplements consumption norms of raw materials and materials already notified to the tax agency, it shall also notify such adjusted and supplemented norms to its direct managing tax agency. The deadline for notification to tax agencies of adjusted and supplemented consumption norms is that prescribed for submission of enterprise income tax finalization declaration in the finalization year. In case some raw materials, materials, fuel and goods have their consumption norms issued by the State, these norms must be complied with. In case an enterprise fails to notify the tax agency within the prescribed time limit, the tax agency may, upon inspection and examination, determine the costs of these raw materials, materials and goods. The determination of the costs of raw materials, materials and goods must comply with the tax administration law.

2.4. For expenses for the purchase of goods and services without invoices, enterprises may make a list of purchased goods and services (Form No. 01/TNDN enclosed with this Circular) but do not make a list attached with payment documents for sellers and service providers in the following cases: purchase of agricultural products, forest products and aquatic products from their producers or catchers, purchase of handicrafts made of jute, rush, bamboo, leaves, rattan, straw, coconut husk, coconut shell or raw materials from agricultural products from their producers who do not directly do business; purchase of soil, rocks, sand and gravel from  people who directly exploit them; purchase of waste materials of people who directly collect them; purchase of articles and property directly from households and individuals that have used them, and a number of services purchased from  individuals who do not do business.

Lists of purchased goods and services must be signed by legal representatives or authorized persons of enterprises, who shall take responsibility before law for the accuracy and truthfulness of these lists. If the purchase prices of goods and services on a list are higher than the market prices at the time of goods purchase, tax agencies may base themselves on market prices at the time of purchase of goods or services of the same or similar type available on the market to re-determine the prices for re-calculating deductible expenses for determining taxable income.

2.5. Salaries, wages and bonuses to employees in one of the following cases:

a/ Salaries, wages and other amounts payable to employees that enterprises have accounted in production and business expenses in the period but have not made such payments or have no payment documents as required by law.

b/ Bonuses and life insurance premiums for employees for which the conditions for entitlement and rates of entitlement are not specified in one of the following dossiers: labor contract; collective labor agreement; financial regulations of the company, corporation or group; reward regulations issued by the chairman of the Board of Directors, general director or director under the financial regulations of the company or corporation.

- In case the labor contract signed between an enterprise with a foreign laborer specifies a schooling expense for children of the foreigner to acquire general education in Vietnam to be paid by the enterprise, which is of salary or wage nature and not contrary to the law on salaries and wages and has adequate invoices and documents according to regulations, this expense will be included in deductible expenses for determining taxable income.

- In case the labor contract signed between an enterprise with a laborer specifies a housing expense to be paid by the enterprise, which is of salary or wage nature and not contrary to the law on salaries and wages and has adequate invoices and documents according to regulations, this expense will be included in deductible expenses for determining taxable income.

c/ Salaries, wages and allowances payable to laborers that enterprises have not yet paid by the deadline for submission of annual tax finalization dossiers, unless enterprises have a provision fund to supplement the wage fund of the subsequent year to ensure uninterrupted payment of salaries, and this fund must not be used for other purposes. The annual level of provision is decided by enterprises but must not exceed 17% of the implemented wage fund.

The implemented wage fund is the total of actually paid wages of that finalization year to the last deadline for submission of finalization dossiers as prescribed (excluding the amount deducted for the wage provision fund of the previous year spent in the tax finalization year).

The wage provision must ensure that, after being deducted, enterprises do not suffer losses; if suffering losses, enterprises are not allowed to fully make deduction of 17% for this provision.

In case in a year an enterprise deducted a wage provision fund, but by December 31 of the following year, it has not used or not used up this fund, the enterprise shall record a decrease in the following year’s expenses.

Example 7: When submitting the 2011 tax finalization dossier, enterprise A deducted a wage provision fund of VND 10 billion. By December 31, 2012, it has just spent VND 7 billion of the wage provision fund of 2011. Enterprise A shall record a decrease of VND 3 billion (10 billion minus 7 billion) in wage expense of the following year (2012). When preparing the tax finalization dossier of 2012, if enterprise A needs to make deduction, it may continue to deduct the wage provision fund as prescribed.

d/ Salaries and wages of owners of private enterprises or single-member limited liability companies (owned by an individual); remuneration paid to the founding members, members of the Board of Members or Board of Directors who are not directly involved in directing production and business.

2.6. Expense for outfits in kind for laborers without any invoices and documents; expenses for outfits in cash and in kind to laborers which exceed 5 (five) VND million/person/year.

In case an enterprise pas an expense for outfits both in cash and in kind for laborers, the maximum level of this expense for calculating deductible expenses for determining taxable income must not exceed 5 (five) VND million/person/year.

For particular business lines, this expense complies with specific regulations of the Ministry of Finance.

2.7. Expenses for reward of innovations and improvements for which enterprises have no specific regulations on reward of innovations and improvements and have no council for test and acceptance of innovations and improvements.

2.8. Travel allowances for annual leaves not in accordance with the Labor Code; portions of allowances paid to employees going on business trips at home or abroad which exceed 2 times the level prescribed by the Ministry of Finance for state cadres, civil servants and public employees.

If having adequate lawful invoices and documents as prescribed, traveling and accommodation expenses for laborers going on business trips may be included in deductible expenses for determining taxable income. In case an enterprise has package traveling and accommodation expenses for laborers, these expenses may be included in deductible expenses as traveling and accommodation expenses in accordance with regulations of the Ministry of Finance applicable to state cadres, civil servants and public employees.

In case an enterprise has purchased air tickets through e-commerce websites for laborers going on business trips to serve the enterprise’s production and business activities, documents used as the basis for calculating deductible expenses are electronic air tickets, boarding passes and payment documents of enterprises having individuals participating in transport journeys.

2.9. The following expenses, if paid for wrong subjects, improper purposes or in excess of the prescribed level.

a/ Additional expenses for female laborers which are allowed to be included in deductible expenses, including:

- Expenses for vocational re-training for female laborers in case their old jobs are no longer suitable and they must switch to other jobs according to the development planning of enterprises.

These expenses include tuition fees (if any) plus the difference in salary grades (guaranteeing 100% salary for trainees).

- Salaries and allowances (if any) for teachers in crèches and kindergartens organized and managed by enterprises.

- Expenses for additional medical checks-up in the year, such as examinations of occupational, chronic or gynecological diseases for female laborers.

- Allowances for female laborers after the first or second time birth.

- Overtime allowances for female laborers in the case for objective reasons these female laborers do not take leave after childbirth or have breaks for breastfeeding their babies but stay to work for enterprises, which are paid under current regulations, including the case of payment of product-based wages in which female workers still work without taking leave as prescribed.

b/ Additional expenses for ethnic minority people which are included in deductible expenses, including school fees (if any) plus the difference in salary grades (guaranteeing 100% salary for trainees), housing, social insurance and health insurance allowances for ethnic minority people in case they have not yet received any support from the State as prescribed.

2.10. Deductions for compulsory insurance funds for laborers in excess of the prescribed level; deductions for payment of trade union dues for laborers in excess of the prescribed level.

2.11. Deductions for the provision fund for unemployment allowances (except the case enterprises are not compulsory to participate in unemployment insurance as provided by law but are allowed to deduct a provision fund for unemployment allowances); unemployment allowances paid to laborers not in compliance with current regulations.

2.12. Expenses for contribution to form the source of management expenses for superior levels.

Contributions to the funds of the associations (these associations are lawfully established) in excess of the limits set by the associations.

2.13. Electricity and water charges for electricity and water contracts directly signed by owners who lease out production and business locations with electricity and water suppliers without adequate documents in one of the following cases:

a/ Enterprises leasing production and business locations directly pay electricity and water charges to electricity and water suppliers without any list (Form No. 02/TNDN issued together with this Circular) enclosed with electricity and water bills and the lease contracts of production and business locations.

b/ Enterprises leasing production and business locations pay electricity and water charges to the owners who lease out production and business locations without any list (Form No. 02/TNDN issued together with this Circular) enclosed with electricity and water bills paid to the lessors consistent with the actually used amounts of electricity and water and the lease contracts of production and business locations.

2.14. Expense for fixed asset leasing in excess of the rate of allocation by the number of years that the lessee has prepaid the rent.

Example 8: Enterprise A leases fixed assets for four years with the rent of VND 400 million and pays the rent in a lump sum. The expense for fixed asset leasing accounted in annual expenses is VND 100 million. If the expense for fixed asset leasing exceeds VND 100 million, the excess over VND 100 million is not allowed to be included in reasonable expenses when determining taxable income.

For expense for repair of leased fixed assets, if the asset lease contract specifies that the lessee is responsible for the repair of the assets during the leasing period, the expense for repair of leased fixed assets may be accounted in expenses or amortized to expenses for the maximum period of 3 years.

In case enterprises have paid for the procurement of assets other than fixed assets: expenses for the purchase and use of technical materials, patents, technology transfer licenses, trademarks, business advantages, etc., such expenses may be amortized to business expenses for the maximum period of 3 years.

2.15. Interests paid for production and business loans borrowed from subjects other than credit institutions or economic organizations in excess of 150% of the prime interest rate announced by the State Bank of Vietnam at the time of borrowing.

2.16. Interests paid for loans used for capital contribution or interests paid for loans corresponding to the deficit of registered charter capital according to the capital contribution schedule specified in the charter of the enterprise,  even where the enterprise has commenced its production and business activities.

2.17. Deduction and use of provisions for inventory price decrease, provisions for losses in financial investment, provisions for bad receivable debts and provisions for warranty of products, goods and installation works not in accordance with the guidance of the Ministry of Finance on deduction of provisions.

2.18. Periodic or cyclic pre-deducted expenses that are not used or completely used at the end of the period or cycle.

Pre-deducted expenses include pre-deducted expenses for periodic overhaul of fixed assets, pre-deducted expenses for activities of which revenues have been accounted but the contractual obligation has not yet been fulfilled (even for enterprises leasing their assets for many years and collecting money in advance, and having recorded it in the revenue of the collection year) and other pre-deducted expenses.

If the revenue for calculating enterprise income tax has been recorded but all expenses have not yet fully arisen, production and business enterprises may pre-deduct according to regulations the expenses in deductible expenses corresponding to the recorded revenue for determining taxable income. Upon completing the contract, enterprises shall calculate the exact actual expenses based on lawful invoices and documents to increase (if the actual expenses are higher than the pre-deducted expenses) or decrease (if the actual expenses are lower than the pre-deducted expenses) the expenses in the tax period when the contract is completed.

Enterprises may pre-deduct expenses for cyclic repair of fixed assets according to the estimate to annual expenses. If the actual expense for the repair is higher than the pre-deducted amount according to the estimate, the enterprise may add the difference to deductible expenses.

2.19. Expenses in excess of 10% of total deductible expenses, including expenses for advertising, marketing, sales promotion, brokerage commissions; receptions, ceremonies and conferences; marketing support, expense support, payment discount; free presentation of newspapers of press agencies directly related to production and business activities. For newly established enterprises, expenses in excess of 15% of total deductible expenses in the first 3 years since their establishment. Total deductible expenses do not include controlled expenses mentioned at this Point; for commercial activities, total deductible expenses do not include the purchase price of goods sold;

Controlled expenses for advertising, marketing, sales promotion and brokerage commissions mentioned above exclude:

- Insurance brokerage commissions in accordance with the insurance business law; commissions paid to agents selling goods and services at right prices.

- Commissions paid to distributors of multi-level sale companies. Organizations receiving the commission shall declare and include them in their taxable income; individuals receiving the commissions shall have personal income tax withheld from their incomes.

- Expenses incurred in the country or abroad (if any) such as expenses for market research: exploration, survey, interviews, collection, analysis and evaluation of information; expenses for market development and market research support; expenses for hiring consultants to conduct market research and development and support market research; expenses for display and introduction of products and organization of trade fairs and exhibitions: expenses for opening product showrooms or booths, expenses for hiring space for product display and introduction, expenses of materials and support tools for product display and introduction, expenses for transportation of products for display and introduction.

- Expenses for newspapers donated to persons who have meritorious services to the revolution, war invalids and sick soldiers; and officers and soldiers in islands and deep-lying and remote areas and special difficulty-stricken areas.

The 15% limit of deductible expenses for the first 3 years are not applicable to enterprises newly established through consolidation, division, split, merger, transformation or change of ownership.

2.20. Losses due to exchange rate differences resulted from re-valuation of monetary items denominated in foreign currencies at the end of the tax period (except losses due to exchange rate differences resulted from re-valuation of payable debts of foreign currency origin at the end of the tax period).

Exchange rate differences arising during the process of investment in capital construction to form fixed assets comply with the guidance in the Ministry of Finance’s circular on handling of exchange rate differences in enterprises.

2.21. Expenses for education funding for improper subjects specified at Item a of this Point or without dossiers to identify the funding mentioned at Item b below:

a/ Funding for education includes funding for public, people-founded and private schools within the national education system in accordance with the education law, which is not for contributing capital to or purchasing shares in the schools; financing facilities for teaching, learning and school activities; financing regular school activities; financing scholarships for pupils and students of  general education institutions, vocational education institutions and higher education institutions defined in the Education Law, which are directly granted to pupils and students or through other agencies and organizations with the fund raising function as provided by law; financing contests on subjects taught in schools for contestants who are learners; financing the establishment of education promotion funds in accordance with the education and training law.

b/ Dossiers to identify education financing include written records of financing certification signed by representatives of sponsoring business establishments, representatives of lawful education institutions as financed units, pupils and students (or agencies and organizations with the fund raising function) who are recipients according to Form No. 03/TNDN issued together with this Circular, enclosed with invoices and documents of goods purchase (for in-kind funding) or spending documents (for cash financing).

2.22. Expenses for health funding for improper subjects as specified at Item a of this Point or without dossiers to identify the funding mentioned at Item b below:

a/ Funding for health care includes funding for health facilities established in accordance with the health law which is not for contributing capital to or purchasing shares of those hospitals or health centers; funding for medical equipment, medical instruments and medicines; funding for regular activities of hospitals and health centers; financing in cash for patients through agencies and organizations with the fund raising function as provided by law.

b/ Dossiers to identify health funding comprise written records of financing certification signed by representatives of sponsoring business establishments, representative of financed units (or agencies and organizations with the fund raising function) according to Form No. 04/TNDN issued with this Circular, enclosed with invoices and documents of goods purchase (for in-kind funding) or spending documents (for cash financing).

2.23. Expenses of funding for remedy of consequences of natural disasters for improper subjects as specified at Item a of this Point or without dossiers to identify the funding mentioned at Item b below:

a/ Funding for remedy of consequences of natural disasters includes funding in cash or in kind to overcome consequences of natural disasters directly to organizations established and operating in accordance with law and individuals affected by natural disasters through agencies and organizations with the fund raising function as provided by law.

b/ Dossiers to identify funding for remedy of consequences of natural disasters comprise written records of financing certification signed by representatives of sponsoring business establishments, representative of financed units which are affected by natural disasters (or agencies and organizations with the fund raising function) according to Form No. 05/TNDN issued with this Circular, enclosed with invoices and documents of goods purchase (for in-kind funding) or spending documents (for cash financing).

2.24. Expenses of financing for building houses of gratitude for the poor for improper subjects as specified at Item a of this Point or without dossiers to identify the funding mentioned at Item b below:

a/ Recipients of financing are poor households as prescribed by the Prime Minister. Form of financing include financing in cash or in kind to build houses of gratitude for poor households directly or through an agency or organization having the fund raising function as provided by law.

b/ Dossiers to identify funding for build houses of gratitude for the poor comprise written records of financing certification signed by representatives of sponsoring business establishments and financed persons (or agencies and organizations with the fund raising function) according to Form No. 06/TNDN issued with this Circular, enclosed with invoices and documents of goods purchase (for in-kind funding) or spending documents (for cash financing).

2.25. Business management expenses allocated by overseas companies to their permanent establishments in Vietnam in excess of the expense level calculated by the following formula:

Business management expenses of the overseas company allocated to its permanent establishment in Vietnam are taken into account only from the time the permanent establishment in Vietnam is established.

The basis for determining expenses and revenue of the overseas company is the financial statement of the company audited by an independent auditing firm which specifies the overseas company’s revenue and management expenses and the management expenses allocated by the overseas company to its permanent establishment in Vietnam.

If the permanent establishment of an overseas company in Vietnam has neither implemented the regulations on accounting, invoices and documents nor paid tax by the method of declaration, it may not include in reasonable expenses its business management expense allocated by the overseas company.

2.26. Expenses which are offset by other funding sources; expenses which have been paid from the science and technology development funds of enterprises.

2.27. Expenses not corresponding to taxable revenue.

In case enterprises have actual expenses for HIV/AIDS prevention and control activities at the workplace under the guidance of the Ministry of Health, including expenses for training HIV/AIDS prevention and control officers of enterprises, expenses for HIV/AIDS prevention and control communication among enterprises’ laborers, expenses for counseling, examination and testing for HIV and expenses in support of enterprises’ laborers who are HIV-infected, these expenses may be included in deductible expenses for determining taxable income.

2.28. Expenses for insurance business, lottery business, securities business and a number of other specific business activities which do not comply with separate written guidelines of the Ministry of Finance.

2.29. Fines paid for administrative violations, including traffic violations, violations of regulations on business registration, violations of regulations on accounting and statistics, violations of the tax law, and fines for other administrative violations as provided by law.

2.30. Expenses for investment in capital construction in the investment phase to form fixed assets; expenses in support of localities, mass organizations and social organizations, expenses for charity, except expenses of funding for education, health, remedy of consequences of natural disasters and building of houses of gratitude for the poor mentioned at Points 2.21, 2.22, 2.23 and 2.24, Clause 2 of this Article; expenses for buying golf membership cards and for golf playing.

Upon commencing business and production, for enterprises which have not generated revenue but have to regularly incur expenses to maintain their business activities (other than expenses for construction to form fixed assets), expenses which meet the prescribed conditions may be included in deductible expenses for determining taxable income.

2.31. Input value-added tax which has been credited or refunded, input value-added tax of fixed assets which are cars with 9 seats or under in excess of the credit rate specified in legal documents on value-added tax, enterprise income tax and personal income tax.

- Personal income tax not allowed to be included in deductible expenses when determining taxable income is the amount of tax withheld by enterprises from incomes of taxpayers to pay into the state budget. In case enterprises sign labor contracts stipulating that salaries or wages paid to laborers are exclusive of personal income tax, personal income tax amounts enterprises pay for their laborers are salary expenses allowed to be included in deductible expenses for determining taxable income.

- Enterprise income tax amounts paid for foreign contractors (contractor tax) may be included in deductible expenses for determining taxable income in the cases agreed in the contracts with foreign contractors or foreign subcontractors that revenues received by foreign contractors or foreign subcontractors are exclusive of enterprise income tax (contractor tax).

Article 7. Other incomes

Other incomes are taxable incomes in a tax period which arise not from the sectors and business lines indicated in enterprises’ business registration certificates. Other incomes include:

1. Income from capital or securities transfer as guided in Chapter IV of this Circular.

2. Income from real estate transfer as guided in Chapter V of this Circular.

3. Income from project transfer (not associated with the transfer of land use rights or land lease right); income from transfer of the right to implement projects or the right to explore, exploit and process minerals as provided by law.

4. Income from asset ownership or use right, including copyright royalties in any form paid for asset ownership or use right; royalties from intellectual property rights; and income from technology transfer in accordance with law. Asset lease is in any form.

Income from intellectual property copyright royalties or technology transfer is the total collected sum of money minus (-) the prime cost or expense for the creation of the transferred intellectual property right or technology, minus (-) the expense for maintaining, upgrading or developing the transferred intellectual property rights or technology and other deductible expenses.

Income from asset lease is the turnover from the lease minus (-) expenses for asset depreciation, renovation, repair and maintenance, expense for the lease of assets for sublease (if any) and other deductible expenses related to the asset lease.

5. Income from transfer or liquidation of assets (excluding real estate) and other valuable papers. This income equals (=) turnover from asset transfer or liquidation minus (-) the residual book value of the transferred or liquidated asset at the time of transfer or liquidation, and deductible expenses related to the asset transfer or liquidation.

6. Income from deposit or loan interests, credit guarantee charges and other charges under loan provision contracts.

- In case income from deposit or loan interests is higher than expense for payment of borrowing interests as prescribed, the remainder after the income-expense clearing may be included in other incomes for determining taxable income.

- In case income from deposit or loan interests is lower than expenses for payment of borrowing interests as prescribed, the remainder after the income-expense clearing may be cleared against income from main production or business operations upon determination of taxable income.

7. Income from the sale of foreign currency, which equals total proceeds from the sale of foreign currency minus (-) total buying price of the sold foreign currency amount.

8. Income from exchange rate difference, which is determined specifically as follows:

In a year of enterprise income tax calculation, if an exchange rate difference arises in a period or from the re-valuation of payable debts of foreign currency origin at the end of the fiscal year:

- The exchange rate difference arising in a period and directly related to the turnover of and expenses for the main production or business operation of enterprises shall be accounted as an expense for or income from such production or business operation. The exchange rate difference arising in a period not directly related to the turnover of and expenses for the main production or business operation of enterprises shall be accounted as an expense for such production or business operation if it is a loss, or as other income if it is a profit.

- Exchange rate difference profits earned from the re-valuation of foreign-currency payable debts at the end of the fiscal year may be cleared against exchange rate difference losses resulting from such re-valuation. Any exchange rate difference profit remaining after the clearing shall be accounted as another income. Any exchange rate difference loss remaining after the clearing shall be accounted as an expense for the main production or business operation upon determination of taxable incomes.

The aforementioned exchange rate differences exclude foreign exchange rate differences resulting from the re-valuation of the year-end balance in cash, deposit, in-transfer money and receivable debts of foreign currency origin.

9. Refunded provisions (excluding refunded provisions for inventory price decreases, lost financial investments, bad debts and product or goods warranty, which were previously deducted but are not used or have not been used up in the period of their deduction; refunded deductions for wage provision funds).

10. Recovered bad debts which have been written off.

11. Payable debts of unidentifiable creditors.

12. Previous years’ omitted incomes from production and business activities, which are discovered by enterprises.

13. If fines or compensations received by enterprises from their partners for contract breaches are higher than those paid by these enterprises for their contract breaches (these fines are not for administrative violations in accordance with the law on handling of administrative violations), the remainder after the clearing may be accounted as other incomes.

If fines or compensations received by enterprises from their partners for contract breaches are lower than those paid by these enterprises for their contract breaches (these fines are not for administrative violations in accordance with the law on handling of administrative violations), the remainder after the clearing may be cleared against other incomes. If there is no other income in a year, the remainder may be cleared against income from production or business operations.

14. Positive difference resulting from the re-valuation of assets in accordance with law for capital contribution or asset transfer upon enterprise separation, split, consolidation, merger or transformation shall be determined specifically as follows:

Positive difference resulting from the re-valuation of assets (excluding land use rights) is the difference between the re-valuated value and the residual book value of assets and shall be accounted once as other income in a tax period for determining taxable incomes of enterprises having re-valuated assets.

Positive difference resulting from the re-valuation of land use rights for transfer upon enterprise separation, split, consolidation, merger or transformation; or for capital contribution to investment projects to construct houses or infrastructure facilities for sale shall be accounted once as other income in a tax period upon determination of taxable incomes of enterprises having re-valuated land use rights.

Particularly, positive difference resulting from the re-valuation of land use rights contributed as capital to enterprises for performance of production or business operations shall be gradually accounted as other income of enterprises having re-valuated land use rights for not more than 10 years after the value of land use rights is contributed as capital. Enterprises shall notify the number of years during which they account the positive difference as other income upon submitting declaration dossiers for enterprise income tax finalization of the year when they start declaring such income (the year of re-valuation of the value of land use rights contributed as capital). In case the capital contributor transfers capital contribution 10 years ahead of schedule, income from the transfer of contributed capital in the form of land use rights value shall be accounted as income from real estate business.

Difference resulting from the re-valuation of land use rights is the difference between the re-valuated value and book value of long-term land use rights or the difference between the re-valuated value and unallocated residual value of definite-term land use rights.

Enterprises that receive assets contributed as capital or assets transferred upon enterprise separation, split, consolidation, merger or transformation may make depreciation or amortization to expenses according to the re-valuation (unless the value of land use rights is ineligible for depreciation or amortization into expenses).

15. Donations and gifts in cash or in kind; income received in cash or in kind from marketing support, expense support, payment discount, promotional prizes and other supports.

16. Compensations for fixed assets on land and monetary relocation supports after subtracting related expenses, such as relocation expenses (transportation and installation expenses), residual value of fixed assets and other expenses (if any). Particularly, after subtracting related expenses (if any), enterprises may use in accordance with relevant laws the remainder of compensations for fixed assets on land and monetary relocation supports for enterprises to be relocated under competent state agencies’ planning.

17. Incomes related to goods sale or service provision which are not included in turnover, such as bonus for quick clearance of ships, tips for food and drink catering or hotel services, after subtracting expenses for generating such incomes.

18. Income from the sale of scraps and discarded products, after subtracting recovery and sale expenses, which is determined specifically as follows:

- In case enterprises generate the income from the sale of scraps and discarded products generated in the production of products eligible for enterprise income tax incentives, such income is eligible for enterprise income tax incentives.

- In case enterprises generate income from the sale of scraps and discarded products generated in the production of products ineligible for enterprise income tax incentives, such income shall be accounted as other income and is ineligible for enterprise income tax incentives.

19. Refunded import duty or export duty amounts on actually imported or exported goods in the current year of enterprise income tax finalization which may be accounted as deductible expenses in the year. In case refunded import duty or export duty amounts on actually imported or exported goods are for previous years of enterprise income tax finalization, they shall be accounted as other incomes of these years. If such income is directly related to production or business sectors eligible for enterprise income tax incentives, it is eligible for such incentives. If such income is not directly related to production or business sectors eligible for enterprise income tax incentives, it shall be accounted as other income and is ineligible for such incentives.

20. Incomes from the contribution of equity capital, contribution of capital to joint ventures or economic cooperation activities at home which are divided from pre-enterprise income tax incomes.

21. Income received from overseas goods production and trading or service provision.

- Offshore-investing Vietnamese enterprises earning incomes from overseas production and business activities shall declare and pay enterprise income tax under Vietnam’s Law on Enterprise Income Tax currently in force, even when they are enjoying enterprise income tax exemption or reduction under the regulations of the host countries. The enterprise income tax rate used for calculating and declaring tax on incomes earned overseas is 25%. The incentive tax rate (if any) enjoyed by offshore-investing Vietnamese enterprises under the current Law on Enterprise Income Tax is not applicable.

Tax agencies may assess taxable income from overseas production and business activities of offshore-investing Vietnamese enterprises that violate regulations on tax declaration and payment.

- When an income from an overseas investment project is already subject to enterprise income tax (or a similar tax) overseas, when calculating enterprise income tax payable in Vietnam, the offshore-investing Vietnamese enterprise may subtract the tax amount already paid overseas or paid on its behalf by its partner in the host country (including dividend tax), which must not exceed the income tax amount calculated under Vietnam’s Law on Enterprise Income Tax. The exempted or reduced income tax amount of the offshore-investing Vietnamese enterprise for the profit earned from its overseas investment project under the law of the host country may also be subtracted upon determination of its income tax amount payable in Vietnam.

The dossier to be submitted upon tax declaration and payment by an offshore-investing Vietnamese enterprise for the income from its overseas investment project comprises:

+ The enterprise’s document on the division of the project’s profit.

+ The enterprise’s financial statement certified by an independent audit organization.

+ The enterprise’s income tax return for the overseas investment project (copy certified by the project’s competent representative);

+ The enterprise’s tax finalization written record (if any);

+ Document certifying or evidencing the tax amount paid overseas.

- If the overseas investment project has not generated any taxable income (or is suffering losses), upon annual enterprise income tax declaration and finalization, the offshore-investing Vietnamese enterprise is only required to submit a financial statement certified by an independent audit organization or a competent agency of the host country and the project’s income tax return (copy certified by the project’s competent representative and bearing the enterprise’s seal). Upon enterprise income tax calculation, losses arising from the overseas investment project are not allowed to be cleared against incomes earned by the enterprise in Vietnam.

- Income earned from the overseas investment project must be declared in the enterprise income tax finalization of the year following the fiscal year when such income is earned or of the fiscal year coinciding with the year when such income is earned if the enterprise has sufficient grounds and documents for determining the project’s income and paid income tax amount.

For income from production and business activities of an investment project implemented in a country which has signed a double taxation avoidance agreement with Vietnam, Vietnamese enterprises investing in this country shall declare and pay tax in accordance with this agreement.

22. Incomes received in cash or in kind from aid sources, except aid amounts specified in Clause 7 of Article 8.

23. Other incomes as provided by law.

Article 8. Tax-exempt incomes

1. Incomes from cultivation, husbandry and aquaculture of organizations established under the Law on Cooperatives.

2. Incomes from the provision of technical services directly for agriculture, including income from such services as irrigation and water drainage; soil plowing and harrowing, and dredging of intra-field canals and ditches; prevention and control of crop and animal pests and diseases; and harvest of agricultural products.

3. For incomes from the performance of scientific research and technological development contracts; the sale of products turned out from trial production and production with technologies applied for the first time in Vietnam, including income from the transfer of certificates of emission reduction (CERs). The maximum tax exemption duration is one (1) year from the date of commencing the performance of the contracts or commencing trial production or production with technologies applied for the first time in Vietnam or the date of grant of CERs.

a/ Tax-exempt income from the performance of scientific research and technological development contracts must satisfy the following conditions:

- The scientific research activity registration is certified;

- Such performance is certified by a competent science state management agency;

b/ Income from the sale of products turned out with technologies applied for the first time in Vietnam is eligible for tax exemption when such technologies are certified by a competent state management agency in charge of science.

c/ Income from the transfer of certificates of emission reduction (CERs) is eligible for tax exemption when the sale or transfer of these certificates is certified by a competent agency in charge of environment under regulations.

4. Income from goods production and trading or service provision activities of enterprises employing disabled, drug-detoxified and HIV-infected laborers, who account for at least 30% of the average number of laborers of these enterprises in a year.

Tax-exempt incomes specified in this Clause exclude other incomes referred to in Article 7 of this Circular.

Enterprises eligible for tax exemption specified in this Clause are those having an average number of laborers in a year of at least 20, excluding those engaged in finance and real estate business.

Enterprises having tax-exempt income specified at this Point must satisfy the following conditions:

a/ For enterprises employing disabled laborers (including war invalids and diseased soldiers), a competent heath agency’s certification of the number of disabled laborers is required.

b/ For enterprises employing drug-detoxified laborers, detoxification establishments’ certification of the complete detoxification or a concerned competent agency’s certification is required.

c/ For enterprises employing HIV-infected laborers, a competent heath agency’s certification of the number of HIV-infected laborers is required.

5. Income from job training exclusively provided for ethnic minority people, the disabled, extremely disadvantaged children and people involved in social evils, detoxified people and HIV/AIDS-infected people. If an establishment also provides job training for people of other categories, tax-exempt income must be determined based on the ratio of the number of ethnic minority people, the disabled, extremely disadvantaged children, people involved in social evils, detoxified people and HIV/AIDS-infected people to the total number of trainees.

Tax-exempt income from job training specified at this Point must satisfy the following conditions:

- Job training establishments are set up and operate under regulations on job training.

- Having the lists of trainees being ethnic minority people, the disabled, extremely disadvantaged children, people involved in social evils, detoxified people and HIV/AIDS-infected people.

6. Incomes divided from capital contribution, share purchase, joint venture or economic association with domestic enterprises, after contributed capital recipients, share issuers or joint venture or association parties have paid enterprise income tax under the Law on Enterprise Income Tax, including those eligible for tax exemption or reduction.

Example 9: Enterprise B receives contributed capital from enterprise A. Pre-tax income corresponding to enterprise A’s contributed capital in enterprise B is VND 100 million.

- Case 1: Enterprise B is ineligible for enterprise income tax incentives and has fully paid enterprise income tax, including enterprise A’s income, then the income enterprise A receives from capital contribution is VND 75 million [(VND 100 million - (VND 100 million x 25%)], and enterprise A will be exempt from enterprise income tax on this amount.

- Case 2: Enterprise B is eligible for 50% reduction of the payable enterprise income tax amount and has fully paid enterprise income tax, including enterprise A’s income according to the reduced enterprise income tax amount, then the income enterprise A receives from capital contribution is VND 87.5 million [(VND 100 million - (VND 100 million x 25% x 50%)], and enterprise A will be exempt from enterprise income tax on this amount.

- Case 3: Enterprise B is eligible for enterprise income tax exemption, then the income enterprise A receives from capital contribution is VND 100 million, and enterprise A will be exempt from enterprise income tax on this amount.

7. Aid received for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam.

Aid beneficiaries that improperly use the aid shall calculate and pay enterprise income tax at the rate of 25% of the improperly used aid amount.

Aid beneficiaries defined in this Clause must be those lawfully established and operating and strictly observing the laws on accounting and statistics.

Article 9. Determination and carry-forward of losses

1. Loss arising in a tax period is the negative difference of taxable income.

2. Enterprises that suffer losses after making tax finalization may carry forward losses of the year of tax finalization to subsequent years’ taxable incomes. The maximum duration for loss carry-forward is 5 consecutive years, counting from the year following the year the losses arise.

Enterprises may temporarily clear their losses of a year against taxable incomes of the quarters of the following year upon making quarterly declarations for temporary tax payment and officially carry forward these losses in the following year after making annual tax finalization declarations.

Example 10: In 2011, enterprise A suffers a loss of VND 10 billion. In 2012, it generates a taxable income of VND 12 billion. So, it shall clear the whole loss in 2011 against its taxable income in 2012.

Example 11: In 2011, enterprise B suffers a loss of VND 20 billion. In 2012, it generates a taxable income of VND 15 billion. It shall:

+ Clear the whole loss of VND 15 billion against the taxable income in 2011;

+ Monitor and carry forward the whole remaining loss amount of VND 5 billion of 2011 on the above principle of loss carry-forward to not more than consecutive 5 years, counting from the year following the year the loss arises.

- Enterprises that have a loss arising between the quarters of a fiscal year may carry forward such loss from a quarter into the following quarters of that fiscal year. When making enterprise income tax finalization, enterprises shall determine the loss of the whole year and continuously clear the whole loss against their taxable incomes of the years following the year when the loss arises in accordance with the above regulations.

- Enterprises shall determine by themselves losses to be cleared against taxable incomes on the above principle. In the loss carry-forward duration, newly arising losses (excluding losses carried forward from the previous period) may be fully carried forward for not more than 5 consecutive years, counting from the year following the year the losses arise.

When an agency competent to examine and inspect enterprise income tax finalization detects a loss amount which an enterprise is allowed to carry forward is different from the loss amount determined by the enterprise itself, the loss amount allowed to be carried forward shall be determined based on the competent agency’s conclusion, and fully carried forward for not more than 5 consecutive years, counting from the year following the year the losses arise.

Past the 5-year duration, arising losses not yet fully carried forward are not allowed to be cleared against the following years’ incomes.

3. Enterprises undergoing type or ownership transformation (including assignment or sale of state enterprises), merger, consolidation, separation, split, dissolution or bankruptcy shall finalize with tax agencies enterprise income tax amounts up to the time of issuance by competent agencies of decisions on type or ownership transformation, merger, consolidation, separation, split, dissolution or bankruptcy. The old enterprises’ losses must be monitored in detail by the years they arise and cleared against the new enterprises’ taxable incomes in the same year or further cleared against the new enterprises’ taxable incomes of following years to ensure that they are carried forward for not more than 5 consecutive years, counting from the year following the year they arise.

Article 10. Deduction for setting up enterprises’ scientific and technological development funds

1. Enterprises established and operating under Vietnamese law may deduct up to 10% of their annual taxed incomes before calculating enterprise income tax for setting up their scientific and technological development funds. Before calculating enterprise income tax, enterprises may determine by themselves the level of deduction for setting up their scientific and technological development funds under regulations. Annually, enterprises which make deductions for setting up their scientific and technological development funds shall make reports on the setting up and use of these funds, and declare the level of deduction and deducted amounts in their declarations for enterprise income tax finalization. Reports on the use of scientific and technological development funds must be submitted together with enterprise income tax finalization declarations.

2. Within 5 years after being set up, if a scientific and technological development fund is left unused or has been improperly used, or if only less than 70% of this fund has been used, the enterprise shall remit into the state budget the enterprise income tax amount on the deducted income which is left unused or has been improperly used and the interest accrued on such tax amount.

The improperly used sum of money must not be included in the total sum of money used for scientific and technological development.

- The enterprise income tax rate for calculating the tax amount to be recovered is the tax rate applicable to an enterprise in the deduction duration.

- The interest rate used for calculating the interest on the recoverable tax amount imposed on the unused fund amount is the interest rate applicable to treasury bonds of a one-year term at the time of recovery, and the interest payment duration is two years.

3. Enterprises’ scientific and technological development funds must be used only for scientific research and technology development investment of enterprises in Vietnam. These funds’ expenses must have adequate lawful invoices and documents as provided by law.

4. Enterprises may not account expenses from their science and technology development funds as production or business expenses upon determination of their taxable incomes in a tax period. In case enterprises use these funds for scientific research and technology development but these funds are insufficient, they may account the difference between actual expenses and deducted amounts as their production or business expenses upon determination of their taxable incomes.

5. For an operating enterprise which undergoes ownership transformation, is consolidated or merged, the new enterprise established from such ownership transformation, consolidation or merger may take over the old enterprise’s science and technology development fund and shall take responsibility for the management and use of this fund.

If an enterprise still has an unused science and technology development fund upon its separation or split, the new enterprise established from such separation or split may take over the old enterprise’s science and technology development fund and shall take responsibility for the management and use of this fund. The enterprises shall decide on and register with the tax agency the distribution of the science and technology development fund.

Article 11. Enterprise income tax rates

1. The enterprise income tax rate is 25%, except the cases specified in Clause 2 of this Article and cases eligible for preferential tax rates.

2. The enterprise income tax rate applicable to petroleum prospecting, exploration and exploitation in Vietnam is between 32% and 50%. Based on the exploitation locations and conditions and petroleum reserves, enterprises having investment projects on petroleum prospecting, exploration and exploitation shall send investment projects’ dossiers to the Ministry of Finance for further submission to the Prime Minister to decide on a specific tax rate applicable to each project or business establishment.

The enterprise income tax rate applicable to the prospecting, exploration and extraction of precious and rare natural resources other than petroleum is 50%. For mines of precious and rare natural resources with 70% or more of their allocated areas located in geographical areas with particularly difficult socio-economic conditions on the list of geographical areas eligible for enterprise income tax incentives promulgated together with the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, the enterprise income tax rate of 40% shall apply.

Precious and rare natural resources mentioned in this Clause include platinum, gold, silver, tin, tungsten, antimony, gems and rare earth.

Chapter III

PLACES FOR TAX PAYMENT

Article 12. Principles of determination

Enterprises shall pay tax in localities where they are headquartered. For an enterprise that has dependent cost-accounting production establishments (including processing and assembly establishments) operating in provinces or centrally run cities other than the locality where it is headquartered, the tax must be calculated and paid in both the locality where the enterprise is headquartered and the localities where its production establishments are based.

The distribution of the payable tax amount referred to in this Clause is not applicable to enterprises having works, work items or dependent cost-accounting construction establishments.

Article 13. Determination of payable tax amounts

An enterprise income tax amount calculated and paid in a province or centrally run city where a dependent cost-accounting production establishment is based is the payable enterprise income tax amount in a period multiplied by (x) the ratio between expenses incurred by such production establishment and total expenses incurred by the enterprise.

The ratio of expenses is that between total expenses incurred by the dependent cost-accounting production establishment and total expenses incurred by the enterprise. The ratio of expenses is determined as follows:

The ratio of expenses is determined based on the enterprise’s income tax finalization data in the year proceeding the tax year, which must be determined by the enterprise itself as a basis for determining the payable amount and used for the enterprise income tax declaration and payment for subsequent years.

An operating enterprise which has different dependent cost-accounting production establishments in different localities shall determine by itself data used for determining the ratio of expenses incurred by the enterprise in the locality where it is headquartered and expenses incurred by its dependent cost-accounting production establishments, based on the 2008 enterprise income tax finalization data. This ratio will be used stably from 2009 onwards.

A newly established enterprise or an operating enterprise which increases or reduces its dependent cost-accounting production establishments in localities shall determine by itself the ratio of expenses in the first tax period in this case. From the subsequent tax period, the ratio of expenses must be determined on the above principle.

Dependent cost-accounting units of enterprises applying entire-sector accounting and earning incomes outside their main business lines shall pay tax in provinces or centrally run cities where such business activities are conducted.

Chapter IV

INCOMES FROM CAPITAL TRANSFER OR SECURITIES TRANSFER

Article 14. Incomes from capital transfer

1. Scope of application:

An enterprise’s income from capital transfer is income earned from the transfer of part or the whole of the capital amount the enterprise has invested in one or many other organizations or individuals (including the sale of the whole enterprise). The time of capital transfer is the time of transfer of capital ownership.

In case an enterprise transfers capital and receives in return property or other material benefits (stocks, fund certificates, etc.) instead of cash and earns income from such transfer, such income is liable to enterprise income tax. The value of property, stocks or fund certificates are determined based on their selling prices on the market at the time of their receipt.

2. Tax bases

a/ Taxed income from capital transfer is determined as follows:

Taxed income = Transfer price - Purchasing price of the transferred capital - Transfer expenses

Of which:

- The transfer price is the total actual value earned by the transferor under the transfer contract.

If installment or deferred payment is made under the capital transfer contract, the contract’s turnover excludes installment or deferred payment interests in the contractual term.

If the payment price is not stated in the transfer contract or when the tax agency has grounds to determine that the payment price does not match the market price, it may inspect and fix the transfer price. For an enterprise that transfers part of its contributed capital at a transfer price not matching the market price, the tax agency may re-valuate the whole enterprise at the time of transfer for re-determining the transfer price in proportion to the transferred contributed capital amount.

The transfer price is fixed on the basis of investigation documents of the tax agency or capital transfer prices in other cases at the same time, of the same economic organization or under similar transfer contracts at the time of transfer. In case the transfer price fixed by the tax agency is inappropriate, it shall be based on the valuation by a professional valuation organization competent to determine transfer prices at the time of transfer.

- The purchasing price of the transferred capital amount is determined on a case-by-case basis as follows:

+ In case of transfer of contributed capital for enterprise establishment, it is the value of the contributed capital amount recorded in accounting books, invoices and documents at the time of transfer and certified by parties investing in the enterprise or to the business cooperation contract, or is based on audit results provided by an independent audit company for wholly foreign-owned enterprises.

+ In case of capital redemption, it is the value of the capital amount at the time of redemption. The purchasing price is determined based on the contract on redemption of the contributed capital amount and payment documents.

If an enterprise conducting cost-accounting in a foreign currency (approved by the Ministry of Finance) transfers the contributed capital in such foreign currency, the transfer price and purchasing price of the transferred capital amount must be determined in such foreign currency. If an enterprise conducting cost-accounting in Vietnam dong transfers the contributed capital in a foreign currency, the transfer price must be determined in Vietnam dong at the average exchange rate applicable on the inter-bank foreign currency market announced by the State Bank at the time of transfer.

- Transfer expenses are actual expenses directly related to the transfer with lawful evidencing documents and invoices. If transfer expenses are incurred overseas, their original documents must be certified by a notary office or an independent audit organization of the country where such expenses are incurred, and translated into Vietnamese (with the certification of a competent representative).

Transfer expenses include expense for carrying out legal procedures necessary for the transfer; charges and fees paid for carrying out transfer procedures; expenses for transaction, negotiation and signing of the transfer contract; and other expenses with evidencing documents.

Example 12: Enterprise A contributes VND 400 billion, including VND 320 billion as the value of workshops and VND 80 billion in cash, for establishing a joint-venture enterprise to produce tissue papers. Then it transfers this contributed capital amount to enterprise B at the price of VND 550 billion. The book value of enterprise A’s contributed capital at the time of transfer is VND 400 billion and the capital transfer-related expense is VND 70 billion. In this case, income used for calculating enterprise income tax on this capital transfer is VND 80 billion (550 - 400 - 70).

b/ Income from capital transfer is regarded as other income and must be included in taxable income upon calculation of enterprise income tax.

c/ Foreign organizations doing business in Vietnam or having incomes in Vietnam but not operating under the Investment Law or the Enterprise Law (collectively referred to as foreign contractors) and transferring capital shall declare and pay tax as follows:

Capital transferees shall determine, declare, withhold and pay payable enterprise income tax amounts on behalf of such foreign organizations. In case capital transferees are also foreign organizations not operating under the Investment Law or the Enterprise Law, enterprises established under Vietnamese law invested by these foreign organizations shall declare and pay payable enterprise income tax amounts of such foreign organizations on their behalf.

The tax declaration and payment comply with legal documents on tax administration.

Article 15. Incomes from securities transfer

1. Scope of application:

An enterprise’s income from securities transfer is income earned from the transfer of its stocks, bonds, fund certificates and securities of other kinds under regulations.

In case a joint-stock company issues additional stocks for raising capital, the difference between the issuance price and the par value of these stocks is not accounted as a taxable income for calculation of enterprise income tax.

In case a joint-stock company undergoes separation, split, consolidation or merger and, therefore, swaps its stocks at the time of separation, split, consolidation or merger, any income from the stock swap is liable to enterprise income tax.

In case an enterprise transfers securities and receives in return property or other material benefits (stocks, fund certificates, etc.) instead of cash and earns income from the transfer, such income is liable to enterprise income tax. The value of property, stocks or fund certificates is determined based on their market selling prices at the time of their receipt.

2. Tax bases:

Taxed income from securities transfer in a period is equal to the securities selling price minus (-) the purchasing price of the transferred capital minus (-) transfer expenses.

- The securities selling price is determined as follows:

+ For listed securities and public companies’ unlisted securities registered for trading at a securities trading center, it is the actual securities selling price (order-matching price or agreed price) announced by the stock exchange or securities trading center.

+ For securities of companies other than those mentioned above, it is the transfer price indicated in the transfer contract.

- The securities purchasing price is determined as follows:

+ For listed securities and public companies’ unlisted securities registered for trading at a securities trading center, it is the actual securities purchasing price (order-matching price or agreed price) announced by the stock exchange or securities trading center.

+ For securities purchased through auction, it is the price indicated in the notice of share auction-winning results issued by the share-auctioning organization, and in the money receipt.

+ For securities other than those mentioned above, it is the transfer price indicated in the transfer contract.

- Transfer expenses are actual expenses directly related to the transfer with lawful evidencing documents and invoices.

Transfer expenses include expense for carrying out legal procedures necessary for the transfer; charges and fees paid for carrying out transfer procedures; securities depository charge as prescribed by the State Securities Commission and indicated in receipts of the securities company; securities entrustment charge based on the trustee’s receipts; expenses for transaction, negotiation and signing of the transfer contract; and other expenses with evidencing documents.

Income from securities transfer is regarded as other income and included in taxable income upon calculation of enterprise income tax.

Chapter V

INCOMES FROM REAL ESTATE TRANSFER

Article 16. Taxpayers

1. Liable to pay enterprise income tax on incomes from real estate transfer are enterprises of all economic sectors and business lines having incomes from real estate transfer; and real estate enterprises having incomes from land sublease.

2. Incomes from real estate transfer include income from the transfer of land use rights, or land lease right (including also the transfer of projects associated with the transfer of land use rights or land lease right in accordance with law); income from the sublease of land of real estate enterprises in accordance with the land law regardless of whether there is an infrastructure facility or architectural work attached to land; income from the transfer of houses or construction works attached to land, including their appurtenances, in case the value of such appurtenances is inseparable upon the transfer, regardless of whether land use rights or land lease right are/is transferred; and income from the transfer of house ownership or use right.

Real estate enterprises that have income from the sublease of land do not include those that only lease houses, infrastructure facilities or architectural works on land.

Article 17. Tax bases

Bases for calculating income tax on real estate transfer include taxed income and tax rate.

Taxed income equals (=) taxable income minus (-) previous years’ losses from real estate transfer (if any).

1. Taxable income

Taxable income from real estate transfer is the turnover from real estate transfer minus the cost of the real estate and deductible expenses related to the real estate transfer.

a/ Turnover from real estate transfer

a.1/ Turnover from real estate transfer is determined based on the actual transfer price under the real estate transfer or purchase and sale contract in accordance with law (including surcharges and extra fees, if any).

If the transfer price of land use rights under the real estate transfer or purchase and sale contract is lower than the land price prescribed by the provincial-level People’s Committee at the time of signing the contract, the price prescribed by the provincial-level People’s Committee at the time of signing the contract will be applied.

- The time of determining taxed turnover is the time the seller hands over the real estate to the purchaser, regardless of whether the purchaser has registered the property ownership or land use rights or has its land use rights established at a competent state agency.

- When an enterprise that is allocated or leased by the State land for implementing investment projects to build infrastructure facilities or houses for transfer or lease collects money advanced in any form by customers according to schedule, the time of determining turnover used for calculating the temporary enterprise income tax amount is the time of money collection, specifically as follows:

+ If the enterprise collecting money from customers can determine expenses corresponding to recorded turnover (including also pre-deducted expenses in the estimated costs of uncompleted work items corresponding to recorded turnover), it shall declare and temporarily pay an enterprise income tax amount based on turnover minus these expenses.

+ If the enterprise collecting money from customers can not determine expenses corresponding to turnover, it shall declare and temporarily pay an enterprise income tax amount equal to 1% of the collected sum of money which is not required to be included in the turnover used for calculating enterprise income tax in the year.

+ When delivering real estate, the enterprise shall re-finalize the payable enterprise income tax amount. If the temporarily paid enterprise income tax amount is smaller than the payable enterprise income tax amount, the enterprise shall fully remit the deficit into the state budget. If the temporarily paid enterprise income tax amount is higher than the payable enterprise income tax amount, the enterprise may either have the overpaid tax amount subtracted from the subsequent period’s payable enterprise income tax amount or have it refunded.

a.2/ Turnover for calculating taxable income in some cases is determined as follows:

- For enterprises subleasing land, the turnover used for calculating taxable income is the rent paid periodically by the lesser under the lease contract. If the lesser prepays the rent for many years, the turnover for calculating taxable income shall be divided to the number of years for which the rent has been prepaid or determined according to the turnover paid in a lump sum. The turnover paid in a lump sum is selected only when the enterprise has fulfilled all of its financial obligations toward the State and assured its obligations toward the lessees until the land sublease term expires.

If an enterprise enjoying enterprise income tax incentives selects the method of determining the turnover for calculating taxable income to be the whole rent prepaid by the lessee for many years, the enterprise income tax amount to be exempted or reduced for each year will be the total enterprise income tax amount of the years for which the rent has been prepaid divided by (:) the number of years for which the rent has been prepaid.

An enterprise that has subleased land since before 2012, collected the rent prepaid for many years and determined taxable income by dividing the rent by the number of years for which it has been prepaid may select to determine its taxable income to be the annually divided taxed turnover or turnover paid in a lump sum for the remaining years of the land sublease term in case such term is still valid in 2012.

- When a credit institution receiving the value of land use rights used as loan security in substitution of the performance of the secured obligations transfers land use rights mortgaged as loan security, the turnover for calculating its taxable income is the transfer price of land use rights agreed by the involved parties.

- In case of transfer of land use rights distrained to secure judgment enforcement, the turnover for calculating taxable income is the transfer price of land use rights agreed by the involved parties or the price determined by the valuation council.

The determination of turnover in the cases specified in Item a2 must adhere to the principles referred to in Item a1 of this Point.

b/ Real estate transfer expenses:

b.1/ Principles of determination:

- Deductible expenses for determining taxable income from real estate transfer in a tax period must correspond to turnover for calculating taxable income.

- If an investment project is partially completed and gradually transferred according to the completion progress, general expenses for the project and direct expenses for the completed part of the project may be distributed by square meter of the transferred land for determining taxable income from the transferred land area, including expenses for internal roads and tree planting; construction of water supply and drainage systems and transformer stations; compensations for assets on land; compensation, support and resettlement and organization of compensation and ground clearance work, which have been approved by competent authorities but not yet cleared against land use levies or rents in accordance with regulations on collection of land use levies or rents; land use levies or rents remittable into the state budget and other investments in land which are related to the land use or lease right transfer.

The above expenses are allocated according to the following formula:

When part of the project’s non-transferred land area is used for other business activities, the above general expenses must also be allocated to this land area for monitoring, accounting, declaration and payment of enterprise income tax for other business activities.

When an enterprise invests in building an infrastructure facility over many years and can finalize the value of the infrastructure facility only when the whole work is completed, when summing up real estate transfer expenses for the transferred land area, the enterprise may temporarily allocate actual infrastructure investment expenses based on the ratio of the transferred land area according to the above formula and pre-deduct infrastructure investment expenses corresponding to the turnover recorded upon determination of taxable income. After completing the construction investment, the enterprise may readjust infrastructure investment expenses temporarily allocated to and pre-deducted for the transferred land area to match the total value of the infrastructure facility. Upon adjustment, if the paid tax amount is higher than the payable tax amount on the real estate transfer, the enterprise may have the overpaid amount cleared against the subsequent tax period’s payable tax amount or have it refunded under current regulations; if the paid tax amount is insufficient, the enterprise shall fully pay the deficit under regulations.

b.2/ Deductible expenses for real estate transfer include:

- The cost of the transferred land, determined according to the land use right origin, specifically as follows:

+ For land allocated by the State with collection of land use levy or land rent, its cost is the land use levy or land rent actually remitted into the state budget.

+ For land with use rights transferred from another organization or individual, its cost is determined based on the contract and lawful payment document upon receiving its lease right or use rights; if the contract and payment document are unavailable, such cost shall be calculated based on the price set by the provincial-level People’s Committee at the time the enterprise receives the real estate transferred;

+ For land contributed as capital, its cost is the value of its lease right or use rights indicated in the asset valuation record upon capital contribution;

+ If the enterprise has exchanged a construction work for state land, the cost of such land is determined based on the value of the exchanged work, unless competent state agencies’ separate regulations are applied.

+ The auction-winning price, in case of auction of land use or lease rights;

+ For land inherited under the civil law or donated land with unidentifiable cost, its cost shall be determined based on the land price decided by the provincial-level People’s Committee on the basis of the land price bracket prescribed by the Government at the time of inheritance or donation.

For land inherited or donated before 1994, its cost shall be determined based on the land price decided by the provincial-level People’s Committee in 1994 on the basis of the land price brackets for different land categories specified in the Government’s Decree No. 87/CP of August 17, 1994.

+ For land mortgaged to secure loans or land distrained to secure judgment enforcement, its cost shall be determined on a case-by-case basis under the above guidance.

- Expense for land damage compensation.

- Expense for crop damage compensation.

- Compensation, support and resettlement expenses and expenses for organization of compensation, support and resettlement in accordance with law.

If the above compensation, support and resettlement expenses and expenses for organization of compensation, support and resettlement have no evidencing invoice, a list must be made, specifying the names and addresses of recipients; compensation or support amounts; signatures of recipients. This list must be certified by the administrations of the wards or communes where exist land areas eligible for compensation or support in accordance with the law on compensation, support and resettlement when the State recovers land.

- Charges and fees related to the grant of land use rights as provided by law.

- Expense for soil renovation and ground leveling.

- Expense for the construction of infrastructure, such as roads, power lines, water supply and drainage systems, post and telecommunications facilities, etc.

- The value of infrastructure facilities and architectural works on land.

- Other expenses related to the transferred real estate.

An enterprise that conducts different business lines shall separately account expenses for each business line. If separate accounting cannot be conducted, general expenses shall be allocated based on the ratio of turnover from real estate transfer to the total turnover of the enterprise.

Expenses already paid by the State or from other sources must not be included in real estate transfer expenses.

2. The enterprise income tax rate for real estate transfer is 25%.

3. Determination of payable enterprise income tax amounts:

The amount of enterprise income tax on real estate transfer in a tax period is the taxed income from real estate transfer multiplied by (x) the tax rate of 25%.

Income from real estate transfer must be separately determined for tax payment declaration. The preferential tax rates and tax exemption and reduction duration guided in Chapter VI of this Circular are not applicable to income from real estate transfer.

Losses from real estate transfer, if any, are not allowed to be cleared against income from production and business activities and other incomes, but may be carried forward to subsequent years’ taxable income from real estate transfer (if any). The maximum loss carry-forward duration is 5 consecutive years, counting from the year following the year the losses arise.

Dossiers for declaration and payment and documents of payment of enterprise income tax on incomes from real estate transfer in localities where the transferred real estates are located serve as a basis for carrying out procedures for tax finalization in localities where enterprises are headquartered.

4. Credit institutions which receive the value of real estate used as loan security in substitution of the performance of secured obligations shall, when transferring such real estate in accordance with law, declare and remit tax on the income from real estate transfer into the state budget. In case real estate mortgaged as loan security is put up for auction, the proceeds from such auction must be paid under the Government’s regulations on securing credit institutions’ loans, and tax shall be declared and paid under regulations. After paying these amounts, the remaining money must be returned to business organizations that have mortgaged their real estate to secure loans.

If credit institutions that are allowed by law to transfer the mortgaged real estate for recovering capital cannot determine the cost of such real estate, such cost equals (=) payable loans under the real estate mortgage contract plus (+) unpaid loan interests at the time of public sale of the mortgaged real estate under the credit contract plus (+) expenses arising during the real estate transfer with lawful invoices or evidencing documents.

5. When a judgment enforcement agency auctions real estate used to secure judgment enforcement, the proceeds from such auction must be used under the Government’s Decree on distraint and auction of land use rights to secure judgment enforcement. Organizations authorized to auction real estate shall declare and deduct tax on income from real estate transfer and remit it into the state budget. Such documents must specify the tax declaration and payment for the auction of real estate for judgment enforcement.

In case the judgment enforcement agency that transfers real estate used as judgment enforcement security cannot determine the cost of such real estate, such cost equals (=) payable debts under the court ruling for judgment enforcement plus (+) expenses arising during the real estate transfer with lawful invoices or evidencing documents.

Chapter VI

ENTERPRISE INCOME TAX INCENTIVES

Article 18. Conditions for and principles of application of enterprise income tax incentives

1. Conditions for application of enterprise income tax incentives: Enterprise income tax incentives are applicable only to enterprises which observe accounting, invoice and document regulations and register and pay enterprise income tax as declared.

2. Principles of application of enterprise income tax incentives

a/ While enjoying enterprise income tax incentives, enterprises that carry out different production and business activities shall separately account income from production and business activities eligible for enterprise income tax incentives (including preferential tax rates or tax exemption or reduction) from income from those ineligible for enterprise income tax incentives for separate tax declaration and payment.

During a tax period, if an enterprise fails to separately account incomes from production and business activities eligible and ineligible for tax incentives, the income from production and business activities eligible for tax incentives equals (=) the total taxed income from production and business activities (excluding other incomes) multiplied by (x) the ratio (%) of the turnover from production and business activities eligible for tax incentives to the total turnover or total expenses of the enterprise in the tax period.

b/ Enterprises newly established under investment projects eligible for enterprise income tax incentives are enterprises making business registration for the first time, excluding:

b.1/ Enterprises established from separation, split, merger or consolidation in accordance with law;

b.2/ Enterprises established from type or ownership transformation (including the case of establishment of new enterprises which take over assets and business locations and lines from old enterprises for continued production or business activities);

b.3/ Newly established private enterprises or limited liability companies whose owners were heads of individual business households which conduct the same business lines;

b.4/ Newly established private enterprises, partnerships, limited liability companies, joint-stock companies or cooperatives with their at-law representatives being the biggest capital contributors that have participated in business activities in the capacity as at-law representatives, partners or biggest capital contributors in operating enterprises or enterprises dissolved within less than 12 months counting from the time of dissolution of old enterprises to the time of establishment of new enterprises.

c/ An investment project is a combination of proposals to contribute medium- and long-term capital for conducting investment activities in accordance with the investment law.

For enterprises newly established under domestic investment projects which are capitalized at under VND fifteen (15) billion and not on the list of sectors subject to conditional investment, dossiers for identification of these investment projects are enterprise registration certificates.

For enterprises newly established under domestic investment projects which are capitalized at between VND fifteen (15) billion and under VND three hundred (300) billion and not on the list of sectors subject to conditional investment, investors shall carry out procedures for investment registration by filling in forms at provincial-level state management agencies in charge of investment.

3. Enterprise income tax incentives for enterprises newly established under investment projects are applicable only to incomes from production or business activities that satisfy the conditions for investment incentives specified in the first business registration certificates of enterprises. If operating enterprises change their business registration certificates without affecting the satisfaction of the specified conditions for tax incentives, such enterprises may continue enjoying the tax incentives for the remaining time. If operating enterprises add business lines or scale up their business activities (investment in installing new production chains, expansion of operation, etc.), their income from added or expanded business lines is ineligible for enterprise income tax incentives.

4. If enterprises, which are newly established under investment projects in localities eligible for investment incentives and therefore eligible for enterprise income tax incentives, earn incomes from production or business activities in and outside localities eligible for investment incentives, they shall separately account income from production or business activities in localities eligible for investment incentives for enjoying enterprise income tax incentives.

5. In the same tax period, if having an income eligible for different preferential enterprise income tax rates and tax exemption and reduction durations, an enterprise may choose to apply the most beneficial incentive.

6. During the enterprise income tax incentive period, if an enterprise fails to satisfy any of the conditions for enjoying tax incentives in a tax year specified in this Circular, it is not entitled to tax incentives in that tax year and shall pay enterprise income tax at the rate of 25%.

7. In same tax period, if an enterprise’s business activities eligible for tax incentives sustain losses, while business activities ineligible for tax incentives and other incomes from business activities (excluding income from real estate transfer and project transfer activities (not associated with the transfer of land use rights or land lease right); income from transfer of the right to implement projects or the right to explore, exploit and process minerals in accordance with law) generate incomes (or vice versa), the enterprise may choose to clear such losses against its taxable incomes from income-generating business activities.

If an enterprise has been suffering losses from previous tax periods (the time limit for carrying forward losses has not expired), it may clear such losses against incomes from income-generating activities. If the enterprise cannot separately account loss from each activity, it may clear its losses against incomes from activities eligible for enterprise income tax incentives and, clear remaining losses, if any, against incomes from activities ineligible for enterprise income tax incentives (excluding income from real estate transfer and project transfer activities (not associated with the transfer of land use rights or land lease right); income from the transfer of the right to implement projects or the right to explore, exploit and process minerals in accordance with law). After clearing its losses on the above principle, if the enterprise still sustains losses and has profits from different business activities (excluding income from real estate transfer and project transfer activities (not associated with the transfer of land use rights or land lease right); income from the transfer of the right to implement projects or the right to explore, exploit and process minerals in accordance with law), it may clear such losses against taxable incomes from income-generating activities. The remaining income amount after the clearing is subject to the enterprise income tax rate applicable to income-generating activities.

Example 13: In the tax period of 2012, enterprise A has:

- A loss of VND 1 billion from software production eligible for tax incentives.

- A profit of VND 1 billion from computer trading ineligible to tax incentives.

- A profit of VND 2 billion from securities transfer (another income from business activities).

In this case, enterprise A may choose to clear the loss from software production against the profit of computer trading or the profit from securities transfer. The remaining income is subject to enterprise income tax at the rate applicable to income-generating activities.

Specifically: After clearing the loss of VND 1 billion from software production against the profit of VND 1 billion from computer trading or securities transfer, the enterprise has a remaining profit of VND 2 billion and has to pay enterprise income tax at the tax rate of 25%: VND 2 billion x 25%.

Example 14: In the tax period of 2012, enterprise B has:

- A profit of VND 2 billion from software production eligible for tax incentives (this activity is currently subject to the enterprise income tax rate of 10%).

- A profit of VND 2 billion from computer trading ineligible to tax incentives.

- A loss of VND 1 billion from securities transfer (another income from business activities).

If in the tax period of 2011, enterprise B had a loss of VND 1 billion from computer trading, it shall carry forward such loss upon determining taxable income of 2012 as follows:

Specifically:

- Clearing the loss and profit of 2012: it may choose to clear the loss from securities trading against the profit from computer trading. The remaining profit from computer trading is (2 billion - 1 billion) = VND 1 billion.

- Carrying forward and clearing the loss from computer trading in 2011 against the profit from this activity in 2012: (1 billion - 1 billion) = VND 0 billion.

- Declaring, calculating and paying enterprise income tax on activities eligible for tax incentives:

VND 2 billion x 10% = VND 200 million.

So, the payable enterprise income tax amount is VND 200 million.

Example 15: In the tax period of 2012, enterprise C has:

- A profit of VND 2 billion from software production eligible for tax incentives (these activities are currently subject to the enterprise income tax rate of 10%).

- A profit of VND 2 billion from computer trading ineligible for tax incentives.

- A loss of VND 1 billion from securities transfer (another income from business activities).

In the tax period of 2011, enterprise C had a loss of VND 2 billion but it could not identify the activity which made such loss. As a result, it shall first of all clear such loss against the income from activities eligible for tax incentives (software production).

Specifically: - Clearing the loss and profit of 2012: it may choose to clear the loss from securities trading against the profit from computer trading. The remaining profit from computer trading is (2 billion - 1 billion) = VND 1 billion.

- Carrying forward and clearing the loss of 2011 against the profit from software production in 2012: (2 billion - 2 billion) = VND 0 billion.

- Declaring and paying enterprise income tax at the tax rate of 25% on business activities ineligible for tax incentives: VND 1 billion x 25% = VND 250 million.

8. Enterprise income tax incentives are not applicable to:

a/ Other incomes specified in Article 7 of this Circular.

b/ Income from activities of prospecting, exploring and extracting petroleum and other precious and rare natural resources.

c/ Income from prize-winning game and betting business in accordance with law.

d/ Income from mineral extraction activities.

e/ Income from the provision of services liable to excise tax in accordance with the Law on Excise Tax.

9. Enterprises established from the type or ownership transformation, separation, split, merger or consolidation shall pay enterprise income tax arrears and fines of the old enterprises and may take over enterprise income tax incentives for the remaining duration if still eligible for those incentives.

10. In the duration of enjoyment of enterprise income tax incentives under regulations, if a competent examination or inspection agency detects:

- A higher enterprise income tax amount eligible to tax incentives compared to that declared by the enterprise itself (including the case the enterprise has not made declaration to enjoy tax incentives), the enterprise may enjoy provided enterprise income tax incentives for enterprise income tax amounts detected through examination or inspection (including the added enterprise income tax amount and the enterprise income tax amount eligible for tax incentives which has been declared without any specified tax incentive amount).

- A lower enterprise income tax amount eligible for tax incentives compared to that declared by the enterprise itself, the enterprise may only enjoy provided enterprise income tax incentives applicable to the enterprise income tax amount detected through examination or inspection.

- Depending on the severity of the enterprise’s violations, the competent examination or inspection agency shall apply sanctions on tax-related violations under regulations.

Article 19. Preferential tax rates

1. The preferential tax rate of 10% for fifteen (15) years is applicable to:

a/ Enterprises newly established under investment projects in geographical areas with particularly difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008.

b/ Enterprises newly established under investment projects in economic zones or hi-tech parks established under the Prime Minister’s decisions.

c/ Enterprises newly established under investment projects in the fields of:

- High technology as provided by law; scientific research and technological development;

- Development of water plants, power plants, water supply and drainage systems; bridges, roads, railways; airports, seaports, river ports; airfields, stations and other infrastructure works of special importance as decided by the Prime Minister;

- Software production.

2. For large-sized and hi-tech or new-tech enterprises newly established under investment projects in the fields specified at Point c, Clause 1 of this Article in which investment should be particularly attracted, the duration of application of the 10% preferential tax rate may be prolonged but must not exceed 30 years as decided by the Prime Minister at the proposal of the Minister of Finance.

3. The tax rate of 10% throughout the operation duration is applicable to:

a/ Income earned by enterprises from their activities in education-training, vocational training, health care, cultural, sports and environmental sectors (below collectively referred to as socialized sectors).

The Prime Minister shall promulgate a specific list of socialized activities.

b/ Income earned by enterprises from their publishing activities in accordance with the Law on Publication.

Publishing activities include publishing, printing and distributing publications in accordance with the Law on Publishing.

Publications are defined in Article 4 of the Law on Publishing and Article 2 of the Government’s Decree No. 111/2005/ND-CP of August 26, 2005. In case the provisions of the Law on Publishing, Decree No. 111/2005/ND-CP and legal documents related to publishing change, new provisions shall apply.

4. The preferential tax rate of 20% for ten (10) years is applicable to enterprises newly established under investment projects in geographical areas with difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008.

5. The preferential tax rate of 20% is applicable throughout the operation duration for agricultural service cooperatives, people’s credit funds and micro-finance institutions.

After the expiration of the duration of application of the tax rate of 10% specified at Point a, Clause 1 of this Article, new agricultural service cooperatives, people’s credit funds and micro-finance institutions in geographical areas with particularly difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, shall switch to apply the tax rate of 20%.

Micro-finance institutions mentioned in this Clause are those established and operating in accordance with the Law on Credit Institutions.

6. The duration of application of preferential tax rates specified in this Article is counted consecutively from the first year an enterprise has turnover from activities eligible for tax incentive.

7. Upon the expiration of the duration of application of the preferential tax rates specified in Clauses 1, 2 and 4 of this Article, enterprises shall switch to apply the tax rate of 25%.

Article 20. Tax exemption and reduction durations

1. Tax exemption for 4 years and 50% reduction of payable tax amounts for 9 subsequent years are applicable to:

a/ Enterprises newly established under investment projects in geographical areas with extreme socio-economic difficulties specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008;

b/ Enterprises newly established under investment projects in economic zones or hi-tech parks established under the Prime Minister’s decisions;

c/ Enterprises newly established under investment projects in the fields of:

- High technology as provided by law; scientific research and technological development;

- Development of water plants, power plants, water supply and drainage systems; bridges, roads, railways; airports, seaports, river ports; airfields, stations and other infrastructure works of special importance as decided by the Prime Minister;

To enjoy enterprise income tax incentives, enterprises newly established under projects on investment in development of water plants, power plants, water supply and drainage systems; bridges, roads, railways; airports, seaports, river ports; airfields, stations and other infrastructure works of special importance as decided by the Prime Minister must have turnover or incomes from operations of such investment projects. In case these enterprises themselves construct these works, incomes from the construction are ineligible for enterprise income tax incentives.

- Software production.

d/ Enterprises newly established in socialized sectors in geographical areas with difficult socio-economic or particularly difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008.

2. Tax exemption for 4 years and 50% reduction of payable tax amounts for 5 subsequent years are applicable to newly established enterprises operating in socialized sectors in geographical areas outside the list of those with difficult or particularly difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008.

3. Tax exemption for 2 years and 50% reduction of payable tax amounts for 4 subsequent years are applicable to enterprises newly established under investment projects in geographical areas with difficult socio-economic conditions specified in the Appendix to the Government’s Decree No. 124/2008/ND-CP of December 11, 2008.

4. The tax exemption or reduction duration specified in this Article is counted consecutively from the first year an enterprise has taxable income from an investment project eligible for tax incentives; if an enterprise has no taxable income for the first 3 years, counting from the first year it has turnover from an investment project, the tax exemption or reduction duration is counted from the fourth year.

Example 16: In 2009, enterprise A was established under an investment project on software production. If it earned in 2009 taxable income from such project, the tax exemption or reduction duration is counted consecutively from 2009. If such project generated turnover in 2009 but enterprise A still has no taxable income in 2012, the tax exemption or reduction duration will be counted consecutively from 2012.

5. The tax exemption or reduction year is determined according to the tax period. The tax exemption or reduction duration is counted consecutively from the first tax period an enterprise has taxable income (excluding losses carried forward from previous tax periods). In the first tax period, if an enterprise has taxable income but the goods production and trading or service provision duration is less than 12 months, the enterprise may register with the tax agency to count the tax exemption or reduction duration right in that tax period or from the subsequent tax period. If the enterprise registers the tax exemption or reduction duration in the subsequent tax period, the first tax period’s payable tax amount must be determined for remission into the state budget under regulations. The tax period guided in Clause 3 of Article 3 is not counted for determining tax exemption or reduction incentives specified in this Clause.

Article 21. Other cases of tax reduction

1. Production, construction or transport enterprises are entitled to a reduction of enterprise income tax equivalent to actual additional expenses for female laborers as guided in Item a, Point 2.9, Clause 2, Article 6 of this Circular if they can separately account these expenses.

Non-business units and offices of corporations not directly engaged in production and business activities are not entitled to tax reduction under this Point.

2. Enterprises which employ ethnic minority laborers are entitled to a reduction of payable enterprise income tax equivalent to actual additional expenses for ethnic minority laborers as guided in Item b, Point 2.9, Clause 2, Article 6 of this Circular if they can separately account these expenses.

Article 22. Procedures for application of enterprise income tax incentives

Enterprises shall determine by themselves conditions for enjoyment of tax incentives, incentive tax rates, the tax exemption or reduction duration, and losses allowed to be cleared against taxed incomes in order to declare and finalize tax with tax agencies.

When conducting examination and inspection at enterprises, tax agencies shall examine conditions for enjoyment of tax incentives, enterprise income tax amounts eligible for exemption or reduction, and losses allowed to be subtracted from their taxable incomes which enterprises actually satisfy. If enterprises fail to satisfy conditions for enjoyment of incentive tax rates and tax exemption or reduction duration, tax agencies shall retrospectively collect tax and sanction tax-related administrative violations under regulations.

Chapter VII

ORGANIZATION OF IMPLEMENTATION

Article 23. Effect

1. This Circular takes effect on September 10, 2012, and applies from the enterprise income tax period of 2012 on.

2. Enterprises which are eligible for enterprise income tax incentives (including preferential tax rates and tax exemption or reduction duration) under previous legal documents on enterprise income tax or under granted investment licenses or investment incentive certificates may continue to enjoy these incentives for the remaining duration. When their current enterprise income tax incentives, including preferential tax rates and tax exemption and reduction duration, are less beneficial than the incentives specified in this Circular, they will enjoy the tax incentives under this Circular for the remaining duration, counting from the 2009 tax period.

The remaining duration for enjoyment of tax incentives shall be counted consecutively from the time of implementation of tax incentive provisions of previous legal documents on enterprise income tax or under granted investment licenses or investment incentive certificates.

The remaining incentive duration is the number of years during which an enterprise is still entitled to tax incentives (preferential tax rates and tax exemption or reduction duration) guided in this Circular minus (-) the number of years during which the enterprise has enjoyed tax incentives (preferential tax rates and tax exemption or reduction duration) under previous legal documents on enterprise income tax or under the investment license or investment incentive certificate granted by the end of 2008. The determination of the above remaining incentive duration must adhere to the following principles:

- By the end of the 2008 tax period, upon the expiration of the duration of enjoying tax rate incentives under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate, an enterprise may not switch to apply tax incentives (preferential tax rates and tax exemption and reduction duration) for the remaining duration guided in this Circular.

- By the end of the 2008 tax period, if still in the duration of enjoying tax incentives (preferential tax rates and tax exemption and reduction duration) under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate, an enterprise will continue to enjoy the preferential tax rate and tax exemption and reduction for the remaining duration as guided in this Circular.

- By the end of the 2008 tax period, if still entitled to a preferential tax rate but no longer entitled to tax exemption because the tax exemption duration under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate has just expired, an enterprise will not be entitled to tax exemption but only to tax reduction for the number of years guided in this Circular, and will apply the preferential tax rate for the remaining duration guided in this Circular.

- By the end of the 2008 tax period, if still entitled to a preferential tax rate and tax reduction under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate, an enterprise will have the remaining number of years eligible for tax reduction equal to the number of years eligible for tax reduction guided in this Circular minus (-) the number of years during which the enterprise has enjoyed tax reduction, counting to the end of the 2008 tax period, and will continue to apply the preferential tax rate for the remaining duration guided in this Circular.

- By the end of the 2008 tax period, when its tax exemption or reduction duration under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate expires, an enterprise will not be entitled to tax incentives (preferential tax rates and tax exemption or reduction duration) guided in this Circular.

3. For an enterprise entitled to tax exemption or reduction under previous legal documents on enterprise income tax or under the granted investment license or investment incentive certificate which, by the end of the 2008 tax period:

a/ Has no turnover yet, its tax exemption or reduction duration will be counted from the first year of generation of taxable income. If no taxable income is generated during the first 3 years, counting from the first year of generation of turnover, its tax exemption or reduction duration will start from the fourth year.

b/ Has turnover for less than 3 years, counting from the time turnover is earned, its tax exemption or reduction duration will be counted from the first year of generation of taxable income; if no taxable income is generated during the first 3 years, counting from the first year of generation of turnover, its tax exemption or reduction duration will start from the fourth year, specifically:

For an enterprise with the first tax period starting from 2007 and having turnover, its tax exemption or reduction duration will be counted consecutively from the first year of generation of taxable income. If, by the end of 2009, no taxable income is generated, its tax exemption or reduction duration will start from 2010.

c/ Has turnover for 3 years or more, its tax exemption or reduction duration will start from the 2009 tax year, specifically:

For an enterprise with the first tax period starting before 2007 and having turnover but no taxable income yet and for which the tax exemption or reduction duration has not started yet, its tax exemption or reduction duration will start from the 2009 tax period.

4. If enterprises that operate in other sectors but have incomes from activities in the sectors of education - training, vocational training, health care, culture, sports or environmental protection (below collectively referred to as the socialized sectors) fully satisfy the conditions of being on the list of types of enterprise eligible for, of sizes and up to the standards for socialized sectors promulgated by the Prime Minister, they are entitled to the enterprise income tax rate of 10% throughout the operation duration for incomes from activities in the sectors of education - training, vocational training, health care, culture, sports and environmental protection from January 1, 2009.

Enterprises that conduct activities in the socialized sectors before January 1, 2009, fully satisfy the conditions of being on the list of types of enterprise eligible for, of sizes and up to the standards for socialized sectors promulgated by the Prime Minister, and are currently subject to a tax rate higher than 10% for incomes from socialized activities may switch to apply the tax rate of 10% for incomes from socialized activities from January 1, 2009.

5. For operating enterprises which have been operating since 2009 and have investment projects on building new production chains, scaling up production, renewing technologies, improving the eco-environment or raising production capacity, incomes from these projects will be ineligible for enterprise income tax incentives. Investment projects operating before 2009 and currently enjoying enterprise income tax incentives (for expanded investment) will continue to enjoy these incentives for the remaining duration, and increased incomes from expanded investment projects which are currently subject to the tax rate of 28% will be switched to apply the tax rate of 25%.

Enterprises with investment projects on expanded production which, by December 31, 2008, are under construction investment and are completed and put into production and business in 2009, may continue to enjoy the enterprise income tax exemption and reduction duration for the increased incomes from these projects under Circular No. 134/2007/TT-BTC; such increased incomes are subject to the tax rate of 25% and the enterprise income tax exemption or reduction duration will start from 2009 when these projects are put into production and business. When submitting enterprise income tax finalization declarations for the 2008 tax period, enterprises shall notify tax agencies of unfinished investment projects on expanded production.

Enterprises with investment projects on expanded production which, by December 31, 2008, are under construction investment, and continue with the construction investment process in 2009, and are expected to be completed in 2010 and commissioned for production or business from 2010, are not entitled to enterprise income tax incentives for increased incomes from these investment projects.

6. From January 1, 2009, agricultural service cooperatives that earn incomes from agricultural services and people’s credit funds, including those established before January 1, 2009, which have not been entitled to enterprise income tax incentives, or in case the duration of enjoyment of these incentives has expired (except agricultural service cooperatives and people’s credit funds currently eligible for the tax rate of 10%), are eligible for the tax rate of 20%.

7. Enterprise income tax incentives are not applicable to incomes from mineral extraction activities of enterprises established and granted investment licenses for mineral extraction from January 1, 2009. Mineral extraction enterprises that have operated since before January 1, 2009, and are enjoying enterprise income tax incentives provided in previous legal documents on enterprise income tax or their investment licenses or investment incentive certificates may continue enjoying these incentives for the remaining duration.

8. Enterprises that earn incomes from publishing activities in accordance with the Law on Publication are eligible for the enterprise income tax rate of 10% throughout the operation duration, counting from the 2012 tax period. Operating enterprises that are subject to a tax rate higher than 10% for incomes from publishing activities in accordance with the Law on Publication may switch to apply the tax rate of 10% for incomes from publishing activities from the 2012 tax period.

9. This Circular replaces the Finance Ministry’s Circular No. 130/2008/TT-BTC of December 26, 2008, Circular No. 177/2009/TT-BTC of September 10, 2009, Circular No. 40/2010/TT-BTC of March 23, 2010, and Circular No. 18/2011/TT-BTC of February 10, 2011.

10. To annul enterprise income tax guidelines issued by the Ministry of Finance and other sectors which are contrary to this Circular.

11. The settlement of problems arising from taxation, tax finalization, tax exemption or reduction and the handling of violations of the enterprise income tax law before the 2012 tax period must comply with relevant guidelines on enterprise income tax issued before the 2012 tax period.

12. In case the Socialist Republic of Vietnam has signed a treaty or international agreement which provides for enterprise income tax payment differently from the guidance in this Circular, the provisions of that treaty or international agreement prevail.

Article 24. Implementation responsibility

1. Tax agencies at all levels shall disseminate and guide this Circular to enterprises for implementation.

2. Enterprises subject to the regulation of this Circular shall comply with the guidance provided herein.

Any problems arising in the course of implementation should be promptly reported to the Ministry of Finance for study and settlement.-

For the Minister of Finance
Deputy Minister
DO HOANG ANH TUAN

(Note: All appendices to this Circular are not translated)