Circular No. 176/2009/TT-BTC dated September 9, 2009, of the Ministry of Finance guiding the reduction of personal income tax for individuals working in economic zones

THE MINISTRY OF FINANCE

Circular No. 176/2009/TT-BTC of September 9, 2009, guiding the reduction of personal income tax for individuals working in economic zones

Pursuant to November 21, 2007 Law No. 04/2007/QH12 on Personal Income Tax and the Government’s Decree No. 100/2008/ND-CP of September 8, 2008, detailing a number of articles of the Law on Personal Income Tax;

Pursuant to November 29, 2006 Law No. 78/2006/QH11 on Tax Administration and the Government’s Decree No. 85/2007/ND-CP of May 25, 2007, detailing a number of articles of the Law on Tax Administration;

Pursuant to the Government’s Decree No. 100/2008/ND-CP of September 8, 2008, detailing a number of articles of the Law on Personal Income Tax;

Pursuant to Clause 5, Article 16 of the Government’s Decree No. 29/2008/ND-CP of March 14, 2008, providing for industrial parks, export-processing zones and economic zones;

Pursuant to Article 10 of the Prime Minister’s Decision No. 33/2009/QD-TTg of March 2, 2009, promulgating some financial mechanisms and policies applicable to border-gate economic zones;

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

In furtherance of the Prime Minister’s directing opinions in the Government Office’s Official Letters No. 502/VPCP-KTTH of January 20, 2009, and No. 3045/VPCP-KTTH of June 11, 2009, guiding the application of personal income tax;

The Ministry of Finance guides the reduction of personal income tax for individuals working in economic zones and border-gate economic zones (below collectively referred to as economic zones) as follows:

Article 1. Subjects and scope of application

1. Eligible for reduction of personal income tax under the guidance in this Circular are Vietnamese and foreign individuals who are residents and non-residents in Vietnam under tax laws and directly work in economic zones, including:

a/ Cadres, civil servants and persons who sign labor contracts with economic zone management boards and state management agencies located in economic zones and actually work in economic zones.

b/ Laborers who sign labor contracts with organizations and individuals having business establishments in economic zones and actually work in economic zones.

c/ Laborers who work for organizations and individuals located outside economic zones who are sent to work in economic zones to perform economic contracts signed between these organizations and individuals and economic zone management boards or organizations or individuals conducting investment, production and business activities in economic zones.

d/ Individuals and groups of individuals who have fixed places of business in economic zones, conduct production and business activities under business registration certificates in economic zones and earn taxable income from business activities under the Law on Personal Income Tax.

2. Cadres, civil servants and contractual employees of economic zone management boards, state management agencies and organizations and individuals conducting investment, production and business activities in economic zones who do not directly work in economic zones are ineligible for reduction of personal income tax under this Circular.

Article 2. Taxable incomes used as a basis for consideration for tax reduction

Incomes used as a basis for calculation of personal income tax amounts to be reduced under this Circular include:

- Taxable incomes from salaries or wages paid by state management agencies or organizations and individuals having business establishments in economic zones to those who work in economic zones or paid by organizations or individuals located outside economic zones to those who are sent to work in economic zones to perform economic contracts signed with economic zone management boards or organizations and individuals conducting investment, production and business activities in economic zones;

- Taxable incomes from production and business activities conducted in economic zones of individuals or groups of individuals who are granted business registration certificates in economic zones.

From January 1, 2009, incomes from salaries or wages and incomes of individuals directly conducting production and business activities in economic zones shall be determined under the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008, and Circular No. 62/2009/TT-BTC of March 27, 2009, amending and supplementing Circular No. 84/2008/TT-BTC of September 30, 2008.

In case the Ministry of Finance provides other methods of determining incomes liable to personal income tax, these regulations will apply.

Article 3. Declaration of temporarily paid tax amounts and finalization of reduced tax amounts

Individuals working in economic zones and having taxable incomes prescribed in Article 2 of this Circular are entitled to 50% reduction of payable income tax amounts in the year and, at the year-end, they shall make finalization of the reduced tax amounts as follows:

1. Declaration of temporarily paid tax amounts:

1.1. For individuals earning incomes from salaries or wages, income payers shall base themselves on total taxable incomes from salaries or wages paid to laborers working in economic zones to calculate personal income tax amounts to be withheld on a monthly basis under regulations. Based on to-be-withheld tax amounts, income payers shall remit 50% of withheld tax amounts into the state budget and return the reduced amounts to laborers.

Every month, when making declaration of withheld tax amounts to be remitted into the state budget, income payers shall declare personal income tax amounts according to form No. 02/KK-TNCN enclosed with the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008, writing the total actually withheld tax amount to be remitted into the state budget (after making a 50% reduction for eligible individuals) on the “total income tax amount already withheld” line (item [13]).

Individuals earning incomes from salaries and wages who make monthly tax declaration directly to tax offices shall base themselves on temporarily paid tax amounts to remit 50% of payable tax amounts into the state budget under regulations.

They shall use declaration form No. 07/KK-TNCN inclosed with the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008, writing the tax amount to be paid after being reduced by 50% under this Circular in the “total tax amount to be paid in the period” line (item [19]).

1.2. For individuals and groups of individuals earning incomes from business activities:

- Quarterly, individuals and groups of individuals who are eligible for a 50% reduction of personal income tax shall calculate temporarily reduced tax amounts and calculate and remit to-be-paid tax amounts into the state budget under regulations.

They shall use declaration form No. 08/KK-TNCN (for business individuals) or No. 08A/KK-TNCN (for groups of business individuals), enclosed with the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008, writing the tax amount to be paid into the state budget (after being reduced by 50%) in the “personal income tax amount temporarily paid in the period” line.

- For business individuals and groups of business individuals paying presumptive tax, tax agencies shall base themselves on declaration forms No. 10/KK-TNCN (for business individuals) and No. 10A/KK-TNCN (for groups of business individuals), enclosed with the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008, to assess payable personal income tax amounts and to-be-reduced tax amounts and notify taxpayers of tax amounts to be remitted into the state budget.

2. Finalization of to-be-reduced tax amounts:

2.1. For income payers:

From 2009, income payers shall make finalization of personal income tax under the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008.

Finalization dossiers include dossiers prescribed for each kind of income specified in the above-said Circular. In addition, income payers shall make a list of individuals eligible for tax reduction according to the set form on personal income tax reduction for payers of incomes to individuals working in economic zones (form No. 01/KKQT-TNCN provided in an appendix to this Circular) (not printed herein).

In case income payers located outside economic zones send laborers to work in economic zones to perform economic contracts signed between organizations and individuals and economic zone management boards or organizations and individuals conducting investment, production and business activities in economic zones, income payers shall keep economic contracts signed with economic zone management boards or organizations and individuals conducting investment, production and business activities in economic zones and documents on sending laborers to work in economic zones and produce them at the request of tax offices.

2.2. For income earners:

a/ Non-residents eligible for tax reduction are not required to make tax finalization.

b/ Residents eligible for tax reduction shall make finalization of reduced tax amounts, if their payable tax amounts are larger than their paid tax amounts and they wish to have the overpaid tax amounts refunded or cleared against the payable tax amount of the subsequent period.

- Individuals eligible for tax reduction who earn incomes from salaries or wages shall make tax finalization with tax offices directly managing income payers.

Tax finalization dossiers comply with the guidance at Point 2.3, Section II, Part D of the Finance Ministry’s Circular No. 84/2008/TT-BTC of September 30, 2008. Taxpayers shall enclose with tax finalization dossiers the declaration made according to the set form on personal income tax reduction for payers of incomes to individuals working in economic zones or the set form on personal income tax reduction for individuals making direct tax declaration with tax offices, for incomes earned for working in economic zones (form No. 02/KKQT-TNCN), enclosed with this Circular (not printed herein).

- Individuals eligible for tax reduction who earn incomes from business activities shall make direct finalization with the Tax Departments of the provinces where exist economic zones.

In case individuals have both business locations located inside and outside economic zones, they shall make tax finalization with the Tax Departments with which they have made registration for family circumstance-based reductions.

Apart from papers specified at Point 2.2, Section II, Part D of Circular No. 84/2008/TT-BTC of September 30, 2008, individuals shall include in their tax finalization dossiers a copy of the business registration certificate to evidence that they conduct production and business activities in economic zones, enclosed with the Appendix on personal income tax reduction for individuals doing business in economic zones (form No. 03/KKQT-TNCN) enclosed with this Circular (not printed herein).

3. Determination of to-be-reduced tax amounts:

3.1. For Vietnamese and foreign residents in Vietnam:

a/ In case residents earn incomes only from salaries or wages or incomes from business activities in economic zones:

The to-be-reduced income tax amount is equal to (=) The total payable income tax amount multiplied by (x) 50%.

In which the total payable income tax amount is the payable personal income tax amount under regulations.

b/ In case residents earn both incomes from salaries or wages and incomes from business activities in economic zones and incomes arising outside economic zones, the personal income tax amount to be reduced for working in economic zones are determined as follows:

In which the total payable personal income tax amount in the year is determined on the basis of the total taxable income arising in the tax period.

3.2. For non-residents:

The total payable personal income tax amount = The total taxable income arising in economic zones multiplied by (x) the tax rate applicable to non-residents multiplied by (x) 50%.

Article 4. Organization of implementation

1. This Circular takes effect 45 days from the date of its signing and the 50% reduction of payable personal income tax for individuals earning incomes in economic zones applies from January 1, 2009.

2. Individuals earning incomes from salaries or wages in economic zones from the effective date of the Government’s Decree No. 29/2008/ND-CP of March 14, 2008, through December 31, 2008, who are liable to pay income tax on high-income earners are also eligible for 50% reduction of payable tax amounts. The finalization of income tax on high-income earners shall be carried out under the Finance Ministry’s Circular No. 81/2004/TT-BTC of August 13, 2004.

Individuals earning incomes for working in economic zones set up under the Prime Minister’s decisions issued before the effective date of Decree No. 29/2008/ND-CP which provide for 50% reduction of payable income tax on high-income earners, such tax reduction complies with documents guiding separate financial regimes applicable to these economic zones till the effective date of Decree No. 29/2008/ND-CP. From the effective date of Decree No. 29/2008/ND-CP, this Circular will apply.

3. For individuals doing business in economic zones before January 1, 2009, and earning incomes from their business who are entitled to investment incentives under the Law on Enterprise Income Tax by the end of December 31, 2008, if the enterprise income tax exemption period has not yet expired, they will enjoy personal income tax exemption till the expiration of the remaining tax exemption period and after that, enjoy 50% reduction of personal income tax under this Circular.

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

For the Minister of Finance
Deputy Minister
DO HOANG ANH TUAN