Circular No. 36/2016/TT-BTC dated February 26, 2016 of the Ministry of Finance guiding the implementation of the regulations on tax to organizations and individuals conducting the search, exploration and extraction of oil and gas according to regulation of the Law on Petroleum

CIRCULAR

Guiding the implementation of tax provisions applicable to organizations and individuals conducting petroleum prospecting, exploration and exploitation activities in accordance with the Petroleum Law[1]

Pursuant to the July 6, 1993 Petroleum Law; June 9, 2000 Law No. 19/2000/QH10 Amending and Supplementing a Number of Articles of the Petroleum Law; June 3, 2008 Law No. 10/2008/QH12 Amending and Supplementing a Number of Articles of the Petroleum Law, and the guiding documents;

Pursuant to the tax laws and current guiding documents;

Pursuant to Tax Administration Law No. 78/2006/QH11 of November 29, 2006; November 20, 2012 Law No. 21/2012/QH13 Amending and Supplementing a Number of Articles of the Tax Administration Law; November 26, 2014 Law No. 71/2014/QH13 Amending and Supplementing a Number of Articles of the Tax Laws, and the Government’s Decrees detailing the implementation of these laws;

Pursuant to the Government’s Decree No. 33/2013/ND-CP of April 22, 2013, promulgating the model petroleum production-sharing contract;

Pursuant to the Government’s Decree No. 215/2013/ND-CP of December 23, 2013, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the General Director of Taxation;

The Minister of Finance promulgates the Circular guiding the implementation of tax provisions applicable to organizations and individuals conducting petroleum prospecting, exploration and exploitation activities in accordance with the Petroleum Law.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of application

1. This Circular guides the tax provisions applicable to organizations and individuals (below collectively referred to as contractors) conducting activities of prospecting, exploring and exploiting crude oil and condensate (below collectively referred to as crude oil) and natural gas, associated gas and coal gas (below collectively referred to as natural gas) in Vietnam in accordance with the Petroleum Law; and parties having association relationships with contractors entering into petroleum contracts.

The parties having association relationships mentioned above are those having relationships as in one of the following cases:

- One party directly or indirectly participating in the administration or control of, contribution of capital to, or investment in any form in, the other party;

- Parties directly or indirectly submitting to the administration or control, or enjoying the capital contribution or investment in any form by another party;

- Parties directly or indirectly participating in the administration or control of, contribution of capital to, or investment in any form in, another party.

2. This Circular is not applicable to petroleum prospecting, exploration, field development and exploitation activities of the Vietsovpetro Vietnam-Russia Joint Venture from lot 09-1 under the 2010 Agreement and 2013 Protocol between the Governments of Vietnam and the Russian Federation, except the tax provisions in Section 4 of this Circular applicable to the transfer of benefits arising from participation in petroleum contracts.

Article 2. Taxpayers

1. For taxpayers that are contractors entering into petroleum contracts.

Taxpayers may authorize their executives, joint-venture enterprises or joint operating companies to make tax declarations and shall themselves pay tax amounts under regulations; or may authorize executives, joint-venture enterprises or joint operating companies to make tax declarations and pay tax amounts under regulations.

2. For petroleum contracts that contain an agreement that the Vietnam Oil and Gas Group shall pay taxes on behalf of contractors, the Vietnam Oil and Gas Group may authorize executives, joint-venture enterprises or joint operating companies to make tax declarations and shall itself pay tax amounts under regulations; or the Vietnam Oil and Gas Group may authorize executives, joint-venture enterprises or joint operating companies to make tax declarations and pay tax amounts under regulations.

3. For the transfer of benefits arising from participation in petroleum contracts, taxpayers shall comply with the guidance in Article 23, Section 4, Chapter II of this Circular. 

Article 3. Currencies used for tax declaration and payment

1. The currency used for declaration and payment of taxes guided in this Circular, including royalty, export duty, enterprise income tax and tax on transfer of benefits arising from participation in petroleum contracts is US dollar.

2. In case crude oil or natural gas is sold on the Vietnamese market and priced in US dollar, the currency used for tax payment is Vietnam dong.

The conversion of US dollar into Vietnam dong for tax calculation and payment shall apply the buying rate for account transfer applied by the Head Office of the Joint-Stock Bank for Foreign Trade of Vietnam (Vietcombank) at the time of invoicing.

3. In case crude oil or natural gas is sold for US dollars but taxpayers pay taxes in Vietnam dong under the Government’s regulations, the currency used for tax payment is Vietnam dong.

The conversion of US dollar into Vietnam dong for payment of liabilities payable in foreign currencies must comply with the Tax Administration Law, Law Amending and Supplementing a Number of the Tax Administration Law, and documents detailing and guiding the implementation of these Laws.

Article 4. Places of tax registration, declaration and payment

1. Places of tax registration, declaration and payment (except for import duty and export duty) are provincial-level Tax Departments of localities where executives, joint-venture enterprises or joint operating companies locate their head offices or principal executive offices.

2. For petroleum contracts under which exploitation activities have been conducted prior to the promulgation of this Circular, places of tax registration, declaration and payment must comply with the guidance issued before the effective date of this Circular.

Article 5. Principles of determination of taxable prices

1. For crude oil, the taxable price under this Circular is the crude oil sale price applied at a point of delivery and receipt determined under an arm’s length transaction.

Arm’s length transaction means the sale of crude oil on the Vietnamese market and international market in a freely convertible currency between willing and unrelated sellers and buyers, but not covering the sale by one party to its branch or the sale between governments or government-owned institutions or exchange transaction or barter and sale not at free international market prices.

Point of delivery and receipt means a point at which oil or gas reaches the outer flange of the oil tanker or containing vessel used to take or consume oil or gas, or another point as agreed upon by the petroleum contract parties at which the oil or gas ownership is transferred to the petroleum contract parties.

In case crude oil is sold not under an arm’s length transaction, the taxable price of crude oil is the average price of crude oil of the same or equivalent category on the international market in the month when crude oil is sold. Taxpayers shall provide tax agencies with information on the composition and quality of crude oil being exploited. When necessary, tax agencies may refer to sale prices on the USA’s market (WTI), England’s market (Brent) and Singapore’s market (Platt’s) or consult competent state agencies to determine the price of crude oil being exploited by taxpayers.

2. For natural gas: The taxable price is the sale price of natural gas at the point of delivery and receipt, determined under the natural gas purchase and sale contract, approved by the Prime Minister and in conformity with the agreement in the petroleum contract, taking into account the time of price calculation, the market and other relevant factors (if any). When necessary, tax agencies may consult competent state agencies to determine the price of natural gas being exploited by taxpayers.

Article 6. Other general provisions

1. In case an organization or individual conducts petroleum prospecting, exploration and exploitation activities under different petroleum contracts, the tax provisions guided in this Circular shall be separately applied to each petroleum contract.

2. Other tax administration issues not specifically guided in this Circular must comply with current tax laws and guiding documents.

Part II

GUIDANCE ON THE IMPLEMENTATION OF TAX PROVISIONS

Section 1

ROYALTY

Article 7. Objects liable to royalty

1. Liable to royalty is the whole output of crude oil and natural gas actually exploited and retained from the area under a petroleum contract and gauged at the point of delivery and receipt (net crude oil output, net natural gas output).

2. In case the Vietnamese Government consumes the volume of associated gas of a taxpayer without exchanging or selling it for money, the taxpayer is not obliged to pay royalty on such volume of associated gas.

3. If, in the process of crude oil and natural gas exploitation, a taxpayer is permitted to exploit other natural resources liable to royalty, it shall pay royalty on a case-by-case basis in accordance with the Law on Royalty and guiding documents.

Article 8. Royalty period

- In case the petroleum contract has no agreement or has an agreement to comply with current regulations or an agreement on distribution of net oil and gas volumes into royalty-liable ones on a quarterly basis which are temporarily calculated at the time of taking oil and gas and finally adjusted after the end of the year, the royalty period is the calendar year.

- In case the petroleum contract has an agreement on distribution of net oil and gas volumes into royalty-liable ones for tax payment on a quarterly basis which are temporarily calculated at the time of taking oil and gas and finally adjusted after the end of every quarter, such agreement shall be implemented (applying the quarterly royalty period).

- The first royalty period starts from the first day of crude oil and natural gas exploitation and ends on the last day of the calendar year or the last day of the quarter.

- The last royalty period starts from the first day of the calendar year or the first day of the quarter and ends on the day of termination of crude oil and natural gas exploitation.

Article 9. Determination of payable royalty

1. Royalty on crude oil and natural gas shall be determined on the basis of partial progression of the average daily exploited crude oil and natural gas output of the total crude oil and natural gas output actually exploited in each royalty period from the petroleum contract area, royalty rate and number of days of actual exploitation in the royalty period.

2. Determination of royalty amounts payable in crude oil or natural gas:

In which:

+ The average daily output of crude oil or natural gas liable to royalty in the royalty period is the total output of crude oil or natural gas liable to royalty exploited in the period divided by the number of actual exploitation days in the period.

+ The royalty rate must comply with the royalty law. In case a petroleum contract signed before July 1, 2010, has a specific agreement on royalty rate, such agreement shall apply.

The identification of projects eligible for petroleum investment promotion to serve the application of royalty rate shall be based on the Prime Minister-approved list of petroleum projects eligible for investment promotion.

+ The number of actual days of crude oil or natural gas exploitation in the royalty period is the number of days of exploitation of crude oil or natural gas in the period, excluding days on which production halts in the whole contract area for any reasons.

Example 1: Determination of royalty amounts payable in crude oil in case of crude oil exploitation (presumably on a quarterly basis):

Presume that:

+ The total output of crude oil liable to royalty exploited in the royalty payment period: 12,000,000 barrels.

+ The number of production days in the royalty payment period: 75 days.

+ The average daily output of crude oil liable to royalty in the period: 160,000 barrels (12,000,000 barrels: 75 days).

+ Crude oil is exploited under a contract outside the list of projects eligible for investment promotion (in case crude oil is exploited under a contract on the list of projects eligible for investment promotion, the payable royalty amount shall be calculated at a royalty rate applicable to projects eligible for investment promotion).

The royalty payable in crude oil in the royalty payment period is:

{(20,000 x 10%) + (30,000 x 12%) + (25,000 x 14%) + (25,000 x 19%) + (50,000 x 24%) + (10,000 x 29%)} x 75 days = 2,156,250 barrels.

Example 2: Determination of royalty payable in natural gas in case of natural gas exploitation (presumably on a quarterly basis):

Presume that:

+ The total output of natural gas liable to royalty exploited in the royalty period: 855,000,000 m³.

+ The number of days of production in the royalty period: 75.

+ The average daily output of natural gas liable to royalty in the period: 11,400,000 m³ (= 855,000,000 m³: 75 days).

+ Natural gas is exploited under a contract outside the list of projects eligible for investment promotion.

Royalty payable in natural gas in the royalty period shall be determined as follows:

{(5,000,000 x 2%) + (5,000,000 x 5%) + (1,400,000 x 10%)} x 75 days = 36,750,000 m³.

Article 10. Temporary calculation of royalty

1. Royalty may be paid wholly in crude oil or natural gas or in cash, or partially in cash and partially in crude oil or natural gas.

In case royalty is paid in crude oil or natural gas, tax agencies shall notify in writing taxpayers thereof 6 months in advance and provide specific guidance on the declaration and payment of royalty in crude oil or natural gas.

2. Temporary calculation of royalty

In which:

+ The volume of crude oil actually sold is the volume of crude oil liable to royalty actually sold each time;

+ The volume of natural gas actually sold is the volume of natural gas liable to royalty actually sold in each month;

+ The royaltiable price of crude oil is the sale price of crude oil at the point of delivery and receipt upon each sale under an arm’s length transaction, exclusive of value-added tax (if any);

+ The royaltiable price of natural gas is the sale price of natural gas at the point of delivery and receipt in each month of sale, exclusive of value-added tax (if any).

In case taxpayers can separately determine the cost of transportation of natural gas on invoices, the royaltiable price of natural gas is the sale price at the point of delivery and receipt in each month of sale, exclusive of transportation cost and value-added tax (if any).

In case crude oil is sold not under an arm’s length transaction, the royaltiable price shall be determined under the guidance in Clause 1, Article 5 of this Circular.

+ The temporarily calculated royalty percentage shall be determined under the guidance below:

+ The royalty amount to be paid in crude oil or natural gas in the royalty period shall be determined under the guidance in Clause 2, Article 9 of this Circular on the basis of the output of crude oil or natural gas liable to royalty projected to be exploited in the period and projected number of exploitation days;

+ The output of crude oil or natural gas liable to royalty projected to be exploited in the royalty period is the output of crude oil or natural gas liable to royalty projected to be exploited in the period.

3. The time limit for a taxpayer to submit a notice of temporary royalty payment percentage made according to form No. 01/BCTL-DK of report on petroleum output projected to be exploited and temporary royalty payment percentage provided in this Circular is as follows:

- In case the petroleum contract has an agreement on yearly royalty period, based on the crude oil or natural gas output projected to be exploited in the next year, the taxpayer shall determine the temporarily calculated royalty percentage and notify it to the local tax agency where it has made tax registration no later than December 1 of the last royalty period.

In a royalty period, if the crude oil or natural gas output projected to be exploited or projected number of petroleum exploitation days in the last six months changes, leading to a higher or lower temporarily paid royalty percentage by at least 15% compared to that already notified to the tax agency, the taxpayer shall determine and notify the new temporarily calculated royalty percentage to the tax agency no later than May 1 of the year.

- In case the petroleum contract has an agreement on quarterly royalty period, based on the crude oil or natural gas output projected to be exploited in the next quarter, the taxpayer shall determine the temporarily calculated royalty percentage and notify it to the local tax agency where it has made tax registration no later than the 1^st of the month preceding the next quarter.

- In case the commercial petroleum exploitation has commenced under the petroleum contract, the taxpayer shall determine and notify the temporarily calculated royalty percentage to the tax agency upon declaring and paying temporarily calculated royalty on the first shipments of crude oil or natural gas exploited and sold in the contract area.

Example 3: Determination of temporarily calculated royalty percentage (in a yearly royalty period):

- Determination of temporarily calculated royalty percentage for crude oil:

Presume that:

+ The total output of crude oil liable to royalty projected to be exploited in the year: 72,000,000 barrels.

+ The projected number of exploitation days in the year: 360 days.

+ The average daily output of crude oil liable to royalty in the year: 200,000 barrels/day (72,000,000 barrels: 360 days).

+ The royalty amount projected to be paid in the year (determined under the guidance in Article 9 of this Circular): 14,526,000 barrels.

The temporarily calculated royalty percentage for crude oil exploitation is:

- Determination of temporarily calculated royalty percentage for natural gas:

- Presume that:

+ The total output of natural gas liable to royalty projected to be exploited in the year: 3,960,000,000 m3.

+ The projected number of exploitation days in the year: 360 days.

+ The average daily output of natural gas liable to royalty in the year: 11,000,000 m³/day (3,960,000,000 m³: 360 days).

+ The royalty amount projected to be paid in the year (determined under the guidance in Article 9 of this Circular): 162,000,000 m³.

The temporarily calculated royalty percentage for natural gas exploitation is:

Article 11. Royalty finalization

1. For crude oil exploitation:

a/ Determination of payable royalty amount:

a.1/ Determination of royalty to be paid in crude oil in the royalty period:

a.2/ Determination of the percentage of royalty to be paid in crude oil of the crude oil exploitation output in the royalty period:

a.3/ Determination of royalty in crude oil sold in the royalty period:

a.4/ Determination of the payable sum of money from the sale of royalty in crude oil in the royalty period:

In which:

+ Royalty in crude oil sold in the royalty period shall be determined under the guidance at Point a.3, Clause 1 of this Article;

+ The royaltiable price of crude oil is the weighted average price of crude oil sold at the point of delivery and receipt under an arm’s length transaction in the royalty period, exclusive of value-added tax (if any).

In case crude oil is sold not under an arm’s length transaction, the royaltiable price shall be determined under the guidance in Clause 1, Article 5 of this Circular.

a.5/ Determination of royalty payable in crude oil not yet sold in the royalty period for use as a basis for finalization of royalty to be paid in crude oil in the subsequent royalty period:

Example 4: Determination of royaltiable price:

Presume that the crude oil output in the royalty period (4,000,000 barrels) is sold in three lots: lot 1 of 2,000,000 barrels sold at the price of USD 108/barrel; lot 2 of 1,000,000 barrels sold at the price of USD 120/barrel; and lot 3 of 1,000,000 barrels sold at the price of USD 100/barrel.

2. For natural gas exploitation:

a/ Determination of payable royalty amount:

a.1/ Determination of royalty to be paid in natural gas in the royalty period:

a.2/ Determination of payable sum of money from the sale of royalty in natural gas in the royalty period:

In which:

+ Royalty to be paid in natural gas in the royalty period shall be determined under the guidance at Point a.1, Clause 2 of this Circular;

+ The royaltiable price of natural gas is the weighted average price of natural gas at the point of delivery and receipt in the royalty period, exclusive of value-added tax.

In case the taxpayer can separately determine the cost of transportation of natural gas on invoices, the royaltiable price of natural gas is the weighted average price of natural gas at the point of delivery and receipt in the royalty period, exclusive of transportation cost and value-added tax (if any).

Article 12. Declaration and payment of royalty for crude oil and natural gas exploitation and sale

1. Declaration and payment of temporarily calculated royalty:

a/ Temporarily calculated royalty declaration dossier:

- A royalty declaration dossier is the return of temporarily calculated royalty on petroleum made according to form No. 01/TAIN-DK provided together with this Circular.

- Annex detailing the tax liabilities of petroleum contractors, made according to form No. 01/PL-DK provided together with this Circular.

b/ Time limit for declaration and payment of temporarily calculated royalty:

- Declaration of temporarily calculated royalty for crude oil exploitation and sale shall be made upon each sale.

The deadline for submission of a dossier of declaration and payment of temporarily calculated royalty on crude oil upon each sale is the 35^th day from the date of crude oil sale (for both domestically sold and exported crude oil). The date of sale is the date on which the delivery of crude oil at the point of delivery and receipt is completed.

- Declaration of temporarily calculated royalty for natural gas exploitation and sale shall be made on a monthly basis.

The deadline for submission of a dossier of declaration and payment of temporarily calculated royalty for monthly natural gas exploitation is the 20^th (twentieth) day of the month following the month of issuance of gas sale invoice.

2. Declaration for royalty finalization:

a/ Dossier of declaration for royalty finalization for crude oil or natural gas exploitation and sale:

- Petroleum royalty finalization return, made according to form No. 02/TAIN-DK provided together with this Circular.

- Annex detailing the tax liabilities of petroleum contractors, made according to form No. 01/PL-DK provided together with this Circular.

- Annex of sold petroleum volume and sale turnover, made according to form No. 02-1/PL-DK provided together with this Circular.

b/ Deadlines for submission of a royalty finalization declaration dossier for crude oil or natural gas exploitation and sale:

- The deadline for submission of a royalty finalization declaration dossier for crude oil or natural gas is the 90^th (ninetieth) day of the period following the period when the tax liability arises.

- The 45^th (forty-fifth) day from the date of termination of the petroleum contract.

3. Should the deadline for tax declaration and payment fall on a holiday, the deadline for submission of a royalty finalization declaration dossier is the day following that holiday.

Section 2

EXPORT DUTY AND IMPORT DUTY

Taxpayers shall declare and pay export duty and import duty in accordance with the law on import duty and export duty and current regulations on tax administration. In addition, the Ministry of Finance guides some specific contents as follows:

Article 13. Export duty

1. Determination of temporarily calculated export duty amount:

In which:

+ The volume of exported crude oil or natural gas is the volume of crude oil or natural gas actually exported.

+ The dutiable price is the sale price of crude oil or natural gas guided in Article 5 of this Circular.

- The temporarily calculated export duty percentage shall be determined as follows:

In which:

+ The temporarily calculated royalty percentage in the royalty period shall be determined under the guidance in Article 10 of this Circular.

+ The export duty rate applicable to crude oil or natural gas must comply with the current Export Tariff. In case the petroleum contract has a specific agreement on export duty rate, such rate shall be complied with.

Example 5: Determination of temporarily calculated crude oil export duty percentage:

Presume that:

+ The temporarily calculated royalty percentage in the example in Article 10 above: 20.1750%.

+ The export duty rate applicable to crude oil according to the current Export Tariff: 10%

+ The percentage of temporarily calculated crude oil export duty: 7.9825% = (100% - 20.175%) x 10%

Based on the temporarily calculated royalty percentage and export duty rate applicable to crude oil, taxpayers shall determine the temporarily calculated export duty percentage for each petroleum contract and notify it to the customs office where the export procedures are carried out and to the tax agency where they have made tax registration within the time limit for notification of the temporarily calculated royalty and enterprise income tax percentages.

2. In case royalty is finalized and the volume of crude oil or natural gas actually exploited and sold is different from that projected to be exploited in the royalty period, leading to change in the royalty percentage, taxpayers shall base themselves on the royalty percentage according to the finalization to re-determine the export duty percentage as guided in Clause 1, Article 13 of this Circular and declare the adjustment as guided in the current laws on import duty and export duty and tax administration.

In case the temporarily calculated export duty amount is smaller than the payable one, the taxpayer shall pay the difference between the payable export duty amount calculated based on the re-determined export duty percentage and the temporarily calculated export duty percentage calculated at the time of royalty finalization but is not required to pay a late payment interest for such difference.

The deadline for submission of export duty adjustment declaration dossiers is that for submission of royalty finalization dossiers.

Article 14. Import duty exemption   

The exemption from import duty on goods imported for petroleum prospecting, exploration and exploitation activities must comply with the current laws on import duty and export duty and tax administration.

Section 3

ENTERPRISE INCOME TAX (EIT)

Article 15. Objects liable to EIT

1. Income from crude oil or natural gas exploitation activities and other incomes directly related to petroleum activities are liable to EIT as guided in this Circular.

2. Income from other production or business activities and other incomes other than those mentioned in Clause 1 of this Article (below referred as to other incomes) are liable to EIT as guided in the current legal documents on EIT.

Article 16. EIT period

1. The EIT period is the calendar year. In case a taxpayer applies a fiscal year other than the calendar year that has been approved by the Ministry of Finance, the tax period is that fiscal year.

2. The first EIT period starts on the first day of petroleum prospecting, exploration or exploitation activities and ends on the last day of the calendar year or fiscal year.

3. The last EIT period starts on the first day of the calendar year or fiscal year and ends on the date of termination of the petroleum contract.

4. In case the EIT period of the first year or the last year is shorter than 3 months, it may be added to the EIT period of the following year or previous year to form an EIT period. The EIT period of the first year or the last year must not exceed 15 months.

Article 17. Determination of taxable income

1. For income from crude oil or natural gas exploitation:

a/ Turnover from crude oil or natural gas exploitation means the whole value of the crude oil or natural gas volume actually sold at the point of delivery and receipt under an arm’s length transaction for crude oil, or under the gas trading contract for natural gas, in the EIT period (exclusive of value-added tax).

In case crude oil or natural gas is sold not under an arm’s length transaction, the turnover from crude oil exploitation shall be determined by multiplying the crude oil volume by the sale price guided in Clause 1, Article 5 of this Circular.

b/ Deductible and non-deductible expenses upon determination of taxable income:

b.1/ Deductible expenses: When determining taxable income, taxpayers may account as expenses (except expenses specified at Point b.2, Clause 1 of this Article) if fully satisfying the following conditions:

b.1.1/ Actually paid expenses related to the prospecting, exploration, exploitation and sale of crude oil or natural gas products, including the following:

- Royalty, export duty, surcharge for increase in crude oil prices, environmental protection charge (in case the petroleum contract has an agreement on recoverable expenses, excluding environmental protection charge).

- Actually paid expenses permitted to be recovered and related to crude oil or natural gas prospecting, exploration and exploitation which must not exceed the expense amounts determined by multiplying the crude oil or natural gas sale turnover by the corresponding recovered expense percentage agreed upon in the petroleum contract. In case the petroleum contract has no agreement on recovered expense percentage, the percentage for use as a basis for determining deductible expenses is 35% at most.

In case it is agreed upon in the petroleum contract that each contractor shall directly pay expenses for purchase of goods and services related to the crude oil or natural gas prospecting, exploration and exploitation, contractors shall make a statement of expenses enclosed with copies of lawful invoices and documents and transfer them to the executive, joint-venture enterprise or joint operating company for certifying that calculated expenses are deductible ones, and deduct these expenses upon determination of taxable income.

b.1.2/ Expenses with sufficient invoices and documents as prescribed by law.

b.1.3/ Expenses with single-purchase invoices with a value of VND 20 million or more accompanied by non-cash payment receipts as prescribed by the EIT law and guiding documents.

b.2/ Non-deductible expenses upon determination of taxable income:

b.2.1/ To-be-recovered expenses exceeding the expense recovery percentage agreed upon in the petroleum contract. In case the petroleum contract has no agreement on expense recovery percentage, to-be-recovered expenses in excess of 35% may not be accounted as deductible expenses.

b.2.2/ Expenses not allowed to be accounted as to-be-recovered expenses as stated in the petroleum contract, including:

- Expenses paid before the petroleum contract takes effect, unless agreed upon in the petroleum contract or approved by the Prime Minister;

- Petroleum commissions of all kinds, charge for reading and use of documents and other expenses not accounted as to-be-recovered expenses under the petroleum contract;

- Payable interests on loans invested in petroleum prospecting, exploration, field development and exploitation;

- Fines and compensations;

- Other expenses not allowed to be deducted as prescribed in the current EIT law and guiding documents.

c/ Incomes from the financial assurance fund for clearing fixed works, equipment and vehicles (below referred to as field clearance fund):

c.1/ EIT on income from interests on bank deposits of the field clearance fund shall apply the rate applicable to other incomes prescribed in the EIT Law and guiding documents.

c.2/ In case petroleum contractors have not used up the field clearance fund, the remainder of the fund shall be handled in accordance with the Petroleum Law and guiding documents. Income to be distributed to parties to the petroleum contract shall be handled as follows:

+ In case incomes can be separated, the income from bank deposit interests for which EIT has been paid at the rate applicable to other incomes shall not be liable to EIT. Remaining income generated from the field clearance fund shall be accounted as a reduction of expenses allowed to be recovered in case the petroleum contract has not yet fully recovered its expenses, or shall be subject to the EIT rate applied to the petroleum contract in case the petroleum contract has fully recovered its expenses.

+ In case incomes cannot be separated, the income from bank deposit interests shall be accounted as a reduction of expenses allowed to be recovered in case the petroleum contract has not yet recovered its expenses, or shall be subject to the EIT rate applied to the petroleum contract in case the petroleum contract has fully recovered its expenses.

d/ Other incomes directly related to petroleum activities, such as income from bank deposit interests, income from insurance indemnity, income from the use of property or exercise of property ownership rights (generated from collected wharfage, property liquidation charge) shall be accounted as a reduction of expenses of petroleum activities allowed to be recovered.

2. Incomes other than income from crude oil or natural gas exploitation must comply with the EIT Law and guiding documents.

Article 18. Determination of payable EIT amount

Determination of payable EIT amount:

In which:

+ Taxable income in the EIT period from crude oil or natural gas exploitation and other incomes shall be determined under the guidance in Article 15 of this Circular.

+ EIT rate must comply with the EIT law, EIT rates applicable to petroleum activities range from 32% to 50%, depending on exploitation positions and conditions and field reserves. The Prime Minister shall decide on a specific EIT rate suitable to each petroleum contract at the request of the Minister of Finance.

In case the petroleum contract has a specific agreement on EIT rate, such rate shall be complied with. In case the EIT policy provides an EIT rate more preferential than that agreed upon in the contract, once approved by the Prime Minister, such EIT rate shall apply.

2. In case the petroleum contract has an agreement that each contractor shall determine the EIT amount to be paid separately, the EIT amount payable by each contractor must be the total payable EIT amount (determined under the above guidance) multiplied (x) by the petroleum profit percentage of each contractor.

Article 19. Determination of payable temporarily calculated EIT amount

Determination of temporarily calculated EIT amount:

In which:

+ The sales of crude oil or natural gas are the whole value of the net oil and gas volume actually sold at the point of delivery and receipt under an arm’s length transaction of each sale, for crude oil, or under a natural gas trading contract of each month, for natural gas (exclusive of value-added tax).

In case crude oil or natural gas is sold not under an arm’s length transaction, the sales of crude oil or natural gas shall be determined by multiplying the crude oil volume by the sale price determined under the guidance in Clause 1, Article 5 of this Circular.

+ The temporarily calculated EIT percentage is determined as follows:

Taxpayers shall determine by themselves the percentage of temporarily calculated EIT and notify it to local tax agencies where they have made tax registration within the time limit for the notification of the percentage of temporarily calculated royalty stated in Article 10, Section I, Chapter II of this Circular.

Example 6: Determination of the percentage of temporarily calculated EIT for crude oil exploitation:

Presume that:

+ The percentage of expenses to be recovered: 35%

+ The temporarily paid royalty percentage (according to the example in Article 10 above): 20.1750%

+ The temporarily paid export duty percentage (according to the example in Article 10 above): 7.9825%

+ The EIT rate: 50%

The percentage of temporarily calculated EIT is:

(100% - 35% - 20.1750% - 7.9825%) x 50% = 18.1413%

In case of paying temporarily calculated EIT for income from natural gas exploitation, the percentage of temporarily calculated EIT shall be determined similarly as above.

Article 20. Declaration and payment of temporarily calculated EIT for crude oil or natural gas exploitation and sale

1. Declaration and payment of temporarily calculated EIT:

a/ Declaration of temporarily calculated EIT for crude oil exploitation and sale shall be made upon each sale.

The deadline for submission of a temporarily calculated EIT declaration and payment dossier for crude oil upon each sale is the 35^th day from the sale date (for both domestically sold and exported crude oil). The sale date is the date when the delivery of crude oil is completed at the point of delivery and receipt.

b/ Declaration of temporarily calculated EIT for natural gas exploitation and sale shall be made on a monthly basis.

The deadline for submission of a temporarily calculated EIT declaration and payment dossier for monthly natural gas exploitation the 20^th (twentieth) day of the month following the month of issuance of gas sale invoices.

c/ Dossiers for declaration of temporarily calculated EIT for crude oil or natural gas exploitation and sale:

- A temporarily calculated EIT declaration dossier is the temporarily calculated EIT return for petroleum, made according to No. 01/TNDN-DK provided in this Circular.

- An annex detailing the tax liabilities of petroleum contractors, made according to form No. 01/PL-DK provided in this Circular.

2. EIT finalization:

a/ A dossier of EIT finalization declaration for crude oil or natural gas exploitation and sale must comprise:

- An EIT finalization return for petroleum, made according to form No. 02/TNDN-DK provided in this Circular.

- An annex detailing the tax liabilities of petroleum contractors, made according to form No. 01/PL-DK provided in this Circular.

- The annual financial statement or a financial statement as of the time of termination of the petroleum contract.

b/ Deadlines for submission of EIT finalization declaration dossiers for crude oil or natural gas exploitation and sale:

- The 90^th (ninetieth) day from the last day of the calendar year or fiscal year.

- The 45^th (forty-fifth) day from the date of termination of the petroleum contract.

In case the EIT declaration and payment deadline falls on a holiday as prescribed by law, the deadline for submission of EIT finalization declaration dossiers is the day following that holiday.

Section 4

TAX ON INCOME FROM TRANSFER OF BENEFITS FROM PARTICIPATION IN PETROLEUM CONTRACT

Article 21. Taxable objects

1. Transfer of benefits from participation in petroleum contract means the sale or transfer by an organization or individual (transferor) of its/his/her capital amount (including assets and money) invested in a petroleum contract, enterprise or joint-venture enterprise in Vietnam, or the change of owner or ownership or control right of a contractor or otherwise disposition of the whole or part of its/his/her right, benefits and obligations in a petroleum contract, enterprise or joint-venture enterprise to another or several other organizations or individuals (the transferee), except the case of reorganization or internal financial arrangement or consolidation into the parent company by the transferor. The transferee acquires the obligations and benefits of a contractor conducting petroleum prospecting, exploration and exploitation activities.

The transfer by an enterprise established abroad (below referred to as a foreign enterprise), which has directly or indirectly holds assets and benefits from participation in a petroleum project in Vietnam, of its shares or investment capital (including assets and money) or other similar benefits in another enterprise established abroad, thereby changing the owner of the contractor currently holding the benefits from participation in a petroleum contract in Vietnam, shall also be regarded as transfer of benefits from participation in petroleum contract. The above transferring foreign enterprise shall be regarded as the transferor.

Example: Company A (an enterprise established under the British law) has a subsidiary being enterprise B (established under the French law). To manage petroleum projects, enterprise B establishes a subsidiary company being enterprise C in the Netherlands. Enterprise C directly participates in a petroleum project in Vietnam in its own capacity. In the course of operation, enterprise A transfers its investment capital in enterprise B. The transfer is conducted in France. In this case, such transfer transaction of enterprise A is transfer of benefits from participation in the petroleum contract in Vietnam and income from such transfer in proportion to the benefits from participation in the petroleum contract in Vietnam is liable to EIT.

2. Income from transfer of benefits from participation in petroleum contract is liable to EIT under the guidance in Section 4, Chapter II of this Circular.

Article 22. Determination of payable EIT amount

1. Determination of payable EIT amount:

EIT on income from the transfer of benefits from participation in a petroleum contract shall be determined as follows:

a/ Determination of taxable income:

In which:

+ The transfer price is the total actual value received by the transferor under the transfer contract.

In case the transfer contract allows installment or deferred payment, the transfer price is exclusive of interests on installment or deferred payments within the time limit stated in the transfer contract.

In case the transfer contract does not state a payment price or the tax agency has grounds to believe that the payment price is not determined according to the market price, the tax agency may examine and request the parties to the transfer to provide information relating to the determination of the present and future value of the benefits from participation in the petroleum contract before these parties decide on the transfer and effect the transfer and fix the payment value of the contract with reference to the market price, the allowed price of sale to a third party, sale prices under similar transfer contracts, appraisal prices determined by qualified professional valuation organizations at the time of transfer (if any) or re-fixing of the whole petroleum contract value at the time of transfer for the purpose of re-determining the transfer price corresponding to the transferred benefits.

In case the transfer is conducted through the sale of stocks on the securities market, the transfer price shall be the actual securities sale price (the order-matching or agreed price) as quoted by the Stock Exchange or Securities Trading Center.

+ The purchase price (cost price) of the transferred benefits from participation in a petroleum contract shall be determined based on accounting books, invoices and documents on expenses allowed to be recovered by the transferor at the time of transfer as agreed upon in the transfer contract, after subtracting the recovered or reduced expenses (if any), recognized by the parties to the petroleum contract and the Vietnam National Petroleum Group, and other expenses related to the purchase price of the transferred benefits which are not yet counted as expenses allowed to be recovered.

In case the contractor further transfers the transferred benefits from participation in a petroleum contract it has received, the purchase price of the benefits from participation in a petroleum contract to be transferred at each subsequent time shall be determined to be the transfer value of the preceding transfer contract plus expenses accounted as recovered expenses which are added by the contractor (if accompanied by valid documents), after subtracting expenses already recovered (if any).

In case accounting is performed by the executive, joint operating company or joint-venture enterprise in the US dollar as agreed upon in the petroleum contract and the contractor transfers the benefits from participation in the petroleum contract in that foreign currency, the transfer price and the purchase price of the transferred benefits shall be determined in US dollar.

In case accounting is performed by the executive, joint operating company or joint-venture enterprise in Vietnam dong, the transfer price and the purchase price of the transferred benefits shall be determined in US dollar. The exchange rate for conversion from Vietnam dong into US dollar for determination of the transfer price and the purchase price of the transferred benefits must comply with the Law on Tax Administration, the Law Amending and Supplementing the Law on Tax Administration and documents detailing and guiding these Laws.

+ Transfer expenses are actually paid expenses directly related to the transfer and accompanied by original documents accepted by tax agencies. In case transfer expenses arise overseas, these original documents shall be certified by a notary public office or independent audit organization in the country where these expenses arise, and enclosed with Vietnamese translations (certified by a competent representative).

Transfer expenses include expenses for completion of legal procedures necessary for the transfer; charges and fees paid upon carrying out transfer procedures; expenses for transaction, negotiation and conclusion of the transfer contract and other expenses accompanied by valid documents.

b/ EIT rate:

The EIT rate applicable to income from transfer of benefits from participation in petroleum contract must comply with the current EIT Law.

c/ EIT exemption and reduction are not applicable to income from transfer of benefits from participation in petroleum contract (unless it is otherwise agreed in the petroleum contract).

2. In case a taxpayer has income from the transfer of benefits from participation in a petroleum contract and it incorrectly determines or cannot calculate by itself the payable EIT amount under the guidance in Clause 1 of this Article, the tax agency shall assess the payable EIT amount or assess every element related to the determination of the payable EIT amount in accordance with the Law on Tax Administration.

Example 7: Enterprise A (an enterprise established under a foreign law) invests capital in a petroleum project in Vietnam, then it transfers all benefits from the participation in such petroleum project to enterprise B (an enterprise established under Vietnamese law or a foreign law) for USD 600 million. The transfer is conducted in Vietnam or overseas. The purchase price (cost price) of enterprise A’s benefits from participation in the petroleum contract at the time of transfer certified by an executive is USD 400 million, and expenses related to the transfer are USD 50 million. The EIT rate is 22%. Then:

- Income for calculation of EIT on the transfer of the benefits from participation in the petroleum contract in this case is USD 150 million (= 600 - 400 - 50).

- Payable EIT amount of enterprise A is USD 33 million (= 150 - 22%).

3. The determination and payment of EIT on income from transfer of benefits from participation in petroleum contract must comply with relevant tax laws and international commitments and treaties to which the Vietnamese Government has made and concluded.

Article 23. Declaration and payment of EIT on income from transfer of benefits from participation in petroleum contract

1. The transferor of benefits from participation in a petroleum contract shall declare and pay EIT on income from the transfer.

In case the transfer leads to change of the owner of the contractor currently holding the benefits from participation in a petroleum contract in Vietnam, the contractor named in the petroleum contract shall notify the tax agency of such transfer and declare and pay EIT on behalf of the transferor on the income amount generated in relation to the petroleum contract in Vietnam under regulations.

2. For income from transfer of benefits from participation in a petroleum contract, a tax declaration dossier must comprise:

- A return of EIT on income from the transfer, made according to form No. 03/TNDN-DK provided in this Circular;

- A copy of the transfer contract (English-language copy and Vietnamese translation);

- The written certification by the executive, joint operating company, parties to the joint-venture enterprise or the Vietnam Oil and Gas Group of total expenses born by the transferor corresponding to the cost price of the transferred benefits and documentary evidence;

- Original documents of expenses related to the transfer;

- In case the transfer leads to change of the owner of the contractor currently holding the benefits from participation in a petroleum contract in Vietnam, the foreign contractor directly participating in the petroleum contract shall report and additionally provide the following documents:

+ Structure of shares of the company before and after the transfer.

+ Two years’ financial statements of the foreign enterprise and its subsidiary companies/branches directly or indirectly holding the benefits from participation in the petroleum contract in Vietnam.

+ Report on asset valuation and other valuation documents used to determine the transfer value of stocks and investment capital overseas under the contract.

+ Report on payment of EIT by the foreign enterprise in relation to the transfer leading the change of the owner of the contractor currently holding benefits from participation in the petroleum contract in Vietnam.

+ Report on the relationship between the transferring foreign enterprise and its branches/subsidiary companies directly or indirectly holding the benefits from participation in the petroleum contract in Vietnam, indicating the contributed capital amounts, production or business activities, turnover, expenses, bank accounts, assets, personnel, etc.

If the dossier lacks any document, the tax agency shall notify such to the taxpayer within 3 working days after receiving the dossier.

3. The time limit for submission of a tax declaration dossier is 10 (ten) days after the parties enter into the transfer contract related to benefits from participation in a petroleum contract or 6 (six) months after the owner of the contractor currently holding the benefits from participation in a petroleum contract in Vietnam is changed.

Within 10 (ten) working days after receiving a complete dossier, the tax agency shall examine and appraise it and notify the taxpayer of the examination result.

4. The deadline for EIT payment is the 10^th (tenth) day from the date the Prime Minister approves the transfer of benefits from participation in a petroleum contract.

5. Places for submission of tax declaration dossiers are tax agencies as guided in Article 4, Chapter I of this Circular. Tax agencies receiving tax declaration dossiers shall send one copy of every dossier to the General Department of Taxation.

Section 5

OTHER TAXES, CHARGES AND FEES

Article 24. Other taxes, charges and fees

In the course of production or business activities, taxpayers shall pay other taxes, charges and fees not yet specifically guided in this Circular under current regulations on taxes, charges and fees.

Particularly for the refund of value-added tax at the stage of prospecting, exploration and development of petroleum fields, the Ministry of Finance guides this issue as follows: Input value-added tax on goods and services used for the prospecting, exploration and development of petroleum fields until the first date of exploitation or production shall wholly be deducted. In case no commercial petroleum reserve is found under the petroleum contract which is invalidated under a competent authority’s decision, the input value-added tax amount on goods and services used for prospecting, exploration and development of petroleum fields will not be retrospectively collected once it is refunded.

Chapter III

ORGANIZATION OF IMPLEMENTATION

Article 25. Effect

1. This Circular takes effect on April 12, 2016, and applies to the tax period of 2016 onward and to crude oil and natural gas shipments sold as from January 1, 2016.

This Circular replaces the Ministry of Finance’s Circular No. 32/2009/TT-BTC of February 19, 2009, guiding the implementation of tax provisions applicable to organizations and individuals conducting petroleum prospecting, exploration and exploitation in accordance with the Petroleum Law.

The guidance on declaration of royalty and EIT on crude oil or natural gas exploitation and sale in Article 24 of the Ministry of Finance’s Circular No. 156/2013/TT-BTC of November 6, 2013, guiding a number of articles of the Law on Tax Administration; the Law Amending and Supplementing a Number of Articles of the Law on Tax Administration, and the Government’s Decree No. 83/2013/ND-CP of July 22, 2013, is annulled.

From the effective date of the Ministry of Finance’s Circular No. 152/2015/TT-BTC of October 2, 2015, to January 1, 2016, the determination of payable royalty amounts on exploited crude oil or natural gas volumes must still comply with the guidance in Section II, Part V of the Ministry of Finance’s Circular No. 105/2010/TT-BTC of July 23, 2010.

2. Petroleum contracts for which investment licenses were granted before the effective date of Petroleum Law No. 10/2008/QH12, EIT Law No. 14/2008/QH12, and Amended EIT Law No. 32/2013/QH13, and which are enjoying EIT incentives under their granted investment licenses may continue enjoying EIT incentives (preferential EIT rate and exemption or reduction periods) for the remaining validity period.

Taxpayers shall base themselves on provisions of their investment licenses or the Prime Minister’s decisions on the level and duration of EIT exemption and reduction to determine exempted or reduced EIT amounts and EIT amounts payable upon EIT temporary calculation and finalization.

The first year of taxable income generation is the first tax period of taxable income generation.

Incomes eligible for EIT exemption or reduction do not include other incomes specified in Clause 2, Article 15 of this Circular.

3. In case treaties and inter-governmental agreements which the Vietnamese Government has signed or acceded to and contracts having government guarantee commitments contain provisions on taxes applicable to crude oil or natural gas prospecting, exploration and exploitation activities which are different from those of this Circular, organizations and individuals conducting crude oil or natural gas prospecting, exploration and exploitation activities shall pay taxes under such treaties or inter-governmental agreements.

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

For the Minister of Finance
Deputy Minister
DO HOANG ANH TUAN

* All appendices and forms promulgated together with this Circular are not translated.