Circular 67/2022/TT-BTC tax liabilities applicable to enterprises using Science and Technology Development Funds

CIRCULAR

Guiding tax obligations upon an enterprise’s allocation of income to, and use of, its Science and Technology Development Fund^[1]

Pursuant to June 13, 2019 Law No. 38/2019/QH14 on Tax Administration;

Pursuant to Law No. 14/2008/QH12 on Enterprise Income Tax; Law No. 32/2013/QH13 Amending and Supplementing a Number of Articles of the Law on Enterprise Income Tax; and Law No. 71/2014/QH13 Amending and Supplementing a Number of Articles of the Tax Laws;

Pursuant to the National Assembly’s Resolution No. 43/2022/QH15 of January 11, 2022, on fiscal and monetary policies to support the Program on socio-economic recovery and development;

Pursuant to the Government’s Decree No. 126/2020/ND-CP of October 19, 2020, detailing a number of articles of the Law on Tax Administration;

Pursuant to the Government’s Decree No. 218/2013/ND-CP of December 26, 2013, detailing, and guiding the implementation of, a number of articles of the Law on Enterprise Income Tax;

Pursuant to the Government’s Decree No. 95/2014/ND-CP of October 17, 2014, on investment in, and financial mechanism for, scientific and technological activities (below referred to as Decree No. 95/2014/ND-CP);

Pursuant to the Government’s Decree No. 76/2018/ND-CP of May 15, 2018, detailing, and guiding the implementation of, a number of articles of the Law on Technology Transfer;

Pursuant to the Government’s Decree No. 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the General Director of the General Department of Taxation;

The Minister of Finance promulgates the Circular guiding tax obligations upon an enterprise’s allocation of income to, and use of, its Science and Technology Development Fund.

Article 1. Scope of regulation and subjects of application

1. Scope of regulation: This Circular guides tax obligations upon an enterprise’s allocation of income to, and use of, its Science and Technology Development Fund (below referred to as the Fund).

2. Subjects of application: enterprises established and operating under Vietnam’s law (below referred to as enterprises) and other related state agencies, organizations and individuals.

Article 2. Allocation of income to the Science and Technology Development Fund of an enterprise

1. Every year, the enterprise is entitled to allocate a percentage (%) of the   enterprise income tax (EIT) calculation income to create sources for the Fund according to Clause 1, Article 17 of Law No. 14/2008/ QH12 on Enterprise Income Tax; Clause 1, Article 18 of the Government’s Decree No. 218/2013/ND-CP of December 26, 2013, detailing, and guiding the implementation of, the Law on Enterprise  Income Tax, and Clauses 1 and 2, Article 9 of Decree No. 95/2014/ND-CP, specifically as follows:

a/ For state enterprises: To allocate between 3% and 10% of the EIT calculation income in the tax period. The specific allocation rate shall be based on the enterprises’ financial capacity and needs for their scientific and technological activities;

b/ For enterprises other than those mentioned at Point a, Clause 1 of this Article: The enterprises shall themselves decide on the specific allocation rate which, however, must not exceed 10% of the EIT calculation income in the tax period.

2. The amount of income to be allocated to the Fund shall be determined for each EIT period and may be deducted from the enterprises’ EIT calculation income upon determination of the payable EIT amount in the tax period.

Article 3. Principles of using the Fund

1. The Fund may only be used for investment in scientific and technological research and development of an enterprise and items that are allowed to be paid from the Fund in accordance with law.

2. Expenditures from the Fund must be accompanied by sufficient invoices and documents as prescribed. For expenditures not accompanied by invoices and documents as prescribed, an enterprise shall fulfill obligations toward the state budget as specified in Clause 1, Article 4 of this Circular.

3. When determining its taxable income in a tax period, an enterprise may not include in deductible expenses the expenditures from the Fund as well as the late payments and the interest on the payable EIT amount determined according to Clause 1 or 2, Article 4 of this Circular.

4. The use of the Fund must comply with the first in, first out principle.

5. During a year, in case an enterprise wishes to use an amount exceeding the available balance of the Fund for scientific and technological activities, it may opt to include the deficit in deductible expenses when determining the EIT calculation income in the tax period or make advance allocations to the Fund for the subsequent years to make up for the deficit according to Clause 7, Article 10 of Decree No. 95/2014/ND-CP.

Article 4. Tax obligations when an enterprise uses the Fund for improper purposes or does not use or uses less than 70% of the annual allocation to the Fund

1. Tax obligations when an enterprise uses the Fund for improper purposes

In case the enterprise uses the Fund for improper purposes, it shall pay to the state budget an EIT amount calculated for the amount of income allocated to the Fund corresponding to the improperly used amount and the interest on such EIT amount. The rate of the interest on the to-be-recovered EIT amount calculated for the improperly used amount is the late-payment interest rate as prescribed by the Law on Tax Administration and guiding legal documents. The interest calculation period shall be counted continuously from the day following the day of making allocation to the Fund to the day preceding the day on which the to-be-recovered EIT amount is paid to the state budget.

2. Tax obligations when an enterprise does not use or uses less than 70% of the annual allocation to the Fund

a/ Within 5 (five) years from the time of allocating income to the Fund as specified in Article 2 of this Circular, if the enterprise does not use or uses less than 70% of the annual allocation to the Fund, it shall pay to the state budget an EIT amount calculated for the amount of income already allocated to the Fund but left unused or for the remainder of the amount of income already allocated to the Fund in case of using less than 70% of the annual allocation to the Fund and, at the same time, pay the interest on such EIT amount. The interest on the payable EIT amount shall be determined according to Point b, Clause 2 of this Article.

In case of receiving a transfer from the Fund, the 5-year time limit applicable to the amount transferred from the Fund shall be determined from the EIT period when the transferred amount is received.

b/ The rate of the interest on the to-be-recovered EIT amount corresponding to the unused balance of the Fund is the interest rate for treasury bonds of one-year term applied at the time of tax recovery and the interest calculation period is two years as specified in Clause 2, Article 17 of Law No. 14/2008/QH12 on Enterprise Income Tax.

c/ Spendings of the Fund include: payments which are made for proper purposes and have been finally settled according to regulations; advanced payments for activities of the Fund which are accompanied by sufficient invoices and documents but remain unqualified for final settlement; transfers from the Fund of a corporation to that of a member enterprise or from the Fund of a parent company to that of a subsidiary and vice versa; and remittances to the National Foundation for Science and Technology Development or the Science and Technology Development Fund of the concerned line ministry or province/city (if any) according to regulations of the Ministry of Science and Technology.

The transfer between the Fund of a parent company or corporation and the Fund of a subsidiary or member enterprise and vice versa is only applicable to subsidiaries or member enterprises in which the parent company owns 100% of the capital and excludes:

- Transfer from the Fund of a foreign-invested enterprise to the Fund of its overseas parent company;

- Transfer from the Fund of a parent company in Vietnam to the Fund of its overseas subsidiary.

3. In case the enterprise that allocates income to and the enterprise that makes a transfer from the Fund are ineligible for EIT incentives, the EIT rate used to calculate the to-be-recovered EIT amount is the rate applicable to the enterprise for each tax period when the enterprise allocates income to or makes a transfer from the Fund.

4. Determination of EIT in case an enterprise allocates income to the Fund during the period of entitlement to EIT incentives:

a/ In case the enterprise allocates income to the Fund during the period of entitlement to EIT incentives (period of entitlement to preferential tax rates, tax exemption or reduction period), if the enterprise uses the amount of income allocated to the Fund in that period for improper purposes or does not use or uses less than 70% of such amount, the to-be-recovered EIT amount shall be determined according to the EIT incentive level applied at the time of making allocation.

b/ In case the enterprise allocates income to the Fund during the period of entitlement to EIT incentives and at the same time receives a transfer to the Fund from another enterprise (the transferring enterprise), if the enterprise uses the allocated amount for improper purposes or does not use or uses less than 70% of such amount, the to-be-recovered EIT amount shall be determined as follows:

- For the amount allocated to the Fund by the enterprise itself, the to-be-recovered EIT shall be determined according to the EIT incentive level at the time of making allocation.

- For the amount received from the transferring enterprise, the to-be-recovered EIT amount shall be determined as follows:

+ At the time of receiving the transfer, if the transferring enterprise is not entitled to EIT incentives, the to-be-recovered EIT amount shall be determined at the non-preferential EIT rate.

+ At the time of receiving the transfer, if the transferring enterprise is entitled to EIT incentives, the to-be-recovered EIT amount shall be determined according to the EIT incentive level applicable to the transferring enterprise at the time of transfer.

The transferred amount which is used for improper purposes or left unused or the remainder of the transferred amount in case of using less than 70% of the transferred amount shall be distributed according to the proportion between the transferred amount and the balance of Fund in the tax period (including the amount allocated to the Fund and the transferred amount).

5. An enterprise shall itself calculate, declare and pay EIT on the amount allocated to the Fund which is used for improper purposes or left unused or the remainder of such amount in case of using less than 70% of the amount allocated to the Fund and take responsibility before law in accordance with the law on tax administration.

Article 5. Management of assets formed from the Fund

1. An enterprise shall compile a dossier of fixed assets formed from the Fund for monitoring and management in accordance with law and may not include depreciation of these fixed assets in deductible expenses when determining taxable income, including the following cases:

a/ Fixed assets formed to serve the enterprise’s scientific and technological research activities;

b/ Purchase of machinery and equipment accompanied by objects of technology transfer as specified in Article 7 of the Law on Technology Transfer in order to replace part or the whole of the technology already or currently in use with a more advanced technology for improving productivity and product quality or renovate or develop new products of the enterprise according to Point c, Clause 3, Article 10 of Decree No. 95/2014/ND-CP;

c/ Purchase of machinery and equipment for the purpose of technology renewal, in direct service of the enterprise’s production and business activities for 2 years (2022 and 2023) according to the contents mentioned at Point b, Clause 3, Article 3 of the National Assembly’s Resolution No. 43/2022/QH15 of January 11, 2022, on fiscal and monetary policies to support the Program on socio-economic recovery and development.

2. Expenses for repair and upgrading of fixed assets formed from the Fund shall be covered by the Fund.

3. In case an enterprise uses fixed assets formed from the Fund to serve scientific and technological research activities which have not yet been fully depreciated for its production and business activities, the remaining value of these fixed assets shall be included in other incomes and the enterprise shall make depreciation for such fixed assets and include such remaining value in deductible expenses when determining its taxable income.

4. In case an enterprise uses fixed assets formed from the Fund which have not yet been fully depreciated for both scientific and technological research activities and production and business activities, the enterprise shall continue to monitor and manage such fixed assets according to the Ministry of Finance’s regulations on management, use and depreciation of fixed assets and is not required to include the depreciation of these fixed assets in deductible expenses when determining its taxable income.

5. In case fixed assets formed from the outcomes of performance of scientific and technological tasks of an enterprise are used for production and business activities of the enterprise, the value of such fixed assets shall be included in other incomes and the enterprise shall make depreciation for and include the value of such fixed assets in deductible expenses when determining its taxable income.

6. In case fixed assets purchased with money from the Fund are transferred, the enterprise shall determine the remaining value of such fixed assets to increase or decrease the Fund upon transfer of the assets.

7. For fixed assets which are currently used for production and business activities and then used for scientific and technological research activities, the enterprise shall determine the remaining value of these fixed assets so as to make payment for purchase of fixed assets from the Fund and monitor such assets according to Clause 1 of this Article.

8. Cases of liquidation of assets serving scientific and technological activities of enterprises must comply with current regulations.

9. For other assets, enterprises shall manage and monitor them according to regulations, ensuring that they are used for proper purposes.

Article 6. Management of the Fund in case of enterprise reorganization

1. In case of reorganization of an enterprise(s) that leads to the establishment of a new enterprise in accordance with Vietnam’s law, the newly established enterprise shall take over and bear responsibility for the management and use of the Fund of the enterprise(s) before the reorganization.

2. In case of enterprise reorganization that does not fall into the case mentioned in Clause 1 of this Article, the enterprise(s) after the reorganization shall take over and bear responsibility for the management and use of the Fund of the enterprise(s) before the reorganization. The division of the Fund shall be decided by the enterprise(s) and notified to the concerned tax office.

Article 7. Reporting on allocation of income and transfer to, and use of, the Fund

1. Every year, an enterprise shall make a report on allocation of income and transfer to, and use of, the Fund according to Form No. 03-6/TNDN issued together with the Ministry of Finance’s Circular No. 80/2021/TT-BTC of September 29, 2021, guiding a number of articles of the Law on Tax Administration, and the Government’s Decree No. 126/2020/ND-CP of October 19, 2020, detailing a number of articles of the Law on Tax Administration.

2. In case of making transfers between the Fund of an enterprise to the Fund of another enterprise under Point c, Clause 2, Article 4 of this Circular, the transfer-receiving enterprise shall report on the receipt and use of transferred amounts.

3. The report on allocation of income and transfer to, and use of, the Fund shall be sent to the agencies specified in Clauses 1 and 4, Article 11 of Decree No. 95/2014/ND-CP. The report submission deadline coincides with the deadline for submission of the enterprise’s annual EIT final-settlement declaration.

Article 8. Effect and organization of implementation

1. This Circular takes effect on December 23, 2022, and applies to the determination of tax obligations from the 2022 EIT period.

2. To annul Articles 4, 12, 13, 14, 16 and 17 of Joint Circular No. 12/2016/TTLT-BKHCN-BTC of June 28, 2016, of the Ministry of Science and Technology and the Ministry of Finance, guiding spending items and management of the Science and Technology Development Funds of enterprises.

3. Spending items, instructions on use of, and remittance from the Science and Technology Development Funds of enterprises to the National Foundation for Science and Technology Development or the Science and Technology Development Funds of the line ministries and provinces/cities must comply with legal documents on science and technology and regulations of the Ministry of Science and Technology.

4. In case the legal documents referred to in this Circular are amended, supplemented or replaced by new legal documents, the new documents shall apply.

5. In the course of implementation of this Circular, organizations and individuals shall promptly report any arising problems to the Ministry of Finance for study and settlement.-

For the Minister of Finance
Deputy Minister
CAO ANH TUAN