Circular No. 97/2002/TT-BTC dated October 24, 2002 of the Ministry of Finance guiding the fulfillment of tax obligations by Vietnamese enterprises investing overseas

CIRCULAR

GUIDING THE FULFILLMENT OF TAX OBLIGATIONS BY VIETNAMESE ENTERPRISES INVESTING OVERSEAS

Pursuant to the current tax laws and ordinances of the Socialist Republic of Vietnam and the Government’s decrees detailing the implementation of tax laws and ordinances;

Pursuant to the Government’s Decree No.22/1999/ND-CP of April 14, 1999 prescribing the investment overseas by Vietnamese enterprises;

Pursuant to the Prime Minister’s Decision No.116/2001/QD-TTg of August 2, 2001 on a number of privileges and incentives for overseas investment in the field of petroleum activities;

Pursuant to the Government’s Decree No.178/CP of October 28, 1994 defining the tasks, powers and organizational apparatus of the Finance Ministry;

The Finance Ministry hereby guides the fulfillment of tax obligations by Vietnamese enterprises investing overseas under the provisions in the Government’s Decree No.22/1999/ND-CP of April 14, 1999 (hereinafter referred generally to as Decree No.22/1999/ND-CP) and the provisions in the Prime Minister’s Decision No. 116/2001/QD-TTg of August 2, 2001 (hereinafter referred generally to as Decision No.116/2001/QD-TTg), as follows:

I. GENERAL PROVISIONS

1. This Circular shall apply to Vietnamese enterprises mentioned at Point 1, Article 2 of Decree No.22/1999/ND-CP, which invest overseas under the provisions in Decree No.22/1999/ND-CP and the provisions in Decision No.116/2001/QD-TTg, including:

- Enterprises set up under the State Enterprise Law;

- Cooperatives set up under the Law on Cooperatives;

- Enterprises set up under the Enterprise Law.

Overseas investment petroleum projects mean projects on conducting petroleum activities including prospection and exploration, mine development and petroleum exploitation as well as activities in direct service of petroleum activities. The activities in direct service of petroleum activities shall include activities in service of prospection and exploration, mine development and petroleum exploitation, prescribed in the licenses or written approvals granted by the investment-receiving countries to overseas investment petroleum projects of Vietnamese enterprises.

Vietnamese enterprises conducting the above-mentioned overseas investment activities shall hereinafter be called “Vietnamese enterprises investing overseas” for short.

2. Where the international treaties which the Vietnamese Government has signed or acceded to and are related to overseas investment by Vietnamese enterprises contain tax provisions different from the guidance in this Circular, the tax obligations shall comply with the signed international treaties.

II. APPLICABLE TAXES

1. Export tax, import tax and value added tax (VAT):

1.1. For export goods:

1.1.1. Machinery, equipment, knocked down parts, supplies, raw materials, fuel, which are exported to foreign countries for creation of fixed assets of overseas investment projects, shall be exempt from export tax (if any) and subject to VAT at the rate of 0%.

The dossiers to be submitted to the customs offices for export tax exemption shall include:

- The written request of the Vietnamese enterprise investing overseas;

- The export goods declaration;

- The list of goods exported for execution of overseas investment projects and exempt from export tax which is issued by the Trade Ministry (with detailed inscription on categories, volumes and value of goods);

- The license for investment overseas, granted by the Ministry of Planning and Investment- the copy with certification as true copy of the original by the Vietnamese enterprise investing overseas;

- The license or written approval issued by the investment-receiving country of the investment by Vietnamese enterprise in this country- the copy and the translation thereof with certification by the Vietnamese enterprise investing overseas or by competent bodies;

- The contract for entrusted export (in case of entrusted export)- the copy with certification as true copy of the original by the Vietnamese enterprise investing overseas.

In case of multiple export of goods, the documents mentioned in em rules 4, 5 and 6 of the above-mentioned dossiers shall only be submitted for the first exportation.

Basing themselves on the above-mentioned dossiers and the actual export goods, the customs offices shall have to inspect and determine the specific export tax amount to be exempted for each export goods lot and inscribe concretely in the export goods declarations: “The export tax amount to be exempted under the provisions of Circular No. 97/2002/TT-BTC of October 24, 2002 of the Finance Ministry is…”

Where the export goods lack export tax rates, the customs offices shall base themselves on the list of export goods exempt from export tax which is issued by the Trade Ministry, to monitor the export of goods for implementation of overseas investment projects of Vietnamese enterprises investing overseas and inscribe clearly in the export goods declarations the categories, volume and value of goods actually exported.

The dossiers evidencing the export goods upon the VAT declaration shall comply with the current VAT Law’s provisions on export goods. Particularly for goods selling contracts signed with foreign countries, they shall be substituted by the list of export goods entitled to export tax exemption, issued by the Trade Ministry.

1.1.2. For goods exported in form of temporary export for re-import for implementation of overseas investment projects, the export tax shall apply to temporarily exported goods and the import tax to re-imported goods under the provisions of the current Law on Export Tax and Import Tax, and the VAT shall apply in accordance with the current VAT Law.

1.2. For import goods:

1.2.1. Machinery, equipment and knocked down parts, which are exported for creation of fixed assets of the overseas investment projects and re-imported into Vietnam upon the liquidation thereof or the project completion, shall be exempt from import tax and belong to subjects not liable to VAT.

The dossiers to be submitted to the customs offices for import tax exemption and determination of goods to be subjects not liable to VAT shall include:

-The written request of the Vietnamese enterprise investing overseas;

- The import goods declaration (with customs procedures already completed);

- The export goods declaration (with certification of the completion of customs procedures and the actual export goods) when exporting goods for creation of fixed assets of overseas investment projects- the original or copy certified by the Vietnamese enterprise investing overseas;

- The written certification of the completion of overseas investment project by competent agencies of the investment-receiving country, or the asset liquidation decision of the Managing Board or the equivalent level under the regulations of the investment-receiving country- the copy and translation thereof with certification by the Vietnamese enterprise investing overseas or the competent bodies.

- The contract for entrusted import (in case of entrusted import)- the copy with certification as true copy of the original by the Vietnamese enterprise investing overseas.

In case of multiple import of goods, the documents mentioned in em rules 4 and 5 of the above-mentioned dossiers shall only be submitted for the first importation.

Basing themselves on the above-mentioned dossiers and the actual import goods, the customs offices shall issue decision on import tax exemption for each import goods lot.

1.2.2. Assets distributed upon their liquidation or completion of overseas investment projects and acquired due to investment in cash; assets being turnover or profit dividends of the overseas investment projects, which are imported into Vietnam, shall be subject to import tax under the provisions of the Law on Export Tax and Import Tax and to VAT under the provisions of the current VAT law.

1.2.3. Specimen, technical documents (magnetic tapes, paper tapes…) of overseas investment petroleum projects, which are imported for the purposes of research and/or analysis in service of the implementation of overseas investment petroleum projects, shall be exempt from import tax and belong to subjects not liable to VAT.

The dossiers to be submitted to the customs offices for import tax exemption and the determination of goods to be subjects not liable to VAT shall include:

- The written request of the Vietnamese enterprise investing overseas;

- The import goods declaration (with customs procedures already completed);

- The list of specimen and technical documents of the overseas investment petroleum project, which are imported for research and/or analysis in service of the implementation of such projects, made by the Vietnamese enterprise investing overseas (inscribing in details: categories, quantity and value of goods). The enterprise must bear responsibility before law for the content of the list;

- The overseas investment license issued by the Ministry of Planning and Investment- the copy with certification by the Vietnamese enterprise investing overseas;

- The investment-receiving country’s permit for or written approval of the Vietnamese enterprise’s investment in that country- the copy or translation thereof with certification by the Vietnamese enterprise investing overseas or a competent agency;

- The entrusted import contract (in case of entrusted import)- the copy thereof with certification by the Vietnamese enterprise investing overseas.

In case of multiple import of goods, the documents mentioned in em rules 4,5 and 6 of the above-mentioned dossiers shall only be submitted for the first importation.

Basing themselves on the above-mentioned dossiers and the actual import goods, the customs offices shall issue decision on import tax exemption for each import goods lot.

1.2.4. Equipment and supplies used exclusively for petroleum activities, which are imported for product-processing under processing contracts signed with the competent representatives of overseas investment petroleum projects, shall be exempt from import tax and belong to subjects not liable to VAT when they are imported in volume corresponding to the actually exported product volume, and the products, when exported, shall be exempt from export tax, and belong to subjects liable to VAT at the tax rate of 0%.

The General Department of Customs shall guide the implementation of import tax exemption and the determination of goods to be subjects not liable to VAT for cases where Vietnamese enterprises investing overseas import equipment and supplies used exclusively for petroleum activities for processing and exempt from the export tax (if any) when products are exported for overseas investment petroleum projects under the provisions of the current Law on Export Tax and Import Tax and the Law on VAT.

1.2.5. For equipment and supplies, which are used exclusively for petroleum activities, cannot be produced at home yet, are imported for product manufacture and processing and exported to overseas investment petroleum projects, the import tax shall comply with the current Law on Export Tax and Import Tax and the VAT comply with the current VAT Law.

The determination of special-use equipment and supplies to be types which cannot be produced at home yet shall be based on the list of supplies and equipment in service of petroleum activities, which can be produced at home, promulgated by the Ministry of Planning and Investment.

2. Enterprise income tax:

Vietnamese enterprises investing overseas, which earn incomes from their production and/or business activities overseas, shall declare and pay the enterprise income tax according to the provisions of Vietnam’s current Law on Enterprise Income Tax, including cases where the enterprises are enjoying income tax exemption or reduction preferences under the regulations of the investment-receiving countries. The enterprise income tax rate for calculation and declaration of tax on overseas incomes shall be the basic tax rate of the Enterprise Income Tax Law; the preferential tax rates (if any) which are enjoyed by Vietnamese enterprises investing overseas according to the laws applicable to domestic enterprises shall not apply.

The tax offices are entitled to fix the taxable incomes from overseas production and/or business activities of Vietnamese enterprises investing overseas, for cases of violating the provisions on tax declaration and payment in Article 16 of Vietnam’s Enterprise Income Tax Law.

Where such income amounts have already been imposed with enterprise income tax (or a kind of tax similar in nature to the enterprise income tax) overseas, when calculating the enterprise income tax to be paid in Vietnam, the Vietnamese enterprises investing overseas shall have the tax amounts, which have already been paid overseas or already paid on their behalf by the foreign partners of the investment-receiving country (including the amount of tax on share interests), subtracted, but the subtracted amount must not exceed the income tax amounts calculated under the provisions of Vietnam’s Enterprise Income Tax Law. The income tax exemption or reduction amounts enjoyed by Vietnamese enterprises investing overseas under the legislation of the investment-receiving countries for profit amounts earned from overseas investment projects shall also be subtracted when determining the enterprise income tax amounts to be paid in Vietnam.

Example 1:Vietnamese Enterprise A earns an income amount of VND 800 million from its overseas investment project. This is the income amount earned after the payment of income tax under the legislation of the investment-receiving countries. The already paid income amount is VND 200 million.

Vietnamese Enterprise A’s income amount subject to income tax declaration and payment under Vietnam’s Enterprise Income Tax Law shall be as follows:

[(VND 800 million + VND 200 million) x 32%] = VND 320 million.

The enterprise income tax amount to be paid after the subtraction of the tax amount already paid in the investment-receiving countries:

VND 320 million - VND 200 million = VND 120 million.

Example 2:Vietnamese Enterprise A earns an income amount of VND 780 million from its overseas investment project. This is the income amount earned after the payment of income tax. The income tax amount already paid under the regulations of the investment-receiving country is VND 520 million.

Vietnamese Enterprise A’s income amount subject to income tax declaration and payment under Vietnam’s Enterprise Income Tax Law shall be as follows:

[(VND 780 million + VND 520 million) x 32%] = VND 416 million.

Vietnamese Enterprise A shall be entitled to subtract only the tax amount already paid in the investment-receiving country corresponding to tax amount calculated according to Vietnam’s Enterprise Income Tax Law, namely VND 416 million. The  tax amount already paid in the investment-receiving country in excess of the tax amount calculated under Vietnam’s Enterprise Income Tax Law, which is VND 104 million (520-416=104), must not be cleared against the payable tax amount when declaring and paying enterprise income tax in Vietnam.

The enclosed dossiers to be submitted when declaring and paying tax by Vietnamese enterprises investing overseas on the income amounts earned from their overseas investment projects shall include:

- The decision issued by the Managing Board of the enterprise on the divisions of profits of the overseas investment project.

- The enterprise’s financial report already certified by an independent audit organization

- The enterprise’s income tax declaration for overseas investment project (the copy certified by competent representative of the overseas investment project);

- The report on tax settlement with the enterprise (if any);

- The certification of the payable tax amount, the tax amount already paid overseas or tax amount paid on its behalf, the tax amount exempt or reduced, by the tax offices in the investment-receiving country.

In cases where overseas investment projects have not yet generated taxable incomes (or are generating losses), the Vietnamese enterprises investing overseas, when declaring and settling the annual enterprise income tax, shall only have to submit the financial reports certified by independent audit organizations or competent agencies of the investment-receiving countries and the declaration of the income tax of the overseas investment projects (the copies certified by competent representatives of the overseas investment projects). The loss amounts incurred from the overseas investment projects shall be handled or carried forward according to the regulations of the investment-receiving countries and must not be cleared against the generated income amounts of the domestic enterprises when calculating the enterprise income tax. If losses arise upon the termination of operation of the overseas investment projects, which have not yet been fully offset and have been incurred by the Vietnamese enterprises, the Vietnamese enterprises may declare and clear such loss amounts against their incomes in the subsequent period in accordance with the provisions of the Enterprise Income Tax Law.

For overseas investment petroleum projects, if the Vietnamese enterprises investing overseas borrow capital for investment and can prove that the loan interests have not yet been deducted upon determining the taxable income according to the regulations of the investment-receiving countries, such loan interest amounts shall be cleared against the income amounts from the overseas investment petroleum projects when determining the taxable income under the provisions of Vietnam’s Enterprise Income Tax Law. The loan interest clearing percentages shall comply with the provisions of the current Enterprise Income Tax Law.

The overseas income amounts shall be declared in the settlement of enterprise income tax of the year following the fiscal year of the overseas investment projects according to the regulations of the investment-receiving countries. The enterprises may declare them into the settlement of enterprise income tax of the fiscal year coincident with the fiscal year of the overseas investment projects if the enterprise have enough grounds and vouchers to determine the income amounts and the already paid income tax amounts of the overseas investment projects.

Example 3:Vietnamese Enterprise A earns income from its overseas investment project of the 2001 fiscal year. It must declare the said income amount into the declaration on settlement of income tax of the 2002 fiscal year, according to the provisions of Vietnam’s Enterprise Income Tax Law.

For the income amount earned from production and/or business activities of the projects for investment in the countries which have signed with Vietnam the agreements on double taxation avoidance, the Vietnamese enterprises investing overseas shall declare and pay tax according to the provisions of such agreements.

3. Income tax on high-income earners:

Individuals working for overseas investment projects shall pay personal income tax according to the provisions of the current Ordinance on Income Tax on High-Income Earners.

4. Other taxes, charges and fees:

Apart from fulfilling their tax obligations for production and/or business activities of overseas investment projects as guided in this Circular, the Vietnamese enterprises investing overseas shall fulfill their tax, charge and fee obligations according to the provisions of the current tax, charge and fee legislation regarding production and/or business activities in Vietnam through the supply of goods, services and other economic transactions for overseas investment projects.

III. ORGANIZATION OF IMPLEMENTATION

1.Quarterly, the General Department of Customs shall send a sum-up report to the Finance Minister on the types and volumes of export and import goods; the export and import turnovers; the export tax amount and the import tax amount exempted for overseas investment projects.

2.This Circular takes effect 15 days after its signing. If any problems arise in the course of implementation, organizations and individuals are requested to report them to the Finance Ministry for study, guidance and timely supplement.