Decree No. 122/2011/ND-CP dated December 27, 2011 of the Government amending and supplementing a number of articles of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding the implementation of a number of articles of the Law on Enterprise Income Tax

THE GOVERNMENT

Decree No. 122/2011/ND-CP of December 27, 2011, amending and supplementing a number of articles of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding the implementation of a number of articles of the Law on Enterprise Income Tax

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the June 3, 2008 Law on Enterprise Income Tax;

At the proposal of the Minister of Finance,

DECREES:

Article 1. To amend and supplement a number of articles of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding the implementation of a number of articles of the Law on Enterprise Income Tax (below referred to as Decree No. 124/2008/ND-CP), as follows:

1. To amend and supplement Article 3 as follows:

“Article 3. Taxable incomes

1. Taxable incomes include income from goods production and trading and service provision and other incomes specified in Clause 2 of this Article. For enterprises having registered their business and earning incomes specified in Clause 2 of this Article, such incomes shall be determined as incomes from their production and business activities.

2. Other incomes include:

a/ Income from capital transfer, including income from the transfer of part or the whole of the capital amount invested in an enterprise, even in case of enterprises sale, transfer of securities and transfer of capital in other forms under law;

b/ Income from transfer of project or mineral exploration, mining or processing rights under law; income from real estate transfer specified in Clause 9, Article 1 of this Decree;

c/ Income from the right to own or use assets, including earned copyright royalties in any forms and earnings from intellectual property rights; income from technology transfer under law; and asset lease in any forms;

d/ Income from the transfer or liquidation of assets (excluding real estate) and other valuable papers;

e/ Income from deposit interests, loan interests or foreign currency sales, including interests on deposits at credit institutions, interests on loans in any forms under law, credit guarantee charges and other charges under loan provision contracts. Income from foreign currency sales; foreign exchange rate difference resulting from the revaluation of payable foreign-currency debts at the end of a fiscal year (excluding foreign exchange rate difference arising in the course of capital construction investment for the formation of fixed assets which are not yet put into production and business);

f/ Refunded provisions (excluding refunded provisions for price decreases of goods in stock, lost financial investments, bad debts and warranty for products and goods; refunded deductions for the salary provision fund), and amounts previously accounted as expenses which are left unused or have not been used up in the period of their deduction;

g/ Recovered bad debts which have been written off;

h/ Payable debts of unidentifiable creditors;

i/ Omitted income from previous years’ business activities;

j/ Difference between the collected fines or damages for breaches of economic contracts and the paid fines or compensations for contract breaches under law;

k/ Received aid in cash or in kind, except that specified in Clause 6, Article 4 of Decree No. 124/2008/ND-CP;

l/ Difference resulting from the revaluation of assets under law for capital contribution or transfer upon separation, splitting-up, merger, consolidation or transformation of enterprises.

Asset-receiving enterprises may conduct accounting based on revaluation prices upon the determination of deductible expenses specified in Clauses 5 and 6, Article 1 of this Decree;

m/ Income from production and business activities carried out outside Vietnam;

n/ Income from the sale of scraps or discarded products unrelated to production and business activities currently eligible for tax incentives, and other incomes provided for by law.

3. Vietnam-generated taxable incomes of enterprises defined at Points c and d, Clause 2, Article 2 of the Law on Enterprise Income Tax are incomes originating in Vietnam from the provision of services or loans and copyright royalties collected from Vietnamese organizations and individuals or foreign organizations and individuals doing business in Vietnam, regardless of their places of business.

Taxable incomes specified in this Clause exclude incomes from services provided outside the Vietnamese territory, such as overseas repair of means of transport, machinery or equipment; overseas advertisement, marketing and investment and trade promotion; overseas goods or service sale brokerage; overseas training; and international post and telecommunications service charges divided to foreign parties.

The Ministry of Finance shall specify taxable incomes mentioned in this Clause.”

2. To amend and supplement Clauses 2, 3 and 4 of Article 4 as follows:

“2. For income from the performance of scientific research and technological development contracts, sale of products turned out from trial production and with technologies applied for the first time in Vietnam, including income from transfer of Certified Emission Reductions (CERs), the maximum tax exemption duration is one year from the date of commencing production under scientific research and technological application contracts, trial production or production with new technologies, or the date of issuing CERs.

The Ministry of Finance shall specify this Clause.

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

Tax-exempt enterprises specified in this Clause are enterprises whose average number of labors in a year is at least 20 people, excluding enterprises operating in the finance or real estate sector.

Tax-exempt incomes specified in this Clause exclude other incomes specified at Point 2, Clause 1, Article 1 of this Decree.

4. Income from job-training activities exclusively for ethnic minority people, people with disabilities, children in extremely disadvantaged circumstances, persons involved in social evils, persons undergoing detoxification, and detoxified and HIV-infected persons. If an establishment also provides job training to others, tax-exempt income shall be determined based on the ratio between the number of ethnic minority people, people with disabilities, children in extremely disadvantaged circumstances, persons involved in social evils, persons undergoing detoxification, and detoxified and HIV-infected persons and the total number of job trainees of the establishment.”

3. To amend and supplement Clauses 2 and 3 of Article 6 as follows:

“2. Taxable income shall be determined as follows:

Taxable income = (Turnover - Deductible expenses) + Other incomes

For an enterprise conducting different business activities, taxable income from production and business activities is the total of incomes from all business activities. If a business activity makes losses, the enterprise may offset such losses with the taxable income of an income-generating business activity selected by it self. The remaining income after loss offsetting is subject to the rate of enterprise income tax on income-generating business activities.

Income from transfer of real estate, projects or mineral exploration, mining or processing rights must be separately accounted for tax declaration and payment and neither be included in incomes nor used to offset losses made by other business activities, but may be used to offset losses with profits made by those activities.

3. Taxable incomes from some production and business activities shall be determined as follows:

a/ For income from capital transfer (excluding income from securities transfer specified at Point b of this Clause), taxable income is the total sum of money collected under a transfer contract minus (-) the purchase price of the transferred capital amount, minus (-) expenses directly related to the transfer;

In case a capital-transferring enterprise receives non-cash payment in assets or other material benefits (stocks, fund certificates) and earns an income, such income shall be liable to enterprise income tax.

b/ For income from securities transfer, taxable income is the sale price minus (-) the purchase price of the transferred securities, minus (-) expenses directly related to the transfer;

In case a joint-stock company issues stocks, the difference between the issuing price and par value is not liable to enterprise income tax.

In case a joint-stock company swap stocks upon its separation, splitting-up or consolidation and earns an income, such income shall be liable to enterprise income tax.

In case a securities-transferring enterprise receives non-cash payment in assets or other material benefits (stocks, fund certificates) and earns an income, such income shall be liable to enterprise income tax.

c/ For income from intellectual property copyright or technology transfer, taxable income is the total collected sum of money minus (-) the cost or expense for creating the transferred intellectual property right or technology, minus (-) the expense for maintaining, upgrading or developing the transferred intellectual property right or technology and other deductible expenses;

d/ For income from asset lease, taxable income is the lease turnover minus (-) basic depreciation, expense for asset renovation, repair or maintenance, expense for lease of assets for sublease (if any) and other deductible expenses related to the lease;

e/ For income from transfer or liquidation of assets (except real estate), taxable income is the sum of money collected from the asset transfer or liquidation minus (-) the residual book value of assets at the time of transfer or liquidation and deductible expenses related to the transfer or liquidation;

f/ For income from foreign currency sales, taxable income is the total sum of money collected from foreign currency sales minus (-) the purchase price of the quantity of sold foreign currencies (excluding foreign exchange difference resulting from the revaluation of foreign-currency monetary items at the end of a fiscal year or foreign exchange difference arising in the course of capital construction investment before production and business activities are conducted);

g/ For difference resulting from the revaluation of assets, taxable income is the difference between the revaluated value and the residual book value; for fixed assets upon capital contribution, taxable income is the difference between the revaluated value and the residual book value; for fixed assets transferred upon separation, splitting-up, consolidation, merger or transformation of enterprises, taxable income is the difference between the revaluated value and the residual book value.

The difference resulting from the revaluation of fixed assets upon capital contribution or transferred assets upon separation, splitting-up, consolidation, merger or transformation of enterprises shall be accounted as other incomes in a tax period; particularly, the difference resulting from the revaluation of land use right value used for capital contribution shall be gradually accounted as other incomes for a maximum of 10 years from the year of capital contribution.

h/ For incomes received from overseas production, business or service activities, taxable income is the total pre-tax incomes.”

4. To amend and supplement Point d, Clause 3 of Article 8 as follows:

“d/ For asset lease, it is the rental paid periodically by the lessee under the lease contract. In case the lessee advances the rental for many years, taxable incomes shall be gradually allocated to the number of years for which the rental has been advanced or determined based on lump-sum rental turnover. In case enterprises enjoying tax incentives, the incentive tax amounts shall be the total enterprise income tax amount for the years for which the rental has been advanced divided by (:) the number of years for which the rental has been advanced.”

5. To amend and supplement Clause 1 of Article 9 as follows:

“1. Except for the expenses specified at Points a, b, c, d, f, h, i and j, Clause 2, Article 9 of Decree No. 124/2008/ND-CP and Clause 6, Article 1 of this Decree, enterprises may deduct any expenses which fully meet the following conditions:

a/ They are actually paid for production and business activities;

b/ They are accompanied with adequate invoices and documents as prescribed by law.

In case of purchase of agricultural, forestry or fishery products from producers or fishermen; purchase of handicraft products made of jute, sedge, bamboo, leaf, rattan, straw, coconut husk or shell or materials taken from agricultural products, from craftsmen; purchase of soil, rock, sand or gravel from local mining inhabitants; purchase of scraps from individual collectors or of used domestic appliances from households or individuals, and purchase of services from non-business individuals, there must be documents of payment to sellers and lists of goods or services signed by responsible at-law representatives or authorized persons of enterprises.

Actual expenses for HIV/AIDS prevention and control at workplaces of enterprises under the Ministry of Health’s regulations (including expenses for training people engaged in HIV/AIDS prevention and control, communication on HIV/AIDS prevention and control, charge for HIV counseling and testing, and expenses for supporting HIV-infected laborers) may be deducted upon determination of taxable incomes.”

6. To amend Points e, g and k of, and add Points l and m to, Clause 2 of Article 9 as follows:

a/ To amend and supplement Point e, Clause 2 of Article 9 as follows:

“e/ Advanced expenses in contravention of law.

Advanced expenses include those for regular overhaul of fixed assets; those for activities of which turnover has been accounted but contractual obligations have not yet been fulfilled, including asset lease for which the rental has been advanced for many years but turnover is accounted in the year of rental collection, and other advanced expenses under the Finance Ministry’s regulations.”

b/ To amend and supplement Point g, Clause 2 of Article 9 as follows:

“g/ Expense for advertisement, marketing, sales promotion and brokerage commissions (excluding insurance brokerage commissions under the law on insurance business, commissions for agents selling goods at set prices or commission for multi-level distributors); expense for reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies’ newspapers given as presents or gifts (excluding expense for giving newspapers to persons with meritorious services to the revolution, war invalids, diseased soldiers; officers and soldiers in offshore islands, deep-lying and remote areas and areas with extreme difficulties) directly related to production and business activities which is in excess of 10% of total deductible expenses. For enterprises established on or after January 1, 2009, it is the amount in excess of 15% of total deductible expenses for the first 3 years from the date of establishment.

Total deductible expenses exclude the expenses specified above; for commercial activities, total deductible expenses exclude purchasing prices of sold goods.”

c/ To amend and supplement Point k, Clause 2 of Article 9 as follows:

“k/ Foreign exchange rate difference resulting from the revaluation of foreign-currency monetary items at the end of a tax period, excluding foreign exchange rate difference resulting from the revaluation of payable foreign-currency debts at the end of a tax period; foreign exchange rate difference arising in the course of capital construction investment.”

d/ To add the following Points l and m to Clause 2 of Article 9:

“l/ Deductions for setting up of job-loss allowance provision funds (excluding cases in which enterprises are not required to participate in compulsory unemployment insurance under law).

m/ Salaries and wages of owners of private enterprises; remunerations paid to founders who do not personally participate in administering production and business activities; salaries, wages and other accounted amounts payable to laborers which have actually not been paid or have been paid without invoices or documents as prescribed by law; bonuses and expenses for purchase of life insurance for laborers for which the payment conditions and levels are not specified in any of the following papers: labor contracts; collective labor accords; financial regulations of companies, corporations or groups; or reward regulations issued by chairpersons of Boards of Directors, directors general or directors under financial regulations of companies or corporations.”

7. To amend and supplement Clause 2 of Article 10 as follows:

“2. The enterprise income tax rate applicable to activities of prospecting, exploring and extracting oil and gas or other precious and rare natural resources in Vietnam is between 32% and 50%. For oil and gas mines, the tax rate shall comply with the Law on Petroleum; for mines of precious and rare natural resources (excluding oil and gas), the tax rate is 50%; for mines with at lease 70% allocated area in the geographical area with extreme socio-economic difficulties on the list of geographical areas eligible for enterprise income tax incentives attached to Decree No. 124/2008/ND-CP, the tax rate is 40%.

Other precious and rare natural resources mentioned in this Clause include platinum, gold, silver, tin, tungsten, antimony, gemstones and rare earth.”

8. To amend and supplement Clause 3 of Article 11 as follows:

“3. For enterprises defined at Points c and d, Clause 2, Article 2 of the Law on Enterprise Income Tax, the payable enterprise income tax amount is a percentage (%) of the sales turnover of goods and services in Vietnam, specifically:

a/ Services: 5%, particularly, services of restaurant, hotel and casino management: 10%; goods supplied together with services: 1%;

b/ Copyright royalties: 10%;

c/ Charter of aircraft (including aircraft engines or spare parts) or seagoing ships: 2%;

d/ Hiring of drilling derricks, machinery, equipment or means of transport (except those specified at Point c of this Clause): 5%;

e/ Loan interests: 5%;

f/ Securities transfer, overseas reinsurance: 0.1%;

g/ Derivative financial services: 2%;

h/ Construction, transportation and other activities: 2%.”

9. To amend and supplement Article 13 as follows:

“Article 13. Incomes from real estate transfer include income from the transfer of land use or lease rights; income from sublease of land of real estate-trading enterprises under the land law, regardless of whether infrastructure or architectural works attached to land are available or not; incomes from transfer of houses or building works attached to land, including assets attached thereto, regardless of whether the land use or lease rights are transferred or not; and incomes from transfer of other assets attached to land.”

10. To amend and supplement Clause 1 of Article 14 as follows:

“1. Turnover used for calculating taxable income shall be determined based on the real price of real estate transfer under the real estate sale and purchase contract in conformity with law.

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

11. To amend and supplement Clauses 3 and 5 of Article 15 as follows:

“3. The tax rate of 10% is applicable to incomes of enterprises operating in education-training, vocational training, healthcare, cultural, sports and environmental domains (below collectively referred to as socialized domains), and income from publication activities under the Law on Publication throughout their operation duration.

The Prime Minister shall promulgate a list of socialized domains mentioned in this Clause.

5. The incentive tax rate of 20% is applicable to agricultural service cooperatives, people’s credit funds and microfinance institutions throughout their operation duration.

After the expiration of the duration for application of the tax rate of 10% specified at Point a, Clause 1, Article 15 of Decree No. 124/2008/ND-CP, agricultural service cooperatives, people’s credit funds and microfinance institutions shall switch to enjoy the tax rate of 20%.

Microfinance institutions specified in this Clause are institutions established and operating under the Law on Credit Institutions.”

12. To amend and supplement Clause 2 of Article 19 as follows:

“2. Incomes ineligible for enterprise income tax incentives include incomes specified at Points a, b and c, Clause 3, Article 18 of the Law on Enterprise Income Tax, income from the provision of services liable to excise tax under the Law on Excise Tax and incomes from mining activities.”

Article 2. Implementation provisions

1. This Decree takes effect on March 1, 2012, and applies from the 2012 tax period.

2. In case enterprises are enjoying enterprise income tax incentives for their satisfaction of the export rate incentive conditions but tax incentives are terminated from January 1, 2012, due to the implementation of WTO commitments, such enterprises may select to continuously enjoy tax incentives for the remaining duration corresponding to the investment incentive conditions that they satisfy (excluding incentives for their satisfaction of the export rate incentive conditions, or use of domestic materials) under legal documents on enterprise income tax promulgated in the time from the date of granting establishment license prior to the effective date of the Government’s Decree No. 24/2007/ND-CP of February 14, 2007, detailing and guiding the implementation of the Law on Enterprise Income Tax or at the time of adjustment of tax incentives for the implementation of WTO commitments (till December 31, 2011).

Enterprises shall notify tax authorities of their selected tax incentives as specified in this Clause.

3. The Ministry of Finance shall guide the implementation of this Decree.

4. Ministers, heads of ministerial-level agencies, heads of government-attached agencies and chairpersons of provincial-level People’s Committees shall implement this Decree.-

On behalf of the Government
Prime Minister
NGUYEN TAN DUNG