Circular No. 07-TC/TQD explaining and detailing the implementation of the new enterprise tax regime

CIRCULAR

Explanation and detailed regulations on the implementation of the new business tax system

Pursuant to Article 48 of the Tax Regulation for Commerce and Industry (Decision No. 200-NQ/TVQH dated January 18, 1966 of the Standing Committee of the National Assembly) and Directive No. 35-TTg/TN dated February 21, 1966 of the Prime Minister, the Ministry of Finance explains and provides detailed regulations on business tax as follows:

I. WHO MUST PAY BUSINESS TAX

To ensure that the state grasps and manages all commerce and industry activities in the collective sector and individual private businesses, business tax shall be collected from all collective and individual commercial and industrial establishments, including:

1. Cooperatives, cooperative organizations, and individual households engaged in small-scale industrial production, handicrafts, subcontracting, purchasing raw materials to sell semi-finished products to state enterprises or government agencies, or operating independently, including embroidery, lace, sewing, silverware, ivory crafts, which were previously exempted from business tax under Decree No. 67-CP dated December 1, 1960 of the Council of Ministers.

2. Cooperatives, cooperative organizations, and individual households engaged in waterway transportation or land transportation using primitive means such as horse-drawn carriages, ox-drawn carts, buffalo-drawn carts, including three-wheeled vehicles, rickshaws, and other cargo-carrying vehicles, which were previously not subject to business tax.

3. Cooperatives, cooperative organizations, and individual households engaged in construction work (subcontracting, repair, or taking on building projects), woodworking, bricklaying, carpentry, whitewashing, painting doors...

4. Cooperatives, cooperative organizations, and individual households engaged in advertising illustration, sign painting, portrait drawing, selling landscape paintings.

5. Cooperative organizations and individual households engaged in service and repair work.

6. Individual households engaged in the food and beverage industry.

7. Cooperative organizations engaged in trade, acting as agents or trustees for buying and selling goods for state-owned enterprises and cooperative buying and selling, or operating independently.

8. Cooperative organizations and individual households engaged in agriculture but (according to the current agricultural tax regulation) are not required to pay agricultural tax, such as raising ducks for egg and duckling sales, catching fry fish, fish spawn...

II. CASES ELIGIBLE FOR EXEMPTION FROM BUSINESS TAX

1. To take care of those engaged in minor trades with low income, the following cases are exempted from business tax.

- Elderly and disabled individuals who engage in minor trades just enough to ensure their basic living needs.

- Individuals who knit wool or weave yarn for state trading companies, bicycle parking attendants at public places... Individuals who transport passengers by rickshaw, ferry boats...

2. The following activities are considered non-commercial and industrial activities and thus are not subject to business tax:

- Traditional medicine clinics and doctors permitted by health authorities to practice medicine and earn fees according to the prices set by the Ministry of Health. If they grow medicinal herbs for processing and directly use them for treatment according to the prices set by the Ministry of Health, they are also exempted from tax.

In case they purchase medicinal herbs, collect, or extract plants for decoction or preparation of pills, powders, or liquid medicines for sale, this part of their business must pay business tax.

- Artists creating and selling their works.

If they print their works into multiple copies (either by hiring others or themselves) for sale, they must pay business tax.

- Workshops of schools producing mainly for educational purposes.

If these workshops sell some surplus products outside, they are still exempted from tax, but the workshops must register with the tax collection agency, and the agency has the responsibility to monitor, inspect, and assist to ensure that the workshop's production serves educational purposes.

3. Production units producing taxable goods, when selling such goods, are exempt from business tax because they have already paid the goods tax.

4. To support primitive transportation in mountainous areas, individuals engaged in cargo transportation in mountainous regions using sleds, horse-drawn carts, or wheelbarrows are exempted from business tax.

To meet the current demand for transportation, in regions with difficult transportation conditions or lacking transportation means, or in regions with special transportation needs, provincial administrative committees may temporarily decide not to collect business tax or grant tax exemption for a certain period for transportation activities using specific types of transportation means in those regions.

5. To encourage the development of new rural areas and the establishment of material and technical bases for cooperatives, agricultural cooperatives, salt-making cooperatives, fishing cooperatives, with craft production bases, are exempted from business tax on craft products used by the cooperatives:

- For production or construction of production facilities and public welfare facilities of the cooperative and the commune (such as warehouses, drying yards, wells, latrines, schools, health stations, irrigation works...)

- Sold to cooperative members for use in production (such as bricks for latrines, drying yards, wells...)

When implementing this provision, if it is difficult to distinguish between products purchased by cooperative members for production use and those for personal consumption, the tax collection agency must appropriately apply the policy of encouraging production development and socialist新农村建设，并且合作社自产的手工业产品用于生产或建造合作社和村公共设施（如仓库、晒场、水井、厕所、学校、卫生站、水利设施等）或出售给社员用于生产（如砖用于建造厕所、晒场、水井等），在执行本规定时，如果难以区分社员购买用于生产的商品和用于消费的商品，则税务机关必须适当应用鼓励生产发展的政策和社会主义新农村建设的政策，并给予适当的照顾。

6. For commercial and industrial establishments encountering difficulties due to natural disasters, enemy attacks, or unexpected accidents, the administrative committee at the county level or above, upon the recommendation of the tax collection agency, may consider reducing or exempting business tax for a certain period. When considering reduction or exemption, the specific circumstances of each household or establishment should be studied to make appropriate decisions based on the degree of damage suffered by each household or establishment, avoiding blanket exemptions for entire industries or regions.

7. Apart from the cases specified above, if localities consider it necessary to reduce or exempt business tax, they must report to the Ministry of Finance for decision.

III. TAX RATE AND BASIS FOR CALCULATING ENTERPRISE INCOME TAX

 To differentiate treatment among industries, encourage different levels of development, the enterprise tax rate table is established based on the following principles:

- Industries engaged in production and transportation generally pay lower taxes compared to repair, service, and food and retail businesses (production from 1% to 3%, repair, service, food, and retail from 3% to 5%).

- However, within each industry, there are also differentiated treatments. For example:

In handicrafts, industries producing agricultural production materials (such as farming tools, pumps, fertilizers...) enjoy the lowest tax rate (1%). Processing agricultural products by agricultural cooperatives or by craft cooperatives operating at the place of production also enjoy the lowest tax rate (1%).

Industries producing essential consumer goods are encouraged more than those producing other goods. For example: textile and household utensils production: tax rate 2%; artistic goods production: tax rate 3%...

In the service and food industry, services meeting daily common needs of the masses are treated more favorably than others: the tax rate for hair cutting, bicycle repair (3%) is lower than that for radio and electrical appliance repair (4%), or photography and portrait painting (5%); snack stands have a lower tax rate (3%) than tea and coffee shops (5%).

In commerce, selling perishable goods such as fresh vegetables and fruits has a lower tax rate (3%) than selling technological products (4%) or incense, flowers, gold, and paper money (5%) etc.

Enterprise income tax is calculated based on the revenue of business entities according to the tax rate table attached to the regulations and the guide on applying the enterprise income tax rate attached to this circular.

1. For small-scale and handicraft production units, taxable revenue includes proceeds from the sale of semi-finished products, unfinished products, surplus raw materials, scrap, waste products, unused fixed assets, unused or currently used fixed assets.

In tax collection management, the tax authority must pay attention to enhancing its supervisory role, protecting state materials to save resources, assisting cooperatives in organizing production and economic financial management, correcting deviant thoughts of cooperative members, specifically:

- When a cooperative (or individual business) sells surplus raw materials, the reasons for purchase and sale prices must be investigated, the state's material and resource management policy must be explained, while ensuring the correct and full collection of enterprise income tax and corporate profit tax.

If violations of the state's material and resource management policy are discovered, a record must be made and sent to the responsible agency for handling.

- If a cooperative (or individual business) sells scrap or waste products, the proceeds from the sale of scrap or waste products belonging to which industry will be taxed at the corresponding industry's tax rate. For example: the proceeds from selling sawdust from a wood processing unit will be taxed at the 2% wood processing industry rate (not the 4% rate); the proceeds from selling scrap iron, tin, and steel from a metal product manufacturing unit will be taxed at the 2% metal product manufacturing rate (not the 5% rate).

- Regarding the sale of fixed assets, no enterprise income tax is levied on obsolete fixed assets sold at prices only sufficient to recover residual value.

To encourage production development and technical improvement, when selling surplus or currently used fixed assets, if confirmed by local industrial departments that the purpose is not to make profits but to release stockpiled materials or to acquire funds for purchasing new machinery to improve technology, then enterprise income tax can be waived. In these cases, the tax authority must closely monitor and strictly check to ensure the tax exemption process is conducted correctly, preventing any abuse.

2. For small-scale and handicraft units engaged in subcontracting work, taxable revenue includes the proceeds from subcontracting work without deducting any costs.

To meet state supervision requirements, subcontracting units for state agencies and enterprises must also pay enterprise income tax; however, subcontracting prices are set by the state, so high tax rates are unnecessary. Therefore, the previously unified tax rate of 5% for subcontracting units is now differentiated into two rates:

- 2%, for subcontracting work for state enterprises and agencies,

- 5% for subcontracting work for other cooperatives or the general public.

When collecting enterprise income tax from subcontracting units, careful consideration of subcontracting prices is necessary. If a state enterprise or agency has not adjusted its subcontracting price promptly and the current price still includes old tax rates (5%), the tax authority must reassess the revenue to collect at the 2% rate; simultaneously, it must request the enterprise or agency to refund the excess 3% tax paid to the cooperative and adjust the subcontracting price accordingly. Subsequently, the tax authority must monitor the adjustment of subcontracting prices, check the accounting of state enterprises and agencies, and production units to accurately collect profits from state enterprises and agencies, as well as corporate profit tax from cooperatives.

3. For small-scale and handicraft units purchasing raw materials and selling finished products to the state.

Previously, enterprise income tax was uniformly collected at 2%, but under the new regulations, some units will be subject to a 1%, 2%, or 3% tax rate. Therefore, when collecting enterprise income tax from these units, the tax authority must negotiate with state enterprises and agencies to recalculate the tax included in the purchase price according to the new tax rate, adjust the purchase price, reassess the revenue, and ensure accurate collection of enterprise income tax, as well as accurate profit collection from state enterprises and agencies and corporate profit tax from cooperatives.

4. For units engaged in repair work Taxable revenue includes repair fees or repair prices including replacement material costs (if applicable) and labor costs, distinguishing between two types of repairs:

- Repairing various types of machinery serving agriculture and animal husbandry such as repairing pumps, generators, rice hullers, threshers, agricultural product processing machines, animal feed grinders, etc., shall be considered production and subject to a corporate income tax rate of 1%.

Repairing automobiles and boats shall be subject to a tax rate of 2%.

- Repairing small machines such as sewing machines, computers, typewriters, etc., and repairing household items such as watches, bicycles, etc., shall be considered service activities and subject to a corporate income tax rate of 3% or 4%, depending on the business sector as specified in the corporate income tax table.

Cooperative groups that repair bicycles and also assemble new bicycles for state trading enterprises shall have the bicycle assembly portion classified as "processing for state enterprises and agencies" and subject to a tax rate of 2%.

5. For transportation businesses, taxable revenue is the freight charge or transportation fee.

Transportation fees for loading and unloading are not subject to corporate income tax. If the lease contract includes both transportation and loading/unloading services, the leasing entity must separately calculate the loading/unloading fees and exclude them from the corporate income tax calculation because the transportation business does not pay corporate income tax on this portion. When calculating corporate income tax, the tax authority only considers the transportation fee.

This approach aims to reasonably encourage rationalization of labor usage in cargo transportation and to encourage direct handling of goods by transporters during transportation.

Previously, corporate income tax was levied at a rate of 3% on transportation businesses. Now, according to the new regulations, to encourage the transportation industry, the rate has been reduced to 2.5%. Therefore, when collecting corporate income tax from these businesses, the tax authority must recalculate the corporate income tax included in the freight charges and negotiate with the transportation entities to adjust the freight rates, accurately determine the taxable revenue, and ensure profit distribution (if any) to state enterprises and agencies, as well as accurate collection of corporate income tax for cooperatives.

6. For architectural businesses, taxable revenue is the construction fee, repair fee for projects, or the lump-sum contract price for constructing projects, including material costs.

Regardless of whether the business constructs for state enterprises, agencies, cooperatives, or private individuals, the construction or repair fee revenue is subject to a tax rate of 3%, and the lump-sum contract price for construction (including material costs) is subject to a tax rate of 2%.

7. For service businesses, taxable revenue is the repair fee or repair price, including replacement material costs (if applicable) and repair service fees or rental fees for houses and equipment, subject to a tax rate of 3%, 4%, or 5%, depending on the business sector as specified in the tax table.

If the repair business is permitted to sell replacement materials, the sales revenue from these materials must be taxed at the commercial trade rate of 4%.

8. For food and beverage businesses, taxable revenue is the total sales amount.

Food and beverage businesses that sell a few expensive items like spring rolls, fried meatballs, where the revenue from these items is insignificant, and dog meat shops (considered common food) are not classified as high-end restaurants and thus are subject to a tax rate of 3%.

9. For non-agricultural trading businesses, taxable revenue is the total sales amount or the commission earned (if acting as an agent for selling or purchasing on behalf of state enterprises, agencies, or cooperatives).

Sales revenue is subject to a tax rate of 3%, 4%, or 5%, depending on the business sector as specified in the tax table. If the revenue is commission, it is subject to a tax rate of 2%.

10. For agricultural businesses not subject to agricultural tax,taxable revenue is the sales proceeds from their products, subject to a tax rate of 2%.

IV. PROCEDURES FOR DECLARATION, MAINTENANCE OF ACCOUNTING RECORDS, TAX CALCULATION, AND PAYMENT

a) Cooperatives, cooperative organizations, and individual households engaged in industrial and commercial operations (registered for industrial and commercial operations) must declare to the tax authority at least ten days before commencing, ceasing, or changing their business operations (mergers, divisions, relocation, etc.), changing the nature of their business (transition from procurement to processing, etc.), or introducing new products or production lines.

These businesses must maintain accounting records in accordance with state regulations, issue invoices for sales, and obtain purchase receipts. Invoices, invoice copies, invoice stubs, and other purchase and sale documents must be kept organized by type and date. Each sale of 2 dong or more must be invoiced, even if the buyer does not request an invoice. Sales under 2 dong are exempt from invoicing unless the buyer requests an invoice, in which case the seller must provide one. At the end of each day, the business must consolidate sales under 2 dong without invoices and issue a consolidated invoice for all sales under 2 dong made that day. Each invoice must be made in three copies (the invoice book is printed on carbon paper): One copy retained as a record, one given to the buyer, and one sent to the tax authority (submitted once every ten days) according to the tax authority's invoice format. When a business exhausts a book of invoices, they must summarize the issued invoices, the value of goods sold, and transfer these figures to the next book until the end of the year, following the principle of annual consolidation with quarterly analysis.

Small households allowed to maintain simple accounting records or exempt from maintaining records must keep purchase receipts and sales invoices.

To help businesses understand their operational status, prevent corruption and waste, ensure income for members, and fulfill their obligations to the state, the tax authority must:

- Guide businesses in declaring, opening accounting books, and issuing invoices, instruct them on recording methods, and urge strict compliance;

- Assist and guide businesses in mergers or divisions to properly manage asset consolidation or division.

- Inspect and urge business establishments that have ceased operations to return all unused or partially used invoice books to the revenue collection agency to prevent potential future abuses; guide them to consolidate collective funds and submit them to their superior management authority.

In all the cases mentioned above, the revenue collection agency must instruct, inspect, and assist business establishments in declaring and paying taxes accurately, fully, and within the prescribed deadlines.

b) Corporate income tax collected monthly. Within the first five days of each month, taxable entities (excluding small businesses) must submit to the revenue collection agency a declaration of the previous month's revenue for each activity (selling products, processing, repair, or service...) and for each type of business, to pay taxes according to the prescribed tax rates.

The revenue collection agency is responsible for urging the submission of declarations, inspecting declarations, classifying revenues, calculating taxes at the correct rates, and issuing timely notifications to ensure that business establishments pay taxes within the first ten days of each month, as stipulated in Article 6 of the regulations.

For individual businesses, if they are relatively large-scale production units dealing with goods requiring management, having significant and fluctuating revenues, the revenue collection agency must require them to maintain records and declare monthly revenues to pay taxes as described above. If they are small businesses, the revenue collection agency may exempt them from the declaration procedures and collect taxes from them using a fixed revenue method every three or six months depending on the nature and seasonality of their business. During the fixed revenue period, the revenue collection agency must monitor: if there is a change in revenue, increasing or decreasing by about 30%, then promptly adjust the fixed revenue and tax amount to ensure fair and reasonable contribution principles.

For unregistered traders, the Ministry of Finance and the Ministry of Commerce will provide specific guidance on implementing measures to handle them.

EFFECTIVE DATE

In Circular No. 11-TC/TQD dated February 2, 1966, the Ministry of Finance instructed that corporate income tax for January 1966 would be collected according to the old regulations; starting from February 1966 revenues, the new regulations would apply. Therefore, it means that the new corporate income tax will be applied to revenues generated in February 1966, declared and paid in early March 1966.