Circular No. 08/2001/TT-BTC supplements and guides decisions on corporate income tax applicable to branches of foreign organizations operating in Vietnam as stipulated in Circular No. 99/1998/TT-BTC dated July 14, 1998, issued by the Ministry of Finance.

CIRCULAR

Supplemental guidance on corporate income tax regulations applicable to branches of foreign organizations operating in Vietnam

as stipulated in Circular No. 99/1998/TT-BTC dated July 14, 1998

Based on

Decree No. 30/1998/NĐ-CP dated May 13, 1998 of the Government detailing the implementation of the Law on Corporate Income Tax; Decree No. 13/1999/NĐ-CP
Decree No. 30/1998/NĐ-CP dated March 17, 1999 of the Government on the organization and operation of foreign credit institutions and their offices in Vietnam; Decree No. 92/1998/NĐ-CP
Decree No. 30/1998/NĐ-CP dated November 10, 1998 of the Government on practicing legal consultancy 4. If the above measures are still insufficient to offset losses, the remaining losses shall be covered by the reserve fund according to the decision of the General Assembly of Members, the Charter, or the Financial Management Regulations of the cooperative. by foreign 4. If the above measures are still insufficient to offset losses, the remaining losses shall be covered by the reserve fund according to the decision of the General Assembly of Members, the Charter, or the Financial Management Regulations of the cooperative. law firms in Vietnam;
Decree No. 30/1998/NĐ-CP Decree No. 45/2000/NĐ-CP dated September 6, 2000 of the Government on representative offices and branches of foreign traders and foreign travel companies in Vietnam;
The Ministry of Finance supplements guidance on corporate income tax as follows:

I. GENERAL PROVISIONS:

1. This Circular applies to branches of foreign organizations operating in Vietnam, including: branches of foreign law firms, branches of foreign credit institutions, branches of foreign tobacco companies, and other branches permitted to operate in Vietnam under Vietnamese law, hereinafter referred to as Foreign Branches.

2. Foreign Branches are subject to corporate income tax according to the Law on Corporate Income Tax and the guidance provided in Circular No. 99/1998/TT-BTC dated July 14, 1998 of the Ministry of Finance.

3. In cases where the State of Vietnam participates in or signs international treaties, agreements, or commitments with international organizations or other States that contain provisions regarding taxes on activities of other Foreign Branches different from the guidance in this Circular, such provisions shall be applied according to those treaties, agreements, or commitments.

II. SPECIFIC CONTENTS ON CORPORATE INCOME TAX APPLICABLE TO FOREIGN BRANCHES:

1. The taxable income of Foreign Branches for corporate income tax is determined according to the guidance in Part B of Circular No. 99/1998/TT-BTC dated July 14, 1998 of the Ministry of Finance.

The corporate income tax rate applicable to Foreign Branches is 32%.

2. When determining taxable income for corporate income tax, Foreign Branches may include actual management expenses allocated by the foreign organization to the Foreign Branch in Vietnam for business purposes, provided that these allocated expenses do not exceed the ratio between revenue in Vietnam and the total revenue of the foreign organization. The maximum amount of management expenses allocated by the foreign organization to the Foreign Branch in Vietnam is determined as follows:

Within three months from the date of submission of the final tax return for corporate income tax for the tax year, the Foreign Branch must submit to the tax authority the audited financial report of the foreign organization showing indicators such as total revenue, total management expenses of the foreign organization, and expenses allocated to branches, to serve as the basis for determining the management expenses allocated to the Foreign Branch in Vietnam.

3. Foreign Branches are not allowed to include in expenses when determining taxable income payments made to the headquarters or other branches under the same ownership or control of the foreign organization (except for payments for services actually used for the business operations of the branch in Vietnam) in the form of royalties, fees, or similar payments for the use of inventions or other rights; or in the form of commissions for separate services; or in the form of interest on loans to the branch. For foreign credit institution branches, interest payments on loans to the foreign credit institution are included in expenses when determining taxable income.

4. Expenses related to statutory capital or charter capital of foreign branches are not considered reasonable and legitimate expenses when determining taxable income.

Transactions between foreign branches and the headquarters or other branches under the same ownership or control of the foreign organization must be conducted at market prices. If the tax authority discovers unreasonable pricing or profit margins in transactions between foreign branches in Vietnam and the headquarters or other branches abroad, the tax authority will apply appropriate measures to determine the taxable income of the foreign branch.

6. In cases where foreign branches do not fully comply with accounting records and invoices, the tax authority will apply appropriate measures to determine the taxable income of the foreign branch, or may allocate the net income of the foreign organization in the tax year to the foreign branch in Vietnam according to the following formula:

In this case, the foreign branch has the responsibility to submit to the tax authority the audited accounting report of the foreign organization to serve as the basis for allocating taxable income to the foreign branch.

In the case where the Overseas Branch does not provide documents serving as the basis for allocating taxable income to the Overseas Branch, the tax authority shall base on the documents it has investigated and collected to determine the taxable income of the Overseas Branch.

7. When determining the taxable income for the tax year, the Overseas Branch may deduct the losses carried forward from previous years in accordance with Article 37 of Decree No. 30/1998/NĐ-CP dated May 3, 1998, detailing the implementation of the Law on Corporate Income Tax. The carryforward of losses is implemented by transferring the entire amount of losses from any tax year to the subsequent year with income, and using the income of subsequent years to offset such losses, with the carryforward period not exceeding five years from the year immediately following the year in which the loss occurred.

8. When transferring profits abroad, Overseas Branches are not required to pay taxes on the transfer of income abroad for financial years starting from the 1999 fiscal year onwards.

III. REGISTRATION, DECLARATION, PAYMENT, AND SETTLEMENT OF CORPORATE INCOME TAX:

1. Tax Registration:

The Overseas Branch is responsible for registering corporate income tax with the local tax authority (Provincial Tax Department or Municipal Tax Department under the Central Government) where the Overseas Branch's headquarters is located.

2. Declaration:

The Overseas Branch must declare and submit the annual provisional tax declaration form according to the model prescribed in Circular No. 99/1998/TT-BTC of the Ministry of Finance to the directly managing tax authority no later than January 25 each year.

The basis for declaration is the results of production, business, and services of the previous year and the business potential of the following year.

After receiving the declaration, the tax authority will verify and determine the annual provisional tax amount and divide it into quarterly installments to notify the Overseas Branch to provisionally pay the tax.

If the Overseas Branch does not declare or declares unclearly the bases for determining the annual provisional tax amount in the declaration, the tax authority has the right to request the Overseas Branch to explain the bases for determining the annual provisional tax amount. In the event that the Overseas Branch does not explain or cannot prove the bases recorded in the declaration as requested by the tax authority, the tax authority has the right to determine the annual provisional tax amount.

3. Payment:

The Overseas Branch must fully and timely pay the quarterly provisional tax as notified by the tax authority.

The deadline for tax payment stated in the tax payment notification shall not exceed the last day of the quarter.

4. Tax Settlement:

The Overseas Branch must settle the corporate income tax with the tax authority and must declare the indicators according to the model prescribed in Circular No. 99/1998/TT-BTC dated July 14, 1998, issued by the Ministry of Finance.

The tax settlement year for corporate income tax starts on January 1 and ends on December 31 of the same year. In cases where the Overseas Branch is permitted to apply a different fiscal year from the calendar year mentioned above, it may settle the tax according to that fiscal year.

The Overseas Branch must submit a report on its production and business operations, an audited accounting report by an independent auditing organization authorized to operate in Vietnam, and a corporate income tax settlement report to the directly managing tax authority within sixty days from the end of the fiscal year.

IV. IMPLEMENTATION ORGANIZATION:

This circular takes effect fifteen days after the date of signature and applies to the declaration and settlement of corporate income tax for Overseas Branches starting from the fiscal year beginning in 1999.

Prior to the effective date of this circular, if the Overseas Branch has already settled the corporate income tax for the 1999 fiscal year according to previous guidelines of the Ministry of Finance (corporate income tax rate of 25%, no allocation of head office management costs, and payment of taxes on the transfer of profits abroad), then there will be no adjustment made, except in cases where the Overseas Branch requests in writing to the tax authority to determine its tax liability for the year 1999 according to the guidelines set forth in this circular.

The following circulars of the Ministry of Finance are no longer in effect:

+ Circular No. 90 TC/TCT dated November 10, 1993, guiding certain points regarding tax policies for joint venture banks and foreign bank branches in Vietnam.

+ Circular No. 04 TC/TCT dated January 23, 1997, guiding certain points regarding tax policies for foreign law firm branches operating in Vietnam.

+ Circular No. 118 TC/TCT dated December 26, 1994, guiding taxes for foreign tobacco company branches in Vietnam.