Law on Corporate Income Tax No. 09/2003/QH11

LAW

Corporate Income Tax

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To contribute to promoting production and business development and mobilizing part of income into the state budget; ensuring fair and reasonable contributions from organizations and individuals engaged in producing and trading goods and services with income;

Pursuant to the Constitution of the Socialist Republic of Vietnam in 1992, amended and supplemented by Resolution No. 51/2001/QH10 dated December 25, 2001 of the National Assembly, tenth session;

This Law stipulates corporate income tax.

Chapter 1:

GENERAL PROVISIONS

Article 1. Taxpayers of corporate income tax

Organizations and individuals engaged in producing and trading goods and services (hereinafter referred to as businesses) that have income must pay corporate income tax, except for those specified in Article 2 of this Law.

Article 2. Entities not subject to corporate income tax

Households, individuals, cooperative groups, agricultural cooperatives generating income from crop cultivation, animal husbandry, aquaculture are not subject to corporate income tax, except for large-scale agricultural households and individual farmers with high income as prescribed by the Government.

Article 3. Explanation of Terms

In this Law, the following terms shall be understood as follows:

1. Businesses engaged in producing and trading goods and services include: State-owned enterprises; limited liability companies; joint stock companies; partnerships; foreign-invested enterprises and foreign parties participating in business cooperation contracts under the Law on Foreign Investment in Vietnam; foreign companies and foreign organizations conducting business in Vietnam not under the Law on Foreign Investment in Vietnam; private enterprises; cooperatives; cooperative groups; economic organizations of political organizations, political-social organizations, social organizations, occupational social organizations, people's armed units; administrative agencies, public institutions with production and trading activities.

2. Individuals engaged in producing and trading goods and services include: individual households and business groups; household and individual agricultural producers; individual traders; independent professionals; individuals leasing assets; foreign individuals conducting business with income generated in Vietnam.

3. Permanent establishment of foreign companies in Vietnam is a business through which a foreign company conducts part or all of its business operations in Vietnam generating income, including:

a) Branches, management offices, factories, workshops, means of transport, mines, oil wells or gas fields or any natural resource extraction site in Vietnam;

b) Construction sites, construction projects, installation, assembly;

c) Service provision bases including consulting services provided through employees or another entity;

d) Agents for foreign companies;

đ) Representatives in Vietnam where they are authorized representatives signing contracts on behalf of foreign companies or non-authorized representatives frequently delivering goods or providing services in Vietnam.

In cases where a double taxation avoidance agreement signed by the Socialist Republic of Vietnam provides otherwise regarding permanent establishments, such provisions shall be followed.

Article 4. Obligations and responsibilities for implementing the Law on Corporate Income Tax

1. Businesses have the obligation to pay taxes fully and on time as prescribed by this Law.

2. Tax authorities within their duties and powers are responsible for properly implementing the provisions of this Law.

3. State agencies, political organizations, political-social organizations, social organizations, occupational social organizations, people's armed units within their functions, duties, and powers supervise and coordinate with tax authorities in enforcing the provisions of this Law.

4. Vietnamese citizens have the responsibility to assist tax authorities and tax officials in enforcing the provisions of this Law.

Chapter 2:

BASIS FOR TAXATION AND TAX RATE

Article 5. Tax Base

The basis for calculating tax is taxable income and tax rate.

Article 6. Taxable Income

Taxable income includes income from production and business activities of goods and services and other income, including income obtained from production and business activities of goods and services outside the country.

Article 7. Determination of Taxable Income

1. Taxable income from production and business activities of goods and services is calculated by subtracting reasonable related expenses from gross revenue.

2. Other taxable income includes income from the difference in buying and selling securities, ownership rights, and property usage rights; income from transferring land use rights and land lease rights; profits from transferring, leasing, liquidating assets, deposits, lending capital, selling foreign currency; year-end balances of provisions; recovered amounts from previously written-off bad debts; unidentified amounts from accounts payable; income from previous years' business operations that were overlooked and newly discovered; and other income.

The Government shall provide detailed regulations on the method for determining taxable income from transferring land use rights and land lease rights, and the rate of progressive tax not exceeding 30% on remaining income from transferring land use rights and land lease rights after paying corporate income tax.

In cases where a double taxation avoidance agreement signed by the Socialist Republic of Vietnam provides different rules for determining taxable income for permanent establishments, such agreements shall be followed.

Article 8. Revenue

Gross revenue for calculating taxable income includes all proceeds from sales, processing fees, service provision fees, including subsidies, surcharges, and premiums that the business entity enjoys; if the revenue is in foreign currency, it must be converted to Vietnamese Dong at the exchange rate published by the State Bank of Vietnam at the time the foreign currency revenue was generated.

Article 9. Expenses

1. Reasonable expenses deductible for calculating taxable income include:

a) Depreciation costs of fixed assets used for production and business activities. The depreciation rate is based on the value of the fixed asset and the depreciation period. Businesses with high economic efficiency may depreciate faster but not more than twice the standard depreciation rate to quickly update technology.

The Ministry of Finance shall specify standards for fixed assets and the depreciation rates mentioned herein;

b) Costs of raw materials, materials, fuel, energy, goods actually used in production and business activities related to revenue and taxable income during the period, calculated according to reasonable consumption levels and actual warehouse prices;

c) Wages, salaries, allowances as prescribed by the Labor Code, midday meal allowances, except for wages and salaries of private enterprise owners, individual business operators, and founders of companies who do not directly participate in managing production and business activities;

d) Scientific research and technological development costs; innovation and improvement costs; health care costs; labor training costs as prescribed by regulations; educational sponsorship costs;

đ) External service costs: electricity, water, telephone; repair costs of fixed assets; rental costs of fixed assets; auditing costs; legal service costs; design, establishment, and protection costs of product trademarks; insurance costs of assets; payment costs for using technical documents, patents, and technology licenses not included in fixed assets; technical service costs and other external service costs;

e) Costs for female workers as prescribed by law; protective equipment or uniforms; security costs for business premises; travel expenses; contributions to social insurance and health insurance funds under the responsibility of businesses employing workers; trade union fees; costs supporting Party and mass organization activities at business premises; contributions forming management cost sources for higher levels and association funds as prescribed by regulations;

g) Interest payments on loans for production and business activities of goods and services from banks and other credit institutions, and economic organizations at actual interest rates; interest payments on loans from other entities at actual interest rates when signing loan contracts, but not exceeding 1.2 times the commercial bank's lending interest rate at the time of borrowing;

h) Provisions made according to prescribed regulations;

i) Severance pay for employees;

k) Costs for goods and service consumption;

l) Advertising, marketing, and promotional costs directly related to production and business activities of goods and services, and other costs limited to a maximum of 10% of total costs; for trading activities, the total costs for determining the limit do not include the purchase price of sold goods;

m) Taxes, fees, and rent payments for land use related to production and business activities of goods and services are considered reasonable expenses;

n) Business management costs allocated by foreign companies to their permanent establishments in Vietnam as prescribed by the Government;

o) Costs for purchasing goods and services from individuals or organizations not engaged in business without invoices as prescribed by the Government.

2. The following expenses shall not be considered reasonable expenses:

a) Prepaid expenses that have not been incurred in reality;

b) Expenses without valid receipts or illegal receipts;

c) Penalties and expenses unrelated to taxable revenue and income;

d) Expenses covered by other sources of funding.

3. Reasonable expenses as stipulated in Clause 1 of this Article shall be recorded in accounting books in Vietnamese Dong; if the expense is in foreign currency, it must be converted to Vietnamese Dong at the exchange rate published by the State Bank of Vietnam at the time the foreign currency expense was incurred.

Article 10. Tax Rate

1. The corporate income tax rate for businesses is 28%.

2. The corporate income tax rate for businesses conducting exploration, exploitation of oil and gas, and other precious resources ranges from 28% to 50%, depending on each project and business.

The Government shall provide detailed regulations on this matter.

Chapter 3:

TAX DECLARATION, PAYMENT, AND SETTLEMENT

Article 11. Responsibilities of Business Entities

Business entities shall be responsible for:

1. Strictly complying with accounting systems, invoices, and supporting documents as prescribed by law;

2. Fully declaring revenues, expenses, and income according to the regulations set forth by the Ministry of Finance;

3. Paying taxes and fines due to the state budget in full and on time as notified by tax authorities;

4. Providing accounting records, financial reports, invoices, and supporting documents related to tax calculations upon request by tax authorities;

5. Purchasing, selling, exchanging, and recording the value of goods and services at market prices.

Article 12. Tax Declaration

1. Annually, business entities shall declare revenues, deductible expenses, taxable income, and total annual tax payable, broken down by quarter, based on the results of production and business operations from the previous year and their capacity for the following year, using the form provided by tax authorities and submitting it to the directly managing tax authority no later than January 25th. If there are significant changes in production and business operations during the year, business entities must report to the directly managing tax authority to adjust the provisional annual and quarterly tax payments. In cases where tax authorities discover that the tax declaration does not comply with regulations, they have the right to determine the provisional annual and quarterly tax payments.

2. For business entities that have not implemented accounting systems, invoices, and supporting documents, the monthly tax payable shall be calculated based on revenue quotas and applicable income tax rates determined by authorized tax authorities.

Article 13. Payment of Taxes

1. Business entities shall pay provisional quarterly taxes either based on self-declarations or as determined by tax authorities, fully and on time into the state budget. The deadline for quarterly tax payment is the last day of each quarter.

The Government shall stipulate simple and convenient procedures for tax payment, enhancing business entities' sense of responsibility towards the law, while strengthening inspection, supervision, and handling of violations by tax authorities to ensure strict and effective tax collection management.

2. Business entities specified in Clause 2 of Article 12 of this Law shall pay taxes monthly into the state budget according to notifications from tax authorities. The deadline for monthly tax payment is recorded in the notification and is no later than the 25th of the following month.

3. Business entities engaged in occasional trading shall declare and pay taxes for each transaction to the tax authority at the place of purchase before transporting the goods.

4. Foreign organizations and individuals conducting business without a permanent establishment in Vietnam but generating income within Vietnam shall have the organization or individual paying such income responsible for withholding tax at the rate prescribed by the Ministry of Finance based on the total amount paid, and remitting it to the state budget simultaneously with the transfer of funds to foreign organizations and individuals.

Article 14. Final Tax Settlement

1. Business entities shall conduct final tax settlement annually with tax authorities. The final tax settlement must accurately and completely reflect the following items:

a) Revenues;

b) Reasonable expenses;

c) Taxable income;

d) Income tax payable;

đ) Income tax provisionally paid during the year;

e) Income tax paid abroad for income received from abroad;

g) Underpaid or overpaid income tax.

2. The tax settlement year is based on the Gregorian calendar; if a business entity is permitted to use a different fiscal year, it may settle taxes according to that fiscal year. Within ninety days from the end of the Gregorian calendar year or fiscal year, business entities must submit the final tax settlement report to tax authorities and pay any outstanding tax due to the state budget within ten days from the submission date; any overpayment can be offset against future tax liabilities.

In cases of business entity conversion, merger, consolidation, division, spin-off, dissolution, or bankruptcy, business entities must complete final tax settlements with tax authorities and submit final tax settlement reports within forty-five days from the decision date of the business entity conversion, merger, consolidation, division, spin-off, dissolution, or bankruptcy.

The Ministry of Finance shall provide guidance on the final settlement of corporate income tax as prescribed in this Article.

Article 15. Duties, powers, and responsibilities of tax authorities

The tax authority shall have the following duties, powers, and responsibilities:

1. Guide businesses to declare and pay taxes in accordance with the provisions of this Law;

2. Notify businesses about late submission of tax declarations, late payment of taxes, and decisions on administrative penalties for violations of tax laws; if the business does not fully pay the tax and fines as notified, the tax authority has the right to apply measures provided for in Clause 4, Article 23 of this Law to ensure full collection of taxes and fines; if such measures are implemented but the business still fails to fully pay the taxes and fines, the tax authority shall transfer the file to the competent state agency for handling in accordance with the law;

3. Inspect and audit tax declarations, payments, and final settlements of businesses to ensure compliance with legal regulations. In cases where unreasonable purchase prices, sale prices, operating costs, and other factors are discovered, the tax authority has the right to re-determine them to ensure correct and full collection of corporate income tax;

4. Handle administrative violations related to taxes and resolve tax complaints;

5. Require businesses to provide accounting books, invoices, vouchers, and other relevant documents related to tax calculation and payment; require banks, credit institutions, and other organizations and individuals related to provide documents related to tax calculation and payment;

6. Retain and use data and documents provided by businesses and other entities in accordance with the prescribed system.

Article 16. Authority to Determine Taxable Income

1. The tax authority shall determine taxable income for tax calculation purposes for businesses in the following situations:

a) Failure to implement or improperly implement accounting systems, invoices, and vouchers;

b) Failure to declare or incorrectly declare bases for tax calculation or inability to prove the bases declared in the tax return as required by the tax authority;

c) Refusal to present accounting books, invoices, vouchers, and necessary documents related to corporate income tax calculation;

d) Engaging in business without registration.

2. The tax authority shall base its determination of taxable income on investigation materials regarding the business's production and trading activities or on the taxable income of similar businesses in the same industry with comparable scale; if the business disagrees with the determined taxable income, it may appeal to the higher-level tax authority in accordance with the law; during the appeal process, the business must still pay taxes according to the determined rate.

Chapter 4:

EXEMPTION FROM AND REDUCTION OF CORPORATE INCOME TAX

Article 17. Exemption from and reduction of corporate income tax for investment projects establishing new businesses, cooperatives, and relocated businesses

1. New businesses established in encouraged industries, sectors, and areas, and cooperatives shall be subject to tax rates of 20%, 15%, or 10%.

2. New businesses established in encouraged industries, sectors, and areas, and relocated businesses in accordance with planning to encouraged areas shall be exempted from tax for up to four years from the date of generating taxable income, and shall have their tax reduced by 50% for up to nine subsequent years.

The Government shall specify the industries, sectors, and areas encouraged for investment; the applicable tax rates and periods for each encouraged industry, sector, and area; and the levels and periods of exemption and reduction of tax as stipulated in this Article.

Article 18. Exemption and reduction of tax for business establishments investing in new production lines, expanding scale, modernizing technology, improving ecological environment, and enhancing production capacity.

Business establishments investing in new production lines, expanding scale, modernizing technology, improving ecological environment, and enhancing production capacity shall be exempted from corporate income tax on additional income generated by such investment for up to four years, and have their corporate income tax reduced by fifty percent for up to seven subsequent years.

The Government shall specify the method for determining additional income generated by investment and the period of tax exemption and reduction for each case stipulated herein.

Article 19. Exemption and reduction of tax for other cases

1. Corporate income tax exemption for the following income of business establishments:

a) Income from performing contracts for scientific research and technological development, products during the experimental production phase, and products produced using new technology applied for the first time in Vietnam;

b) Income from performing technical service contracts directly serving agriculture;

c) Income from producing and trading goods and services exclusively for disabled workers;

d) Income from vocational training activities exclusively for disabled persons, children with special difficulties, and social delinquents;

e) Income of cooperatives and individual households producing and trading goods and services with low income as prescribed by the Government.

2. Corporate income tax exemption for investors contributing capital through patents, trade secrets, technological processes, and technical services; reduction of corporate income tax on income from transferring the value of foreign investor's equity to Vietnamese enterprises as prescribed by the Government.

3. Reduction of corporate income tax for business establishments engaged in production, construction, transportation, and employing many female workers as prescribed by the Government.

4. Reduction of corporate income tax for business establishments employing many workers, including ethnic minority workers as prescribed by the Government; corporate income tax exemption on income from vocational training activities exclusively for ethnic minorities.

Article 20. Loss Carryforward

After settling taxes with tax authorities, business establishments that incur losses may carry forward such losses to the next year, which will be deducted from taxable income. The period for loss carryforward shall not exceed five years.

Article 21. Procedures for Tax Exemption, Reduction, and Loss Carryforward

The provisions on tax exemption, reduction, and loss carryforward under Articles 17, 18, 19, and 20 of this Law shall only apply to business establishments that maintain accounting records, invoices, and documents, and declare and pay taxes accordingly, except for individual households producing and trading goods and services with low income. Business establishments shall self-determine the conditions for tax benefits, the amount of tax exemption and reduction, and loss carryforward to register with tax authorities and implement when settling taxes.

Tax authorities shall be responsible for verifying the conditions for tax benefits, determining the amount of tax exempted and reduced, and the amount of loss deductible from taxable income for business establishments.

In cases where business establishments incorrectly determine the conditions for tax benefits, the amount of tax exempted and reduced, and the amount of loss deductible from taxable income, they shall be subject to administrative penalties for tax violations.

Chapter 5:

REWARD AND VIOLATION HANDLING

Article 22. Reward

Tax authorities and tax officials who complete their assigned tasks well, organizations and individuals with achievements in implementing the provisions of this Law, and business establishments fulfilling their tax obligations properly shall be rewarded.

The Government shall specify the details of rewards.

Article 23. Handling Violations Related to Tax for Tax Payers

If tax payers violate the provisions of this Law, they shall be handled as follows:

1. Not complying with the regulations on accounting systems, invoices, vouchers, tax declarations, tax payments, and tax settlements as stipulated in Articles 11, 12, 13, 14, and 21 of this Law, depending on the nature and severity of the violation, they shall be subject to administrative penalties for tax violations.

2. Paying taxes and fines later than the prescribed date or the decision on tax handling, in addition to paying the full amount of tax and fine, they must also pay a daily penalty of 0.1% (one thousandth) of the overdue amount.

3. Misstating tax or evading tax, in addition to paying the full amount of tax as prescribed by this Law, depending on the nature and severity of the violation, they may be fined from one to five times the amount of fraudulent tax; if the amount of tax evasion is large or if they have been administratively penalized for tax violations and continue to violate or engage in other serious violations, they will be criminally prosecuted according to the law.

4. Not paying taxes or fines as notified or decided by the tax authority, they shall be handled as follows:

a) Seizing funds deposited by businesses at banks, credit institutions, or treasuries to pay taxes and fines.

Banks, credit institutions, or treasuries are responsible for deducting funds from the business's deposit account to pay taxes and fines into the state budget according to the tax handling decision of the tax authority or the competent authority before collecting debts.

b) Detaining goods or evidence to ensure the full collection of taxes and fines.

c) Seizing assets according to the law to ensure the full collection of outstanding taxes and fines.

Article 24. Authority of the Tax Authority in Handling Tax Violations

1. The head of the tax authority directly managing tax collection has the right to handle violations by taxpayers as stipulated in Clause 1 and Clause 2, and impose fines from one to five times the amount of fraudulent tax as provided for in Clause 3 of Article 23 of this Law.

2. The Director of the Tax Department or the Head of the Tax Branch directly managing tax collection can apply measures as stipulated in Clause 4 of Article 23 of this Law and transfer the file to the competent authority for handling according to the law in cases of violations as stipulated in Clause 3 of Article 23 of this Law.

Article 25. Handling Violations by Tax Officials and Other Individuals

1. Tax officials or other individuals who take advantage of their positions or powers to misappropriate or embezzle tax or fines must fully compensate the State for all improperly used tax and fine amounts, and depending on the nature and severity of the violation, they shall be disciplined or criminally prosecuted according to the law.

2. Tax officials or other individuals who lack responsibility or make mistakes causing damage to taxpayers must compensate for the damage according to the law, and depending on the nature and severity of the violation, they shall be disciplined or criminally prosecuted according to the law.

3. Tax officials or other individuals who take advantage of their positions or powers to collude or cover up for violators or engage in other violations of this Law, depending on the nature and severity of the violation, they shall be disciplined or criminally prosecuted according to the law.

4. Those who obstruct or incite others to obstruct the implementation of this Law, depending on the nature and severity of the violation, they shall be administratively punished or criminally prosecuted according to the law.

Chapter 6:

APPEAL AND STATUTE OF LIMITATIONS

Article 26. Rights and responsibilities of tax payers in tax disputes

1. Tax payers have the right to lodge complaints about tax officers or tax authorities not complying with the provisions of this Law.

The complaint must be submitted to the direct managing tax authority within thirty days from the date of receipt of the notification or decision of the tax officer or tax authority.

While waiting for resolution, the tax payer must still comply with the notification or decision of the tax authority.

2. In case the complainant disagrees with the decision of the dispute resolution authority or exceeds the time limit prescribed by law on complaints and denunciations without receiving a resolution, they have the right to lodge a complaint with the higher-level tax authority or file a lawsuit at the court according to the provisions of the law.

Article 27. Responsibilities and powers of tax authorities in resolving tax disputes

1. Upon receipt of a tax dispute, the tax authority must examine and resolve it within the time limit prescribed by law on complaints and denunciations.

2. The tax authority receiving the complaint has the right to request the complainant to provide relevant files and documents related to the complaint; if the complainant refuses to provide the files and documents, the tax authority has the right to refuse to examine and resolve the complaint.

3. The tax authority must refund the incorrect tax amount and penalty amount collected to the business entity within fifteen days from the date of receipt of the decision of the higher-level tax authority or the competent authority as prescribed by law.

4. In cases where false declaration of taxes, tax evasion, or tax errors are discovered and concluded, the tax authority is responsible for recovering the tax and penalties or refunding the tax within five years from the date of inspection and discovery of false declaration of taxes, tax evasion, or tax errors; in cases where the business entity does not register for tax, declare taxes, or pay taxes, the recovery period for taxes and penalties is calculated from the date the business entity begins operations.

The head of the higher-level tax authority is responsible for resolving tax disputes of tax payers against lower-level tax authorities. The decision to resolve tax disputes by the Minister of Finance is the final decision.

Chapter 7:

IMPLEMENTATION

Article 28

CThe Government directs the implementation of this Law throughout the country.

Article 29

The Minister of Finance is responsible for organizing the implementation and supervising the implementation of this Law throughout the country.

Article 30.

People's Committees at all levels, within their tasks and powers, direct the implementation and supervise compliance with this Law in their localities.

Chapter 8:

IMPLEMENTING PROVISIONS

Article 31

1. This Law shall take effect from January 1, 2004.

2. The Enterprise Income Tax Law dated May 10, 1997 ceases to be effective from the date this Law comes into effect.

Abolish the provision on refunding enterprise income tax paid for reinvested income and tax on transfer of income abroad as stipulated in Articles 42 and 43 of the Law on Investment in Vietnam.

Abolish the provision on land transfer tax for business entities as stipulated in the Law on Land Transfer Tax. Business income from land transfer shall be subject to enterprise income tax as prescribed in this Law. Personal income from land transfer by individuals not engaged in business activities shall be subject to personal income tax as prescribed by law.

All previous provisions on enterprise income tax that contradict this Law are abolished.

3. Foreign-invested enterprises, foreign parties participating in joint venture contracts that have been granted Investment Licenses, domestic enterprises that have been granted Investment Preference Certificates continue to enjoy tax preferences as prescribed in the Investment License or Investment Preference Certificate; in cases where the tax preference level specified in the Investment License or Investment Preference Certificate is lower than the tax preference level prescribed by this Law, they shall enjoy the tax preference level prescribed by this Law for the remaining preferential period.

Article 32

The Government shall promulgate detailed regulations and provide guidance on the implementation of this Law.

This Law was adopted by the National Assembly of the Socialist Republic of Vietnam, the eleventh session, third meeting, on June 17, 2003.