Circular No. 107/TC-TCT guiding the implementation of tax policies for duty-free shops at seaports and international airports in Vietnam.

CIRCULAR

Guidelines for the Implementation of Tax Policiesfor Duty-Free Shops at Seaports and International Airports in Vietnam

On November 13, 1990, the Ministry of Trade and Customs issued Circular No. 12/TTLB-TN-TCHQ regarding the organization and operation of duty-free shops at seaports and international airports, and on March 31, 1992, the Ministry of Finance issued Circular No. 165 TC/TCT guiding the implementation of tax policies for such activities. However, upon inspection, it was found that the implementation was inconsistent across units.

To ensure uniform tax management for this activity nationwide, based on current tax laws and ordinances, the Ministry of Finance hereby guides the implementation of tax policies for this form of business as follows:

I. APPLICABLE OBJECTS

This circular applies to duty-free shops permitted to sell goods to outbound passengers and transit passengers at seaports and international airports in Vietnam, organized under the following forms:

1. Domestic enterprises conducting business independently.

2. Domestic enterprises operating under the form of selling goods on behalf of foreign entities or both independently and as agents for foreign entities.

3. Domestic enterprises entering into contracts with foreign parties to sell duty-free goods under revenue-sharing or profit-sharing arrangements.

4. Foreign-invested enterprises and foreign parties participating in joint ventures and obtaining investment licenses from the State Committee for Cooperation and Investment to engage in duty-free shop operations.

1. Export duties, import duties, and value-added tax:

1. Import and Export Duties:

Goods imported from abroad into Vietnam for sale at duty-free shops are exempt from import duties.

Goods purchased from the domestic market by duty-free shops for sale at their premises are considered export goods and must be subject to export duties according to the specific export tariff rates set forth in the export tariff schedule.

For goods imported for sale at duty-free shops, if sold to the wrong target or consumed in the domestic market, they will be treated as tax evasion in all cases, and the duty-free shop must pay back the exempted import duties and be fined twice the amount of the evaded taxes.

2. Business Income Tax and Profit Tax:

Business income tax is calculated on the total sales revenue (regardless of whether it is from imported goods or domestically produced goods) at a rate of 1% of the turnover tax applicable to export businesses. In cases where the duty-free shop maintains books and records in accordance with regulations and meets the conditions approved by the tax authority, it shall pay business income tax at a rate of 14% on the difference between the selling price and the purchase price.

Profit tax payable is 45% of taxable profits.

For duty-free shops involving foreign participation, business income tax and profit tax shall be implemented as follows depending on the form of business organization:

a) In the case of domestic enterprises operating duty-free shops as agents for foreign entities:

The domestic enterprise shall pay business income tax at a rate of 12% on the commission received and pay profit tax according to the prescribed regime.

The foreign party shall pay business income tax and profit tax at a combined rate of 8% on the total amount paid by the domestic enterprise for sales made as an agent.

b) In the case of domestic enterprises cooperating with foreign entities to operate duty-free shops under revenue-sharing arrangements:

The domestic enterprise shall pay business income tax on its share of the revenue and profit tax according to the regulations.

The foreign entity shall pay business income tax and profit tax at a combined rate of 8% on the total revenue shared.

c) In the case of domestic enterprises cooperating with foreign entities to operate duty-free shops under profit-sharing arrangements:

The duty-free shop shall pay business income tax and profit tax as prescribed for domestic enterprises, and when the foreign entity transfers its share of the profits out of the country, it shall not be subject to withholding tax on the transfer of profits.

d) Foreign-invested enterprises and foreign parties participating in joint ventures and obtaining investment licenses from the State Committee for Cooperation and Investment to engage in duty-free shop operations shall pay business income tax and profit tax according to the provisions in the investment license.

3. Withholding Tax on Transfer of Profits Out of the Country:

Foreign parties participating in foreign-invested enterprises or joint ventures and obtaining investment licenses from the State Committee for Cooperation and Investment shall pay withholding tax on the transfer of profits out of the country at the rate specified in the investment license.

Foreign parties participating in duty-free shop operations under other forms shall not be subject to withholding tax on the transfer of profits out of the country.

4. Other Taxes:

Other taxes such as high-income individual income tax, land rental fees, business registration tax, etc., shall be paid by the duty-free shop according to current regulations.

III. PROCEDURES FOR DUTY EXEMPTION AND COLLECTION OF IMPORT DUTIES

Each time a duty-free shop imports goods for sale at its premises, it must present the following documents to the customs office at the port of entry:

The quota granted by the Ministry of Trade allowing the shop to import goods for sale to outbound passengers.

The import declaration.

Purchase contract or agency agreement for selling goods on behalf of foreign entities.

Invoice, packing list.

Based on these documents, the customs office directly managing the duty-free shop shall process the import procedures, stamp "duty-free" on the declaration form, escort the consignment to the warehouse, and implement customs supervision and sealing according to regulations.

The customs office directly managing the duty-free shop is responsible for maintaining records to monitor and supervise the stock removal and sales activities of the duty-free shop. The General Department of Customs will study and guide the procedures for monitoring and supervising the importation, stock removal, and sales activities of duty-free shops to ensure uniform implementation nationwide.

In the case where the store has inventory and is permitted by the Ministry of Trade to sell the existing inventory on the Vietnamese market, before selling goods on the Vietnamese market, the store must declare to the customs authority directly managing the store to calculate and collect import duties according to the regulations.

IV. PROCEDURE FOR PAYING BUSINESS INCOME TAX AND PROFIT TAX

The duty-free store shall declare and pay business income tax and profit tax in accordance with Circulars No. 73A TC/TCT and Circular No. 75A TC/TCT dated August 31, 1993, issued by the Ministry of Finance.

For cases where foreign parties pay business income tax and profit tax at the consolidated rate, they shall declare and pay taxes in accordance with Circular No. 30 TC/TCT dated July 18, 1992, issued by the Ministry of Finance.

V. IMPLEMENTATION PROVISIONS

This Circular takes effect from the date of signature. Any difficulties encountered during implementation should be reported to the General Department of Taxation under the Ministry of Finance for timely research and resolution./.