Circular No. 11/1998/TT-BTC guiding taxes for programs and projects using official development assistance (ODA) sources.

CIRCULAR

Guidelines on Taxation for Programs and Projects Utilizing Official Development Assistance Funds
using Official Development Assistance funds

BASED ON CURRENT TAX LAWS AND LEGISLATIONS;

Based on Decree No. 87/CP dated August 5, 1997 of the Government on the issuance of the Rules for managing and using Official Development Assistance funds;

The Ministry of Finance provides guidelines on taxation for programs and projects utilizing Official Development Assistance funds as follows:

I. SCOPE OF APPLICATION:

The tax obligations outlined in this Circular apply to all domestic and foreign organizations and individuals participating in programs and projects utilizing Official Development Assistance (hereinafter referred to as ODA) in Vietnam.

II. TYPES OF TAXES APPLICABLE AND FUNDS FOR PAYING TAXES:

1. Indirect taxes and funds for paying taxes:

a. Import duties and special consumption taxes:

For materials, goods, machinery, equipment, and transportation vehicles imported from ODA funds must pay import duties according to the Law on Export Duties and Import Duties and special consumption taxes (if applicable) as stipulated in the Law on Special Consumption Taxes.

Specifically, goods, materials, machinery, equipment, and transportation vehicles imported from non-repayable ODA funds are exempt from import duties and special consumption taxes pursuant to Article 12 of Decree No. 54/CP dated August 28, 1993 of the Government detailing the implementation of the Law on Export Duties and Import Duties and Article 3 of Decree No. 97/CP dated December 27, 1995 of the Government detailing the implementation of the Law on Special Consumption Taxes and the Law Amending and Supplementing Certain Provisions of the Law on Special Consumption Taxes.

Documents for considering exemption from import duties and special consumption taxes (if applicable) include:

A letter requesting exemption from the Program or Project Manager.

A sales contract between the program/project manager and the supplier of goods, confirmed for payment with non-repayable ODA funds.

A letter from the Ministry of Trade permitting the import of machinery and equipment for the program/project, clearly stating that the imported goods are funded by non-repayable ODA funds.

Machinery, equipment, and transportation vehicles brought into Vietnam by foreign contractors to serve construction works of programs/projects funded by ODA are exempt from import duties and must be re-exported upon completion of the project. The program/project managers compile a list of machinery, equipment, and transportation vehicles required by contractors, submit it along with the import documentation for goods and materials under the project to the Ministry of Finance for specific case decisions. Customs authorities have procedures to monitor and manage these cases as they do for temporary imports for re-export.

After the completion of the project, if foreign contractors sell machinery, equipment, and transportation vehicles exempt from import duties and special consumption taxes in the Vietnamese market, such transactions must be approved by the Ministry of Trade and subject to import duties and special consumption taxes (if applicable) as guided by Circular No. 65 TC/TCT dated September 24, 1997 of the Ministry of Finance regarding the determination of taxable value for import duties and special consumption taxes on imported goods by entities previously exempted from taxes but now changing their tax-exempt status, and other taxes as prescribed by current laws.

b. Business income tax:

Organizations and individuals generating business income through participation in programs and projects funded by ODA must pay business income tax according to the Law on Business Income Tax. The taxable income is the total contract value for each type of activity carried out by the organization or individual, as detailed in Circular No. 97 TC/TCT dated December 30, 1995 of the Ministry of Finance. The tax rate for business income tax is applied based on the specific business activities or services conducted by the organization or individual, following the Business Income Tax Schedule issued together with Decree No. 96/CP dated December 27, 1995 of the Government detailing the implementation of the Law on Business Income Tax and the Law Amending and Supplementing Certain Provisions of the Law on Business Income Tax.

For turnkey contracts or key delivery contracts, the value of imported machinery and equipment fully integrated into the project by foreign contractors, supplied under the import permit of the program/project manager, is deducted when calculating business income tax and profit tax for construction activities and does not require payment of business income tax as commercial trade activities for this machinery and equipment.

c. Funds for paying taxes:

For programs and projects funded entirely or partially by state budget counterpart funds, the program/project managers must include sufficient business income tax, special consumption taxes, and import duties in their annual budget estimates. The state budget will ensure adequate provision of counterpart funds according to the approved plan to cover tax payments or record revenue and expenditure for the aforementioned indirect taxes.

For programs and projects funded through loan repayment mechanisms from the state budget, the program/project managers must calculate and provide their own funds to pay the indirect taxes.

2. Profit tax and high-income personal income tax:

Domestic organizations and individuals participating in programs and projects funded by ODA who generate taxable profits must pay profit tax according to Decree No. 57/CP dated August 28, 1993 of the Government detailing the implementation of the Law on Profit Tax and the Law Amending and Supplementing Certain Provisions of the Law on Profit Tax, and Circular No. 75A TC/TCT dated August 31, 1993 of the Ministry of Finance providing guidance.

Foreign organizations and individuals (hereinafter referred to as foreign contractors) must pay profit tax according to Circular No. 37 TC/TCT dated May 10, 1995 of the Ministry of Finance guiding tax exemptions applicable to foreign economic organizations and individuals conducting business in Vietnam outside the forms of investment under the Law on Foreign Investment in Vietnam.

Domestic and foreign individuals working for contractors participating in programs and projects or for management boards of programs and projects funded by ODA with high incomes must pay personal income tax according to the Ordinance on Personal Income Tax for High-Income Individuals.

In cases where foreign contractors implement projects and foreign individuals work for contractors or project management boards in countries that have signed double taxation avoidance agreements with Vietnam, the payment of profit tax and personal income tax shall be carried out according to the signed agreement.

In cases where the Government of Vietnam has agreed on preferential tax treatment for corporate income tax and personal income tax for organizations and individuals from countries providing non-repayable ODA to Vietnam that differs from current regulations, such agreements shall be implemented according to the mutual agreement between the two Governments.

III. DECLARATION AND PAYMENT OF TAXES

Domestic organizations and individuals participating in programs and projects must register and declare tax payments in accordance with Circular No. 97 TC/TCT dated December 30, 1995 and Circular No. 75A TC/TCT dated August 31, 1993 issued by the Ministry of Finance. Foreign organizations and individuals must declare and pay taxes in accordance with Circular No. 37 TC/TCT dated May 10, 1995 issued by the Ministry of Finance. Individuals working for foreign contractors and project management boards who have income must declare and pay taxes in accordance with Circular No. 39 TC/TCT dated June 26, 1997 issued by the Ministry of Finance.

Cases where tax exemption is granted according to the Double Taxation Agreement or bilateral agreements between the Government of Vietnam and the Government of the country providing non-repayable ODA to Vietnam must also comply with the procedures for declaration and payment of taxes as stipulated and provide relevant documentation to the tax authority regarding tax calculation, tax payment, and tax exemption.

The program/project management board is responsible for urging domestic and foreign contractors to register and declare tax payments in accordance with the provisions of the law and this Circular, and simultaneously deducting the amount of tax due from foreign contractors and remitting it to the State Budget in accordance with the current regulations.

Violations of the law concerning registration, declaration, and payment of taxes will be subject to penalties as prescribed by tax laws, tax ordinances, and Decree No. 22/CP dated April 17, 1996 of the Government on administrative penalties in the field of taxation.

IV. IMPLEMENTATION

This Circular takes effect fifteen days after its date of issuance. Programs and projects using ODA funds prior to the issuance of a government decision on tax handling by the Ministry of Finance shall be implemented in accordance with this Circular./.