Circular No. 11/1998/TT-BTC provides guidance on taxes for programs and projects using official development assistance (ODA) funds.

 CIRCULAR

CIRCULAR NO. 11/1998/TT-BTC OF JANUARY 22, 1998 ISSUED BY THE MINISTRY OF FINANCE GUIDING TAXES FOR PROGRAMS AND PROJECTS USING OFFICIAL DEVELOPMENT ASSISTANCE (ODA)

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 guides taxes for programs and projects using Official Development Assistance (ODA) as follows:

I. SCOPE OF APPLICATION:

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

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

1. Indirect taxes and funds for paying taxes:

a. Import tax and special consumption tax:

For materials, goods, machinery, equipment, and transportation means imported from ODA funds must pay import tax according to the Law on Export Tax and Import Tax and special consumption tax (if applicable) according to the Law on Special Consumption Tax.

However, goods, materials, machinery, equipment, and transportation means imported from non-repayable ODA funds are exempted from import tax and special consumption tax according to Article 12 of Decree No. 54/CP dated August 28, 1993 of the Government detailing the implementation of the Law on Export Tax and Import Tax and Article 3 of Decree No. 97/CP dated December 27, 1995 of the Government detailing the implementation of the Law on Special Consumption Tax and the Law amending and supplementing certain articles of the Law on Special Consumption Tax.

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

- A letter requesting exemption from the Program or Project Manager.

- A sales contract between the Program or Project Manager and the supplier of goods confirmed to be paid with non-repayable ODA funds.

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

Machinery, equipment, and transportation means brought into Vietnam by foreign contractors to serve construction works of programs and projects using ODA funds are exempted from import tax and must be re-exported upon completion of the works. The Program or Project Managers compile a list of machinery, equipment, and transportation means required by contractors, submit the relevant documents to the Ministry of Finance (along with the import documents for goods and materials belonging to the project) for specific case-by-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 works, if foreign contractors sell machinery, equipment, and transportation means that were exempted from import tax and special consumption tax at the Vietnamese market, such actions require approval from the Ministry of Trade and must pay import tax and special consumption tax (if applicable) according to Circular No. 65 TC/TCT dated September 24, 1997 of the Ministry of Finance guiding the determination of taxable value for import tax and special consumption tax for imported goods by entities previously exempted from tax but now changing the grounds for exemption, and other taxes as stipulated by current laws.

b. Business income tax:

Domestic organizations and individuals earning business income through participation in programs and projects using ODA funds must pay business income tax according to the Law on Business Income Tax. The taxable business income is the total contract value for each type of activity carried out by the organization or individual, as guided by Circular No. 97 TC/TCT dated December 30, 1995 of the Ministry of Finance. The business income tax rate applied to each type of business activity or service conducted by the organization or individual is set forth in 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 articles of the Law on Business Income Tax.

For turnkey construction and installation contracts, the value of imported machinery and equipment fully provided by foreign contractors under the import permit of the program or project manager can be deducted when calculating business income tax and profit tax for construction activities and does not need to pay business income tax as commercial trade activities for this machinery and equipment.

c. Funds for paying taxes:

For programs and projects using ODA funds where the State budget invests entirely or partially subsidizes counterpart funds, the program or project managers must calculate sufficient business income tax, special consumption tax, and import tax when preparing annual capital budgets. The State budget will ensure the provision of sufficient 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 using ODA funds through a loan mechanism from the budget, the program or project managers must calculate and self-fund the payment of indirect taxes.

2. Profit tax and high-income earners' income tax:

Domestic organizations and individuals participating in programs and projects using ODA funds that earn 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 articles of the Law on Profit Tax and Circular No. 75A TC/TCT dated August 31, 1993 of the Ministry of Finance guiding the regulations.

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 the tax regime applicable to foreign economic organizations and individuals conducting business in Vietnam outside the forms of foreign investment as stipulated by 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 using ODA funds who earn high incomes must pay income tax according to the Ordinance on Income Tax for High-Income Earners.

In the case where foreign contractors implement projects and foreign individuals work for contractors or Project Management Boards from countries that have signed double taxation avoidance agreements with Vietnam, the payment of income tax and personal income tax shall be carried out in accordance with the signed Agreement.

If the Government of Vietnam has agreed on preferential tax treatment for organizations and individuals of the funding country providing non-repayable ODA to Vietnam, which differs from current regulations, such treatment shall be implemented according to the agreement between the two Governments.

III. DECLARATION AND PAYMENT OF TAXES

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

Cases exempted from tax under the provisions of the double taxation avoidance agreement or bilateral agreements between the Government of Vietnam and the Government of the funding country providing non-repayable ODA to Vietnam must also comply with the procedures for tax declaration and payment as prescribed and provide relevant documents to the tax authority regarding tax calculation, payment, and exemption.

The program and project management board is responsible for urging and reminding both domestic and foreign contractors to register, declare, and pay taxes in accordance with the law and the guidance provided in this Circular, and simultaneously deducting the amount of tax due from foreign contractors and paying it into the State Budget in accordance with the current regulations.

Violations of the law concerning registration, declaration, and payment of taxes will be penalized in accordance with the Tax Law, Tax Ordinance, 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 issuance date. Programs and projects using ODA funds prior to this Circular that have not yet received a tax handling decision from the Government or the Ministry of Finance shall be implemented in accordance with this Circular.