Circular No. 112/1998/TT-BTC guides the implementation of tax exemptions and reductions as stipulated in Article 9 of Decree No. 20/1998/NĐ-CP dated March 31, 1998 of the Government on the development of trade in mountainous areas, islands, and ethnic minority regions.

CIRCULAR

Guidelines for implementing tax exemptions and reductions as provided for in Article 9 of Decree No. 20/1998/NĐ-CP

dated March 31, 1998, of the Government on developing trade in mountainous areas, islands, and ethnic minority regions,

islands and coastal areas and ethnic minority regions

Based on current tax laws and tax ordinances;

To implement Article 9 of Decree No. 20/1998/NĐ-CP dated March 31, 1998, of the Government on developing trade in mountainous areas, islands, and ethnic minority regions;

I. SCOPE OF APPLICATION

1. Scope of Application

The subjects eligible for tax exemptions and reductions on business income and profit taxes as prescribed in Article 9 of Decree No. 20/1998/NĐ-CP and detailed in this Circular include traders belonging to various economic sectors engaged in trade activities (as defined in Section IV of the Business Income Tax Schedule attached to Decree No. 96/CP dated December 27, 1995) in mountainous, island, and ethnic minority regions, including:

State enterprises

Enterprises of political organizations, political-social organizations, social organizations, social-professional organizations, people's armed forces units, administrative and public service agencies;

Foreign-invested enterprises operating under the Law on Foreign Investment in Vietnam;

Cooperatives;

Limited liability companies and joint stock companies;

Private enterprises;

Cooperative groups, households, individuals who have registered their businesses and operate according to Decree No. 66/HĐBT dated March 2, 1992, of the Council of Ministers (now the Government);

These entities are only eligible for tax exemptions and reductions as guided by this Circular when:

They register their business and operate within the scope of their registered business activities.

Register for tax purposes and declare taxes in accordance with the law.

Maintain accounting books, record-keeping, and retain accounting records, invoices, and other documents related to trade activities in compliance with legal regulations.

2. Geographic Areas of Application

Mountainous, island, and ethnic minority regions serving as the basis for tax exemptions and reductions as guided by this Circular are determined based on the administrative boundaries of districts and cities recognized by the Committee for Ethnic Minorities and Mountainous Areas as mountainous, island, and ethnic minority regions.

II. GUIDELINES FOR IMPLEMENTING TAX EXEMPTIONS AND REDUCTIONS

According to Article 9 of Decree No. 20/1998/NĐ-CP, traders conducting business in mountainous, island, and ethnic minority regions shall be exempt from or have reduced business income and profit taxes as follows:

1. Level of Benefits and Duration of Exemptions and Reductions

a. For traders operating in Zone III within mountainous, island, and ethnic minority regions:

A 50% reduction in business income tax payable over a period of four years starting from the date Decree No. 20/1998/NĐ-CP took effect (April 15, 1998), or from the month they first generate taxable business income if they commence operations or register new businesses after April 15, 1998;

Exemption from profit tax for the first four years from the time they start generating taxable profits, followed by a 50% reduction in profit tax payable over the next seven years, provided that they employ an average of 20 or more workers annually, which would result in an additional 50% reduction in profit tax payable over the following two years.

b. For traders operating in Zone II within mountainous, island, and ethnic minority regions:

A 50% reduction in business income tax on revenue derived from selling social welfare goods and agricultural and forestry products purchased under social assistance policies over a period of four years starting from April 15, 1998, or from the month they first generate taxable business income if they commence operations or register new businesses selling these goods after April 15, 1998;

Exemption from profit tax for the first two years from the time they start generating taxable profits, followed by a 50% reduction in profit tax payable over the next five years, provided that they employ an average of 20 or more workers annually, which would result in an additional 50% reduction in profit tax payable over the following two years.

c. For traders directly selling social welfare goods in Zone I and traders directly engaging in business activities in Zones I and II within mountainous, island, and ethnic minority regions when selling other goods (excluding those mentioned in Point II.1.b of this Circular):

A 25% reduction in business income tax over a period of three years starting from April 15, 1998, or from the month they first generate taxable business income if they commence operations or register new businesses after April 15, 1998;

Exemption from profit tax for the first two years from the time they start generating taxable profits, followed by a 50% reduction in profit tax payable over the next four years, provided that they employ an average of 20 or more workers annually, which would result in an additional 50% reduction in profit tax payable over the following two years.

To qualify for tax exemptions and reductions as outlined in Points a, b, and c of Point II.1 of this Circular, traders must separately account for the business income and profits subject to taxation arising from trade activities conducted in mountainous, island, and ethnic minority regions, providing the tax authorities with the basis for implementing tax exemptions and reductions.

The annual average number of employees is calculated based on employees with valid employment contracts as stipulated by labor law, and traders can only benefit from an additional 50% reduction in profit tax for two years as guided by Points a, b, and c of Point II.1 of this Circular if they continuously employ an average of 20 or more workers annually during the tax reduction period.

The duration of benefits for tax exemptions and reductions on profit tax for traders as specified in Points a, b, and c of Point II.1 of this Circular shall be implemented in accordance with Point 4.b of Article 9 of Decree No. 20/1998/NĐ-CP as follows:

For traders already operating before April 15, 1998, the implementation period for tax exemptions and reductions starts from April 15, 1998. For traders commencing operations from April 15, 1998 onwards, the implementation period for tax exemptions and reductions begins from the time they start generating taxable profits.

2. Authority to Grant Tax Exemptions and Reductions and Procedures for Applying for Such Exemptions and Reductions

The granting of tax exemptions and reductions for traders as stipulated in Article 9 of Decree No. 20/1998/NĐ-CP and detailed in this Circular shall be carried out by the tax authority responsible for managing the tax payments of the traders when they settle their annual tax returns.

For months exempted from tax or reduced tax during the year, traders may temporarily declare and pay taxes at the preferential rate specified in Article 9 of Decree No. 20/1998/NĐ-CP and the guidance provided in Point II.1 of this Circular. At the end of the year when finalizing accounts, the tax authority will officially review on the tax calculation declaration form and issue a tax notice, clearly stating the amount of tax to be paid, the amount of tax exempted or reduced according to Article 9 of Decree No. 20/1998/NĐ-CP. If the amount of tax that the trader has temporarily paid during the year is less than the amount of tax stated in the tax notice, the trader must pay the remaining tax within the time limit specified in the notice; if the temporarily paid tax exceeds the amount stated in the notice, it shall be deducted from the tax payable for the next period.

The tax authority can only implement tax exemptions and reductions as guided above for traders who declare and pay business income tax and profit tax directly managed by the tax authority in mountainous areas, islands, and regions where ethnic minorities reside, which are subject to business income tax and profit tax exemptions and reductions as stipulated in Article 9 of Decree No. 20/1998/NĐ-CP.

During the same period, if a trader is simultaneously eligible for tax exemptions and reductions on business income and profit tax under Article 9 of Decree No. 20/1998/NĐ-CP, and also for business income tax exemptions and reductions under Clause 3 of Article 18 of the Business Income Tax Law, or profit tax exemptions and reductions under Articles 21 and 25 of the Profit Tax Law, or business income and profit tax exemptions under the Domestic Investment Incentive Law, then the tax exemptions and reductions on business income and profit tax shall only be implemented according to one of these provisions.

III. IMPLEMENTATION

1. Traders operating in mountainous areas, islands, and regions with ethnic minority populations, who are subject to this Circular, have the responsibility to:

Present the business establishment permit and business registration certificate to the local tax management agency.

Fully declare business income and taxable profits generated periodically as prescribed by the tax authority.

Traders violating the tax declaration and registration system; the bookkeeping and accounting records system shall not be eligible for tax exemptions and reductions under this Circular and may be subject to penalties based on the severity of the violation as stipulated by law.

2. Tax authorities at all levels have the responsibility to:

Guide and inspect traders in implementing this Circular.

During the process of finalizing tax returns and periodic inspections of budget revenue obligations, if tax evasion or tax avoidance is discovered, in addition to not implementing tax exemptions and reductions under this Circular, the tax authority must ensure full collection of the legally required tax from the trader, assess the level of violation, and impose penalties according to the administrative violation handling regulations in the tax field.

The tax authority must clearly reflect the amount of tax due, the amount of tax exempted or reduced, the remaining tax to be paid, and other indicators on tax receipts, tax declarations, tax ledgers, and accounting books. By the end of the year, the tax authority must compile a comprehensive report on the implementation of tax exemptions and reductions under this Circular and submit it to the Ministry of Finance (General Department of Taxation).

This Circular takes effect from April 15, 1998.

During implementation, if any issues arise, they should be promptly reported to the Ministry of Finance for study and resolution./.