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 developing trade in mountainous areas, islands, and ethnic minority regions.

CIRCULAR

GUIDELINES FOR IMPLEMENTING TAX EXEMPTIONS AND REDUCTIONS AS PROVIDED IN ARTICLE 9 OF DECREE NO. 20/1998/NĐ-CP OF MARCH 31, 1998 ON DEVELOPING TRADE IN MOUNTAINOUS AREAS, ISLANDS, AND ETHNIC GROUPS' AREAS ISSUED BY THE MINISTRY OF FINANCE NUMBER 112/1998/TT-BTC ON AUGUST 4, 1998

BASED ON CURRENT TAX LAWS AND LEGISLATIONS;
TO ENFORCE ARTICLE 9 OF DECREE NO. 20/1998/NĐ-CP OF MARCH 31, 1998 OF THE GOVERNMENT ON DEVELOPING TRADE IN MOUNTAINOUS AREAS, ISLANDS, AND ETHNIC GROUPS' AREAS;
THE MINISTRY OF FINANCE GUIDES THE IMPLEMENTATION OF TAX EXEMPTIONS AND REDUCTIONS AS PROVIDED IN THIS DECREE AS FOLLOWS:

I. SCOPE OF APPLICATION

a) Cadres, civil servants, public officials, and workers as stipulated in Article 2 of Decree No. 178/2024/NĐ-CP dated December 31, 2024 (amended and supplemented by Decree No. 67/2025/NĐ-CP dated March 15, 2025) of the Government on policies and treatment for cadres, civil servants, public officials, workers, and armed forces personnel in the process of organizational restructuring of the political system, having a total mandatory social insurance contribution period of at least 15 years when working in heavy, hazardous, or dangerous jobs or extremely heavy, hazardous, or dangerous jobs listed by the agency under the Government responsible for labor administration, or working in areas with particularly difficult socio-economic conditions including time worked in places with regional allowances of coefficient 0.7 or higher before January 1, 2021, and reaching the retirement age as specified in Appendix II issued together with Decree No. 135/2020/NĐ-CP, ceasing work immediately due to direct impact from organizational restructuring and implementation of the two-level local government model;

The entities eligible for tax exemptions and reductions on business income and corporate profit tax as stipulated in Article 9 of Decree No. 20/1998/NĐ-CP and detailed in this Circular include traders from various economic sectors engaged in trade activities (as specified in Section IV of the Business Income Tax Schedule issued with Decision No. 96/CP dated December 27, 1995) operating in mountainous areas, islands, and ethnic groups' areas, including:

- State-owned enterprises

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

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

- Individuals, household business owners, independent business groups, and other business entities;

- Limited liability companies and joint stock companies;

- Private enterprises;

- Cooperatives, households, individuals who have registered their business operations and operate according to Resolution 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 under this Circular when:

- They register their business operations and conduct activities in accordance with the registered business scope.

- They register for tax and declare taxes in accordance with the law.

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

2. APPLICATION AREA

The mountainous, island, and ethnic groups' areas serving as the basis for tax exemptions and reductions under this Circular are determined based on the administrative boundaries of districts and towns recognized by the Committee for Ethnic Minorities and Mountainous Areas as mountainous, island, and ethnic groups' areas.

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 groups' areas shall be granted tax exemptions and reductions on business income and corporate profit tax as follows:

1. LEVEL OF BENEFITS AND PERIOD OF IMPLEMENTATION

a. For traders operating in Zone III within mountainous, island, and ethnic groups' areas:

- A 50% reduction in business income tax payable over a period of four years starting from the effective date of Decree No. 20/1998/NĐ-CP (April 15, 1998) or from the month in which taxable business income is generated for newly added or newly registered traders after April 15, 1998;

- Exemption from corporate profit tax for the first four years from the time profits become taxable, followed by a 50% reduction in corporate profit tax payable over the next seven years, provided that the average annual number of employees is 20 or more, an additional 50% reduction in corporate profit tax will apply for two more years.

b. For traders operating in Zone II within mountainous, island, and ethnic groups' areas:

- A 50% reduction in business income tax on revenue derived from selling social welfare goods and agricultural and forestry products purchased under subsidized freight rates over a period of four years starting from April 15, 1998, or from the month in which taxable business income is generated for newly added or newly registered traders selling these goods after April 15, 1998;

- Exemption from corporate profit tax for the first two years from the time profits become taxable, followed by a 50% reduction in corporate profit tax payable over the next five years, provided that the average annual number of employees is 20 or more, an additional 50% reduction in corporate profit tax will apply for two more years.

c. For traders directly selling social welfare goods in Zone I and traders directly operating in Zones I and II within mountainous, island, and ethnic groups' areas 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 in which taxable business income is generated for newly added or newly registered traders after April 15, 1998;

- Exemption from corporate profit tax for the first two years from the time profits become taxable, followed by a 50% reduction in corporate profit tax payable over the next four years, provided that the average annual number of employees is 20 or more, an additional 50% reduction in corporate profit tax will apply for two more years.

To qualify for tax exemptions and reductions under Subpoints a, b, and c of Point II.1 of this Circular, traders must separately account for the business income and profits subject to tax arising from trade activities conducted in mountainous, island, and ethnic groups' areas, providing a basis for the tax authority to implement tax exemptions and reductions.

The average annual number of employees is calculated based on employees with valid labor contracts as stipulated by labor laws, and traders can receive an additional 50% reduction in corporate profit tax for two years under the guidance of Subpoints a, b, and c of Point II.1 of this Circular if they continuously employ an average of 20 or more employees during the tax reduction period.

The period for enjoying tax exemption and reduction benefits on corporate profit tax for traders mentioned in Subpoints 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 operating before April 15, 1998, the implementation period for tax exemptions and reductions starts from April 15, 1998. - For traders operating from April 15, 1998 onwards, the implementation period for tax exemptions and reductions starts from the time profits become taxable.

2. AUTHORITY TO CONSIDER TAX EXEMPTIONS AND REDUCTIONS AND PROCEDURES FOR CONSIDERING TAX EXEMPTIONS AND REDUCTIONS

The tax exemptions and reductions for traders stipulated in Article 9 of Decree No. 20/1998/NĐ-CP and detailed in this Circular shall be implemented by the tax authority responsible for managing the tax payments of the traders when settling taxes annually.

Monthly during the tax-exempt and reduced-tax year, traders shall temporarily declare and pay taxes at the preferential tax rate as stipulated in Article 9 of Decree 20/1998/NĐ-CP and guided 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 declaration form and issue a tax notice indicating the amount of tax due, the amount of tax exempted and reduced according to Article 9 of Decree No. 20/1998/NĐ-CP. If the amount of tax provisionally paid by the trader during the year is less than the amount of tax indicated in the tax notice, the trader must pay the remaining tax within the deadline specified in the notice; if the amount of tax provisionally paid exceeds the amount indicated in the notice, it will be deducted from the tax payable in the following period.

The tax authority may only implement tax exemptions and reductions as guided above for traders who declare and pay turnover tax and income tax directly to the tax authority managing the mountainous, island, and ethnic minority areas where business activities are conducted, which are subject to tax exemptions and reductions on turnover and income tax as provided for in Article 9 of Decree No. 20/1998/NĐ-CP.

During the same period, if a trader is simultaneously granted tax exemptions and reductions on turnover and income tax under Article 9 of Decree No. 20/1998/NĐ-CP and tax exemptions and reductions on turnover tax under Clause 3 of Article 18 of the Turnover Tax Law; tax exemptions and reductions on income tax under Articles 21 and 25 of the Income Tax Law; or tax exemptions and reductions on turnover and income tax under the Domestic Investment Promotion Law, then the tax exemptions and reductions on turnover and income tax shall only be implemented according to one of the aforementioned provisions.

III. IMPLEMENTATION

1. Traders operating in mountainous, island, and ethnic minority areas that fall under the scope of application of this Circular shall have the responsibility to:

- Present the business establishment permit and business registration certificate to the tax authority managing the area.

- Fully declare the taxable turnover and income generated periodically as prescribed by the tax authority.

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

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

- Guide and inspect traders in the implementation of this Circular.

- During the process of finalizing tax returns and periodic inspections of state budget obligations, if they discover that traders have engaged in false declarations or tax evasion, in addition to not implementing tax exemptions and reductions under this Circular, the tax authority shall be responsible for collecting the full amount of tax due according to the law, assessing the level of violation, and imposing penalties according to the regulations on administrative violations in the field of taxation.

- The tax authority must clearly reflect the amount of tax due, the amount of tax exempted and reduced, the remaining tax to be paid, and other indicators on tax collection receipts, tax declarations, tax ledgers, and accounting books. At 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 report to the Ministry of Finance (General Department of Taxation).

This Circular takes effect from April 15, 1998.

In the course of implementation, if there are any difficulties, relevant entities, sectors, and localities should promptly report to the Ministry of Finance for study and resolution.