Circular No. 118 TC/TCT guiding taxes for foreign tobacco company branches in Vietnam

CIRCULAR

Guidelines on Taxation for Foreign Tobacco Company Branches in Vietnam

Foreign entities in Vietnam

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Pursuant to Decree No. 187 dated October 28, 1994 of the Government on the tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Document No. 2108-QHQT dated April 22, 1994 of the Government of the Socialist Republic of Vietnam regarding the permission for certain foreign tobacco companies to cooperate with the Vietnam Tobacco Corporation to produce cigarettes and establish branches in the Socialist Republic of Vietnam;

Pursuant to current tax laws and decrees of the Socialist Republic of Vietnam;

While the Government has not yet issued regulations on the establishment and operation of foreign company branches in Vietnam, after consultation with the Ministry of Trade, the State Committee for Cooperation and Investment, and the State Bank of Vietnam;

The Ministry of Finance temporarily provides guidelines on tax policies applicable to foreign tobacco company branches established in Vietnam (hereinafter referred to as "Branch") as follows:

I/ TYPES OF TAXES AND FINANCIAL OBLIGATIONS:

1/ Business Income Tax:

According to the Law on Business Income Tax dated June 30, 1990 and the Law Amending and Supplementing Certain Articles of the Law on Business Income Tax dated July 5, 1993, the Branch shall be liable to pay business income tax on all business income generated from its operations.

The rate of business income tax, procedures for declaration and payment of business income tax shall be implemented in accordance with Circular No. 73A TC/TCT dated August 30, 1993 of the Ministry of Finance guiding the implementation of Decree No. 55-CP dated August 28, 1993 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 the sale of foreign-branded cigarettes in the Vietnamese market, the Branch shall pay business income tax at a rate of 2% of sales revenue or 14% of the difference between selling price and purchase price of cigarettes if the Branch maintains accounting books and invoices recognized by the tax authority.

The Branch shall declare and register for tax payment with the local Tax Authority. By no later than the fifth day of the following month, the Branch must submit the previous month's tax declaration form to the Tax Authority and remit the tax to the State Treasury. In all cases, the deadline for paying the previous month's tax shall not exceed the fifteenth day of the following month. If the business income tax of the previous month is paid after the fifteenth day of the following month, a penalty of 0.2% (two thousandths) per day will be imposed on the amount overdue.

2/ Export Tax, Import Tax:

All goods (including cigarette products), equipment, and materials of the Branch that are permitted to be imported into Vietnam for operational purposes or permitted to be exported or entrusted for export shall be subject to import tax and export tax, and therefore must pay import tax or export tax according to the provisions of the Law on Export Tax and Import Tax.

Procedures for declaration and payment of export and import taxes shall be carried out in accordance with Circular No. 72A TC/TCT dated August 30, 1993 of the Ministry of Finance guiding the implementation 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 the Law Amending and Supplementing Certain Articles of the Law on Export Tax and Import Tax.

3/ Land Rent:

The Branch, which is granted land, water surface, or sea surface lease by the Government of the Socialist Republic of Vietnam for constructing offices, warehouses, shops, and other architectural structures, shall be liable to pay rent for land, water surface, or sea surface to the State of the Socialist Republic of Vietnam according to the provisions of the Land Law and related guiding documents.

Local Tax Bureaus where the Branches are permitted to lease land shall be responsible for guiding, inspecting, and collecting rent for land, water surface, or sea surface according to the provisions.

In the case where the Branches lease houses, shops, warehouses, and other architectural structures from other organizations or individuals, they must pay rent according to the lease agreement.

4/ Profit Tax:

The Branch shall be liable to pay profit tax on all profits arising from business activities and other profits arising from the ownership and use of assets of the Branch within the territory of Vietnam.

Rate of profit tax: 25%

Methods for determining taxable profit, procedures for declaration and payment of profit tax and settlement of tax shall be in accordance with the provisions of Circular No. 51 TC/TCT dated July 3, 1993 of the Ministry of Finance guiding the implementation of tax regulations applicable to foreign-invested enterprises and foreign parties conducting business based on contracts under the Law on Foreign Investment in Vietnam.

When determining revenue and expenses for calculating taxable profit, the Tax Authority has the right to examine the reasonableness of purchase and sale contracts, product supply contracts, labor service contracts, and payment relationships between the Branch and companies, branches within the same company, or companies controlled by the Branch, if it finds that these contracts are not based on fair transaction principles.

Profit tax shall be temporarily collected every three months and settled at the end of the fiscal year.

5/ Tax on Repatriation of Profits:

The Branches shall be liable to pay tax on repatriation of profits according to the current tax laws on tax on repatriation of profits.

Rate of tax on repatriation of profits: 10%.

Procedures for declaration and payment of tax on repatriation of profits shall be in accordance with the provisions of Circular No. 51 TC/TCT dated July 3, 1993 of the Ministry of Finance guiding the implementation of tax regulations applicable to foreign-invested enterprises and foreign parties conducting business based on contracts under the Law on Foreign Investment in Vietnam.

6. Personal Income Tax for High-Income Individuals:

Foreign nationals and Vietnamese working at the Branch shall be liable to pay personal income tax according to the Ordinance on Personal Income Tax for High-Income Individuals promulgated on May 19, 1994.

7. Other Financial Obligations:

In addition to the above taxes, the Branch shall be liable to pay business license tax, royalty income tax (if any), and other taxes as prescribed by the current laws of the Socialist Republic of Vietnam.

In addition, branches have the obligation to declare, deduct, and pay to the State of Vietnam income tax on royalties, turnover tax, and profits of foreign organizations and individuals operating in Vietnam based on contracts signed with the branch not according to the forms prescribed in the Law on Foreign Investment in Vietnam if such taxes arise during their business operations.

II- COMPLAINTS AND VIOLATION HANDLING

1. Right to Complaint:

Branches have the right to complain when they disagree with the decisions on tax handling issued by the tax authority.

The complaint must be sent to the tax authority that issued the tax handling decisions within thirty days from the date the branch receives those decisions. While waiting for the complaint to be resolved, the branch has the obligation to fully comply with all tax handling decisions of the tax authority.

If the branch disagrees with the decisions resolving complaints issued by the tax authority, or if the tax authority receiving the complaint does not issue a decision on handling the complaint within thirty days from the date the branch submits the complaint, the branch has the right to appeal to the higher-level tax authority.

2. Responsibilities of the Tax Authority in Handling Complaints

Tax authorities at all levels must examine and resolve complaints within fifteen days from the date of receipt of the complaint. For complex cases requiring investigation and examination over a longer period, the tax authority must notify the taxpayer, but the deadline for resolving the complaint shall not exceed thirty days from the date of receipt of the complaint.

Decisions on handling complaints must be implemented within fifteen days from the date of issuance of the decision.

3. Handling of violations

All violations of the provisions of this Circular shall be handled in accordance with the current laws of the Socialist Republic of Vietnam.

3.1- Taxpayers who fail to comply with the regulations on registration procedures, tax declaration, accounting bookkeeping, use, and retention of vouchers shall be warned or fined depending on the degree of violation.

3.2- Taxpayers are responsible for the accuracy and truthfulness of their tax declarations for ten years. During this period, at any time, if the tax authority discovers fraudulent or tax evasion behavior by the taxpayer, in addition to paying the full amount of tax as stipulated by law, they will also be fined from one to three times the amount of evaded tax.

3.3- If taxpayers delay payment of taxes or fines as stated in the tax notice, tax collection order, or other tax authority decisions, in addition to paying the full amount of tax or fine as stipulated by law, they will be fined at a rate of 0.2% (two thousandths) of the delayed amount for each day of delay.

III- IMPLEMENTATION

This Circular takes effect from the date of signature. Any changes to the relevant tax laws after the issuance of this Circular shall apply to the taxes regulated by this Circular.

During the implementation of this Circular, if there are difficulties or obstacles, branches and tax bureaus are requested to report to the Ministry of Finance (General Department of Taxation) for supplementary guidance./.