Decree No. 124/2008/ND-CP provides detailed regulations and guidance on implementing certain provisions of the Law on Corporate Income Tax.

DECREE

Detailed regulations and guidance on implementing certain provisions of the Law on Corporate Income Tax

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THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Pursuant to the Law on Corporate Income Tax dated June 3, 2008;

Considering the proposal of the Minister of Finance,

DECREE:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decree provides detailed regulations and guidance on implementing certain provisions of the Law on Corporate Income Tax dated June 3, 2008 (hereinafter referred to as the Law on Corporate Income Tax).

Article 2. Taxpayer

Taxpayers shall comply with the provisions set forth in Article 2 of the Law on Corporate Income Tax

1. Taxpayers as stipulated in Clause 1 of Article 2 of the Law on Corporate Income Tax include:

a. Enterprises established and operating in accordance with the Law on Enterprises, the Law on State-Owned Enterprises, the Law on Foreign Investment Enterprises in Vietnam, the Law on Investment, the Law on Credit Institutions, the Law on Insurance Business, the Law on Securities, the Law on Oil and Gas, the Law on Commerce, and other legal documents under various forms such as joint-stock companies; limited liability companies; partnerships; private enterprises; state-owned enterprises; parties in business cooperation contracts; parties in oil and gas product sharing contracts, joint venture oil and gas enterprises, and joint management companies;

b. Enterprises established in accordance with foreign laws (hereinafter referred to as foreign enterprises) having a permanent establishment or not having a permanent establishment in Vietnam;

c. Public and non-public institutions engaged in production and business activities generating income subject to tax as provided for in Article 3 of this Decree;

d. Organizations established and operating in accordance with the Law on Cooperatives;

đ. Other organizations outside those specified in points a, b, c, and d of this clause that engage in production and business activities and generate income subject to tax as provided for in Article 3 of this Decree.

2. Organizations established and operating (or registered to operate) in accordance with Vietnamese law, and individual businesses are taxpayers subject to withholding tax at source when purchasing services (including services attached to goods) from enterprises specified in point c, d of Clause 2 of Article 2 of the Law on Corporate Income Tax.

The Ministry of Finance shall provide specific guidelines on the withholding tax as prescribed in this clause.

Article 3. Taxable Income

1. Taxable income includes income from production and business activities of goods and services and other income as provided for in Clause 2 of this Article. For enterprises registered for business and generating income as provided for in Clause 2 of this Article, such income shall be determined as income from production and business activities of the enterprise.

2. Other income includes:

a. Income from capital transfer includes income from transferring part or all of the invested capital into an enterprise, including the sale of an enterprise, the transfer of securities, and other forms of capital transfer as prescribed by law;

b. Income from real estate transfer as provided for in Article 13 of this Decree;

c. Income from ownership and use rights of assets including revenue from copyright in all forms, revenue from intellectual property ownership; income from technology transfer as prescribed by law. Leasing of assets in all forms;

d. Income from asset transfer, liquidation (excluding real estate), and other negotiable instruments;

đ. Income from interest on deposits, interest on loans, and foreign currency sales including: interest on deposits at credit institutions, interest on loans in all forms as prescribed by law, loan guarantee fees, and other fees in loan contracts. Income from foreign currency sales;

e. Refunds of provisions, pre-deducted expenses that were not used or fully utilized within the deduction period;

g. Debts previously written off but now recovered;

h. Debts payable to unidentified creditors;

i. Income from business operations in previous years that were overlooked but later discovered;

k. Difference between revenue from penalties, compensation for breach of economic contracts minus (-) the amount of penalty and compensation paid for breach of contract as prescribed by law;

l. Financial and in-kind sponsorships received, except for sponsorships as prescribed in Clause 6 of Article 4 of this Decree;

m. Differences arising from revaluation of assets as prescribed by law for capital contribution, transfer during division, separation, merger, consolidation, and conversion of enterprise types, except for the revaluation of fixed assets when converting state-owned enterprises into joint-stock companies;

Enterprises receiving assets shall record them at the revalued price when determining deductible expenses as prescribed in Article 9 of this Decree;

n. Income from production and business activities outside Vietnam;

o. Other income as prescribed by law.

3. Taxable income generated in Vietnam by enterprises specified in point c, d of Clause 2 of Article 2 of the Law on Corporate Income Tax is income received from Vietnam's sources from providing services, lending funds, and copyright payments to Vietnamese organizations and individuals or to foreign organizations and individuals doing business in Vietnam, regardless of the location where the business is conducted.

Taxable income as prescribed in this clause does not include income from services performed outside Vietnam such as: repairing transportation means, machinery, and equipment abroad; advertising, marketing, investment promotion, and trade promotion abroad; brokerage of goods sales abroad; training abroad; international postal and telecommunications service fee sharing for the foreign side.

The Ministry of Finance shall provide specific guidelines on taxable income as prescribed in this clause.

Article 4. Exempted Income

Tax-exempt income shall be implemented in accordance with Article 4 of the Law on Corporate Income Tax

1. For income from directly providing technical services to serve agriculture, which is exempt from tax, including: income from water irrigation and drainage services; plowing, harrowing land, dredging internal canal and ditch services; pest and disease control services for crops and livestock; harvesting agricultural products services.

2. For income from research and development contracts, income from trial production and income from producing products using new technology applied for the first time in Vietnam, the maximum tax exemption period shall not exceed 01 year, starting from the date of beginning production according to the research and development contract, trial production contract, or production using new technology.

The Ministry of Finance shall provide specific guidelines on the provisions of this clause.

3. Income from business activities producing goods and services where at least 51% of the average number of employees during the year are persons with disabilities, former drug addicts, or HIV-infected individuals shall be exempted from tax.

The income exempted under this clause does not include other income specified in Clause 2 of Article 3 of this Decree.

4. Income from vocational training activities exclusively for ethnic minorities, persons with disabilities, children in particularly difficult circumstances, and social delinquents. In cases where the training institution also serves other groups, the amount of income exempted from tax shall be determined based on the ratio between the number of ethnic minorities, persons with disabilities, children in particularly difficult circumstances, and social delinquents to the total number of trainees.

5. Income distributed from capital contribution, share purchase, joint venture, or economic association activities with domestic enterprises, after the recipient has paid corporate income tax according to the Corporate Income Tax Law, including situations where the recipient is enjoying tax incentives stipulated in Chapter IV of this Decree.

6. Grants received for use in educational, scientific research, cultural, artistic, charitable, humanitarian, and other social activities in Vietnam.

If the organization receiving grants uses them for purposes other than those intended, it must pay corporate income tax at a rate of 25% on the amount of grants used for unintended purposes.

Organizations receiving grants as stipulated in this clause are organizations established and operating in accordance with the law and complying with legal regulations on accounting and statistics.

Chapter II

BASIS AND METHOD OF CALCULATING TAX

Article 5. Tax Base

The tax base consists of taxable income for the period and tax rate.

The tax period shall be implemented in accordance with Article 5 of the Corporate Income Tax Law and the regulations on tax management.

Enterprises may choose the tax period according to the Gregorian calendar year or the fiscal year but must register with the tax authority before implementation.

Article 6. Determination of Taxable Income

1. Taxable income for the tax period is determined as follows:

2. Taxable income is determined as follows:

For enterprises engaged in multiple business activities, taxable income from production and business operations is the total income from all business activities. If there are business activities that incur losses, such losses can be offset against the taxable income of other profitable business activities chosen by the enterprise. The remaining income after offsetting will be subject to the corporate income tax rate applicable to the remaining business activity.

Income from the transfer of real estate must be accounted for separately and declared for tax payment, and cannot be offset against the income or losses of other business activities.

3. The determination of taxable income for certain production and business activities is specified as follows:

a. For income from the transfer of capital (excluding income from the transfer of securities as specified in point b of this clause), it is determined by subtracting the purchase price of the transferred capital portion and related transfer costs from the total sale proceeds according to the transfer agreement.

b. For income from the transfer of securities, it is determined by subtracting the purchase price of the transferred securities from the sale price, minus related transfer costs of the securities.

c. For income from intellectual property rights and technology transfer, it is determined by subtracting the cost of creating the intellectual property rights or transferred technology and maintenance, upgrade, and development costs of the transferred intellectual property rights or technology, as well as other deductible expenses, from the total revenue received.

d. For income from leasing assets, it is determined by subtracting basic depreciation provisions, maintenance, repair, and preservation costs of the leased asset, rental costs for assets leased out again (if any), and other deductible expenses related to leasing the asset from the lease revenue.

đ. Income from the transfer or liquidation of assets (excluding real estate) is calculated by subtracting the remaining book value of the asset at the time of transfer or liquidation and related deductible costs from the proceeds from the transfer or liquidation.

e. Income from foreign currency sales is the total revenue from selling foreign currency minus the purchase price of the sold foreign currency (excluding exchange rate differences arising from revaluation of monetary items denominated in foreign currencies at the end of the fiscal year, exchange rate differences occurring during pre-operational construction investment phases).

g. The difference arising from the revaluation of fixed assets when contributing capital is the difference between the revalued value and the remaining book value of the fixed asset, allocated over the remaining years of depreciation of the revalued fixed asset at the contributing enterprise.

For fixed assets transferred during division, separation, merger, consolidation, or conversion of business form, the difference is the difference between the revalued value and the book value recorded in the books or the remaining book value of the fixed asset.

For non-fixed assets, the difference is the difference between the revalued price and the book value recorded in the books.

h. Income from production, business, and service activities abroad is the total pre-tax income.

4. Income from oil and gas exploration and exploitation activities shall be determined according to each oil and gas contract.

Article 7. Determining Losses and Carrying Forward Losses

1. Losses incurred during the tax period are the negative difference in taxable income determined according to the formula specified in Clause 2 of Article 6 of this Decree.

2. Enterprises with losses may carry forward these losses to the next year; these losses can be deducted from taxable income. The carryforward period is continuous and does not exceed five years, starting from the year following the year in which the loss was incurred.

3. Losses from real estate transfer activities must be accounted for separately and can only be offset against the taxable income of this activity; the maximum carryforward period is five consecutive years, starting from the year following the year in which the loss was incurred.

Article 8. Revenue

Revenue for calculating taxable income shall be implemented in accordance with Article 8 of the Corporate Income Tax Law.

1. Revenue for calculating taxable income includes all proceeds from sales, processing fees, service provision fees, including subsidies, surcharges, and premiums that the enterprise enjoys, regardless of whether the money has been collected or not.

For enterprises that declare and pay value-added tax (VAT) using the deduction method, the taxable income from business operations is calculated based on revenue excluding VAT. For enterprises that declare and pay VAT using the direct method on added value, the taxable income from business operations includes VAT.

2. The time of determining revenue for calculating taxable income for goods sold is the time of transferring ownership or usage rights of the goods to the buyer.

The time of determining revenue for calculating taxable income for services is the time of completing the provision of services to the buyer or the time of issuing an invoice for the provision of services.

3. Revenue for calculating taxable income for certain cases is specified as follows:

a. For goods sold under installment payment terms, the revenue is determined based on the price of goods paid in full, excluding installment interest and deferred payments.

b. For goods and services used for exchange, gifts, donations, or internal consumption, the revenue is determined based on the selling price of similar products, goods, or services at the time of exchange, gift, donation, or internal consumption.

c. For processing activities, the revenue is the total amount received from processing activities including labor costs, fuel, power, auxiliary materials, and other expenses serving the processing activities.

d. For leasing activities, the revenue is the amount paid by the lessee according to the lease agreement for each period. In cases where the lessee pays rent in advance for multiple years, the revenue for calculating taxable income is allocated over the number of years for which the payment was made in advance.

đ. For credit and financial leasing activities, the revenue is the interest income from loans and the income from financial leasing transactions arising during the tax period.

e. For golf course operating activities, the revenue is the income from selling membership cards, golf playing tickets, and other revenues generated during the tax period.

g. For transportation activities, the revenue is the total transportation fees for passengers, cargo, and luggage generated during the tax period.

h. For electricity and clean water supply activities, the revenue is the amount recorded on the VAT invoice.

i. For insurance and reinsurance activities, the revenue is the premium income, service fees (including loss assessment, claim settlement, third-party reimbursement, and handling of 100% compensation items), reinsurance income, commission income from reinsurance, and other income from insurance operations, less (-) refunds or reductions in premiums, reinsurance income, and commissions from ceded reinsurance.

In the case of insurance contracts, the revenue for calculating taxable income is the original insurance premium income allocated according to the proportion of the insurance policy not including value-added tax.

For insurance contracts that stipulate payment in installments, the revenue for calculating taxable income is the amount due and payable during each period.

k. For construction and installation activities, the revenue is the value of the completed project or installation work. If construction and installation work does not include the cost of raw materials, machinery, and equipment, the revenue for taxation purposes does not include these costs.

l. For business activities conducted through joint ventures without forming a legal entity:

- In cases where the parties to the joint venture contract divide business results based on sales revenue from goods and services, the revenue for taxation is the revenue of each party divided according to the contract.

- Where the parties to the joint venture contract divide the business results in the form of products, the revenue for taxation purposes is the revenue of the product divided among the parties according to the contract.

- Where the parties to the joint venture contract divide the business results in the form of pre-tax profit, the revenue for determining pre-tax income is the sales proceeds from goods and services according to the contract.

m. For casino services, electronic games with prizes, and entertainment activities involving betting, the revenue is the income from these activities including special consumption tax, less (-) the amounts paid out as prizes to customers.

n. For securities trading activities, the revenue is from brokerage services, proprietary trading, underwriting of securities issuance, investment advisory services, fund management, issuance of fund certificates, organizing market services, and other securities services as prescribed by law.

o. For oil and gas exploration, development, and production activities, the revenue is the total income from the sale of oil and gas according to fair trade contracts during the tax period.

p. For derivative financial services, the revenue is the income from providing such services during the tax period.

The Ministry of Finance shall provide detailed guidance on the provisions of this Article and for certain special cases.

Article 9. Deductible and Non-deductible Expenses when Determining Taxable Income

1. Except for the expenses specified in Clause 2 of this Article, enterprises may deduct all expenses if they meet the following conditions:

a. The expenses are actually incurred and related to the enterprise's production and business activities.

b. The expenses are supported by invoices and receipts in accordance with the provisions of the law.

In cases where enterprises purchase agricultural, forestry, and aquatic products directly from producers or catchers; purchase handcrafted products made from rattan, straw, bamboo, reed, palm leaves, vines, rush, rice straw, coconut shells, or recycled agricultural products directly from small-scale producers; purchase sand, gravel, stones, and pebbles directly from individuals who extract them themselves; purchase scrap materials directly from individuals who collect them, or household goods and personal items already used directly from households or individuals; and services purchased from individuals who do not engage in business, there must be payment vouchers for the seller and a list of purchases of goods and services signed and responsible by the legal representative or authorized person of the enterprise.

2. Expenses that cannot be deducted when determining taxable income shall be implemented in accordance with the provisions of Clause 2 of Article 9 of the Law on Corporate Income Tax. Some cases are specified as follows:

a. Expenses that do not meet the conditions set forth in Clause 1 of this Article, except for the portion of losses caused by natural disasters, epidemics, fires, and other force majeure situations that are not compensated.

The amount of loss due to natural disasters, epidemics, fires, and other force majeure cases that are not compensated shall be determined by subtracting (-) the value that the insurance company or other organizations and individuals must compensate according to the provisions of the law from the total value of the loss.

b. The portion of business management costs allocated by foreign enterprises to their permanent establishments in Vietnam exceeding the limit calculated according to the following formula:

c. The portion exceeding the limit as prescribed regarding the provision for reserves;

d. The portion of depreciation of fixed assets not in accordance with the regulations of the Ministry of Finance, including: depreciation of passenger cars with up to 9 seats (excluding cars used for passenger transport services, tourism, hotels); depreciation of civil aircrafts, yachts not used for cargo transportation, passenger transport, tourism, hotels;

đ. Amounts deducted prematurely from expenses not in accordance with the provisions of the law;

Premature deductions include: premature deductions for major repairs of fixed assets according to cycles, premature deductions for activities that have recorded revenue but still need to fulfill obligations according to contracts, other premature deductions as prescribed by the Ministry of Finance.

Interest payments corresponding to the portion of subscribed capital shortfall according to the contribution schedule stipulated in the charter of the enterprise; interest on loans used to implement exploration and exploitation oil and gas contracts;

g. The portion of advertising, marketing, promotional, brokerage commission expenses (excluding insurance brokerage commissions as prescribed by the law on insurance business, agency sales commissions at the correct price); hospitality, ceremonial, conference expenses; marketing support expenses, cost support expenses, discount payment expenses; gift and donation expenses of related media directly related to production and business activities exceeding 10% of the total deductible expenses. For newly established enterprises from January 1, 2009, the excess portion over 15% within the first three years since establishment applies;

The total deductible expenses do not include the above-mentioned expense items; for trading activities, it does not include the purchase price of goods sold.

The portion of allowable recovery costs exceeding the ratio specified in the approved oil and gas contract; if the oil and gas contract does not specify the recovery ratio, the portion of costs exceeding 35% shall not be included in deductible expenses;

Costs not included in allowable recovery costs include:

- Expenses as provided for in Clause 2 Article 9 of the Law on Corporate Income Tax;

- Costs incurred before the oil and gas contract becomes effective, except those agreed upon in the contract or decided by the Prime Minister;

- Oil and gas commissions and other expenses not included in recoverable costs according to the contract;

- Interest on investments for exploration, development, and exploitation of oil and gas;

- Penalties and compensation for damages.

Input VAT already deducted, corporate income tax, and other taxes, fees, and charges not included in expenses as prescribed by the Ministry of Finance;

Items of expenditure not corresponding to taxable revenue;

l. Exchange rate differences arising from revaluation of monetary items denominated in foreign currencies at the end of the tax period; exchange rate differences occurring during the construction investment process.

The Ministry of Finance shall provide specific guidance on deductible and non-deductible expenses as prescribed in this Article.

Article 10. Tax Rate

The corporate income tax rate shall be implemented in accordance with Article 10 of the Law on Corporate Income Tax.

1. The corporate income tax rate is 25%, except for cases as provided for in Clause 2 of this Article and Article 15 of this Decree.

2. The corporate income tax rate for exploration, extraction of oil and gas, and rare minerals in Vietnam ranges from 32% to 50%. Based on the location, conditions, and reserves of the deposit, the Prime Minister decides the specific tax rate applicable to each project and business entity upon the proposal of the Minister of Finance.

Rare minerals referred to in this clause include: platinum, gold, silver, tin, tungsten, antimony, precious stones, rare earths.

Article 11. Method of Calculating Tax

1. The corporate income tax payable in the tax period equals taxable income multiplied (x) by the tax rate; if the enterprise has paid corporate income tax on income generated abroad, such tax can be deducted, but not more than the corporate income tax payable as prescribed by the Law on Corporate Income Tax.

2. The corporate income tax payable for real estate business equals real estate business income multiplied (x) by the tax rate of 25%.

3. For enterprises as provided for in Point c, d Clause 2 Article 2 of the Law on Corporate Income Tax, the corporate income tax payable is calculated as a percentage of sales revenue of goods and services in Vietnam, specifically as follows:

a. Services: 5%, except for service provision tied to goods where the goods are calculated at 1%;

b. Copyright fees: 10%;

c. Aircraft leasing (including engine and aircraft parts leasing), ship leasing: 2%;

d. Machinery, equipment, and transportation vehicle leasing (except as provided for in Point c of this Clause): 5%;

đ. Interest on loans: 10%;

e. Securities transfer: 0.1%;

g. Construction, transportation, overseas reinsurance, and other activities: 2%.

4. For oil and gas extraction activities where revenue and costs are accounted for in foreign currency in contracts, taxable income and the tax payable are determined in foreign currency.

Article 12. Place of Tax Payment

1. Enterprises pay taxes at the locality where their main office is located. In cases where enterprises have production bases under separate accounting in different provinces or centrally administered cities compared to the locality of their main office, the tax payable is calculated and paid both at the main office and at the production base.

The corporate income tax payable in the province or centrally administered city where the production base under separate accounting is located is determined by multiplying the corporate income tax payable by the enterprise for the period by the ratio of costs incurred at the production base under separate accounting to the total costs of the enterprise.

The tax payment as prescribed in this Clause does not apply to construction projects, project components, or construction bases under separate accounting.

The classification, management, and utilization of revenue from corporate income tax shall be carried out in accordance with the provisions of the State Budget Law.

2. Dependent accounting units of enterprises with industry-wide accounting that generate income outside their primary business operations shall pay taxes at the province or centrally governed city where such business activities take place.

3. The Ministry of Finance shall provide guidance on the places of tax payment as prescribed in this Article.

Chapter III

INCOME FROM THE TRANSFER OF REAL ESTATE

Article 13. Income from the transfer of real estate includes income from transferring land use rights, transferring land lease rights; income from subleasing land by real estate businesses in accordance with laws on land, regardless of whether there are infrastructure works or architectural structures attached to the land.

Article 14. Taxable income from the transfer of real estate is determined by subtracting the cost of the real estate and related deductible expenses from the revenue generated from the transfer of real estate.

1. Revenue for calculating taxable income is determined based on the actual transfer price.

In cases where the price of transferring land use rights is lower than the price set by the People's Committee of the province or centrally administered city, the calculation shall be based on the price set by the People's Committee of the province or centrally administered city at the time of transferring the real estate.

2. The time point for determining revenue for calculating taxable income is the time point when the real estate is handed over.

Where advance payments are received according to a schedule, the time for determining revenue for provisional corporate income tax payment shall be the time of receiving the money. The Ministry of Finance shall provide guidance on provisional tax payment as stipulated in this clause.

3. Transfer expenses of real estate that can be deducted include:

a. The cost of land transferred is determined in accordance with the origin of the land use rights, specifically as follows:

- For state-granted land with land use fees or land lease fees, the cost is the actual amount of land use fees or land lease fees paid to the state budget;

- For land acquired from other organizations or individuals, it is based on the contract and legitimate payment receipts when acquiring land use rights or land lease rights; in cases where there is no contract or legitimate payment receipt, the cost is calculated based on the price set by the People's Committee of the province or centrally administered city at the time the business acquires the real estate.

- For land acquired through capital contribution, the cost is the agreed value at the time of contribution;

- For inherited land, gifted, or donated land where the cost cannot be determined, it is calculated based on the price of various types of land set by the People's Committee of the province or centrally administered city at the time of inheritance, gift, or donation.

For land inherited, gifted, or donated before 1994, the cost is determined based on the price of various types of land decided by the People's Committee of the province or centrally administered city in 1994, based on the Table of Land Price Ranges prescribed in Decree No. 87/CP dated August 17, 1994 of the Government.

b. Compensation and support costs when the State reclaims land;

c. Fees and charges as prescribed by law related to granting land use rights.

d. Costs for land improvement and site leveling;

đ. Value of infrastructure and architectural works on the land;

e. Other costs related to the real estate being transferred.

Chapter IV

TAX INCENTIVES FOR CORPORATE INCOME TAX

Article 15. Preferential tax rate

1. A preferential tax rate of 10% for a period of 15 years shall apply to:

a. Enterprises newly established from investment projects in areas with special difficulties in socio-economic conditions as specified in the Appendix issued together with this Decree, economic zones, high-tech zones established pursuant to the Prime Minister's Decision.

b. Enterprises newly established from investment projects in the following fields:

- High technology as prescribed by law; scientific research and technological development;

- Investment in developing waterworks, power plants, water supply and drainage systems; roads, railways, airports, seaports, river ports; airfields, railway stations, and other particularly important infrastructure facilities decided by the Prime Minister;

- Production of software products.

2. Enterprises newly established from investment projects in the fields specified in point b, Clause 1 of Article 15 of this Decree, which have large scale, high technology, or new technologies requiring special attraction of investment, may have their preferential tax rate applied for a longer period, but the total duration of application of the 10% tax rate shall not exceed 30 years. The Prime Minister decides to extend the application period of the preferential tax rate of 10% as stipulated in this clause upon the proposal of the Minister of Finance.

3. A 10% tax rate applies throughout the operating period for enterprises engaged in education and training, vocational training, healthcare, culture, sports, and environmental activities (hereinafter referred to collectively as socialized sectors).

The list of activities in the socialized sectors as specified in this clause is prescribed by the Prime Minister.

4. A preferential tax rate of 20% applies for a period of 10 years for enterprises newly established from investment projects in areas with difficult socio-economic conditions as specified in the Appendix issued together with this Decree.

5. A preferential tax rate of 20% applies throughout the operating period for agricultural service cooperatives and people's credit funds.

For agricultural service cooperatives and people's credit funds, after the expiration of the period during which the 10% tax rate is applied as stipulated in point a, Clause 1 of this Article, they will switch to applying the 20% tax rate.

6. The period for applying the preferential tax rate as stipulated in this Article is continuously counted from the first year the enterprise generates revenue from activities eligible for tax preference.

Article 16. Exemption and Reduction of Tax

1. Exemption of tax for four years and reduction of 50% of the tax payable in the next nine years for:

a. Enterprises newly established from investment projects as stipulated in Clause 1 of Article 15 of this Decree;

b. Enterprises newly established in socialized sectors implemented in areas with difficult or extremely difficult socio-economic conditions as specified in the Appendix issued together with this Decree.

2. Exemption from tax for four years, reduction of 50% of the tax payable in the next five years for enterprises newly established in socialized sectors implemented in areas not included in the list of areas with difficult or extremely difficult socio-economic conditions as specified in the Appendix issued together with this Decree.

3. Exemption from tax for two years, reduction of 50% of the tax payable in the next four years for enterprises newly established from investment projects in areas with difficult socio-economic conditions as specified in the Appendix issued together with this Decree.

4. The period of tax exemption and reduction as stipulated in this Article is continuously counted from the first year the enterprise has taxable income from the investment project; if the enterprise does not have taxable income in the first three years after the first year of generating revenue from the project, the period of tax exemption and reduction is counted from the fourth year.

In the first tax year, if the enterprise's production and business operation period exempted from tax or reduced in tax is less than twelve months, the enterprise can enjoy tax exemption or reduction in that year or register with the tax authority to start enjoying tax exemption or reduction from the next tax year.

Article 17. Reduction of tax for other cases

1. Enterprises engaged in production, construction, transportation that employ many female workers shall be entitled to a reduction in corporate income tax equivalent to additional expenses for female workers, including:

a. Costs for retraining;

b. Salaries and allowances (if any) paid to teachers working at kindergartens or nurseries organized and managed by the enterprise;

c. Additional health check-ups during the year;

d. Allowances provided to female workers after childbirth. The specific amount of such allowances shall be determined by the Ministry of Finance in coordination with the Ministry of Labor, Invalids and Social Affairs based on relevant labor laws;

đ. Wages and allowances paid to female workers during their post-childbirth leave and breastfeeding leave according to regulations but who continue to work.

2. Enterprises employing ethnic minority workers shall be entitled to a reduction in corporate income tax equivalent to additional expenses for training ethnic minority workers, housing support, social insurance, and medical insurance for ethnic minorities where such support has not been provided by the State according to prescribed regulations.

Article 18. Establishment of the Enterprise Science and Technology Development Fund

The establishment of the Science and Technology Development Fund by enterprises shall be carried out in accordance with Article 17 of the Law on Corporate Income Tax.

1. Enterprises established and operating in accordance with Vietnamese law may allocate up to 10% of their taxable income annually to establish a Science and Technology Development Fund.

Each year, enterprises shall independently determine the allocation level for the Science and Technology Development Fund as stipulated above and prepare a report on the allocation and utilization of the Science and Technology Development Fund along with the final tax return for corporate income tax.

The format of the Report on the Allocation and Use of the Enterprise Science and Technology Development Fund shall be prescribed by the Ministry of Finance.

2. In cases where an enterprise undergoing changes in ownership form, merger, or consolidation establishes a new entity, the new entity shall inherit and be responsible for managing and utilizing the Science and Technology Development Fund of the enterprise prior to the change, merger, or consolidation.

If an enterprise with a Science and Technology Development Fund that has not been fully utilized undergoes division or separation, the newly established enterprise from such division or separation shall inherit and be responsible for managing and utilizing the Science and Technology Development Fund of the enterprise prior to division or separation. The distribution of the Science and Technology Development Fund shall be decided by the enterprise and registered with the Tax Authority.

Article 19. Conditions for Applying Corporate Income Tax Incentives

Conditions for applying preferential corporate income tax shall be implemented in accordance with Article 18 of the Law on Corporate Income Tax.

1. Enterprises must separately account for income from activities eligible for preferential corporate income tax (including preferential tax rates or exemptions/reductions); in cases where certain revenues or deductible expenses cannot be separately accounted for, these revenues or expenses shall be determined based on the ratio between deductible expenses or revenues from activities eligible for preferential tax over the total deductible expenses or revenues of the enterprise.

2. Income not subject to preferential corporate income tax provisions includes: income specified in points a, b, and c of Clause 3, Article 18 of the Law on Corporate Income Tax and income from mineral exploitation activities.

3. During the same period, if an enterprise enjoys multiple levels of tax incentives for the same income, the enterprise may choose to apply the most favorable tax incentive level.

4. During the period of preferential corporate income tax, if an enterprise does not meet one of the preferential tax conditions stipulated in Article 18 of the Law on Corporate Income Tax and this Article in the tax year, then that tax year will not be eligible for preferential tax and the enterprise must pay tax at the standard rate of 25%.

5. New enterprises established from investment projects eligible for preferential tax provisions under Articles 15 and 16 of this Decree are those registering business operations for the first time, except for the following cases:

a. Enterprises established in cases of division, separation, merger, or consolidation as prescribed by law;

b. Enterprises established due to changes in business form or ownership, except in cases of transferring, leasing state-owned enterprises;

c. Newly established private enterprises or single-member limited liability companies where the business owner is an individual business operator and there is no change in the previous business sector;

d. Newly established private enterprises, partnerships, limited liability companies, or cooperatives where the legal representative (except when the legal representative is not a capital contributor), general partner, or person with the highest capital contribution has participated in business operations as a legal representative, general partner, or person with the highest capital contribution in existing or dissolved enterprises but less than 12 months have passed since the dissolution of the old enterprise to the establishment of the new enterprise.

Chapter V

IMPLEMENTING PROVISIONS

Article 20. Effective Date

1. This Decree takes effect from January 1, 2009.

2. Enterprises currently enjoying preferential corporate income tax under the Law on Corporate Income Tax No. 09/2003/QH11, the Petroleum Law, and other government legal documents issued before the effective date of this Decree shall continue to enjoy preferential treatment according to the provisions of the Law on Corporate Income Tax No. 09/2003/QH11, the Petroleum Law, and other government legal documents already issued for the remaining period; in cases where the preferential tax rate (including preferential tax rates and exemption/reduction periods) is lower than the preferential rate stipulated in this Decree, enterprises shall apply the preferential tax provisions of this Decree for the remaining period.

The determination of the remaining period for enjoying preferential tax benefits shall be calculated continuously from the implementation of preferential tax provisions in legal documents on foreign investment in Vietnam, domestic investment incentives, and corporate income tax issued before the effective date of this Decree.

Business establishments that have been granted Investment License, Business Registration Certificate, Investment Incentive Certificate before the date when the Socialist Republic of Vietnam officially became a member of the World Trade Organization (January 11, 2007) and generate income from export activities (excluding textile and garment exports) and are currently enjoying corporate income tax incentives due to meeting the export ratio requirements stipulated in foreign investment laws in Vietnam, domestic investment encouragement laws, and corporate income tax laws shall continue to enjoy such tax incentives as prescribed in these legal documents until the end of 2011.

3. Enterprises operating in areas of socialization before this Decree takes effect, which are applying a higher tax rate than 10%, shall be allowed to switch to applying the 10% tax rate from the date this Decree takes effect.

4. Enterprises with expansion investment projects ongoing until December 31, 2008, which will be completed and commence production and business operations in 2009, shall continue to enjoy tax incentives for expansion investment conditions as stipulated in the Law on Corporate Income Tax No. 09/2003/QH11 and other legal documents issued by the Government prior to the effective date of this Decree.

5. Enterprises currently benefiting from tax exemption or reduction periods as prescribed in the Law on Corporate Income Tax No. 09/2003/QH11 and other legal documents issued by the Government prior to the effective date of this Decree, but if they have not generated revenue by the end of the 2008 tax period:

a. If there has been no revenue, the tax exemption or reduction period shall start from the first year of taxable income; in cases where there is no taxable income in the first three years following the first year of revenue generation, the tax exemption or reduction period shall start from the fourth year;

b. If there has been revenue but less than three years have passed since revenue generation, the tax exemption or reduction period shall start from the first year of taxable income; in cases where there is no taxable income in the first three years following the first year of revenue generation, the tax exemption or reduction period shall start from the fourth year;

c. If revenue has been generated for three years or more, the tax exemption or reduction period shall start from the 2009 tax year.

6. Enterprises established through business form conversion, ownership change, division, split, merger, or consolidation shall be responsible for fulfilling their corporate income tax obligations (including penalties, if any), while simultaneously inheriting corporate income tax incentives (including untransferred losses) of the enterprise prior to conversion, division, split, merger, or consolidation, provided they continue to meet the conditions for corporate income tax incentives and loss carryforward as prescribed by law.

7. The resolution of tax issues, finalization of tax returns, tax exemptions, and reductions prior to January 1, 2009, shall be carried out according to the provisions of legal documents on corporate income tax, foreign investment laws in Vietnam, domestic investment encouragement laws, and other regulatory legal documents issued prior to the effective date of this Decree.

Article 21. The Ministry of Finance shall provide guidance on the implementation of this Decree.

Ministers, Heads of ministerial-level agencies, Heads of agencies under the Government, Chairpersons of provincial and centrally-administered city People's Committees, and related organizations and individuals are responsible for implementing this Decree./.