Circular No. 134/2008/TT-BTC guiding the implementation of tax obligations applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam.

CIRCULAR

Guidelines for fulfilling tax obligations applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam.

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Based on the current laws, ordinances, fees, and charges of the Socialist Republic of Vietnam, and detailed implementing decrees of the Government regarding these laws, ordinances, fees, and charges.

Based on the Value Added Tax Law No. 13/2008/QH12 dated June 3, 2008; Decree No. 123/2008/NĐ-CP dated December 8, 2008 of the Government detailing and guiding certain provisions of the Value Added Tax Law.

Based on the Corporate Income Tax Law No. 14/2008/QH12 dated June 3, 2008; Decree No. 124/2008/NĐ-CP dated December 11, 2008 of the Government detailing and guiding the implementation of certain provisions of the Corporate Income Tax Law.

Based on Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government concerning the functions, tasks, authorities, and organizational structure of the Ministry of Finance.

The Ministry of Finance issues guidelines for fulfilling tax obligations applicable to foreign organizations and individuals conducting business in Vietnam or earning income generated in Vietnam as follows:

A. SCOPE OF APPLICATION

I. APPLICABLE OBJECTS

1. This Circular applies to

The guidelines set forth in this Circular apply to the following objects (excluding those mentioned in Section II Part A of this Circular):

- Foreign organizations conducting business with a permanent establishment in Vietnam or without a permanent establishment in Vietnam; foreign individual businesses that are residents in Vietnam or not residents in Vietnam (hereinafter referred to collectively as "Foreign Contractors") conducting business in Vietnam or generating income in Vietnam based on contracts, agreements, or commitments between them and Vietnamese organizations or individuals.

- Foreign organizations conducting business with a permanent establishment in Vietnam or without a permanent establishment in Vietnam; foreign individual businesses that are residents in Vietnam or not residents in Vietnam (hereinafter referred to collectively as "Subcontractors") conducting business in Vietnam or generating income in Vietnam based on contracts, agreements, or commitments between them and Foreign Contractors to perform part of the work under the Contractor Contract.

2. Taxpayers

Taxpayers according to the guidelines in this Circular include:

2.1. Foreign Contractors and Subcontractors meeting the conditions stipulated in Point 1 of Section II Part B of this Circular, conducting business in Vietnam or generating income in Vietnam, including in Vietnam's territorial waters, areas outside and contiguous to Vietnam's territorial waters, and consistent with Vietnamese law, international law, and Vietnam's sovereignty over exploration and exploitation of natural resources at the seabed, subsoil, and superjacent waters. Business operations are conducted based on the Contractor Contract with Vietnamese organizations or individuals or other foreign organizations operating in Vietnam based on the Subcontractor Contract.

Determining whether Foreign Contractors and Subcontractors have a permanent establishment in Vietnam or are residents in Vietnam shall be carried out in accordance with the Corporate Income Tax Law, Personal Income Tax Law, and related implementing regulations.

In cases where a Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam provides different provisions on permanent establishments and residents, such provisions shall be followed.

2.2. Organizations established and operating under Vietnamese law, organizations registered to operate under Vietnamese law, other organizations, and individuals engaged in production and business purchasing services, services attached to goods, or paying income generated in Vietnam based on the Contractor Contract or Subcontractor Contract (hereinafter referred to collectively as "Vietnamese Parties") include:

- Business organizations established under the Enterprise Law, State-Owned Enterprise Law (now the Enterprise Law), Foreign Investment Law in Vietnam (now the Investment Law), and Cooperative Law;

- Economic organizations of political organizations, political-social organizations, social organizations, social-professional organizations, armed units, public service organizations, and other organizations;

- Oil and Gas Contractors operating under the Petroleum Law;

- Branches of foreign companies permitted to operate in Vietnam;

- Foreign organizations or representatives of foreign organizations permitted to operate in Vietnam;

- Sales offices and agents in Vietnam of foreign airlines with rights to transport to and from Vietnam, either directly or jointly;

- Organizations and individuals engaged in marine transportation services of foreign shipping companies; agents in Vietnam of foreign freight forwarders, express delivery companies;

- Securities companies, securities issuers, fund management companies, commercial banks where investment funds or foreign organizations open securities accounts;

- Other organizations in Vietnam;

- Individuals engaged in production and business in Vietnam.

Taxpayers according to Point 2.2 of Section I Part A of this Circular are responsible for withholding the value-added tax (VAT) and corporate income tax (CIT) as guided in Section III Part B of this Circular before payment to Foreign Contractors.

3. Types of Taxes Applicable

3.1. Foreign Contractors and Subcontractors that are business organizations fulfill VAT and CIT obligations as guided in this Circular.

3.2. Foreign Contractors and Subcontractors that are foreign individual businesses fulfill VAT obligations as guided in this Circular and personal income tax (PIT) obligations in accordance with the PIT Law.

3.3. For other types of taxes, fees, and charges, Foreign Contractors and Subcontractors comply with other current legal documents on taxes, fees, and charges.

II. NON-APPLICABLE OBJECTS

The guidelines in this Circular do not apply to:

1. Foreign organizations and individuals conducting business in Vietnam in accordance with the Investment Law, Petroleum Law, and Credit Institutions Organization Law.

2. Foreign organizations and individuals providing goods to Vietnamese organizations and individuals without accompanying services being performed in Vietnam in the following forms:

- Delivery at the foreign border post: The seller bears all responsibilities, costs, and risks related to the export of goods and delivery at the foreign border post; the buyer bears all responsibilities, costs, and risks related to receiving the goods and transporting them from the foreign border post back to Vietnam.

- Delivery at the Vietnamese border post: The seller bears all responsibilities, costs, and risks related to the goods up to the point of delivery at the Vietnamese border post; the buyer bears all responsibilities, costs, and risks related to receiving the goods and transporting them from the Vietnamese border post.

3. Foreign organizations and individuals having income from services provided and consumed outside Vietnam.

Example:

Company H of Hong Kong provides cargo handling services at the port in Hong Kong for the international shipping fleet of Company A in Vietnam. Company A must pay Company H the cargo handling service fee at the port in Hong Kong.

In this case, the cargo handling service at the Hong Kong port is a service provided and consumed in Hong Kong, thus it does not fall within the scope of taxation in Vietnam.

4. Foreign organizations and individuals providing the following services to Vietnamese organizations and individuals where such services are performed abroad:

- Repairing means of transportation (aircraft, aircraft engines, aircraft parts, ships), machinery, equipment (including submarine cables, transmission equipment), including or excluding spare parts and replacement equipment;

- Advertising, marketing;

- Investment and trade promotion;

- Sales brokerage;

- Training;

- Sharing (payment) of postal and telecommunications service fees according to the Ordinance on Postal and Telecommunications between Vietnam and foreign countries, where these services are performed outside Vietnam; foreign satellite transmission and bandwidth leasing services.

III. CONCEPTS USED IN THE CIRCULAR

In this Circular, the following terms are understood as follows:

1. "Contractor Contract" is a contract, agreement, or commitment between a foreign Contractor and a Vietnamese Party.

2. "Subcontractor Contract" is a contract, agreement, or commitment between a Subcontractor and a foreign Contractor.

Subcontractors include foreign Subcontractors and Vietnamese Subcontractors.

B. BASIS AND METHODS OF TAX CALCULATION

I. OBJECTS SUBJECT TO VAT AND INCOME TAX

1. Objects subject to VAT

1.1. Services or services attached to goods subject to VAT provided by foreign Contractors, foreign Subcontractors based on Contractor Contracts, Subcontractor Contracts for production, business, and consumption in Vietnam (except for services specified in Section II Part A of this Circular), including:

- Services or services attached to goods subject to VAT provided by foreign Contractors, foreign Subcontractors in Vietnam and consumed in Vietnam;

- Services or services attached to goods subject to VAT provided by foreign Contractors, foreign Subcontractors outside Vietnam and consumed in Vietnam.

1.2. In cases where goods are supplied under contracts in the form of: the place of delivery and receipt of goods being within the territory of Vietnam (including Vietnam's territorial waters, areas beyond and contiguous to Vietnam's territorial waters, which according to Vietnamese law and consistent with international law, Vietnam has sovereignty over exploration and exploitation of natural resources on the seabed, subsoil of the seabed, and water above the seabed); or the supply of goods accompanied by services carried out in Vietnam such as installation, trial operation, warranty, maintenance, replacement, other accompanying services with the supply of goods, even if the provision of the aforementioned services is included or not included in the value of the goods supply contract, then the value of the goods only needs to be subject to import VAT according to regulations, the value of the services subject to VAT shall be calculated according to the guidance in this Circular. If the contract cannot separately identify the value of the goods and the accompanying services, VAT will be calculated on the total value of the contract.

Example:

Enterprise A in Vietnam signed a contract to purchase a cement plant machinery and equipment assembly line with Enterprise B abroad. The total contract value is 100 million USD, including the value of machinery and equipment at 80 million USD (of which there are equipment subject to VAT with a rate of 10%), and the value of guiding installation, supervising installation, warranty, maintenance services at 20 million USD.

When importing the cement plant machinery and equipment assembly line, Enterprise A, as the importer, performs the payment of import VAT on the value of imported equipment subject to VAT.

The determination of Enterprise B's VAT liability for the contract value signed with Enterprise A is as follows:

- VAT is calculated on the value of services (20 million USD), not on the value of the imported machinery and equipment assembly line.

- If the contract cannot separately identify the value of the machinery and equipment assembly line and the value of the services, VAT will be calculated on the entire contract value (100 million USD).

2. Income subject to Corporate Income Tax

2.1. Income of foreign Contractors, foreign Subcontractors arising from activities of providing services, services attached to goods in Vietnam based on Contractor Contracts, Subcontractor Contracts (excluding goods, services specified in Section II Part A of this Circular).

2.2. In cases where goods are supplied in the form of: the place of delivery and receipt of goods being within the territory of Vietnam (including Vietnam's territorial waters, areas beyond and contiguous to Vietnam's territorial waters, which according to Vietnamese law and consistent with international law, Vietnam has sovereignty over exploration and exploitation of natural resources on the seabed, subsoil of the seabed, and water above the seabed); or the supply of goods accompanied by services carried out in Vietnam such as installation, trial operation, warranty, maintenance, replacement, other accompanying services with the supply of goods, even if the provision of the aforementioned services is included or not included in the value of the goods supply contract, the income subject to Corporate Income Tax of foreign Contractors, foreign Subcontractors is the entire value of the goods and services.

Example:

Company A in Vietnam signed a contract with Company B abroad to purchase a production line of machinery and equipment for the Cement Plant Project. The total value of the Contract is 100 million USD (excluding VAT), including 80 million USD for the value of machinery and equipment, and 20 million USD for the value of installation guidance services, installation supervision, warranty, and maintenance services.

The corporate income tax liability of Company B regarding the Contract value is determined as follows:

- Corporate income tax is calculated separately on the value of imported machinery and equipment (80 million USD) and separately on the value of services (20 million USD) according to the prescribed tax rates.

- In case the Contract cannot be separately identified between the value of machinery and equipment and the value of services, corporate income tax will be levied on the total Contract value (100 million USD) at the prescribed tax rate.

2.3. Foreign Contractor's and Subcontractor's income generated in Vietnam includes all forms of income received based on contractor contracts and subcontractor contracts (except for service provision cases stipulated in Section II, Part A of this Circular), regardless of the location where the business activities take place, including:

- Income from transferring ownership or usage rights of assets.

- Royalty income is any form of income received for the right to use, transfer ownership of intellectual property, and technology transfer (including payments for the right to use, transfer authorship and work ownership rights; transfer of industrial property rights; technology transfer).

"Author's rights, work owner's rights", "Industrial property rights", "Technology transfer" are defined in the Civil Code of the Socialist Republic of Vietnam and implementing regulations.

- Income from asset sale or liquidation.

- Interest income: income of the lender from loans of any kind, whether secured by collateral or not, and whether the lender has the right to benefit from the borrower's profits or not; income from interest on deposits (excluding interest on deposits of foreign individuals and interest arising from deposit accounts maintained for the operation in Vietnam of diplomatic missions and international organizations' representative offices in Vietnam), including any bonuses accompanying interest on deposits (if any); income from late payment interest as stipulated in loan agreements.

Interest income includes all fees that the Vietnamese party must pay as stipulated in the loan agreement.

- Income from stock investments.

- Penalties and compensation obtained from the defaulting counterparty under a contract.

- Other income as prescribed by law.

II. SUBMITTING VALUE ADDED TAX BY DEDUCTION METHOD AND CORPORATE INCOME TAX BASED ON DECLARED REVENUE AND EXPENSES TO DETERMINE TAXABLE INCOME

1. Objectives and Conditions for Application

Foreign Contractors and Subcontractors shall submit taxes in accordance with the guidelines set out in Section II, Part B of this Circular if they meet the following conditions:

(i) Having a permanent establishment in Vietnam or being a resident in Vietnam;

(ii) Operating in Vietnam for a period of 183 days or more as stipulated in the contractor contract or subcontractor contract from the date the contractor contract or subcontractor contract becomes effective;

(iii) Applying Vietnamese accounting standards.

The Vietnamese party signing a contract with a Foreign Contractor or a Foreign Subcontractor shall notify the tax authority in writing about the Foreign Contractor or Foreign Subcontractor's submission of VAT by deduction method and corporate income tax based on declared revenue and expenses to determine taxable income within 20 working days from the date of signing the contract.

2. Value Added Tax

Implemented in accordance with the Law on Value Added Tax and implementing regulations.

3. Corporate Income Tax

Implemented in accordance with the Law on Corporate Income Tax and implementing regulations.

4. If a Foreign Contractor or Foreign Subcontractor continues to sign a new contractor or subcontractor contract in Vietnam before the old contract ends, they shall continue to declare and pay taxes in accordance with the guidelines set out in Section II, Part B of this Circular.

If a new contractor or subcontractor contract is signed and implemented after the old contract has ended, and if it meets the conditions stipulated in Point 1 of Section II, Part B of this Circular, the Foreign Contractor or Foreign Subcontractor shall fulfill their tax obligations for the new contract in accordance with the guidelines set out in Section II, Part B of this Circular.

If a Foreign Contractor or Foreign Subcontractor implements multiple contracts at the same time, and if one of the contracts meets the conditions for the Foreign Contractor or Foreign Subcontractor to submit taxes in accordance with the guidelines set out in Section II, Part B of this Circular, then the other contracts (including those that do not meet the conditions) must also comply with the guidelines set out in Section II, Part B of this Circular.

III. SUBMITTING VALUE ADDED TAX BY DIRECT CALCULATION ON VALUE ADDED AND PAYING CORPORATE INCOME TAX AT A PERCENTAGE RATE ON REVENUE

1. Objectives and Conditions for Application

The Vietnamese party shall collect and pay taxes on behalf of the Foreign Contractor or Foreign Subcontractor in accordance with Points 2 and 3 of Section III, Part B of this Circular if the Foreign Contractor or Foreign Subcontractor does not meet any of the conditions specified in Point 1 of Section II, Part B of this Circular.

The Vietnamese party is responsible for registering taxes with the tax authority to collect and pay taxes on behalf of the Foreign Contractor or Foreign Subcontractor within 20 working days from the date of signing the contract.

2. Value Added Tax

The basis for calculating tax is the value added of services and goods subject to VAT, and the VAT rate.

2.1. Value added

The value added of services and goods subject to VAT is determined by multiplying the taxable revenue by the percentage of VAT on revenue.

2.1.1 Taxable revenue:

a) Turnover subject to VAT is the entire turnover from providing services and services attached to goods that are subject to VAT, without deducting taxes payable received by foreign contractors and subcontractors, including expenses paid by the Vietnamese party on behalf of foreign contractors and subcontractors (if any).

b) Determination of turnover subject to VAT for specific cases:

b1) In the case where the contractor agreement or subcontractor agreement stipulates that the turnover received by foreign contractors and subcontractors does not include VAT payable, the turnover subject to VAT must be converted to turnover inclusive of VAT and shall be determined according to the following formula:

Example:

Foreign contractor A provides construction supervision services for cement plant Z to the Vietnamese party at a contract price excluding VAT of 300,000 USD. Additionally, the Vietnamese party arranges accommodation and working conditions for foreign contractor's management staff with a value of 40,000 USD. According to the contract, the Vietnamese party is responsible for paying VAT on behalf of the foreign contractor. The determination of the turnover subject to VAT for the foreign contractor is as follows:

Determination of taxable turnover:

b2) In the case where a foreign contractor enters into a contract with a Vietnamese subcontractor or a foreign subcontractor to pay tax according to Section II Part B of this Circular to transfer part of the work value specified in the contractor agreement signed with the Vietnamese party, the turnover subject to VAT of the foreign contractor does not include the value of the work and the value of machinery and equipment carried out by the Vietnamese subcontractor or the foreign subcontractor.

The Vietnamese subcontractor or the foreign subcontractor shall declare and pay tax according to the guidance provided in Points 2 and 3 of Section II Part B of this Circular.

This provision does not apply in the case where a foreign contractor signs a contract with suppliers in Vietnam to purchase goods and services for the implementation of the contractor agreement.

Example:

Foreign contractor A signs a contract to build cement plant Z with the Vietnamese party with a total contract value of 10 million USD (inclusive of VAT). According to the contract, foreign contractor A will transfer part of the installation value (as specified in the contractor agreement signed with the Vietnamese party) to Vietnamese subcontractor B with a value of 1 million USD.

The turnover subject to VAT of foreign contractor A in this case is determined as follows:

b3) In the case where a foreign subcontractor pays tax according to Section III Part B of this Circular, the turnover subject to VAT of the foreign contractor is the entire turnover received by the foreign contractor according to the contract signed with the Vietnamese party. The foreign subcontractor is not required to pay VAT on the value of the work performed by the foreign subcontractor according to the subcontract agreement signed with the foreign contractor.

b4) For international freight forwarding and warehousing services, the turnover subject to VAT does not include international shipping fees paid to carriers (air, sea).

b5) For international express delivery services from Vietnam to other countries, the turnover subject to VAT is the entire turnover received by the foreign contractor.

2.1.2. VAT Rate:

a) The VAT rate applied to turnover subject to tax for certain business sectors is as follows:

b) Determination of the VAT rate applied to turnover subject to VAT for specific cases as follows:

b1) For contractor agreements and subcontractor agreements involving multiple business activities or part of the contract value not subject to VAT, the application of the VAT rate when determining the amount of VAT payable is based on the turnover subject to VAT for each business activity carried out by foreign contractors and subcontractors according to the contractor agreement and subcontractor agreement. If it is not possible to separate the value of each business activity, the highest VAT rate applicable to the industry and the highest tax rate shall be applied to the entire contract value.

b2) For contracts for the supply of machinery and equipment accompanied by installation, training, operation, and trial run services, if the value of machinery and equipment and the value of services can be separated when determining the amount of VAT payable, the VAT rate shall be applied to each portion of the contract value. If the contract does not separately specify the value of machinery and equipment and the value of services, the VAT rate on turnover is 30%.

Example:

Korean contractor H does not follow Vietnamese accounting practices and enters into a contract with company B in Vietnam for the supply of machinery and equipment chains accompanied by installation, operation, and trial run services with a value of 10,000,000 USD. Since the contract does not separately specify the value of machinery and equipment and the value of installation, operation, and trial run services, the VAT rate applied is 30%.

b3) The turnover subject to VAT for leasing of machinery, equipment, and transportation means is the entire rental income. If the rental income for machinery, equipment, and transportation means includes costs directly borne by the lessor such as insurance for the means, maintenance, inspection certification, operator costs, and transportation costs of machinery and equipment from abroad to Vietnam, these costs are excluded from the turnover subject to VAT if there is actual evidence.

2.2. VAT Rate

The VAT rate applicable to goods and services subject to VAT is the rate prescribed in the Law on VAT and guiding documents.

Foreign contractors and foreign subcontractors, who are subject to Value Added Tax (VAT) under the direct calculation method as stipulated in Point 1, Section III, Part B of this Circular, shall not be entitled to deduct VAT on goods and services purchased for the execution of the contractor's contract or subcontractor's contract (including VAT on subcontracts performed by Vietnamese subcontractors).

3. Corporate Income Tax

The basis for calculating tax is the taxable income for Corporate Income Tax (CIT) and the CIT rate (%) calculated on the taxable income.

3.1. Taxable income for CIT:

a) Taxable income for CIT

Taxable income for CIT includes all income excluding VAT, without deducting taxes payable (if any) that foreign contractors and foreign subcontractors receive. Taxable income for CIT also includes expenses paid by the Vietnamese party on behalf of the foreign contractor or foreign subcontractor (if any).

b) Determination of taxable income for CIT in certain specific cases:

b1) In the case where, according to the contractor's contract or subcontractor's contract, the income received by the foreign contractor or foreign subcontractor does not include CIT payable, then the taxable income for CIT is determined by the following formula:

Example:

Foreign contractor A provides construction supervision services for cement plant Z to the Vietnamese party with a contract value of 300,000 USD excluding tax. Additionally, the Vietnamese party arranges accommodation and working conditions for the foreign contractor's management staff at a cost of 23,000 USD. According to the Contract, the Vietnamese party is responsible for paying CIT and VAT on behalf of the foreign contractor. The determination of the amount of CIT payable by the foreign contractor is as follows:

Determination of taxable income:

b2) In the case where the foreign contractor enters into a contract with a Vietnamese subcontractor or a foreign subcontractor to perform tax payment according to Section II, Part B of this Circular to transfer part of the work value specified in the main contract signed with the Vietnamese party, the taxable income for CIT of the foreign contractor does not include the value of the work and machinery/equipment carried out by the Vietnamese subcontractor or foreign subcontractor.

The Vietnamese subcontractor or the foreign subcontractor shall declare and pay tax according to the guidance provided in Points 2 and 3 of Section II Part B of this Circular.

This provision does not apply in the case where a foreign contractor signs a contract with suppliers in Vietnam to purchase goods and services for the implementation of the contractor agreement.

Example:

Foreign contractor A signs a contract with the Vietnamese party to build cement plant Z with a total contract value (excluding VAT) of 10 million USD. According to the contract, foreign contractor A will transfer part of the installation work (as specified in the main contract signed with the Vietnamese party) to Vietnamese subcontractor B with a value of 1 million USD.

The taxable income for CIT of foreign contractor A in this case is determined as follows:

b3) In the case where the foreign subcontractor performs tax payment according to Section III, Part B of this Circular, the taxable income for CIT of the foreign contractor is the entire income received by the foreign contractor from the contract signed with the Vietnamese party. The foreign subcontractor is not required to pay CIT on the value of the work performed by the foreign subcontractor as stipulated in the subcontract signed with the foreign contractor.

b4) Taxable income for CIT in the case of leasing machinery, equipment, and transportation vehicles is the entire rental fee. If the rental income includes costs directly borne by the lessor such as insurance for the vehicle, maintenance, inspection certification, personnel operating the vehicle, machinery, and transportation costs of machinery and equipment from abroad to Vietnam, these costs are excluded from the taxable income for CIT if there is actual evidence.

b5) Taxable income for CIT of foreign airlines is the revenue from selling passenger tickets, airway bills, and other revenues (excluding those collected on behalf of the state or organizations as prescribed by law) in Vietnam for transporting passengers, cargo, and other objects on their own flights or joint ventures.

Example:

Foreign airline A generated a turnover of 100,000 USD in the first quarter of 2009, including 85,000 USD from passenger ticket sales, 10,000 USD from cargo waybills, and 5,000 USD from MCO (negotiable instrument) sales; simultaneously, it generated 1,000 USD in state collection fees (airport charges) and 2,000 USD in refunds due to ticket returns.

The taxable income for CIT of foreign airline A in the first quarter of 2009 is determined as follows:

Taxable income for CIT = 100,000 - (1,000 + 2,000) = 97,000 USD

The sales office or agent in Vietnam of the foreign airline declares CIT according to the form issued together with this Circular and pays the declared tax into the state budget.

b6) Taxable income for CIT of foreign maritime transport companies is the entire freight revenue obtained from passenger and cargo transportation activities and additional charges that the maritime transport company receives from the Vietnamese port of loading to the final port of unloading (including freight for consignments that must be transshipped through intermediate ports) and/or freight revenue from transporting goods between Vietnamese ports.

Freight revenue for calculating CIT does not include freight already taxed on CIT at Vietnamese ports for foreign ship owners and freight paid to Vietnamese transport enterprises for participating in the transportation of goods from Vietnamese ports to intermediate ports.

Example:

Company A acts as an agent for foreign shipping company X. Under the agency agreement, Company A handles cargo transportation abroad, issues bills of lading, collects freight charges...

Vietnamese enterprise B hires shipping company X (through Company A) to transport goods from Vietnam to the United States for a transportation fee of 100,000 USD.

Company A has chartered a vessel from a Vietnamese enterprise or a foreign enterprise to transport goods from Vietnam to Singapore for a transportation fee of 20,000 USD, and from Singapore, the goods will continue to be transported to the United States by shipping company X.

The taxable income for corporate income tax of foreign shipping company X is determined as follows:

Taxable income for corporate income tax = 100,000 - 20,000 = 80,000 USD

b7) For international freight forwarding and warehousing services, the taxable income for corporate income tax does not include the international transportation fees paid to the carrier (air, sea).

b8) For international express delivery services from Vietnam to abroad, the taxable income for corporate income tax is the total revenue received by the foreign contractor.

b9/ For reinsurance, the taxable income for corporate income tax is the amount of reinsurance premium transferred abroad.

b10/ For securities transfer, the taxable income for corporate income tax is determined as follows:

+ For securities transfer (excluding tax-exempt bonds), it is the total revenue from selling securities at the time of transfer;

+ For bond interest (excluding tax-exempt bonds), it is the total revenue from selling bonds (including the face value recorded on the bond and the bond interest received) at the time of receiving interest.

b11/ Interest on foreign loans under contracts signed before January 1, 1999, is not subject to tax according to the guidance in this Circular.

+ In cases where the debt extension or term adjustment does not change the content of the interest rate and payment conditions agreed upon in the loan contract and the debt extension period for short-term loans does not exceed one production cycle but not more than 12 months, and the maximum extension period for medium and long-term loans is half of the loan term agreed upon in the loan contract, then the interest on the loan is not subject to corporate income tax.

+ In cases where a new loan contract is signed but the contract stipulates more favorable conditions regarding interest rates and payment terms compared to the old loan contract signed before January 1, 1999, and the loan is provided to replace the old loan without changing the lender, the loan term, and other conditions, then the interest on the loan is not subject to corporate income tax.

+ In cases where the debt extension or term adjustment does not change the content of the interest rate and payment conditions agreed upon in the loan contract but the extension period exceeds the maximum extension period mentioned above, the interest on the loan arising from the time exceeding the maximum extension period mentioned above is subject to corporate income tax.

+ In cases where the loan contract is adjusted along with changes to the main contents of the contract such as: interest rate, lending method, payment conditions, loan term, then the interest on the loan arising from the time when the original loan contract becomes ineffective is subject to corporate income tax.

3.2. Corporate Income Tax Rate (%) on Taxable Revenue

a) Corporate Income Tax Rate (%) on Taxable Revenue

b) Corporate Income Tax Rate (%) on Taxable Revenue for certain specific cases:

b1) For contracts involving foreign contractors and subcontractors including various business activities, the application of the corporate income tax rate on taxable revenue when determining the corporate income tax payable is based on the taxable revenue for each business activity carried out by the foreign contractor and subcontractor according to the provisions of the contract. In cases where the value of each business activity cannot be separated, the highest corporate income tax rate applicable to the industry will be applied to the entire contract value.

b2) For contracts providing machinery and equipment accompanied by installation guidance, training, operation, trial run services, if the value of machinery and equipment and service value can be separated, then the tax is calculated according to the separate tax rate of each portion of the contract value. In cases where the contract does not separately identify the value of machinery and equipment and service value, the corporate income tax rate on taxable revenue is 2%.

Example:

Foreign contractor A signs a contract with the Vietnamese party to build power plant F with a value of 70 million USD. The contract value includes:

+ Value of machinery and equipment supplied to the project: 50 million USD

+ Value of technology chain design, other designs: 5 million USD

+ Value of workshops, auxiliary systems, construction, installation: 10.5 million USD

+ Value of supervision and installation guidance services: 3 million USD

+ Value of technical training and trial operation services: 1.5 million USD.

In cases where the value of machinery and equipment and service value can be separated, the application of the corporate income tax rate is as follows: for the value of machinery and equipment, the rate applicable to the commerce sector is applied; for the value of design, installation supervision, training, and trial operation services, the rate applicable to the service sector is applied; the value of construction and installation work (10.5 million USD) applies the tax rate for the construction sector.

In cases where separation is not possible, the corporate income tax rate of 2% is applied to the entire contract value (70 million USD).

4. Declaration and Payment of Tax for Cases Where Multiple Foreign Contractors Form a Consortium and Jointly Conduct Business in Vietnam Based on a Contract

- In cases where the consortium parties establish a Joint Management Board, which carries out accounting, has a bank account, and is responsible for issuing invoices; or the participating Vietnamese economic organization is responsible for joint accounting and profit sharing among the parties, then the Joint Management Board or the Vietnamese economic organization is responsible for declaring, paying, and settling VAT and corporate income tax according to regulations on the entire revenue from implementing the contractor contract.

In cases where the parties participating in a consortium divide revenue, products, or jointly bid for work but each party in the consortium performs separate tasks, if the parties determine their own share of the revenue obtained, each party may submit tax according to the guidance provided in Part B of this Circular.

C. IMPLEMENTATION

This Circular takes effect fifteen days after its publication in the Official Gazette and applies from January 1, 2009, replacing Circular No. 05/2005/TT-BTC dated January 11, 2005, issued by the Ministry of Finance, guiding the tax regime applicable to foreign organizations without Vietnamese legal status and foreign individuals conducting business or generating income in Vietnam, and Circular No. 16/1999/TT-BTC dated February 4, 1999, issued by the Ministry of Finance, guiding the implementation of freight taxes on the business activities of foreign shipping companies operating cargo transportation by sea in Vietnam.

During implementation, if there are any difficulties, units and businesses are requested to promptly report them to the Ministry of Finance for timely resolution./.