Circular No. 15/2011/TT-BTC guides the establishment, organization, operation, management, and use of the Science and Technology Development Fund of enterprises.

CIRCULAR

Guidelines for the establishment, organization, operation, management, and utilization of Corporate Science and Technology Development Funds

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Pursuant to the Law on Corporate Income Tax No. 14/2008/QH12 dated June 3, 2008, and related guiding documents;

Pursuant to Article 45 of the Law on Technology Transfer No. 80/2006/QH11 dated November 29, 2006, and related guiding documents;

Pursuant to the Law on Science and Technology No. 21/2000/QH10 dated June 28, 2000;

Pursuant to the Law on Enterprises No. 60/2005/QH11 dated November 29, 2005;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008, of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

After receiving comments from the Ministry of Science and Technology, the Ministry of Finance provides guidelines for the establishment, organization, operation, management, and utilization of Corporate Science and Technology Development Funds as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

This Circular guides the establishment, organization, operation, management, and utilization of Corporate Science and Technology Development Funds (hereinafter referred to as the Fund) in accordance with the provisions of the Law on Corporate Income Tax.

The entities eligible to establish a Fund under this Circular are enterprises established in accordance with the Law on Enterprises (hereinafter referred to as enterprises).

Article 2. Purpose of Establishment, Authority, and Organizational Form of the Fund

1. Purpose of Establishment

The Fund is established by enterprises to create financial resources for their scientific and technological activities in Vietnam through research, application, development, technological innovation, product innovation, and production rationalization aimed at enhancing the competitiveness of the enterprise.

2. Authority for Establishment

Based on the needs and financial capacity for investment in scientific and technological activities, the highest authority of the enterprise decides to establish the Fund, define its tasks, powers, and organizational structure. The highest authority of the enterprise includes:

a) Chairman of the Board of Directors (for joint-stock companies);

b) Chairman of the Board of Members or owner of the company (for limited liability companies, partnerships);

c) Owner of a private enterprise (for private enterprises) or general manager, director (for enterprises without a Board of Directors).

3. Organizational Form of the Fund

The Fund is a component without legal personality and directly隶属于企业，由企业的最高负责人负责管理。

Article 3. Sources of Formation of the Fund

The State encourages enterprises to establish Funds for the purposes specified in Clause 1 of Article 2 of this Circular. The Fund is formed from the following sources:

1. A portion from corporate income tax revenue during the tax period (the enterprise determines the specific rate of deduction but it shall not exceed 10% of the taxable income during the period).

Corporate income tax revenue is determined according to the provisions of the Law on Corporate Income Tax and related guiding documents after transferring all losses as prescribed.

2. A portion transferred from the Science and Technology Development Fund of the holding company or parent company (for subsidiaries or member enterprises) or transferred from the Science and Technology Development Funds of subsidiaries or member enterprises to the Science and Technology Development Fund of the holding company or parent company (for holding companies or parent companies). The transfer and ratio of transfer between the Science and Technology Development Funds of holding companies or parent companies and those of subsidiaries or member enterprises and vice versa are decided by the Chairman of the Board of Directors, Chairman of the Board of Members, or General Manager, Director based on the stipulated rate of deduction according to the charter of the Fund's organization and operation, investment needs for scientific and technological activities in member enterprises, and the development plans for scientific and technological activities of the entire system.

The transfer of funds as provided for in Clause 2 of this Article only applies to subsidiaries or member enterprises where the parent company holds 100% of the capital.

3. Other sources as prescribed by Law.

Chapter II

SPECIFIC PROVISIONS

Article 4. Procedures for Establishing the Fund

Depending on the scale of the Fund and the need for scientific and technological investment at the enterprise, the highest authority of the enterprise decides on the organizational form, operation, management, and is responsible for the activities of the Fund.

The enterprise sends the Decision to establish the Fund, the charter of organization and operation of the Fund to the tax authority where the enterprise registers corporate income tax before or at the same time as submitting the report on the establishment and use of the Fund in the first period of establishment.

The enterprise sends the Decision to establish the Fund, the charter of organization and operation of the Fund to the Department of Science and Technology, the Department of Finance of the province or centrally governed city where the enterprise has its headquarters within thirty days from the date of the decision to establish the Fund.

Article 5. Using the Fund from Sources Deducted for Taxable Income

The use of the Fund's capital as stipulated in Clause 1 and Clause 2, Article 3 of this Circular serves the goal of developing science and technology of the enterprise in accordance with the provisions of the law.

1. The Fund's capital is used to implement the following scientific and technological activities of the enterprise:

1.1 Providing funding to carry out scientific and technological projects of the enterprise in Vietnam.

Scientific and technological projects of the enterprise must be developed and be responsible for organizing their implementation according to the State regulations on approval procedures, acceptance (with an input evaluation board, an output acceptance board), and the results of the project must be evaluated and accepted by the science and technology council in accordance with the regulations on science and technology, and applied to the enterprise's production and business activities.

1.2 Supporting the development of science and technology of the enterprise in Vietnam:

a) Equipping material and technical facilities for the enterprise's scientific and technological activities (building laboratories, testing facilities, machinery and equipment serving research and development).

b) Purchasing technology copyrights, usage rights, ownership rights of patents, utility models, industrial designs, scientific and technological information, related documents, products in accordance with the Law on Technology Transfer.

For fixed assets mentioned in Subparagraph a and b, Point 1.2, Clause 1 of this Article, the enterprise records a reduction in the Fund accordingly and does not have to depreciate but monitors the wear and tear of fixed assets.

c) Paying salaries, hiring experts, or contracting with scientific and technological organizations to carry out the enterprise's scientific and technological activities.

d) Costs for training scientific and technological human resources of the enterprise in accordance with the laws on science and technology.

đ) Expenses for technical innovation initiatives and production rationalization activities.

Technical innovation initiatives and production rationalization activities must be confirmed by the competent state management agency on science and technology in accordance with the laws on science and technology in Vietnam.

e) Expenses for cooperative research and development activities about science and technology with domestic enterprises.

Cooperative research and development activities about science and technology mentioned in this point must be approved by the state management agency on science and technology in Vietnam.

1.3. For subsidiaries of holding companies or subsidiary companies, the source of the Fund's capital can be used to pay into the holding company's or parent company's science and technology development fund and vice versa according to the ratio specified in Clause 2, Article 3 of this Circular.

2. The Fund can only be used for the enterprise's scientific and technological investment activities in Vietnam. The enterprise cannot use the Fund's capital for other activities not related to the development of science and technology of the enterprise in Vietnam or for scientific and technological projects funded by other sources.

Annually, the enterprise must prepare a report on the establishment and use of the Fund and declare the figures on the deduction rate, the amount deducted on the final tax return for corporate income tax. The report on the establishment and use of the Fund is sent to the tax authority where the enterprise registers corporate income tax, the Department of Science and Technology, and the Department of Finance. The submission deadline is the same as the submission deadline for the final tax return for corporate income tax.

In cases where holding companies or parent companies have science and technology development funds formed from the transfer of science and technology development funds of subsidiaries or member enterprises, the receiving unit and using the Fund must report the situation of receiving the transfer and using the transferred Fund amount to the tax authority directly managing the receiving unit and directly using the Fund.

3. Expenditures from the Fund must be fully supported by legal invoices and receipts in accordance with the law. In any year, if the enterprise needs to use more than the current balance in the Fund for scientific and technological activities, it may choose to take from the deduction of the Fund in subsequent years to make up for the shortfall or include it in deductible expenses when determining taxable income for corporate income tax in the tax period, if necessary, it can allocate to subsequent years to avoid affecting the enterprise's business results.

4. The enterprise shall not account for expenditures already guaranteed from the enterprise's science and technology development fund as deductible expenses when determining taxable income for the tax period.

5. Within five years from the next year of deduction, if the Fund is not used or not used up to seventy percent or used for purposes other than intended, the enterprise must pay to the state budget the corporate income tax calculated on the income deducted for the Fund that was not used or not used up to seventy percent or used for purposes other than intended, and the interest generated from that corporate income tax.

The amount used for unintended purposes shall not be included in the total amount used for the purpose of developing science and technology of the enterprise.

The determination of the amount of corporate income tax to be recovered due to the Fund not being used or not being fully utilized at 70%, or being used for improper purposes, and the interest generated from that corporate income tax shall be based on the following principles:

5.1. The corporate income tax rate used to calculate the amount of tax to be recovered is the applicable tax rate during the period when the Fund was established. In cases where different corporate income tax rates apply over a five-year period, the tax rate used to calculate the amount of tax to be recovered is the rate at the time of recovery according to the principle of using funds previously set aside first.

For enterprises organized under a holding company or parent-subsidiary model that establish a Fund to serve scientific and technological activities throughout the system, they must recover the corporate income tax due to improper use at the receiving unit within the holding company or parent-subsidiary. The corporate income tax rate used as the basis for calculating the amount of tax to be recovered is the rate applied at the receiving company at the time of transfer according to the principle of using funds previously set aside first.

5.2. The interest rate for calculating interest on the amount of tax to be recovered from the portion of the Fund not used or not fully utilized at 70% is the interest rate of one-year Treasury bonds applicable at the time of recovery, with the interest calculation period being two years.

Example 1: Company A determined the level of establishment of the Science and Technology Development Fund (Fund) to be 10% of taxable income in 2011 and has implemented the establishment of the Fund annually from 2011 to 2016. At the beginning of 2017, when preparing the final corporate income tax report for 2016, Company A prepared a report on the establishment and use of the Fund over five years based on annual reports on the establishment and use of the Fund as follows:

The level of establishment of the Fund in 2011 was 2 billion VND. By the end of the 2016 tax period, Company A had only used 1.2 billion VND for scientific research. Due to not fully utilizing 70% of the Fund, the company falls under the category of being subject to recovery of corporate income tax on the unused portion and the interest generated from the amount already set aside in the Fund according to regulations. Assuming the corporate income tax rate applicable to the company during the period of establishing the Fund is 25%. In this case, the amount of tax to be recovered is determined as follows:

+ The amount of corporate income tax to be recovered due to not fully utilizing 70% of the Fund (assuming the corporate income tax rate during the period of establishing the Fund is 25%):

(2 billion - 1.2 billion) x 25% = 200 million VND

+ The amount of interest generated from the corporate income tax to be recovered due to not fully utilizing 70% of the Fund (assuming the interest rate of one-year Treasury bonds is 12%):

200 million x 12% x 2 years = 48 million VND

For years after 2011, the level of establishment and use of the Fund is calculated according to the principle of using funds previously set aside first as mentioned above.

5.3. The interest rate for calculating interest on the amount of tax to be recovered from the portion of the Fund used for improper purposes is the penalty interest rate according to the Tax Administration Law and the interest calculation period is the duration from the establishment of the Fund to its recovery. The recovery date is the date when the violation is discovered and documented (except in cases where documentation is not required).

The determination of the time of establishment of the Fund for the amount used for improper purposes as the basis for calculating interest on the amount of tax to be recovered from the portion of the Fund used for improper purposes is based on the principle of using funds previously set aside first.

Example 2: Company B established the Science and Technology Development Fund as follows: 200 million VND was set aside in the 2011 tax period, 300 million VND in 2012, 300 million VND in 2013, 500 million VND in 2014, 700 million VND in 2015, and 800 million VND in 2016. By the end of 2013, the company had used 300 million VND from the Fund. Each year, the company prepares a report on the establishment and use of the Fund. On May 5, 2014, upon inspection, the tax authority discovered that in 2013, the company had improperly used 40 million VND from the Fund and issued a penalty notice. The current late payment penalty interest rate under the Tax Administration Law is 0.05% per day.

Assuming in 2012, the company had used 150 million VND for a science and technology project, then the 40 million VND improperly used would be considered from the 2011 tax period's Fund contribution. In this case, the amount of tax and interest to be recovered is determined as follows:

+ The amount of corporate income tax to be recovered due to improper use is:

40 million VND x 25% = 10 million VND

+ The number of days for late payment penalty: from April 1, 2012, to May 5, 2014: 765 days.

The amount of interest to be recovered (based on the late payment penalty interest rate): 10 million VND x 0.05% per day x 765 days = 3.825 million VND

Example 3: With the data on the establishment and use of the Fund and the inspection date by the tax authority as stated in Example 2 above, assuming in 2012, the company had used 200 million VND for a science and technology project, then the 40 million VND improperly used would be considered from the 2012 tax period's Fund contribution. In this case, the amount of tax and interest to be recovered is determined as follows:

+ The amount of corporate income tax to be recovered due to improper use is:

40 million VND x 25% = 10 million VND

+ The number of days for late payment penalty: from April 1, 2013, to May 5, 2014: 400 days.

The amount of interest to be recovered (based on the late payment penalty interest rate): 10 million VND x 0.05% per day x 400 days = 2 million VND

5.4. In cases where the enterprise is currently enjoying tax incentives (applying preferential tax rates, tax exemption, or tax reduction) during the period of establishing the Fund, the amount of tax to be recovered due to the Fund not being used or not being fully utilized at 70%, or being used for improper purposes, is determined based on the income that has been subject to tax incentives at the time of establishing the Fund and is subject to penalties for violations of tax laws as prescribed.

Example 4: With the data as stated in Example 1 above, assuming: Company A determined the level of establishment of the Fund to be 10% of taxable income in 2011 and has implemented the establishment of the Fund annually from 2011 to 2016. At the beginning of 2017, when preparing the final corporate income tax report for the 2016 tax period, Company A prepared a report on the establishment and use of the Fund over five years based on annual reports on the establishment and use of the Fund as follows:

The amount allocated to the Fund in 2011 was 2 billion VND. By the end of 2016, Company A had only used 1.2 billion VND for scientific research. In this case, Company A only utilized 60% of the Fund amount. Assuming that at the time of establishing the Fund in 2011, the corporate income tax rate applicable to Company A was 10%, and the company was eligible for a 50% reduction on the corporate income tax payable. Due to not using up 70% of the Fund, the company falls under the category subject to recovery of taxes on the unused portion of the Fund and the interest accrued on the unutilized amount according to regulations. In this situation, the amount of recovered tax is determined as follows:

+ The taxable income subject to recovery due to not using up 70% is:

(2 billion - 1.2 billion) / 2 = 0.4 billion VND

+ The corporate income tax subject to recovery due to not using up 70% of the Fund:

0.4 billion VND x 10% = 0.04 billion VND

+ The interest generated from the corporate income tax subject to recovery due to not using up 70% of the Fund (assuming a one-year government bond interest rate of 12%):

0.04 billion VND x 12% x 2 years = 0.0096 billion VND (equivalent to 9.6 million VND)

For years after 2011, the level of establishment and use of the Fund is calculated according to the principle of using funds previously set aside first as mentioned above.

Example 5: With the data provided in Example 4 above, if by the end of 2016, Company A has used more than 70% of the Fund amount allocated in 2011 for scientific research. At that point, the remaining balance of the Fund (after having used up 70% of the allocation for scientific and technological activities as stipulated) of 2011, the company continues to be allowed to use it for scientific and technological activities in subsequent years without being subject to recovery or penalties under the provisions of this clause.

6. Enterprises shall voluntarily declare adjustments to increase the corporate income tax payable based on the income already allocated to the Fund but not used or used less than 70% or used for purposes other than intended, and the interest generated from such tax.

Article 6. Management of the Fund when there is a change in ownership form, merger, consolidation, division, or spin-off of enterprises

1. When an enterprise undergoing operation experiences a change in ownership form, merger, or consolidation, the newly established enterprise from the change in ownership form, merger, and the enterprise receiving the consolidation will inherit and be responsible for managing and utilizing the science and technology development fund of the enterprise before the transformation, merger, or consolidation.

2. If an operating enterprise has a science and technology development fund that has not been fully utilized when implementing division or spin-off, the newly established enterprise from the division or spin-off will inherit and be responsible for managing and utilizing the science and technology development fund of the enterprise before the division or spin-off. The division of the science and technology development fund shall be decided by the enterprise and registered with the tax authority prior to implementation.

Chapter III

IMPLEMENTATION

Article 7. Effectiveness and Implementation Organization

1. This Circular shall take effect 45 days from the date of signature.

As of January 1, 2009, the provisions regarding the allocation and utilization of the Fund stipulated in Article 3 and Article 7 of the Regulation on the Organization and Operation of the Enterprise Science and Technology Development Fund (annexed to Decision No. 36/2007/QD-BTC dated May 16, 2007 of the Minister of Finance) that conflict with the provisions of the Corporate Income Tax Law No. 14/2008/QH12 and Decree No. 124/2008/NĐ-CP dated December 11, 2008 of the Government detailing and guiding the implementation of certain articles of the Corporate Income Tax Law shall be implemented according to the Corporate Income Tax Law No. 14/2008/QH12, Decree No. 124/2008/NĐ-CP, and shall be implemented according to this Circular from the date this Circular takes effect.

2. During the implementation process, if there are any difficulties, organizations and individuals are advised to report to the Ministry of Finance for timely guidance and resolution.