Circular No. 169/1998/TT-BTC guides the tax regime applicable to foreign organizations and individuals conducting business activities in Vietnam that do not fall under the form of foreign investment as regulated by the Law on Foreign Investment in Vietnam.

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
NUMBER: 169/1998/TT-BTC	HA NOI, December 22, 1998

 

CIRCULAR

GUIDELINES ON TAX REGIMES APPLICABLE TO FOREIGN ORGANIZATIONS AND INDIVIDUALS ENGAGING IN BUSINESS ACTIVITIES IN VIETNAM WITHOUT FALLING UNDER THE FORMS OF FOREIGN INVESTMENT AS PROVIDED FOR IN THE FOREIGN INVESTMENT LAW OF VIETNAM NUMBER 169/1998/TT-BTC DATED DECEMBER 22, 1998

Pursuant to the Value Added Tax Law No. 02/1997/QH9 dated May 10, 1997; the Corporate Income Tax Law No. 03/1997/QH9 dated May 10, 1997;
Pursuant to Decree No. 28/1998/ND-CP dated May 11, 1998 of the Government detailing the implementation of the Value Added Tax Law; Decree No. 30/1998/ND-CP dated May 13, 1998 of the Government detailing the implementation of the Corporate Income Tax Law;
Pursuant to other relevant legal documents currently in force;
The Ministry of Finance hereby provides guidance on the tax obligations applicable to foreign organizations and individuals engaging in business activities in Vietnam without falling under the forms of foreign investment as provided for in the Foreign Investment Law of Vietnam as follows:

A. SCOPE OF APPLICATION.

I. OBJECTS SUBJECT TO THESE GUIDELINES:

The tax obligations guided by these Guidelines apply to foreign organizations and individuals engaging in production and business activities in Vietnam without falling under the forms of foreign investment as provided for in the Foreign Investment Law of Vietnam.

II. THESE GUIDELINES SHALL NOT APPLY TO THE FOLLOWING OBJECTS:

- Foreign organizations and individuals repairing aircraft or ships for Vietnamese organizations or individuals outside Vietnam.

- Foreign organizations and individuals providing goods at Vietnamese or foreign border gates to Vietnamese organizations or individuals pursuant to purely commercial sales contracts.

- Foreign individuals entering Vietnam to work based on labor contracts signed with Vietnamese organizations or individuals or sent by foreign organizations to work in Vietnam and paid salaries or wages. These objects have the obligation to pay personal income tax.

In case the Socialist Republic of Vietnam joins an international organization or enters into an International Treaty with one or more countries where the Articles of Association or International Treaty provide different provisions related to the matters guided by these Guidelines, such provisions shall be applied according to the provisions of the Articles of Association, International Treaty, and guiding documents implementing the Articles of Association and International Treaty already joined.

III. IN THESE GUIDELINES, THE FOLLOWING TERMS ARE UNDERSTOOD AS FOLLOWS:

1. "Contractor" refers to foreign organizations or individuals conducting production and business activities in Vietnam without falling under the forms of foreign investment as provided for in the Foreign Investment Law of Vietnam. The Contractor's business operations may be carried out based on contracts signed between them and Vietnamese organizations or individuals, hereinafter referred to as the Vietnamese Contracting Party.

"Contractor" also includes foreign organizations or individuals providing "oil and gas services" under the Oil and Gas Law.

2. "Subcontractor" refers to organizations or individuals providing services to the Contractor or performing part of the work of the Contractor.

3. "Vietnamese Contracting Party" includes:

- Organizations and juristic persons established under Vietnamese law;

- Joint ventures, wholly foreign-owned enterprises, and joint operating parties operating under the Foreign Investment Law of Vietnam;

- Oil and gas Contractors signing "Oil and Gas Contracts" under the Oil and Gas Law;

- Joint venture banks, branches of foreign banks in Vietnam licensed by the State Bank of Vietnam;

- Branches of foreign companies permitted to operate in Vietnam;

- Foreign organizations located in Vietnam;

- Other organizations or individuals in Vietnam.

4. "Contractor Contract" refers to the contract signed between the Contractor and the Vietnamese Contracting Party.

5. "Subcontractor Contract" refers to the contract signed between the Subcontractor and the Contractor.

6. "Technology Transfer" refers to the form of buying and selling technology based on a Technology Transfer Agreement that complies with legal regulations. The seller has the obligation to transfer comprehensive knowledge of the technology or provide machinery, equipment, services, training... along with technological knowledge to the buyer, and the buyer has the obligation to pay the seller to absorb and use the technological knowledge according to the agreed conditions and recorded in the Technology Transfer Agreement.

Technology transfer includes:

a) Transfer of industrial property objects: inventions, utility models, designs, and trademarks protected by Vietnamese law and permitted for transfer.

b) Transfer of technological secrets, technical solutions, technological processes, preliminary design and technical design documents, formulas, technical parameters, drawings, technical diagrams, computer software (transferred under the Technology Transfer Agreement), technical information data accompanying or not accompanying machinery and equipment.

c) Transfer of rationalization solutions, technological innovation.

d) Implementation of service support forms for technology transfer so that the recipient can obtain technological capacity to produce products and/or services with quality specified in the Agreement including:

- Assistance in selecting technology, installation guidance, trial operation of equipment lines to apply transferred technology;

- Management technology consulting, business management consulting, guidance on implementing transferred technological processes;

- Training and upgrading the professional skills and management level of workers, technical staff, and managers to master the transferred technology.

e) Machinery, equipment, technical means accompanying one or more of the above items.

B. TAX OBLIGATIONS OF FOREIGN CONTRACTORS AND SUBCONTRACTORS IMPLEMENTING VIETNAMESE ACCOUNTING REGIMES.

I. TAX OBLIGATIONS:

1. Value Added Tax (VAT): Foreign Contractors and Subcontractors must pay VAT according to the tax deduction method prescribed in the Value Added Tax Law and current guiding documents.

The taxable amount of VAT is the price paid to the Contractor or Subcontractor for supplying goods or services to the Vietnamese Contracting Party or to the Contractor, excluding VAT.

Certain specific cases for the taxable value are determined as follows:

+ In the case where the contractor receives part of the contract value in the form of goods and other services, the value-added tax taxable amount is the total price including the value of goods and services provided to the contractor as agreed upon in the contract.

Example: Contractor A provides construction quantity supervision services to the Vietnamese Party, with a total payment of 100,000 USD, and the Vietnamese Party also has to provide accommodation and meals for two experts from the Contractor. The value-added tax taxable amount in this case is: 100,000 USD plus the accommodation and meal expenses for the two experts.

+ In the case where the contractor collaborates with the Vietnamese Party to sign a contract and distribute business results through revenue sharing, according to the periodic revenue distribution specified in the contract, the party receiving the distributed revenue must issue a VAT invoice for the distributed revenue sent to the Vietnamese Party that signed the contract. Based on the payment invoice, the revenue recipient records the revenue and output VAT as the basis for calculating the VAT payable.

2. Corporate Income Tax (CIT): Contractors and subcontractors shall pay CIT in accordance with the provisions of the Law on Corporate Income Tax and current guiding documents.

2.1. For foreign airlines' taxable income derived from air transport activities in Vietnam, it is the income obtained from air transport operations in Vietnam, calculated based on the allocation of the total income earned from air transport operations worldwide to the air transport operations in Vietnam. The allocated income corresponding to the air transport operations in Vietnam is proportional to the ratio between the revenue from air transport in Vietnam and the airline's total revenue.

Revenue from air transport in Vietnam is the actual fare revenue collected for the number of passengers and cargo actually loaded onto the airline's aircraft at departure airports in Vietnam to final destination airports abroad - as stipulated in the air transport contracts or waybills issued by the foreign airline operating air transport in Vietnam, not transit airports where passengers or cargo only stop over. If the foreign airline does not provide documentation for income allocation, the taxable income is determined as 5% of the revenue from air transport in Vietnam.

2.2. Corporate Income Tax rate: Follows the guidance at Point 1, Section V, Part B of Circular No. 99/1998/TT-BTC dated July 14, 1998, issued by the Ministry of Finance.

In cases where the accounting books of contractors and subcontractors are insufficient to determine taxable income, contractors and subcontractors must pay corporate income tax under the fixed-rate method as guided at Point 2, Section I, Part C of this Circular.

3. Other taxes such as export tax, import tax, personal income tax, etc., shall be implemented in accordance with the provisions of the Law, Tax Ordinance, and current guiding documents.

II. PROCEDURES FOR TAX REGISTRATION AND DECLARATION:

1. Tax registration procedures:

Within twenty days from signing a contract with the Vietnamese Party or the main contractor, the contractor or subcontractor must register for tax and apply for a tax identification number with the local tax authority where their management office is located. The tax registration procedures include:

+ A tax registration form according to Form No. 04-ĐK-TCT issued together with Circular No. 79/1998/TT-BTC dated June 12, 1998, by the Ministry of Finance.

+ A copy of the contract signed with the Vietnamese Party or the main contractor. For oil service contracts or contracts containing technical content, a summary of the contract with key contents including the purpose of the contract, payment methods, contract duration, obligations and responsibilities of the parties may be submitted. Foreign organizations and individuals are responsible for these contents.

+ A copy of the Business License or Professional Practice Permit issued by the competent Vietnamese authority (if applicable).

+ An approval letter for the accounting system from the Ministry of Finance. The procedure for requesting approval of the accounting system is carried out according to the regulations for foreign-invested enterprises as guided in Circular No. 60 TC/CĐKT dated September 1, 1997, by the Ministry of Finance, where the Investment License is replaced by the Business License or Professional Practice Permit issued by the competent Vietnamese authority (This procedure does not apply to foreign airline representative offices permitted to sell transportation).

Within five days from receiving all the above documents, the tax authority will issue a confirmation of the tax identification number for the taxpayer.

After receiving the tax identification number confirmation from the tax authority, the contractor must send a copy to the Vietnamese Party that signed the contract for monitoring and supplementary declaration to the tax authority. The tax identification number confirmation issued by the tax authority to the contractor is a document confirming that the contractor directly declares and pays taxes. The Vietnamese Party that signed the contract does not have to pay the tax on behalf of the foreign contractor.

2. Tax Declaration Procedures:

Foreign contractors and subcontractors shall declare and pay VAT and CIT in accordance with the provisions of the relevant laws and guiding documents for the Law on VAT and CIT.

Specifically, for foreign airlines operating air transport in Vietnam, the declaration and payment of CIT shall be carried out as follows:

- Within the first ten days of each month at the beginning of each quarter (January, April, July, October), the representative office permitted to sell air transportation of foreign airlines, or the agency of foreign airlines shall declare corporate income tax according to Form No. 01/NT-TCT issued together with this Circular and submit it to the local tax authority where the representative office is located, and pay the declared tax into the State budget. In cases where foreign airlines organize sales agencies, foreign airlines must submit a list of agency names and addresses and copies of agency contracts to the local tax authority where the airline's sales office is headquartered. The local tax authority will manage and collect taxes on agency activities based on the list of agents in accordance with regulations.

C. TAX OBLIGATIONS FOR FOREIGN CONTRACTORS AND SUBCONTRACTORS NOT IMPLEMENTING VIETNAMESE ACCOUNTING REGIMES

I. TAX OBLIGATIONS:

1. Value Added Tax (VAT): Foreign contractors and subcontractors engaged in business activities subject to VAT shall pay VAT under the direct method based on added value.

Amount of VAT payable = Added value x VAT rate.

a- Added value for each industry is defined as a percentage of taxable turnover, specifically as follows:

Serial number	1. Production of ceramic and glass products; import and export, and trading in various types of raw materials, equipment, spare parts, and ceramic and glass products;	% VAT calculated on turnover
1	Trade (including water supply, foodstuffs; materials and chemicals for oil and gas contractors).	10
2	Services	50
3	Construction and installation not including material procurement and/or provision of machinery and equipment; surveying, design, supervision.	50
4	Construction and installation including material procurement and/or provision of machinery and equipment.	30
5	Other production, transportation.	25

b- VAT rate: Implemented in accordance with Article 8 of the Law on Value Added Tax and current guiding documents.

2. Corporate income tax (CIT):

Foreign contractors and subcontractors must pay corporate income tax to the State budget.

The amount of corporate income tax is determined as a percentage of taxable turnover for each business activity as follows:

Serial number	1. Production of ceramic and glass products; import and export, and trading in various types of raw materials, equipment, spare parts, and ceramic and glass products;	% Corporate Income Tax calculated on turnover
1	Trade (including water supply, foodstuffs; materials and chemicals for oil and gas contractors).	1
2	Services	5
3	Production, transportation, construction (including surveying, design, supervision)	2
4	Interest on Loans	10
5	Royalty income	10

Taxable turnover for determining VAT and corporate income tax includes the turnover received by the contractor, including amounts paid by the Vietnamese party on behalf of the contractor. If the contractor receives turnover excluding tax, the taxable turnover must be converted to turnover inclusive of tax using the following formula:

Taxable turnover

=

1 - ( % VAT calculated on turnover

Actual turnover received x VAT rate

+ % Corporate Income Tax calculated on turnover)

Example: Foreign contractor A signed a hotel construction contract Z on a turnkey basis, the amount that hotel Z must pay to contractor A is 200,000 USD, in addition, hotel Z also pays accommodation and meal expenses for contractor A's experts totaling 50,000 USD. According to the Contract, Hotel Z is responsible for paying all taxes levied by Vietnam on the contractor's business activities.

- Using the above formula, the taxable turnover of contractor A:

(200 000 + 50 000)

------------------------------ = 263,158 USD.

1 - ( 0.3 x 0.1 + 0.02)

Some cases of taxable turnover determination are as follows:

- If the contractor subcontracts part of the work to Vietnamese subcontractors, the taxable turnover of the contractor does not include the contract value performed by Vietnamese subcontractors. If the subcontractor is a foreign organization or individual, the taxable turnover is the entire turnover received by the contractor. Foreign subcontractors are not required to pay tax if they can present proof that the contractor has paid tax on the turnover generated by the foreign subcontractor.

- For contracts for leasing machinery, equipment, and transport vehicles, taxable turnover does not include costs directly borne by the lessor such as insurance, maintenance, inspection certification, and personnel operating the vehicles and machinery.

- For express delivery services of goods and mail, taxable turnover is the total revenue received.

- Interest income from loans includes income from securities and bonds. Interest income includes fees stipulated in loan contracts that the Vietnamese party must pay according to the loan agreement.

- Royalty income is the total payment received in any form due to technology transfer; industrial property rights transfer; use or right to use copyright of literary, artistic, or scientific works including films or tapes used in broadcasting and television through written contracts as prescribed by law. If the recipient of royalty income is an individual, that individual must pay personal income tax on the royalty income according to the Ordinance on Personal Income Tax for High-Income Individuals.

3. Other taxes:

Export and import duties, personal income tax... shall be implemented in accordance with the provisions of tax laws, ordinances, and current guiding documents.

II. PROCEDURES FOR TAX REGISTRATION AND DECLARATION:

1. Tax registration procedures:

Within ten days from signing the contract with the contractor, the Vietnamese party signing the contract shall declare and register with the tax authority regarding the contractor's activities in Vietnam according to Form No. 02 NT-TCT issued together with this Circular.

2. Tax Declaration Procedures:

Within five working days from the date of payment to the contractor, the Vietnamese party signing the contract shall declare VAT and corporate income tax according to Form No. 03 NT-TCT issued together with this Circular and pay the declared tax into the State budget. The VAT paid on behalf of the contractor is the input VAT of the Vietnamese party signing the contract and can be deducted according to the guidance provided in Circular No. 89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance when determining the VAT payable by the Vietnamese party.

For contractors and subcontractors operating in the oil and gas exploration sector, the Ministry of Finance authorizes the Vietnam Oil and Gas Corporation to deduct and collect taxes. Local tax collection authorities are responsible for guiding and inspecting the implementation of tax deduction and collection by units of the Vietnam Oil and Gas Corporation for the State budget.

III. FINALIZATION OF TAXES:

The tax settlement shall be carried out on a per Contract basis. The party responsible for tax payment must complete the tax settlement and submit the amount of tax due to the tax authority no later than ten days from the date of contract termination between the parties (in cases where direct tax payment registration has been made) or from the date when the Vietnamese Party must settle the tax payable to the tax authority.

In the event that the tax payable exceeds the amount of tax already paid during the tax settlement, the taxpayer must make up the difference and pay it to the State Budget according to the notification from the tax authority.

If the tax payable is less than the amount of tax already paid during the tax settlement, the Ministry of Finance will refund the excess tax paid to the taxpayer. The refund procedures include the following documents:

- A tax refund application detailing the reasons for requesting the refund. In cases where the Contractor authorizes the Vietnamese Party to handle the tax refund procedure, a valid power of attorney must be provided.

- The settlement and contract termination record;

- Confirmation from the local tax authority regarding the total tax payable and the amount of tax already paid under the entire contract;

- Confirmation from the National Treasury Office regarding the amount of tax already paid.

Within thirty days from the receipt of the above documents, the Ministry of Finance will refund the excess tax paid into the account of the Vietnamese Party.

D. VIOLATION HANDLING AND COMPLAINT RESOLUTION.

I. VIOLATION HANDLING:

Foreign organizations and individuals conducting business activities in Vietnam (including foreign Subcontractors) and the Vietnamese Parties signing contracts are responsible for strictly adhering to current tax laws and the guidelines set forth in this Circular.

Violations such as failure to declare, register, delay in tax payment, false declaration to evade taxes will be penalized according to current laws.

II. COMPLAINT RESOLUTION:

Tax complaints under this Circular shall be handled by the tax authority directly managing tax collection. If the complainant is not satisfied with the handling by the local tax authority, they may submit a complaint to the General Department of Taxation and the Ministry of Finance. The decision of the Minister of Finance is final. While awaiting the decision of the competent authority, the complainant must still strictly comply with the conclusions issued by the local tax authority.

Tax complaints related to provisions of an Agreement signed between the Government of Vietnam and the Government of another country shall be resolved according to the dispute resolution procedures stipulated in that Agreement.

E. IMPLEMENTATION ORGANIZATION.

I. The Vietnamese Parties performing withholding and paying taxes to the State Budget on behalf of the Contractor shall be entitled to a fee of 0.8% of the actual tax collected. This fee amount will be deducted from the tax revenue before depositing it into the State Budget account and will be used to cover costs associated with tax collection and payment, and to reward individuals involved in tax collection and payment.

II. This Circular takes effect from January 1, 1999. Specifically, interest on loans will only apply to loan Contracts signed from January 1, 1999.

For Contracts signed by Contractors and Subcontractors before January 1, 1999, and still being executed, payments made to Contractors and Subcontractors prior to January 1, 1999, shall fulfill their tax obligations according to the guidance documents at the time of payment. Payments made from January 1, 1999, shall fulfill their tax obligations according to the guidance in this Circular. In cases where the main Contractor has paid turnover tax on construction and installation activities based on the full value of the Contract before January 1, 1999, the Subcontractor does not need to pay VAT on the amounts paid by the main Contractor from January 1, 1999.

This Circular replaces the following Circulars of the Ministry of Finance: Circular No. 08 TC/TCT dated February 5, 1994 on guiding tax on income from royalties; Circular No. 37 TC/TCT dated May 10, 1995 on guiding tax regimes applicable to foreign organizations and individuals conducting business in Vietnam outside the investment forms regulated by the Investment Law in Vietnam; Circular No. 61 TC/TCT dated October 23, 1996 on guiding tax obligations of organizations and individuals from foreign countries engaged in leasing machinery, equipment, and transportation means in Vietnam; Circular No. 83 TC/TCT dated December 25, 1996 on guiding the fulfillment of turnover tax and profit tax obligations of organizations and individuals from foreign countries conducting express delivery services of goods and postal items in Vietnam.

Pham Van Trong (Signed)

 

MODEL NUMBER 01 NT-TCT

SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness

TAX RETURN FORM

(For taxpayers who are foreign airlines)

1. Name of foreign airline:

2. Nationality:

3. Main office address:

Telephone:...Fax:...

4. Address in Vietnam (if any):

Tax code:...

Telephone:...Fax:...

Bank account number:... opened at Bank:...

5. Tax payment period: from:...to:...

Part Declaration of Tax:

Type	Quarterly Estimated Amount	Cumulative Annual Amount
Revenue from Transportation Services of the Company in Vietnam
Total Income of the Company
Income Subject to Taxation of the Company in Vietnam
Corporate Income Tax
Other Types of Taxes (Specify)
Total Amount of Tax Due (In Words)

We hereby take responsibility for the accuracy of the above declarations.

(Major Technical Specifications and Other Information)
Declaration preparer
(Signature, full name)
Position:

FORM NO. 02 NT-TCT

SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness

SUBCONTRACTOR DECLARATION FORM

(For cases where the Vietnamese Party Submits on Behalf of the Foreign Subcontractor)

Name of the Vietnamese Party Signing the Contract:...

Address:…

Tax code:...

Account Number...opened at Bank...

Business sector:...

1. Name of the Subcontractor:

2. Nationality:

 

3. Business Registration Code of the Subcontractor in Vietnam (if applicable):

 

4. Business Operation Permit in Vietnam: License Number... Date of Issue... Issuing Authority...

5. Subcontract Agreement: No.:... Date:...

 

6. Objectives of Operations in Vietnam According to the Agreement:

7. Location of Work Performed According to the Agreement:

 

8. Total Value of the Agreement:

 

9. Duration of the Agreement:

 

10. Total Number of Workers in Vietnam

 

11. Method of Dividing Business Results (If Joint Venture Agreement):

 

 

12. Sub-subcontractor: Yes No

13. Types of Taxes that the Vietnamese Party Is Responsible for Paying on Behalf of the Subcontractor and Sub-subcontractor:

 

Value Added Tax Corporate Income Tax

 

 

Personal Income Tax ...

14. Attached Documents:

1 ..........

2 .........

SUB-SUBCONTRACTOR DECLARATION FORM

Serial number	Name of the Sub-subcontractor	Nationality	Business Registration Code in Vietnam (if applicable)	Contract Number	Contract Value	Location of Execution	Number of Workers

 

Confirmation by the Tax Authority: Date of Receipt of the Declaration Form: Receiver (Full Name and Position) (Signature, stamp)

Date...month...year... Declaration preparer (Signature, full name) Position:

(This form is made in duplicate: One copy sent to the tax authority, one copy retained by the enterprise)