Circular No. 197/2009/TT-BTC supplements provisions regarding foreign organizations and individuals conducting business in Vietnam or generating income in Vietnam implementing their tax obligations under the deduction method and paying corporate income tax at a percentage rate on taxable revenue. This circular applies to contracts signed before the effective date of the circular.
Scope of application
Foreign organizations and individuals conducting business in Vietnam or generating income in Vietnam.
Key points
- Foreign contractors and subcontractors meeting both conditions (i) and (ii) specified in Point 1, Section II, Part B of Circular No. 134/2008/TT-BTC may register to pay VAT under the deduction method and pay corporate income tax at a percentage rate on taxable revenue.
- Within twenty working days from the date of signing the contract, the Vietnamese party signing the contract with the foreign contractor, and the foreign contractor signing the contract with the foreign subcontractor shall notify the local tax authority where they are registered for tax payment in writing about the implementation of VAT deduction and corporate income tax payment at a percentage rate on taxable revenue.
- For contracts signed before the effective date of Circular No. 134/2008/TT-BTC, the determination of VAT and corporate income tax obligations continues to be implemented according to the guidance provided in Circular No. 05/2005/TT-BTC until the end of the contract.
- For goods and services exempted from VAT under the effective laws on VAT prior to January 1, 2009, provided by foreign contractors and subcontractors, starting from January 1, 2009, if they fall within the scope subject to VAT, the determination of taxable revenue for VAT will be carried out according to the guidance provided in Circular No. 134/2008/TT-BTC.
- For income of foreign contractors and subcontractors who are individual businesses paid from January 1, 2009, the obligation to pay income tax shall be implemented according to the laws on personal income tax.
🌐 Social impact of this document
- Positive impact: Reducing the burden of costs for foreign enterprises through the application of the VAT deduction method while ensuring fairness in the implementation of tax obligations.
- Negative impact: It may cause difficulties for Vietnamese enterprises in complying with new regulations on notification and registration with tax authorities.
❓ Frequently asked questions
What conditions must a foreign contractor meet to apply the VAT deduction method?
A foreign contractor must satisfy both conditions (i) and (ii) specified in Point 1, Section II, Part B of Circular No. 134/2008/TT-BTC and organize accounting records in accordance with the laws on accounting and guidelines of the Ministry of Finance.
What is the deadline for notifying the tax authority?
Within twenty working days from the date of signing the contract, the Vietnamese party signing the contract with the foreign contractor, and the foreign contractor signing the contract with the foreign subcontractor shall notify the local tax authority where they are registered for tax payment in writing.
How are the VAT and corporate income tax obligations determined for contracts signed before the effective date of Circular No. 134/2008/TT-BTC?
The determination of VAT and corporate income tax obligations continues to be implemented according to the guidance provided in Circular No. 05/2005/TT-BTC until the end of the contract.
For goods and services exempted from VAT under the effective laws on VAT prior to January 1, 2009, provided by foreign contractors, starting from January 1, 2009, how is the determination of taxable revenue for VAT carried out?
The determination of taxable revenue for VAT is carried out according to the guidance provided in Circular No. 134/2008/TT-BTC.
From which date do foreign contractors and subcontractors who are individual businesses start to implement the obligation to pay income tax when receiving payments?
For income of foreign contractors and subcontractors who are individual businesses paid from January 1, 2009, the obligation to pay income tax shall be implemented according to the laws on personal income tax.
Full text
CIRCULAR
Supplement Circular No. 134/2008/TT-BTC dated December 31, 2008 of the Ministry of Finance
guiding the implementation of tax obligations applicable to organizations and individuals
foreigners conducting business in Vietnam or earning income in Vietnam
___________________
Based on the current laws, ordinances on taxes, fees, and charges of the Socialist Republic of Vietnam and the detailed implementing decrees of the Government for these laws and ordinances;
Based on the Law on Value Added Tax 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 Law on Value Added Tax;
Based on the Law on Corporate Income Tax 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 Law on Corporate Income Tax;
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;
The Ministry of Finance supplements Circular No. 134/2008/TT-BTC dated December 31, 2008 of the Ministry of Finance guiding the implementation of tax obligations applicable to foreign organizations and individuals conducting business in Vietnam or generating income in Vietnam as follows:
Article 1. Supplement Section IV into Part B of Circular No. 134/2008/TT-BTC as follows:
"IV. Paying VAT under the deduction method, paying CIT at a percentage rate based on taxable turnover.
Foreign contractors and subcontractors, if meeting both conditions (i) and (ii) specified in Point 1, Section II, Part B of Circular No. 134/2008/TT-BTC dated December 31, 2008 of the Ministry of Finance and maintaining accounting records in accordance with the law on accounting and guidance of the Ministry of Finance, shall register with the tax authority to implement VAT payment under the deduction method as guided in Point 2, Section II, Part B and corporate income tax as guided in Point 3, Section III, Part B of Circular No. 134/2008/TT-BTC dated December 31, 2008 of the Ministry of Finance.
Within twenty working days from the date of signing the contract, the Vietnamese party signing the contract with the foreign contractor, the foreign contractor signing the contract with the foreign subcontractor shall notify in writing the local tax authority where the foreign contractor and foreign subcontractor have registered for tax payment about the direct registration and implementation of VAT payment under the deduction method and corporate income tax at a percentage rate based on taxable turnover by the foreign contractor and foreign subcontractor."
Article 2. Supplement after the first paragraph of Part C of Circular No. 134/2008/TT-BTC as follows:
"In cases where contracts and subcontracts are signed before Circular No. 134/2008/TT-BTC takes effect, the determination of VAT and CIT obligations continues to be implemented according to the guidance in Circular No. 05/2005/TT-BTC dated January 11, 2005 of 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 until the end of the contract, except for the following cases:
- For goods and services not subject to VAT according to the effective VAT law prior to January 1, 2009 provided by foreign contractors and subcontractors, starting from January 1, 2009, which fall within the scope of VAT liability, the determination of taxable turnover for VAT for foreign contractors and subcontractors shall be carried out according to the guidance in Circular No. 134/2008/TT-BTC.
Example:
In 2008, Enterprise A in Vietnam signed a contract to purchase a production line of machinery and equipment for the Cement Plant Project with Enterprise B abroad. The total value of the contract was 100 million USD, including the value of machinery and equipment (which are not yet produced domestically) amounting to 80 million USD, and the value of installation guidance, installation supervision, warranty, and maintenance services amounting to 20 million USD.
According to the effective VAT law prior to January 1, 2009, production lines of machinery and equipment that are not yet produced domestically imported to form fixed assets of enterprises are not subject to VAT. In 2009, Enterprise A imported machinery and equipment belonging to the production line according to the contract signed with Enterprise B and paid import VAT. In this case, the taxable turnover for VAT for the foreign contractor (Enterprise B) is determined according to Point 1.2, Section I, Part B of Circular No. 134/2008/TT-BTC.
- For income of foreign contractors and subcontractors who are individual businesses paid from January 1, 2009 onwards, the obligation to pay personal income tax shall be implemented according to the law on personal income tax."
Article 3. Effectiveness
This Circular shall take effect forty-five days from the date of signature.
During the implementation process, if there are any difficulties, units and business establishments are requested to promptly report to the Ministry of Finance for resolution./.
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