Circular No. 25/1999/TT-BTC guides the tax treatment for construction works (XDCB), newly built ships, and major ship repairs completed in 1998 but not yet processed for settlement by December 31, 1998.

CIRCULAR

Guidelines for tax treatment of construction works and newly built ships, major ship repairs completed in 1998 but not yet processed for settlement by December 31, 1998.

For construction works and newly built ships, major ship repairs completed in 1998 but not yet processed for settlement by December 31, 1998.

As of December 31, 1998, have not yet processed for settlement.

Pursuant to Article 28 of the Value Added Tax Law; Clause 21 of Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax and Clause 5 of Article 1 of Decree No. 102/1998/NĐ-CP of the Government amending and supplementing certain provisions of Decree No. 28/1998/NĐ-CP.

To promptly address difficulties for production and construction units, the Ministry of Finance provides guidelines on applying tax policies to construction works and newly built ships, major ship repairs completed but not yet processed for handover and settlement as follows:

I. APPLICABLE OBJECTS

Production and construction units subject to value added tax under the deduction method shall implement contracts for:

- Construction works and installation: Including construction projects, project components, construction work, and installation.

- New shipbuilding or major ship repairs: Including ships used for cargo and passenger transport and other specialized purposes.

Contracts signed before December 31, 1998, completed but not yet processed for handover and settlement between production and construction units (referred to as Party B) and ordering parties or project sponsors (referred to as Party A) shall be considered completed in 1998 and shall apply the turnover tax rate.

II. TAX RATE, INVOICES, REPORTING PROCEDURES, PAYMENT, ACCOUNTING

SUBMITTING TAXES, ACCOUNTING

1- The tax payable for the objects mentioned in Section I above is the turnover tax rate and is calculated based on the turnover recorded on the payment invoice:

- For construction projects, project components, construction work, and installation with materials included in the contract price is 4%, without materials included in the contract price is 6%.

- For new ships and river-sea hybrid ships: New shipbuilding is 1%, major ship repairs are 2%.

2- Invoice and documentation procedures:

- Production and construction units when issuing invoices for construction works and ships mentioned in Section I above must issue VAT invoices. The invoice records the total payment including turnover tax.

Example:

Party B issues an invoice for the completed construction work volume to Party A at the price determined in the 1998 contract of 100 million VND. The price and VAT invoice are determined as follows:

+ Payment amount: (clearly stating the actual value of the completed construction work or construction volume in 1998 according to the contract price or agreed upon by both parties) is 100 million VND.

+ VAT: (do not record and cross out this section)

+ Total payment including tax: 100 million VND.

3- Reporting and payment procedures:

Units (Party A and Party B) subject to this Circular shall base their declaration and calculation of turnover tax payable according to the Turnover Tax Law and its implementing regulations. The paying party (Party A) shall not deduct this tax amount.

4- Accounting entries:

Entities subject to Section I of this Circular shall account for and settle the results of construction works, new shipbuilding, or major ship repairs as follows:

- Revenue for calculating corporate income tax is the payment amount including turnover tax. Accounting reflects revenue according to the payment amount recorded:

Debit Account 111, 112, 131

Credit Account 511 (According to the payment amount)

- Turnover tax payable is deducted from taxable income. Turnover tax payable is recorded:

Debit Account 642

Credit Account 333.1 (Detailed Turnover Tax)

- Units purchasing products or services subject to turnover tax as stipulated in Section I of this Circular shall account for the value of construction works or newly built ships based on the payment amount recorded on the invoice, which includes turnover tax, as the basis for depreciation of fixed assets.

III. PROCEDURE AND AUTHORITY FOR TAX HANDLING

1 - Documents and procedures:

a - Request letter from the entity.

b - Contract:

- For construction works, it is a construction and installation contract between Party A and B in accordance with construction management regulations.

- For newly built ships or major ship repairs, it is an economic contract between the ordering party and the shipbuilder or repairer.

c - Completion certificate of quantity and value up to December 31, 1998:

- For construction works:

+ If completed but not yet handed over, there must be a technical acceptance certificate.

+ If completed but lacking a quantity and quality acceptance certificate, there must be a certificate confirming the quantity and value of work performed with confirmation from Party A.

- For newly built ships or major ship repairs, there must be:

+ A technical and quality certification document from the quality control department of the unit and confirmed by the ordering party. In cases where the ordering party does not confirm, a power of attorney for the unit to determine technical and quality standards must be provided. For newly built ships, additional confirmation from the inspection authority is required.

+ A certificate confirming the value of newly built ships or major repair work between Parties A and B.

All documents must be originals. In case of copies, they must be certified by the enterprise director.

2 - Tax handling procedure

Within ten days from receipt of the document, the Tax Department will coordinate with the State Asset Management and Utilization Agency to review and verify. If conditions and procedures comply with this Circular, they will provide comments in writing to the Ministry of Finance (General Department of Taxation).

Within ten days from receipt of the documents, the General Department of Taxation must complete the procedures and submit them to the Ministry of Finance for resolution.

IV. IMPLEMENTATION

This Circular takes effect from the date of issuance and applies to entities specified in Section I of this Circular. For unfinished products completed in 1999, if paying VAT results in losses, the unit will be considered for reduced VAT payments according to Article 28 of the Value Added Tax Law.

Tax authorities are responsible for guiding, inspecting implementation, and promptly resolving issues within the maximum time limit of June 30, 1999. During implementation, if any difficulties arise, tax bureaus and units should promptly report to the Ministry of Finance for research and resolution.