Circular No. 38/2010/TT-BTC guiding the implementation of tax regulations for organizations and individuals transferring rights to explore, extract, and process minerals

CIRCULAR

Guidelines for implementing tax regulations on organizations and individuals transferring exploration, exploitation, and processing rights of mineral resources

 organizations and individuals transferring exploration, exploitation, and processing rights of mineral resources

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Pursuant to the Law on Minerals and the Government's Decrees detailing and guiding the implementation of the Law on Minerals;

Pursuant to current laws, ordinances on taxes, fees, and charges and the Government's Decrees detailing and guiding the implementation of these laws, ordinances on taxes, fees, and charges;

Pursuant to the Tax Administration Law No. 78/2006/QH11 dated November 29, 2006, and the Government's documents guiding the implementation of the Tax Administration Law;

Pursuant to the 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;

To implement the guidance of the Prime Minister as stated in the Office of the Government's Circular No. 50/VPCP-KTTH dated January 5, 2010,

The Ministry of Finance provides guidelines for implementing tax regulations on organizations and individuals transferring exploration, exploitation, and processing rights of mineral resources as stipulated in Clause 6, Article 53 of the Government's Decree No. 160/2005/NĐ-CP dated December 27, 2005 detailing and guiding the implementation of the Law on Minerals and the Law amending and supplementing certain articles of the Law on Minerals as follows:

Article 1. Scope and Applicability

Organizations and individuals permitted to transfer exploration, exploitation, and processing rights of mineral resources as stipulated in Clause 6, Article 53 of the Government's Decree No. 160/2005/NĐ-CP now transferring such rights shall be treated as transferring investment projects and shall fulfill their tax obligations according to the guidelines set forth in this Circular.

Article 2. Regarding Value Added Tax

Activities involving the transfer of exploration, exploitation, and processing rights of mineral resources, and the transfer of land use rights are not subject to value added tax.

In cases where the entire investment project for exploration, exploitation, and processing of mineral resources is transferred along with construction works, infrastructure on land; machinery, equipment, transportation means, the value of such construction works, infrastructure on land; machinery, equipment, transportation means must be separated from the total transfer price to pay value added tax according to the Law on Value Added Tax and related guiding documents. If it is impossible to separate the value of construction works, infrastructure on land; machinery, equipment, transportation means from the total transfer price, then value added tax at a rate of 10% shall be paid on the entire transfer value.

Article 3. Regarding Corporate Income Tax

Organizations deriving income from activities transferring exploration, exploitation, and processing rights of mineral resources shall pay corporate income tax as follows:

Corporate income tax payable = Taxable income x Corporate income tax rate

1. Determination of taxable income

Taxable income = Transfer price - Unrecovered investment costs - Transfer expenses

Where:

- The transfer price is the actual total transfer value as stipulated in the transfer agreement.

In cases where the transfer agreement specifies payment through installment or deferred payment methods, the transfer price is the actual total transfer value as stipulated in the transfer agreement's terms, excluding installment interest or deferred payment interest.

In cases where the transfer agreement does not specify a payment price or the tax authority has grounds to determine that the specified price is not market-based, the tax authority has the right to inspect and request the parties involved in the transfer to provide information related to the determination of the current and future values of the transferred mineral resource exploration, exploitation, and processing project before the decision to transfer and accept the transfer and set the payment price based on reference to market prices, prices that could be sold to third parties, or prices from similar transfer agreements.

- Unrecovered investment costs in the mineral resource exploration, exploitation, and processing project are reasonable costs as defined by the Law on Corporate Income Tax and related guiding documents, determined based on accounting records and supporting documents up to the transfer date, after deducting recovered costs. Recovered costs are those already included in taxable income to calculate the corporate income tax payable previously.

In cases where an organization continues to transfer the exploration, exploitation, and processing rights of mineral resources, unrecovered investment costs in the project are determined by adding the value of the most recent transfer agreement received plus any additional costs (if supported by documentation), minus any recovered costs.

- Transfer expenses include: costs for necessary legal procedures for the transfer; fees and charges required when handling transfer procedures; transaction, negotiation, and contract signing costs for the transfer agreement and other related transfer costs supported by documentation.

2. Tax rate

The corporate income tax rate for activities transferring exploration, exploitation, and processing rights of mineral resources is 25%.

3. Income from activities transferring exploration, exploitation, and processing rights of mineral resources shall be accounted for separately and shall not enjoy corporate income tax incentives.

4. In cases where the mineral resource exploration, exploitation, and processing project is transferred together with real estate, income from the real estate transfer must be accounted for separately and declared for tax payment according to the Law on Corporate Income Tax and related guiding documents, without offsetting against income or losses from other business activities.

Article 4. Regarding Personal Income Tax

Individuals with income from activities involving the transfer of rights to explore, extract, and process minerals shall pay personal income tax on income from capital transfers, specifically as follows:

The amount of personal income tax payable = Taxable income x Tax rate

1. Determination of taxable income

Taxable income = Transfer price - Unrecovered investment costs - Transfer expenses

Where:

- The transfer price is the actual total transfer value as stipulated in the transfer agreement.

In cases where the transfer agreement specifies payment through installment or deferred payment methods, the transfer price is the actual total transfer value as stipulated in the transfer agreement's terms, excluding installment interest or deferred payment interest.

In cases where the transfer contract does not specify a payment price or if the tax authority has grounds to determine that the payment price cannot be set according to market prices, the tax authority has the right to fix the transfer price in accordance with the provisions of the Law on Tax Administration and guiding documents implementing the Law.

- Investment costs in exploration, extraction, and processing mineral projects that have not been recovered are reasonable costs related to generating taxable income from business operations as stipulated by the Law on Personal Income Tax and guiding documents for implementation, based on accounting records and valid documents up to the date of transfer, after deducting previously recovered costs. Recovered costs are those already included in taxable income to calculate the amount of personal income tax payable previously.

In cases where individuals continue to transfer rights to explore, extract, and process minerals, investment costs in the project are determined by the value of the most recent transfer contract plus additional costs (if there is proof), minus previously recovered costs.

- Transfer costs include: costs for necessary legal procedures for the transfer; fees and charges payable to the budget when conducting transfer procedures; other direct costs related to the transfer with valid invoices and supporting documents.

2. Tax rate

The personal income tax rate applicable to income from capital transfers is 20%, as provided for in Article 17 of Decree No. 100/2008/NĐ-CP dated September 8, 2008, detailing certain provisions of the Law on Personal Income Tax.

3. In cases where the transfer of rights to explore, extract, and process minerals is linked to the transfer of real estate, income from the transfer of real estate must be separately declared and taxed according to the provisions of the Law on Personal Income Tax and guiding documents for implementation.

Article 5. Regarding Other Taxes, Fees, and Charges

Other taxes, fees, and charges shall be implemented in accordance with current laws and regulations on taxes, fees, and charges.

Article 6. Implementation Organization

This Circular takes effect 45 days from the date of signature. For cases where the activity of transferring rights to explore, extract, and process minerals was completed before this Circular takes effect and taxes were already paid, no adjustments will be made. The completion date of the activity of transferring rights to explore, extract, and process minerals is the date when the competent authority approves the transfer contract between the parties.

Matters not covered by this Circular shall be implemented in accordance with current tax laws.

Any issues arising during implementation should be reported to the Ministry of Finance for consideration and decision./.