Circular No. 41 TC/TCT temporarily guides the implementation of Decision No. 763/TTg dated December 19, 1994 of the Government on certain policies for cooperative economic organizations.

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 41 TC/TCT DATED MAY 31, 1995 GUIDING PROVISIONALLY IMPLEMENTATION OF DECISION NUMBER 763/TTG DATED DECEMBER 19, 1994 OF THE GOVERNMENT ON SOME POLICIES FOR COOPERATIVE ECONOMY

Implementing Point 5, Article 2 of Decision No. 763/TTg dated December 19, 1994 of the Government on some policies for cooperative economy.

After exchanging with the Central Council of the Vietnam Union of Cooperatives, the Ministry of Finance provides additional guidance on certain points regarding income tax for cooperative economy as follows:

I- GENERAL PROVISIONS:

Pursuant to Article 1 of Decision No. 763/TTg, the subjects of this Circular are cooperatives, cooperative groups, and cooperative unions (hereinafter referred to collectively as cooperatives) operating in small-scale industrial production, construction, transportation, trade, and services sectors, which have been recognized by the People's Committee of districts, counties, towns, cities directly under provinces, or the People's Committee of provinces, cities directly under the central government for their charter and business registration.

II- REGARDING INCOME TAX:

Implement according to the provisions of the Tax Law, Decrees of the Government, and Circulars guiding of the Ministry of Finance, but to ensure compatibility with the operational characteristics of cooperatives, the Ministry of Finance guides the application of certain points when determining reasonable and legitimate expenses to calculate taxable income as follows:

1/ Depreciation expenses of fixed assets:

a) The basic depreciation rate is implemented according to Decision No. 507 TC/DTXD dated July 22, 1986 of the Ministry of Finance.

b) Cooperatives are permitted to increase the basic depreciation rate compared to Decision No. 507 TC/DTXD in the following cases:

+ Fixed assets with rapid technological progress.

+ Using borrowed capital to invest in purchasing fixed assets where the debt repayment period is shorter than the depreciation period of the fixed asset and after utilizing all legal sources of funds at the cooperative (training and development fund, production development fund, etc.) for debt repayment but still lacking funds, they may be allowed to increase the rate but not exceeding the amount of debt payable within the year according to the loan agreement or loan contract having legal value.

+ Fixed assets whose actual working conditions exceed normal levels due to full utilization of machine capacity, overtime work, etc.

- Conditions for being eligible to increase the basic depreciation rate of fixed assets are:

Cooperatives must pay the full turnover tax (or special income tax) without suffering losses from production and business operations that are more effective than the previous year.

- Procedure for requesting an increase in the basic depreciation rate:

+ Cooperatives must submit a letter requesting and explaining the figures, sent to the direct tax management agency.

+ The direct tax management agency will check and verify the figures and provide recommendations to the higher-level tax agency.

- Authority to decide on increasing the basic depreciation rate:

+ If the increased rate does not exceed 20% of the basic rate, it is decided by the Director of the Tax Department.

+ If the increased rate exceeds 20% of the basic rate, it is decided by the Director General of the State Tax Administration.

The officially approved increased basic depreciation rate is determined based on the annual settlement report. Fixed assets that have been fully depreciated but are still in use cannot be included in the cost for calculating taxable income.

- The increased depreciation rate for major repairs of fixed assets is implemented according to Circular No. 75A TC/TCT dated August 31, 1993 of the Ministry of Finance guiding income tax.

2/ Wages and salaries:

- Wages and salaries are calculated based on the actual number of workers (including cooperative members' wages and contractual laborers) according to job grades and position salaries (if applicable), consistent with the state wage policy linked to production and business results.

- In case cooperatives establish wage rates based on labor norms and job grades consistent with the state's wage norm policy for each industry and profession, registered with the direct tax management agency, they can include actual wage payments corresponding to the volume of work and registered wage rates in the costs for calculating taxable income.

- In case cooperatives cannot establish wage rates, they apply the average wage level for each industry and profession set by the provincial or municipal People's Committee during each period to include in the costs for calculating taxable income.

- Cooperatives that have signed agreements with employees shall base wage costs on the signed labor contracts, comparing them with the wages prescribed by the provincial or municipal People's Committee. If wages are higher, they must be balanced with production and business efficiency, ensuring the principle: the wage increase rate must be lower than the taxable income increase rate.

Determination of wage costs in any case must ensure the principle that the wage fund increase rate must be lower than the taxable income increase rate.

3. Interest expense on loans:

Interest expense on loans according to loan agreements (including loans outside the State Bank system) is included in costs up to the interest rate announced by the State Bank during each period. To determine this expense, there must be a written agreement (loan agreement) between the borrowing unit and the lender specifying the monthly interest rate, loan term, and loan amount, and the loan amount must be recorded in the production and business activities of the unit. Loan interest cannot be included in costs for joint venture capital contributions, statutory capital contribution interest, or training and basic construction interest.

4. Regarding capital preservation:

- Cooperatives engaged in trading goods with state-regulated prices are permitted to preserve capital according to the regime applicable to state-owned enterprises.

- Capital preservation principles:

+ Amount to be preserved: calculated based on the initial working capital and the average price index. The annual average price index of working capital is determined based on the actual end-of-year value increase compared to the beginning of the year of key materials priced by the state in the plan structure (norms) of each unit.

The source for preservation is the difference in inventory valuation prices of materials and goods at the time when the State changes prices. In cases where there is no difference in inventory valuation prices of materials and goods, the Cooperative must preserve from remaining profits after fully paying income tax, and shall not base on the beginning-of-year working capital and the price slip factor to calculate the amount of preserved capital and costs.

Preservation of capital will be considered and handled upon receipt of the annual settlement report.

- The Cooperative must submit a document clearly stating the beginning-of-period working capital, the price slip factor during the year, the amount of inventory price difference, and the required preserved working capital to the direct management agency and the local Tax Office.

The Tax Office manages, inspects, determines, comments, and proposes the amount of preserved capital to the Ministry of Finance.

- Authority to decide;

The Minister of Finance decides each specific case based on the Cooperative's request letter and the local Tax Office's proposal.

5. Other expenses:

Implement according to the guidance of Circular No. 75A TC/TCT dated August 31, 1993, issued by the Ministry of Finance regarding income tax.

III. IMPLEMENTATION:

Local tax authorities are responsible for monitoring, urging, and guiding Cooperatives to comply with current tax policies and the contents of this Circular, regularly compiling reports to the Ministry of Finance (General Department of Taxation) for supervision and direction. This Circular takes effect from the date of issuance. During the implementation process, if there are difficulties or obstacles, the local Tax Offices and Cooperatives are requested to promptly reflect them to the Ministry of Finance for research and supplementary guidance.