Circular No. 48/1998/TT-BTC amends and supplements Circular No. 75A-TC/TCT dated August 31, 1993 of the Ministry of Finance guiding the implementation of Decree No. 57/CP dated August 28, 1993 of the Government detailing the implementation of the Law on Income Tax and the Law Amending and Supplementing Certain Provisions of the Law on Income Tax.

CIRCULAR

CIRCULAR NO. 48/1998/TT-BTC OF THE MINISTRY OF FINANCE ON APRIL 11, 1998 AMENDING AND SUPPLEMENTING CIRCULAR NO. 75A TC/TCT OF AUGUST 31, 1993 OF THE MINISTRY OF FINANCE GUIDING THE IMPLEMENTATION OF DECREE NO. 57/CP OF AUGUST 28, 1993 OF THE GOVERNMENT PROVIDING FOR DETAIL IMPLEMENTATION OF THE LAW ON INCOME TAX AND THE LAW AMENDING AND SUPPLEMENTING CERTAIN PROVISIONS OF THE LAW ON INCOME TAX OF THE MINISTRY OF FINANCE GUIDING THE IMPLEMENTATION OF DECREE NO. 57/CP OF AUGUST 28, 1993 OF THE GOVERNMENT PROVIDING FOR DETAIL IMPLEMENTATION OF THE LAW ON INCOME TAX AND THE LAW AMENDING AND SUPPLEMENTING CERTAIN PROVISIONS OF THE LAW ON INCOME TAX
OF THE LAW ON INCOME TAX OF THE LAW AMENDING AND SUPPLEMENTING CERTAIN PROVISIONS OF THE LAW ON INCOME TAX

- Pursuant to the Law on Income Tax adopted by the National Assembly, Session VIII, on June 30, 1990; the Law Amending and Supplementing Certain Provisions of the Law on Income Tax adopted by the National Assembly, Session IX, on July 6, 1993;

- Pursuant to Decree No. 57/CP of August 28, 1993 of the Government providing for detailed implementation of the Law on Income Tax and the Law Amending and Supplementing Certain Provisions of the Law on Income Tax;

- Pursuant to Decree No. 59/CP of October 3, 1996 of the Government promulgating the financial management and business accounting regulations for state-owned enterprises;

- Pursuant to Decree No. 114/1997/NĐ-CP of December 16, 1997 of the Government amending Decree No. 57/CP of August 28, 1993.

The Ministry of Finance supplements and amends Circular No. 75A TC/TCT of August 31, 1993 as follows:

1. Amend the basis for calculating tax of this Circular as follows:

- Section II.2 - Regarding revenue for calculating taxable income.

Revenue for calculating taxable income is the total amount from sales, processing fees, commissions, service charges (including surcharges and subsidies that the enterprise enjoys if any), and other receipts not yet deducted any cost of the business entity arising during the tax period. For agricultural contracting activities, revenue is the money received through various forms of contracting with employees (including receipt in kind) at agricultural and forestry production enterprises.

Revenue for goods subject to special consumption tax for calculating taxable income includes the sale price including special consumption tax.

Revenue for advance payment over several years for rental activities of real estate and fixed assets is the amount of advance payment over several years.

Section II.3.a - Depreciation expenses of fixed assets

Enterprises must register with the directly managing tax authority the list of fixed assets, their useful life, and depreciation periods for each type of fixed asset to calculate depreciation.

Original value of fixed assets, useful life of fixed assets, and methods of depreciation of fixed assets shall be implemented according to Decision No. 1062 TC/QĐ/CSTC of November 14, 1996 of the Ministry of Finance on the management, use, and depreciation of fixed assets.

- Fixed assets from all sources that have been fully depreciated but are still in use shall not be included in the cost of production and business operations.

- Expenses incurred by enterprises to upgrade fixed assets shall be reflected as an increase in the original value of such fixed assets and shall not be recorded as business expenses in the current period.

- Repair expenses of fixed assets that can be recognized or allocated gradually as reasonable expenses are the actual reasonable repair expenses of fixed assets incurred during the period:

+ Repair expenses of leased-out fixed assets are calculated based on the actual payment made under the contract with the contractor.

+ Repair expenses of self-repaired fixed assets are calculated based on the actual reasonable expenses incurred.

For certain specific industries where repair expenses of fixed assets occur unevenly between periods and years, if enterprises wish to pre-allocate repair expenses of fixed assets into business expenses, they must prepare a plan for pre-allocating repair expenses of fixed assets and submit it to the Ministry of Finance for consideration and decision. The enterprise must inform the directly managing tax authority of the Ministry's written opinion.

Enterprises must settle actual repair expenses with pre-allocated repair expenses. If actual repair expenses exceed pre-allocated expenses, the difference shall be recorded or allocated gradually into business expenses in the current period. If actual repair expenses are less than pre-allocated expenses, the difference shall be recorded as a reduction in business expenses in the current period.

For enterprises in specific industries applying the method of allocating repair expenses of fixed assets to subsequent business periods, they must also prepare a plan for allocating repair expenses of fixed assets and inform the directly managing tax authority.

Section II.3.c - Wages and salaries expenses

Wages and salaries expenses are calculated based on the number of workers of the enterprise and wage grades, salary allowances (if any) according to the current system linked to the results of production and business operations of the enterprise, specifically:

- For state-owned enterprises, based on Decree No. 28/CP of March 28, 1997 of the Government on reforming wage and income management in state-owned enterprises, Circular No. 13/LĐ-TBXH-TT of April 10, 1997 of the Ministry of Labor, Invalids and Social Affairs guiding the implementation of the method of building unit prices for wages and wage management in state-owned enterprises and other implementing documents of this Decree.

- For non-state-owned enterprises, they must register unit prices for wages with the directly managing tax authority as stipulated in Circular No. 20/LB-TT of June 2, 1993 of the Joint Ministry of Labor, Invalids and Social Affairs - Finance guiding the implementation of wage and bonus management in enterprises, specifically must have the following documents:

+ Unit price for wages (according to the form prescribed in Circular No. 20/LB-TT of June 2, 1993 of the Joint Ministry of Labor, Invalids and Social Affairs - Finance) and detailed calculation method explanation.

+ Total number of workers currently employed, including those who have signed labor contracts; Report on the wage fund, bonus fund, and other income with the nature of wages (according to the form prescribed in the Joint Circular No. 20/LB-TT of June 2, 1993).

In case enterprises do not register unit prices for wages, the tax authority may determine wage expenses according to the provisions of Decree No. 26/CP of May 23, 1993 of the Government as the basis for determining taxable income.

- For non-state economic organizations (cooperatives, production groups, private enterprises, individual households, joint-stock companies), wages and salaries of workers are calculated into expenses based on the unit price of wages and product-based salaries and the agreement between the worker and the enterprise.

To ensure fairness and reasonableness, the Provincial Tax Bureau may base on the wage system applied to state-owned enterprises and market conditions to determine wage standards for each industry and profession, which shall be submitted to the Provincial People's Committee for decision during specific periods.

- The determination of deductible wage and salary expenses for taxable income must be based on the registered unit price of wages with the tax authority to exclude factors due to objective reasons. It must also ensure that the ratio of actual wage increase to registered wage does not exceed the ratio of actual profit increase to registered profit when establishing the unit price of wages.

- Individual business households enjoy all income from business operations after deducting reasonable and legitimate expenses and paying taxes as prescribed (including income tax). Therefore, wages and salaries for individual business households cannot be considered as deductible expenses when determining taxable income.

2. Supplement the provisions on costs in the basis for calculating tax as follows:

Section II.3.d:

- Provisions for reserve funds

For state-owned enterprises, according to Circular No. 64 TC/TCDN dated September 15, 1997 of the Ministry of Finance on guidelines for the establishment and use of reserves for inventory depreciation, doubtful debts, and securities valuation at SOEs, they can allocate reserve fund expenses. For non-state economic organizations, they cannot pre-allocate reserve fund expenses, but can record uncollectible debt expenses in the following cases:

+ For corporate debtors:

. Court decisions on bankruptcy proceedings of enterprises under the Bankruptcy Law.

. Decisions of competent authorities regarding the dissolution of enterprises as stipulated in Government Decree No. 50/CP dated June 28, 1996 on the establishment, restructuring, dissolution, and bankruptcy of SOEs and Circular No. 25 TC/TCDN dated May 19, 1997 of the Ministry of Finance guiding the above decree.

. Other decisions of competent authorities as provided by law.

+ For individual debtors:

. The debtor still exists but there is sufficient evidence proving the absence of personal assets to repay the debt.

. Warrants for arrest or confirmation by law enforcement agencies for debtors who have fled or are serving sentences.

. The debtor has died and is unable to repay the debt, confirmed by local authorities.

- Educational, training, scientific research, and healthcare expenses according to prescribed regulations.

3. Amend the provisions on tax rates in the basis for calculating tax as follows:

Section II.6.a - Corporate Income Tax Rate:

The stable corporate income tax rate prescribed in Clause 3, Article 1 of Government Decree No. 114/1997/NĐ-CP dated December 16, 1997 amending Government Decree No. 57/CP dated August 28, 1993 detailing the implementation of the Corporate Income Tax Law and amendments to certain articles of the Corporate Income Tax Law, shall be applied as follows:

Taxpayers subject to a stable corporate income tax rate on annual taxable income for each group of industries and professions include business establishments that can determine their taxable income (excluding small traders and itinerant traders). Specifically:

- A tax rate of 25% applies to the following industries:

+ Electricity production;

+ Mining, minerals, forestry, fisheries, water extraction for production and daily use;

+ Metallurgy;

+ Machinery manufacturing: machinery, equipment, transportation means, and transmission devices;

+ Basic chemical production, fertilizer production, pesticide production;

+ Building materials production;

+ Construction including survey design, construction supervision services;

+ Infrastructure construction for lease in industrial zones, export processing zones, and high-tech parks;

+ Water conservancy;

+ Transportation including cargo handling at ports, waste collection transport;

+ Newspaper publishing: Advertising activities on newspapers must be accounted for separately to pay corporate income tax at 45% on advertising revenue. If newspaper publishing activities incur losses, the taxable income from advertising activities on newspapers can offset the losses, and corporate income tax at 45% will be paid on the remaining taxable income:

+ Education and vocational training;

+ Agricultural products produced and directly processed by central farms, forest farms, stations, and camps such as sugarcane processing into sugar, cotton processing into cotton seeds, coffee peeling and roasting into powder, latex processing from latex into various types of dried latex;

+ Bond and treasury bill interest;

- A tax rate of 35% applies to consumer goods manufacturing, food processing, grain processing, and other production industries;

- A tax rate of 45% applies to trade, catering, and various service industries;

Repair activities involving industrial work such as repairing transportation means, machinery, and equipment should be classified according to the nature of the activity into corresponding industrial sectors.

Example: Repair of ships and automobiles falls under the 25% tax rate for transportation means production.

Repair activities serving consumption needs such as household electrical repairs, electronic appliance repairs, bicycle and motorcycle repairs apply the 45% service tax rate.

Other income is taxed at the tax rate applicable to the main business activity. In cases where the main business activity applies multiple tax rates, other income is taxed at the rate of the industry with the highest proportion of taxable income.

Business establishments operating in multiple industries with different tax rates must separately account for the taxable income of each industry and apply the corporate income tax rate according to each industry. If a business establishment cannot separately account for the taxable income of each industry, the highest tax rate of the industry with the highest proportion of business activities shall be applied to the total taxable income of the establishment.

Section II.6.b - Supplementary Income Tax Rate:

According to Clause 4 of Article 1 of Decree No. 114/1997/NĐ-CP dated December 16, 1997 of the Government, which is based on Article 6 of Decree No. 57/CP dated August 28, 1993 of the Government, business entities, in addition to paying income tax at a fixed rate as mentioned above, must also pay supplementary income tax if their taxable income exceeds the specified level, as follows:

- State-owned enterprises with high taxable income must pay supplementary income tax. The supplementary income tax is calculated on the remaining profit after paying income tax at the fixed rate for the industry and setting aside three funds of the enterprise (development incentive fund, welfare fund, reward fund).

+ The supplementary income tax rates are applied as follows:

* A rate of 30% for industries such as resource extraction, production, construction, and transportation.

* A rate of 40% for trade, catering, and various service sectors.

+ Business entities apply a single supplementary income tax rate. In cases where a business entity operates multiple industries, the supplementary income tax rate is determined based on the industry with the highest taxable income.

+ Basis for determining supplementary income tax:

 

 

* The levels of the three enterprise funds that serve as the basis for determining additional taxable income for supplementary income tax are defined as follows:

The development incentive fund is calculated at 50% of the remaining taxable income after deducting the income tax paid at the fixed rate.

The welfare fund and reward fund: calculated at three months' actual salary of the enterprise based on the wage system stipulated by the Government in Decree No. 28/CP dated March 28, 1997 on reforming wage management and income in state-owned enterprises and related guiding documents. In cases where business entities set up special-purpose funds such as capital reserve fund, financial reserve fund..., the source of these funds is from the remaining profit after paying income tax and supplementary income tax.

+ Dividend distribution from remaining profit after paying income tax at the fixed rate and supplementary income tax rate.

Example: Enterprise X has taxable income as follows:

+ Income tax at the fixed rate: 1,219.5 million

+ Enterprise funds

864 million x 3

(2,750 million - 1,219.5 million - 981.2 million) x 40% = 219.7 million

+ Total income tax payable:

1,219.5 million + 219.7 million = 1,439.2 million

- Economic organizations outside the state sector such as joint-stock companies, limited liability companies, collective economic organizations that mobilize capital contributions from individuals, business organizations, representatives of organizational or collective capital, and state-owned enterprises, if the average monthly taxable income per capita contribution exceeds 10 million VND, supplementary income tax shall be paid as follows:

Supplementary income tax is determined based on additional taxable income and tax rate. Additional taxable income is the remaining income after paying income tax at the fixed rate minus an investment fund equal to 50% of the remaining income after paying income tax. The supplementary income tax rate is 25%.

Example: Joint Stock Commercial Bank A has 15 shareholders, including 10 private shareholders and 5 shareholders representing organizations or state-owned enterprises, with taxable income of 2,000 million VND in 1997, the calculation of income tax and supplementary income tax is as follows:

1. Income tax at the fixed rate:

2,000 million VND x 45% = 900 million VND

2. Supplementary income tax:

The average monthly taxable income per capita contribution is over 11 million VND (2,000 million VND / 15 shareholders x 12 months). Therefore, supplementary income tax must be paid as follows:

+ Remaining income after paying income tax:

2,000 million VND - 900 million VND = 1,100 million VND

+ Investment fund deductible when calculating supplementary income tax:

1,100 million VND x 50% = 550 million VND

+ Supplementary income tax:

(1,100 million - 550 million) x 25% = 137.5 million VND

+ Total tax payable:

900 million VND + 137.5 million VND = 1,037.5 million VND

The method of determining the amount of income tax payable as described above only applies to calculating supplementary income tax for non-state economic organizations.

- Private companies, individual households engaged in business activities, if the average monthly taxable income exceeds 10 million VND, the portion of taxable income exceeding 10 million VND must be subject to supplementary income tax at a rate of 25%.

4. Add to the end of Point 4 of Section IV on declaration, payment, and collection of taxes in the Circular as follows:

- Declaration and payment of income tax for independent accounting units: Independent accounting units with branches and dependent units that have already paid income tax at the branch or dependent unit level, when finalizing tax payments, consolidate the results into the overall business performance of the independent accounting unit. If a branch or dependent unit incurs losses due to external factors, the losses can be offset against the income of the main office, and any remaining losses can be carried forward to the next year as stipulated by the Income Tax Law.

- Enterprises engaged in self-construction projects for repair, construction within the unit, including planting and caring for long-term orchards, during the construction period, each year may set aside a certain amount or percentage of the construction cost value as a profit to establish a reward and welfare fund. This income is considered profit and must be taxed before being distributed to employees.

- For enterprises engaged in asset leasing activities such as renting houses, offices, or infrastructure with advance rental payments spanning multiple years, the enterprise must account separately, and the taxable income of the enterprise is determined as follows:

Taxable income from advance rental receipts

The costs related to the formation of taxable revenue shall be determined as follows:

* Construction costs for infrastructure or construction costs for houses and offices for businesses leasing housing, offices, or operating infrastructure:

+ For the operation of infrastructure business or leasing housing and office business, these are the construction costs for infrastructure or construction costs for housing and offices directly related to the leased area paid in one lump sum. In cases where rental payments are made in advance with lease terms shorter than the minimum usage period within the asset life frame set out in Appendix 1 issued together with Decision No. 1062 TC/QĐ/CSTC dated November 14, 1996 of the Minister of Finance, the construction costs shall be allocated over the actual lease term. Businesses may register the useful life of fixed assets in accordance with the provisions of Decision No. 1062 TC/QĐ/CSTC dated November 14, 1996.

Example:

Business A has the function of leasing offices, in 1996 it rented 1,000 square meters of office space to Business B for 10 years at a rent of 1,000,000 USD, to Business C for 1,000 square meters for 30 years at a rent of 3,000,000 USD, and to Business D for 1,000 square meters for 30 years at a rent of 3,000,000 USD. Assuming the construction cost for each square meter of leased office space is 1,250 USD, the minimum usage period for solid buildings according to the regulations of Appendix 1 issued together with Decision No. 1062 TC/QĐ/CSTC is 25 years, the allocation of construction costs for these cases is determined as follows (assuming Business A registers the depreciation period for buildings as 25 years):

+ For the revenue from renting office space to Business B, the construction cost allocated to determine the taxable income in 1996 is:

+ For the revenue from renting office space to Business C and Business D, the construction cost allocated to determine the taxable income is:

Construction Cost = (1,250 USD/square meter x 1,000 square meters) x 2 = 2,500,000 USD

In the tax year, if there are project items whose actual construction costs cannot be determined, the costs of these items will be temporarily estimated based on the budgeted costs according to economic and technical explanations and allocated to the leased area paid in one lump sum. When the final settlement of the project is completed, the actual construction costs will be recalculated, and any differences between the actual construction costs and the budgeted costs will be adjusted to the financial results of the following fiscal year after the completion of the project.

* Other costs incurred in the year allocated to the portion of revenue received in advance, specifically:

- In cases where infrastructure businesses, housing, and office leasing businesses are enjoying tax incentives during the period, the taxable income from revenue received in advance shall be determined as follows:

 Where:

Two years of reduced tax are equivalent to one year of tax exemption.

This Circular takes effect fifteen days after the date of signature and applies to the settlement of corporate income tax from 1997 onwards. All previous regulations that conflict with this Circular are hereby abolished.