Circular No. 53/2003/TT-BTC guiding the tax regime for Law Offices and Partnership Law Firms

 CIRCULAR

Guidelines on the application of tax regimes for Law Offices,
Limited Liability Law Firms
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Pursuant to the Lawyer Ordinance No. 37/2001/PL-UBTVQH10 adopted by the Standing Committee of the National Assembly on July 25, 2001;

Pursuant to Decree No. 94/2001/NĐ-CP dated December 12, 2001 of the Government detailing the implementation of the Lawyer Ordinance;

Pursuant to Decree No. 86/2002/NĐ-CP dated November 5, 2002 of the Government stipulating the functions, tasks, powers, and organizational structure of ministries and ministerial-level agencies;

Pursuant to Decree No. 178/CP dated October 28, 1994 of the Government stipulating tasks, powers, and organizational structure of the Ministry of Finance;

The Ministry of Finance hereby provides guidelines on the tax regime applicable to Law Offices, Limited Liability Law Firms, and individual lawyers as follows:

A/ APPLICANTS:

The applicants for this Circular are Law Offices and Limited Liability Law Firms established and operating under the Lawyer Ordinance dated July 25, 2001 and related guiding documents.

B/ TAXES AND PAYMENTS TO THE STATE BUDGET:

I/ VALUE ADDED TAX (VAT):

Legal advisory services, legal services, and participation in litigation are subject to VAT at a rate of 10%. Law Offices and Limited Liability Law Firms shall pay VAT using the deduction method.

The basis for calculating VAT is the taxable value and the tax rate.

Determining the amount of VAT payable:

Revenue from legal advisory services, legal services, and participation in litigation (excluding VAT) includes all service supply fees (excluding VAT), including additional surcharges and extra fees outside the service price that Law Offices and Limited Liability Law Firms receive.

(2) Input VAT equals the total VAT recorded on purchase invoices for goods and services (including fixed assets) used for legal advisory services, legal services, and participation in litigation.

Declaration, payment, settlement, and refund of VAT shall be carried out in accordance with the provisions of the Law on VAT and related guiding documents.

II/ ENTERPRISE INCOME TAX:

Law Offices and Limited Liability Law Firms with taxable income must pay enterprise income tax in accordance with the provisions of the Law on Enterprise Income Tax. The calculation method, declaration, payment, and settlement of enterprise income tax shall be carried out in accordance with the provisions of the Law on Enterprise Income Tax and related guiding documents.

Some specific guidelines are as follows:

*. The basis for calculating enterprise income tax is taxable income and the tax rate.

1. Taxable income:

Taxable income (calculated annually or according to the fiscal year) includes taxable income from domestic service activities, foreign service activities, and other taxable income.

Taxable income is determined as follows:

(a) Revenue for calculating taxable income:

Revenue for calculating taxable income is the total service supply fees received by Law Offices and Limited Liability Law Firms.

The time of determining revenue for calculating taxable income is when the service has been provided, regardless of whether payment has been received or not.

Services provided must meet one of the following two conditions:

+ When the service is completed.

+ When there is a VAT invoice.

(b) Reasonable expenses deductible for calculating taxable income:

Reasonable expenses related to taxable income during the tax period, which can be deducted for calculating taxable income, include expense items as prescribed by the Law on Enterprise Income Tax and related guiding documents.

Law Offices and Limited Liability Law Firms cannot include non-revenue-related and non-taxable income-related expenses in reasonable expenses.

(c) Other taxable income:

- Income from trading goods and services other than legal services in Vietnam.

- Differences from buying and selling securities.

- Income from ownership and use rights of assets.

- Income from asset transfer and liquidation.

- Interest from deposits and lending.

- Differences from selling foreign currency.

- End-of-year surplus from pre-deducted amounts not spent, bad debt reserves, and securities depreciation reserves.

- Collection of previously written-off difficult-to-collect receivables.

- Receipts from economic contract breach penalties after deducting penalties paid.

- Receipts from unidentifiable creditors' debts.

- Income from undetected service business operations in previous years.

- Income from foreign service business operations.

2. Enterprise Income Tax Rate:

The enterprise income tax rate is implemented in accordance with the provisions of the Law on Enterprise Income Tax and related guiding documents.

III/ INCOME TAX FOR HIGH-INCOME INDIVIDUALS:

Individuals working for Law Offices or Limited Liability Law Firms who have high income must pay income tax in accordance with the Ordinance on Income Tax for High-Income Individuals.

IV/ BUSINESS LICENSE TAX:

Law Offices and Limited Liability Law Firms shall pay the business license tax in accordance with Decree No. 75/2002/NĐ-CP dated August 30, 2002 of the Government and related guiding documents. Law Offices and Limited Liability Law Firms shall pay the business license tax based on the registered capital recorded in their business registration certificates in accordance with regulations for economic organizations.

V/ OTHER PAYMENTS TO THE STATE BUDGET: Law Offices and Limited Liability Law Firms shall pay land use fees, land rental fees, taxes, and other payments in accordance with current regulations.

C/ TAX EXEMPTIONS AND REDUCTIONS:

The law firm's office, the partnership law company, if it operates in fields eligible for investment incentives under Decree No. 35/2002/NĐ-CP dated March 29, 2002 of the Government and meets other conditions for exemption or reduction of corporate income tax, land use fees, and land rental fees (if applicable) as stipulated in Decree No. 51/1999/NĐ-CP dated July 8, 1999 of the Government and the guiding circulars issued by the Ministry of Finance. To enjoy tax incentives, the law firm's office, the partnership law company must register with the tax authority managing them regarding the conditions for enjoying tax incentives and the level of tax incentives. Annually, the law firm's office, the partnership law company must determine the amount of tax exempted or reduced, the amount of tax paid, the amount of tax still due, and the excess tax paid during tax settlement and submit these to the directly managing tax authority, and bear legal responsibility for the accuracy of the declared figures.

D. TAX REGISTRATION PROCEDURES:

Within no more than ten days from the date of issuance of the Business Registration Certificate, the law firm's office, the partnership law company must register for tax payment with the local tax authority where its headquarters is located and be assigned a taxpayer identification number according to regulations. In cases where the law firm's office, the partnership law company has been operating but has not yet received the Business Registration Certificate, they must still pay taxes according to the guidelines set out in this Circular.

This Circular takes effect fifteen days after its publication in the Official Gazette. During implementation, if there are any difficulties, it is recommended that agencies, organizations, and individuals promptly report them to the Ministry of Finance for further guidance and supplementary instructions.