Joint Circular No. 55-TTLT guiding tax exemptions for scientific and technological activities pursuant to Decree No. 35-HÐBT.

CIRCULAR

||| NO. 55-TTLB OF OCTOBER 12, 1992 ISSUED BY THE JOINT MINISTRY OF FINANCE AND NATIONAL SCIENCE COUNCIL GUIDING ON TAXES FOR SCIENTIFIC AND TECHNOLOGICAL ACTIVITIES IN ACCORDANCE WITH DECREE NO. 35-HĐBT

Article 12 of Decree No. 35-HĐBT dated January 28, 1992 of the Council of Ministers on scientific and technological management stipulates: "Research contracts and trial production contracts shall not be subject to tax. Scientific and technological service contracts shall not be subject to income tax but shall be subject to business revenue tax."

Joint Ministry of Finance - National Science Council guides the implementation of this provision as follows:

 I- SCOPE OF APPLICATION AND OBJECTS

||| 1\. All state agencies, armed forces units, economic organizations, social organizations, and all citizens conducting scientific research and scientific and technological services are within the scope regulated by this Circular.

Joint ventures and foreign parties cooperating in business based on contracts operating under the Law on Foreign Investment in Vietnam are not within the scope regulated by this Circular.

2\. Scientific research refers to activities whose essence is to create new information, and the results are expressed in formulas, drawings, scientific reports, design plans, prototypes... including:

a\. Research topics, designs, and trials for new varieties, products, techniques, and technologies;

b\. Basic surveys of natural resources and environmental conditions;

c\. Basic surveys of socio-economic conditions and newly emerging scientific and technological matters in the country;

e\. Research projects on organizational management;

g\. Social science research projects

3\. Scientific and technological services include:

a\. High-tech services such as assembly trials, operational trials, restoration, repair, calibration of machinery, equipment, experimental instruments, measuring devices, scientific and technical equipment that previously required hiring foreign experts;

b\. Data processing and calculation;

c\. Preparation of economic-technical justifications, market research projects, feasibility studies, and preliminary feasibility studies;

d\. Testing and quality control of materials and products;

đ\. Guidance and organization of technology transfer and application of new techniques in production;

g\. Scientific information services without direct commercial purposes.

4\. Trial production refers to activities with a testing nature aimed at perfecting new technological processes or the technical features of new products based on scientific research results or the adoption of new technologies to prepare for mass production.

II\. CONDITIONS FOR APPLICATION

||| 1\. a\. Organizations and individuals conducting scientific research must have establishment decisions from the Council of Ministers, central mass organizations, provincial people's committees, and register their activities with the National Science Council or provincial science management agencies.

Scientific and technological organizations established by collectives or individuals must have registration certificates for scientific research activities issued by provincial science management agencies as provided for in Article 15 of Decree No. 35-HĐBT.

b\. Production and business establishments must have establishment decisions, licenses, or business registration certificates issued by competent authorities according to current regulations.

2\. Scientific research activities are exempt from taxes, and scientific and technological service contracts of organizations and individuals mentioned above are not subject to income tax if they meet the following conditions:

- Research contracts and scientific service contracts based on government orders, and contracts implementing international organization development projects must have complete files in accordance with current regulations on managing national scientific programs, topics, and projects;

- Research contracts and scientific and technological service contracts based on government agreements must have specific evidence to prove;

In cases where contracts are directly signed between domestic organizations or individuals and foreign entities or between domestic organizations or individuals, they must be confirmed by state management agencies on science, specifically:

+ Contracts valued at 100 million dong or more must be confirmed by the National Science Council;

+ Contracts valued below 100 million dong must be confirmed by provincial or municipal science management agencies.

All research and scientific and technological service contracts, if they involve multiple types of activities constituting the contract value, must separate revenues not related to research or scientific and technological services to calculate taxes according to regulations.

Example: Party B accepts a contract from Party A to develop a new production line, where Party A entrusts Party B with purchasing necessary machinery and equipment.

In this case, the contract must clearly distinguish:

- The amount to be paid for research work (exempt from tax);

- The amount to be paid for purchasing and reselling machinery and equipment (subject to tax according to regulations applicable to commerce).

If Party B only assists Party A in finding suppliers of machinery and equipment, with Party A paying directly to the supplier without going through Party B, then Party B will pay tax according to service regulations based on any commission received (if any).

3\. Trial production is exempt from tax if it meets one of the following conditions:

a\. The product is new to the facility, with economic-technical justifications approved by the relevant industry or management level;

b\. The product falls within the scope of a research contract meeting the conditions specified above. If the trial production is assigned to another facility, in addition to the research contract, there must be a valid economic contract specifically detailing the terms of the trial production between both parties.

The period for not collecting tax on trial production products is six (6) months for general products. In special cases such as trial products made according to specific orders from the State, products requiring extended research and improvement periods, and other exceptional cases with unique characteristics, the Ministry of Finance will directly examine and decide on the non-taxation period following a formal written proposal from the State Science Council. If the trial production product is only a component part of a complete product, then non-taxation shall apply only to the detailed product that meets the conditions recognized as trial production. For example, if a manufacturer of complete motor vehicles has an engine that is a trial production product (meeting specified conditions), non-taxation shall apply only to the engine portion of the complete vehicle sold.

III- IMPLEMENTATION

1\. All organizations and individuals conducting scientific and technological activities subject to taxation or exemption under Decree No. 35-HĐBT dated January 28, 1992, of the Council of Ministers, and the guidelines in this Circular must comply with tax declaration, registration, and strict accounting record-keeping in accordance with the provisions of the Revenue Tax Law, Corporate Income Tax Law, and current guiding documents.

2\. Cases exempted from tax according to the guidelines in this Circular must be reviewed and decided upon in writing by the tax authority, specifically:

- The head of the directly managing tax authority (Tax Bureau or Tax Branch) shall review and compare against the conditions stipulated in Part II (1 and 2) to decide on non-taxation for scientific research contracts and science and technology service contracts.

- The Director of the Provincial Tax Bureau shall consider and decide on non-taxation for trial production cases based on the conditions stipulated in Part II (3).

Within fifteen (15) days from receiving the application, the tax authority must issue a written response clearly stating the result of the examination and resolution.

Cases exceeding the prescribed scope or involving disputes must be reported for the Ministry of Finance to examine and decide specifically after receiving a written opinion from the State Science Council.

3\. In addition to the direct responsibility of specialized staff and the directly managing department, provincial tax bureaus must assign staff to monitor management, regularly conduct inspections and oversight of organizations and individuals subject to Decree No. 35-HĐBT of the Council of Ministers and this Circular, promptly detect and prevent any abuse to evade taxes, and violations of state policies and regulations.

This Circular takes effect from February 1, 1992, and replaces previous guidelines issued by the Ministry of Finance and the State Science Council regarding this matter.

During implementation, if difficulties or obstacles arise, they should be promptly reported for the Joint Ministries to study and resolve.