| Respected submission : - Provincial Tax Departments - Vietnam Maritime Agents Association - Shipping Agents
In recent times, the Ministry of Finance - General Department of Taxation has issued several circulars guiding on tax exemption and reduction for freight charges. Many agents have established applications for tax exemption and reduction for freight charges in accordance with these circulars. On September 24, 2003, the Ministry of Finance received Circular No. 274/CV-Visaba from the Vietnam Maritime Agents and Brokers Association proposing some difficulties related to procedures for tax exemption and reduction for freight charges under the Double Taxation Avoidance Agreement. To resolve the difficulties faced by shipping agents and foreign shipping companies regarding the procedures for applying for tax exemption and reduction for freight charges under the Double Taxation Avoidance Agreement in recent times, the Ministry of Finance provides the following guidelines: according to The Double Taxation Agreement (Tax Agreement). Many agents have submitted applications for tax exemption on freight charges in accordance with the instructions provided in these circulars. On September 24, 2003, the Ministry of Finance received Circular No. 274/CV-Visaba from the Vietnam Maritime Agents and Brokers Association, raising some issues related to procedures for tax exemption on freight charges under the Tax Agreement. To resolve the long-standing issues faced by maritime agents and foreign shipping companies regarding the procedures for applying for tax exemptions on freight charges according to under the Tax Agreement, the Ministry of Finance provides the following guidance: Regulations on freight tax and scope of tax exemption and reduction under the Double Taxation Avoidance Agreement: 1. Regulations on freight tax: Based on Circular No. 16/1999/TT-BTC dated February 4, 1999 of the Ministry of Finance guiding the implementation of freight tax on the business activities of foreign shipping companies operating sea transportation in Vietnam, it is stipulated that: The Ministry of Finance guides the implementation of freight taxes applicable to foreign shipping companies operating sea transportation services in Vietnam as follows: 1.1. The taxpayers of freight tax are organizations and individuals from foreign countries engaged in sea transportation of goods by ship from Vietnamese ports to overseas ports, or between Vietnamese ports. Circular No. 16/1999/TT-BTC dated February 4, 1999 of the Ministry of Finance does not apply to organizations and individuals engaged in sea transportation established and operating according to Vietnamese laws. 1.2. The freight charges serving as the basis for calculating freight tax include all freight charges collected from the transportation of goods from Vietnamese loading ports to the final unloading port (including freight charges for goods transshipped at intermediate ports) and/or freight charges collected from the transportation of goods between Vietnamese ports. 1.3. The tax rate for freight tax is 3%, with the scope of tax exemption and reduction stipulated in the Double Taxation Avoidance Agreement being 1%. according to The rate specified in the Tax Agreement is 1%. 2. Scope of tax exemption and reduction for freight charges under the Double Taxation Avoidance Agreement: Based on each Double Taxation Avoidance Agreement signed and effective, the scope of tax exemption and reduction for freight charges under the Double Taxation Avoidance Agreement is 1% or 0% corporate income tax within the 3% freight tax.,53% of the freight tax includes 2% corporate income tax.
II. General regulations on procedures for tax exemption applications for freight charges under the Double Taxation Avoidance Agreement: Current regulations on procedures for tax exemption applications for freight charges under the Double Taxation Avoidance Agreement are currently guided by Circulars of the Ministry of Finance No. 95/1997/TT-BTC dated December 29, 1997, Circular No. 37/2000/TT-BTC dated May 5, 2000, and Circular No. 52 TC/TCT dated August 16, 1997. These have been further detailed in Circular No. 713 TC/TCT dated January 22, 2002 of the Ministry of Finance, Circular No. 4870 TCT/HTQT, and Circular No. 1635 TCT/HTQT of the General Department of Taxation regarding the resolution of difficulties in tax exemption and reduction for freight charges under the Double Taxation Avoidance Agreement. These are necessary procedures for tax authorities to have grounds to consider tax exemptions in accordance with each Double Taxation Avoidance Agreement between Vietnam and other countries, specifically: - Application for tax exemption containing full information about the shipping company, the terms of application of the Double Taxation Avoidance Agreement, and the applicant's declaration of accurate reporting; - Power of attorney from the foreign shipping company to the Vietnamese shipping agent or a legally authorized representative to submit the tax exemption application; - Certificate of tax residency to accurately determine which Double Taxation Avoidance Agreement Vietnam has signed with which country to apply appropriately; - Business registration certificate or tax registration certificate to accurately determine the scope and relevant terms of the Agreement; - Vessel operation documents and consolidated revenue statements within the scope of tax exemption for each vessel to accurately identify the direct operator (transportation with means of transport) and the amount of tax exempted in accordance with the provisions of Article 8 - International Transportation, Double Taxation Avoidance Agreement.
III. Guidelines for handling pending tax exemption applications under the Double Taxation Avoidance Agreement from 1999-2001: 1. Simplification of procedures for tax exemption applications for freight charges under the Double Taxation Avoidance Agreement: - Shipping agents (shipping companies) are permitted to use confirmation letters from port authorities regarding ships of the shipping company entering Vietnamese ports (including contents such as agent name, ship name, shipping company operating the ship, date of entry/exit from the port) instead of presenting the required vessel operation documents as per current regulations. Therefore, shipping agents (shipping companies) may choose to provide one of the following ship agency documents: certified copy or copy with certification of the shipping agent (shipping company) of the ship registration certificate; certified copy or copy with certification of the shipping agent (shipping company) of the ship charter contract; original or copy with certification of the port authority of the ship route exploitation permit; original or copy with certification of the port authority of the ship port entry permit; original confirmation letter from the port authority regarding ships of the shipping company entering Vietnamese ports. - Certificate of tax residency (legalized consular): accept certificates of tax residency without specifying the year but must be issued during or after the period of 1999-2001. This provision only applies to applications for the Double Taxation Avoidance Agreement during the period of 1999-2001. For applications from 2002 onwards, the current regulations apply (i.e., the certificate of tax residency must specify the year of residence in the issuing country). - To facilitate shipping companies with main/primary agents/offices and secondary/sub-offices in various locations in Vietnam, shipping agents/shipping companies submit the original certificate of tax residency and business registration certificate legalized by consular certification to the Tax Department where the main/primary agent/office of the shipping company is located, and copies (with certification stamp of the main/primary agent or certified copies) to the Tax Departments where secondary/sub-offices of the shipping company are located, clearly stating the location where the originals were submitted in the application for the Double Taxation Avoidance Agreement. 2. Handling of outstanding freight tax from the period 1999-2001 Due to the difficulties faced by some agents in retaining sufficient documents as stipulated in the above procedures and failing to clearly account for agency fees and expenses for foreign shipping companies, the handling of outstanding cases will be based on reviewing the actual applications for tax exemption submitted by the agents (shipping companies) as follows: 2.1. For shipping companies that have terminated agency contracts with Vietnamese enterprises acting as marine agency before 2002 and non-routed shipping companies: On the basis of the actual difficulties that agencies face in contacting shipping companies to complete the application for tax exemption and reduction under the Agreement, the Ministry of Finance will not pursue collection of outstanding freight taxes owed by shipping companies during the period from 1999 to 2001. However, the agencies are responsible for submitting the following documents to the Tax Office directly managing them to explain the reasons and provide the Tax Office with the following materials: - Certificate of tax residency, business registration certificate or tax registration certificate (if available); - Notarized copies of the agency contract and the termination agreement; - Name and address of the new Vietnamese enterprise acting as the agency (if applicable); - Detailed information about the foreign shipping company (name, address, tax number); and - Summary table of outstanding freight taxes and container storage fees. The Tax Office will consider the actual situation to resolve the debt reduction of freight taxes (after comparing the data on the summary table submitted by the agency with the data managed by the Tax Office). At the same time, the Tax Office will compile information on foreign shipping companies and the actual tax exemptions reported to the General Department of Taxation to implement the exchange of information with foreign tax authorities. 2.2. For routed shipping companies operating in Vietnam through Vietnamese enterprises acting as marine agencies: Based on Circular No. 713 TC/TCT dated January 22, 2002 of the Ministry of Finance guiding the procedures and formalities for exempting and reducing 1% of freight tax for marine agencies and shipping companies applicable to the settlement of freight tax for the year 2001, the General Department of Taxation will not pursue collection of outstanding freight taxes for the years 1999 and 2000. The Tax Offices will examine applications for exemption of freight tax for the year 2001 from agencies (shipping companies) based on having all required documents. Based on the list of outstanding freight taxes for each ship in 2001, the Tax Office will process according to the following: - For ships with voyage control documents: The Tax Office will exempt the entire outstanding freight tax for those ships in 2001. - For ships without voyage control documents: The Tax Office will pursue collection of the entire outstanding freight tax for those ships in 2001. The collected freight tax will be evenly divided over six months, with the first collection period starting in July 2004. In the future, if agencies (shipping companies) can supplement voyage control documents, they will be refunded the tax or offset against subsequent tax payments. Example: Enterprise A acts as an agent for shipping company B from a country that has signed an Agreement with Vietnam, which has ten international transport vessels generating freight charges in Vietnam during the period 1999-2001 and A presents three voyage control documents. The Tax Office will exempt the entire outstanding tax of the ten ships during the period 1999-2000. Based on reviewing sufficient application documents and the list of outstanding freight taxes for 2001, the Tax Office will exempt the entire outstanding freight tax of the three ships with voyage control documents and pursue collection of the outstanding freight tax of the seven ships without voyage control documents. The collected freight tax will be evenly divided over six months, with the first collection period starting in July 2004. If by September 2004, A supplements two voyage control documents, the Tax Office will offset the collected tax of these two ships against subsequent tax payments of A. In cases where shipping companies are tax residents in Singapore, Norway, the United Kingdom, Denmark, Ukraine, India, Canada, and Taiwan (where the effective tax agreements include Article 8 providing for exemption of container storage fees), income from container storage fees of these shipping companies will also be considered for tax exemption and reduction applications under the Agreement based on the principle that containers accompanying the ships being considered for freight tax exemption and reduction are listed according to the inventory prepared based on Circular No. 4870 TCT/HTQT dated December 25, 2002 and Circular No. 1635 TCT/HTQT dated May 13, 2003 of the General Department of Taxation. 3. Guidelines for determining taxable revenue for freight tax and collecting other income outside of freight charges: Taxable revenue for freight tax includes freight charges and other additional charges included in the freight rate that the charterer must pay – similar to the concept of "freight charges" recorded on the bills of lading of shipping companies (which includes basic freight and fluctuating fuel surcharges, war risk surcharges). Based on this, the Tax Office will review and re-determine the revenue declared by agencies for freight tax payment. In cases where the taxable revenue declared by the agency is basic freight (excluding additional charges) indicating that some costs have been separated from the freight to reduce the amount of freight tax payable, it is recommended that the Tax Office pursue collection of the entire underpaid freight tax and impose administrative penalties on these agencies immediately after issuing the Decision to exempt 1% of freight tax under the Agreement. In cases where shipping companies generate other income outside of freight charges such as container storage fees (for agreements that do not provide for exemption of container storage fees), income from selling containers, document fees, etc., it is recommended that the Tax Office pursue collection according to the provisions of Circular No. 169/1998/TT-BTC dated December 22, 1998 of the Ministry of Finance (5% corporate income tax) evenly divided over six months immediately after issuing the Decision to exempt 1% of freight tax under the Agreement. IV. Settlement of corporate income tax for international maritime transportation activities according to the tax agreement from 2002 onwards: 1. Agencies (shipping companies) are responsible for settling freight tax from 2002 onwards with the Tax Office in accordance with the provisions detailed in Circular No. 713 TC/TCT dated January 22, 2002 (further detailed in Circular No. 4870TCT/HTQT dated December 25, 2002 and Circular No. 1635 TCT/HTQT dated May 13, 2003) and simplified procedures at point III.1 of this circular. 2. Determination of taxable revenue for freight tax and collection of other income outside of freight charges will be carried out according to the guidelines provided in section III.3 of this circular. The Ministry of Finance hereby informs the Tax Office, Associations, and marine agencies to implement accordingly./. 1. Agents (shipping companies) are responsible for settling freight taxes from 2002 onwards with the Tax Department in accordance with the provisions detailed in Circular No. 713 TC/TCT dated January 22, 2002 (further elaborated in Circular No. 4870TCT/HTQT dated December 25, 2002 and Circular No. 1635 TCT/HTQT dated May 13, 2003), and the simplified procedures outlined in Point III.1 of this circular. 2. The determination of revenue subject to freight tax and the collection of other income outside of freight charges shall be carried out in accordance with the guidelines set forth in Section III.3 of this circular. The Ministry of Finance hereby informs the Tax Department, the Association, and maritime agents to implement accordingly./. | 