Circular No. 74/2006/TT-BTC guiding the exemption of tax on fishing activities and salt production without processing, and reduction of income tax for businesses employing ethnic minority workers from 2006 to 2010.

CIRCULAR

Guidelines for implementing tax exemptions on marine fishing activities, salt production without processing, and reduction of income tax for businesses employing ethnic minority labor from 2006 to 2010

production of unprocessed salt and reduction of tax for

business establishments employing labor from ethnic minority groups

from 2006 to the end of 2010

Pursuant to Resolution No. 47/2005/QH11 dated November 1, 2005 of the National Assembly, tenth session, eighth meeting, regarding the state budget for 2006;

Pursuant to Resolution No. 01/2006/NQ-CP dated January 16, 2006 of the Government on major measures to guide the implementation of the socio-economic plan and state budget for 2006;

Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

In accordance with the directive of the Prime Minister in Official Letter No. 3321/VPCP-KTTH dated June 22, 2006 of the Government Office,

The Ministry of Finance guides the exemption of business registration tax, resource tax, and corporate income tax for marine fishing activities and salt production without processing, and the reduction of corporate income tax for businesses employing ethnic minority labor from 2006 to 2010 as follows:

I- EXEMPTION OF BUSINESS REGISTRATION TAX, RESOURCE TAX, AND CORPORATE INCOME TAX FOR MARINE FISHING ACTIVITIES AND SALT PRODUCTION WITHOUT PROCESSING

1- Object and scope of exemption

1.1- Exempted objects

Organizations and individuals (referred to as businesses) engaged in marine fishing and salt production without processing are exempted from business registration tax, resource tax, and corporate income tax according to these guidelines, including:

- Enterprises established and registered under the Enterprise Law, State Enterprise Law, Investment Law, and Foreign Investment Law in Vietnam;

- Cooperatives established and registered under the Cooperative Law.

- Individuals, household businesses, cooperative members who undertake tasks assigned by cooperatives and pay separate business registration tax according to Point 2, Section I of Circular No. 96/2002/TT-BTC dated October 24, 2002 of the Ministry of Finance guiding the implementation of Decree No. 75/2002/NĐ-CP dated August 30, 2002 of the Government on adjusting the business registration tax rate.

1.2- Scope of exemption

- Marine fishing activities eligible for exemption include only the exploitation of natural products from the sea (both nearshore and offshore), excluding activities such as freshwater fishery resources extraction, aquaculture, marine services supporting fishing (such as fishing gear, fresh water supply, ice, fuel), and seafood trading and processing.

- Salt production without processing eligible for exemption includes only the production of salt from seawater, excluding activities related to salt trading or processing salt into refined salt products (such as iodized salt, refined salt...).

2- Types of taxes exempted

2.1- Business registration tax

From 2006 to 2010, businesses engaged in marine fishing and salt production without processing are exempted from all business registration tax.

If businesses engaged in marine fishing and salt production without processing also conduct other business activities but have only one business registration tax certificate, they are still exempted from all business registration tax.

If businesses have multiple branches (subsidiaries, stores) paying separate business registration tax certificates, they are only exempted from business registration tax for the units directly involved in marine fishing and salt production without processing.

2.2- Resource tax

From 2006 to 2010, businesses engaged in marine fishing and salt production without processing, regardless of scale or location, are exempted from resource tax.

2.3- Corporate income tax

From 2006 to 2010, businesses are exempted from corporate income tax for marine fishing and salt production without processing activities. Businesses conducting multiple production and business activities must separately account for income from marine fishing and salt production without processing to serve as the basis for corporate income tax exemption.

If it is not possible to separately account for income from marine fishing and salt production without processing, the exempted income is determined based on the proportion of revenue from these activities in the total revenue of the business, specifically as follows:

For businesses conducting integrated production and business activities from marine fishing to seafood processing or from salt production without processing to other product processing such as soup powder, seasonings..., the exempted income from marine fishing and salt production without processing is determined based on the ratio of production costs of this stage to the total reasonable expenses of the business, specifically as follows:

3- Procedures for tax exemption

3.1- For individuals and households engaged in marine fishing and salt production without processing

When establishing tax ledgers during the 2006-2010 period, tax authorities do not calculate or collect business registration tax, resource tax, and corporate income tax for individuals and households engaged in marine fishing and salt production without processing. If these entities had already established tax ledgers in 2006, adjustments will be made at the end of the year.

3.2- For organizations engaged in marine fishing and salt production without processing

Annually, organizations self-determine the amount of business registration tax, resource tax, and corporate income tax exempted and declare to the tax authority according to current regulations. Businesses with multiple activities or integrated operations self-determine the amount of corporate income tax exempted for marine fishing and salt production without processing activities according to Appendix 1A issued together with this Circular, and submit it along with the Corporate Income Tax Self-Assessment Declaration Form.

II- REDUCTION OF CORPORATE INCOME TAX FOR BUSINESSES EMPLOYING LABOR FROM ETHNIC MINORITY GROUPS

1- Subjects and Principles for Tax Reduction

Business entities meeting the conditions stipulated in Clause 2, Section II of this Circular are eligible for corporate income tax reduction, including enterprises established and registered under the Enterprise Law, State Enterprise Law, Investment Law, and Foreign Investment Law of Vietnam; cooperatives established and registered under the Cooperative Law; and individual business households.

For state-owned agricultural and forestry enterprises employing ethnic minority workers residing legally in the Central Highlands provinces supported by the state budget for vocational training costs pursuant to Decision No. 231/2005/QD-TTg dated September 22, 2005 of the Prime Minister, they shall not be eligible for corporate income tax reduction under this Circular, except where such enterprises provide additional forms of vocational training for ethnic minority workers beyond those already supported by the state budget.

Expenditures on vocational training and teaching for ethnic minority workers occurring from 2006 to 2010 shall be considered as expenditures borne by the state budget, and business entities shall not account them as reasonable expenses but instead deduct them from the corporate income tax payable for the tax period. In cases where business entities do not generate corporate income tax payable or have not fully deducted actual training and teaching costs for ethnic minority workers during the tax periods from 2006 to 2010, they may carry forward these deductions to subsequent tax periods until the full amount of expenditure is deducted.

2- Conditions for Eligibility for Tax Reduction

To be eligible for corporate income tax reduction, business entities must meet the following three conditions:

- Employing ethnic minority workers.

- Spending on vocational training and teaching for ethnic minority workers.

- Maintaining accounting books, invoices, and vouchers in accordance with regulations.

Ethnic minorities refer to people belonging to other ethnic groups (excluding the Kinh ethnic group) living within the territory of Vietnam. The identification of ethnic minority workers is based on their personal identification documents (certified copies of identity cards by the business entity) or their employment history in their personnel files accompanied by labor contracts or collective labor agreements.

3- Basis for Determining the Amount of Tax Reduction and Procedures for Tax Reduction

3.1- Basis for Determining the Amount of Corporate Income Tax Reduction

The amount of corporate income tax reduction is the actual expenditure on vocational training and teaching for ethnic minority workers, including the following items:

i) Tuition fees paid to training institutions and remuneration for instructors or specialized guides.

ii) Costs for purchasing textbooks, materials, and learning equipment suitable for the training program.

iii) Wages or subsistence allowances paid to workers during their study period.

iv) Food, accommodation, and travel expenses (round trip) for workers sent for training or vocational education at the level of subsistence allowance for civil servants and public officials.

v) Direct costs for organizing training programs, such as rental fees for venues, teaching aids, and learning materials.

Example 1: In 2006, Enterprise A had taxable revenue of 20,000 million VND. Reasonable expenses were 18,000 million VND (excluding training and teaching costs for ethnic minority workers). During the year, Enterprise A accepted ethnic minority workers and spent 160 million VND on their training and teaching. The enterprise's business activities are subject to a 28% tax rate. Therefore, Enterprise A is entitled to a corporate income tax reduction of 160 million VND for accepting and training ethnic minority workers. Thus, Enterprise A only needs to pay 400 million VND in corporate income tax (560 million VND - 160 million VND).

+ Taxable income for the year: 20,000 million VND - 18,000 million VND = 2,000 million VND

+ Corporate income tax payable according to general regulations (before reduction) is: 2,000 million VND x 28% = 560 million VND.

+ The corporate income tax reduction corresponding to the actual expenditure on training and teaching ethnic minority workers is 160 million VND. Enterprise A only needs to pay 400 million VND in corporate income tax.

For training and teaching programs that include non-ethnic minority workers, business entities can only claim tax reductions corresponding to the actual expenditure on ethnic minority workers. If business entities cannot separately account for the training and teaching costs for different groups, the basis for tax reduction will be determined based on the ratio (%) of ethnic minority workers to the total number of participants in the training and teaching programs.

Example 2: In 2006, Enterprise B spent 600 million VND on vocational training for 120 newly hired workers, of which 80 were ethnic minority workers. Therefore, the expenditure on training ethnic minority workers serving as the basis for determining the corporate income tax reduction is 400 million VND (600 million VND x 80/120).

3.2- Procedures for Tax Reduction

Annually, based on the need for vocational training and teaching, business entities prepare budgets for training and teaching ethnic minority workers, and unutilized training and teaching costs from previous tax periods, and register with the direct tax authority the expected corporate income tax reduction along with the Corporate Income Tax Return Form (Form 02A/TNDN issued together with Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance) or the Quarterly Corporate Income Tax Payment Declaration Form (Form 03-TNDN-TKTN issued together with Circular No. 127/2003/TT-BTC of the Ministry of Finance) for business entities implementing self-reporting and self-payment mechanisms.

At the end of the fiscal year, based on the actual expenditure on vocational training and teaching for ethnic minority workers and unutilized training and teaching costs from previous tax periods, business entities determine the corporate income tax reduction according to Appendix 2A issued together with this Circular and consolidate it into the Corporate Income Tax Self-Assessment Return.

III- IMPLEMENTATION ORGANIZATION

1- Tax authorities at all levels shall be responsible for examining and inspecting entities eligible for tax exemption under this Circular to ensure that business registration tax, natural resources tax, and corporate income tax are not collected from such entities from 2006 to the end of 2010.

2- In cases where fishing businesses and salt producers who have not undergone processing have already paid business registration tax, natural resources tax, and corporate income tax to the State budget prior to the effective date of this Circular, the tax authority shall be responsible for refunding the taxes paid to the taxpayer. The procedures for tax refunds shall be carried out in accordance with Circular No. 68/2001/TT-BTC dated August 24, 2001, issued by the Ministry of Finance, guiding the refund of amounts already paid to the State budget.

3- Organizations and individuals engaged in marine fishing activities in distant sea areas, which are eligible for exemption or reduction of natural resources tax according to Point 3, Section IV of Circular No. 153/1998/TT-BTC dated November 26, 1998, issued by the Ministry of Finance, guiding the implementation of Decree No. 68/1998/NĐ-CP dated September 3, 1998, of the Government detailing the implementation of the Law on Natural Resources Tax (amended), are entitled to choose between applying for tax exemption according to the guidance provided in this Circular until the end of 2010 or according to Circular No. 153/1998/TT-BTC. If, by the end of 2010, a business entity is still within the period of exemption or reduction of natural resources tax as stipulated in Circular No. 153/1998/TT-BTC mentioned above, it will continue to enjoy the exemption or reduction of natural resources tax for the remaining period.

4- Annually, no later than June 1 (starting from 2007), the Provincial Tax Department, the City Tax Department directly under the Central Government shall be responsible for reporting the results of tax exemptions for marine fishing activities and unprocessed salt production; the results of corporate income tax reductions for training and vocational education activities for ethnic minority laborers to the Ministry of Finance (General Department of Taxation, Policy Department) and the People's Committee at the same level for consolidation and reporting to the Government.

5- This Circular shall take effect fifteen days after its publication in the Official Gazette. Any guidelines inconsistent with this Circular shall be abolished. During the implementation process, if there are any difficulties, they should be reported to the Ministry of Finance for study and supplementary guidance.