Circular No. 75A-TC/TCT guiding the implementation of Decree No. 57-CP dated August 28, 1990 of the Government detailing the implementation of the Law on Corporate Income Tax and the Law amending and supplementing certain articles of the Law on Corporate Income Tax.

CIRCULAR

Circular guiding the implementation of Decree No. 57-CP dated August 28, 1993 of the Government detailing the implementation of the Income Tax Law and the Law Amending and Supplementing Certain Provisions of the Income Tax Law dated August 28, 1993 of the Government detailing the implementation of the Income Tax Law and the Law Amending and Supplementing Certain Provisions of the Income Tax Law implement the Law on Corporate Income Tax and the amended Law on Corporate Income Tax

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

Pursuant to Decree No. 57-CP dated August 28, 1993 of the Government detailing the implementation of the Income Tax Law and the Law Amending and Supplementing Certain Provisions of the Income Tax Law;

The Ministry of Finance hereby provides guidance as follows:

I- SCOPE OF APPLICATION OF INCOME TAX

1- Taxpayers.

According to Article 1 of the Income Tax Law, all organizations and individuals conducting independent economic accounting under all forms of ownership that have income from business activities within the territory of Vietnam must pay income tax;

In cases where dependent units (subordinate to independent economic accounting enterprises) can conduct full accounting, determine revenue, expenses, and separate profit, these units may be taxpayers for income tax;

- Units with nationwide accounting systems engaged in production and business activities in other localities must declare and pay income tax to the local tax authority regarding the taxable profit derived from such production and business activities;

- Public service units and units operating with state-provided public funds, if they engage in business activities, must separately account for the results of their business operations and pay income tax;

- In cases where businesses implement comprehensive contracts with collectives or individuals through capital or goods transfers to the contractors and set periodic payment amounts (for example, retail stores contracting mobile sales counters to sales personnel, who must pay a certain amount monthly to the store), the contractors must pay turnover tax and income tax at the applicable rates for their trade. The contracted payment amount is recorded as income of the contracting entity and aggregated into total income to determine taxable profit.

Non-taxpayers for income tax:

According to Article 2 of the Income Tax Law, production and business activities not subject to taxation include:

- Enterprises established and operating under the Law on Foreign Investment in Vietnam shall pay income tax according to Article 26 of the Law on Foreign Investment in Vietnam.

- Agricultural production activities of agricultural cooperatives, production groups, and individual farmers (household farmers) are subject to agricultural tax or land use tax for agricultural purposes.

2- Taxable objects:

The taxable object for income tax includes income from processing, manufacturing, construction, transportation, state-owned farms, state-owned stations, catering, various services, and other production and business activities of organizations and individuals as stipulated in Article 1 of the Income Tax Law.

Taxable income includes: Basic and non-basic business income, income from leasing fixed assets; income from the liquidation of fixed assets, income from the transfer of property, transfer of shares; share income; income from financial transactions, joint ventures, and economic cooperation.

II. BASIS FOR CALCULATING TAX

The basis for calculating income tax is specified in Article 6 of the Income Tax Law, which is the total annual taxable income and the tax rate.

1- Total annual taxable income.

The total annual taxable income (calculated based on the Gregorian calendar year) includes basic and non-basic business income, other income, and is determined as follows:

Taxable income = [Revenue - Reasonable and legitimate expenses - Other taxes except income tax] + Other income

2- Revenue for calculating taxable income:

Revenue for calculating taxable income as stipulated in Article 2 of Decree No. 57-CP dated August 28, 1993 of the Government detailing the implementation of the Income Tax Law and the Law Amending and Supplementing Certain Provisions of the Income Tax Law, is the total amount from selling goods, processing fees, commissions, service charges, and other receipts not yet reduced by any costs of the business during the tax period and is determined in accordance with the characteristics of each industry and business activity, as provided in Article 3 of Decree No. 55-CP dated August 28, 1993 of the Government detailing the implementation of the Turnover Tax Law and the Law Amending and Supplementing Certain Provisions of the Turnover Tax Law, and Section I/B of Circular No. 73A TC/TCT dated August 30, 1993 of the Ministry of Finance guiding turnover tax.

For products subject to special consumption tax, revenue for calculating taxable income includes sales revenue (including special consumption tax).

3- Reasonable and legitimate expenses for calculating taxable income.

According to Article 9 of the Income Tax Law and Article 4 of Decree No. 57-CP dated August 28, 1993 of the Government, reasonable and legitimate expenses are determined as follows:

a) Depreciation expense of fixed assets:

The value of fixed assets serving as the basis for depreciation is the actual purchase price plus (+) installation, transportation, and storage costs (if any).

For fixed assets of state-owned enterprises, the original cost is determined in accordance with current regulations on the preservation of capital.

- Basic depreciation rate: Implemented according to the ratio prescribed in Decision No. 507 TC-ĐTXD dated July 22, 1986 and current regulations of the Ministry of Finance.

+ In cases where enterprises face difficulties in production and business, fixed assets are not fully utilized, and there are losses, local tax authorities may consider reducing the basic depreciation rate but must ensure the principle:

The reduction corresponds to the actual capacity utilization of fixed assets but does not exceed 50% of the rate prescribed in Decision No. 507 TC-ĐTXD and does not exceed the loss incurred in the year.

Reduction of the basic depreciation rate should be processed before requesting exemption or reduction of the use of state budget funds.

+ In cases where enterprises invest in purchasing fixed assets using borrowed funds, and their production and business operations are effective, increasing the basic depreciation rate to quickly repay borrowed funds according to agreements, tax authorities will consider processing requests to increase the basic depreciation rate of fixed assets purchased with borrowed funds but must ensure the principle:

* Must pay sufficient indirect taxes (turnover tax, special consumption tax) annually and not incur capital losses;

* A business lacks funds to repay maturing debts after mobilizing its own capital sources (capital for basic construction investment, production and business development fund...);

* The increased depreciation rate shall not exceed the amount still owed for loan repayment and the recovery period of the basic depreciation rate must be no shorter than the repayment period stipulated in the loan agreement.

Based on the above principles, businesses must submit a detailed explanatory letter with a formal request from the local Tax Bureau for the Ministry of Finance (General Department of Taxation) to approve each specific case in writing. The decision to increase the basic depreciation rate will be made upon receipt of the annual settlement report.

Fixed assets from all sources that have been fully depreciated but are still in use shall continue to be depreciated to accurately reflect costs, but the rate shall not exceed the level specified in Decision 507 TC/DTXD and shall not be included in costs for determining taxable income.

- The rate for major repair depreciation:

Major repair depreciation expenses that can be counted as reasonable costs are the actual expenditures incurred during the period for major repairs of fixed assets, including:

+ For outsourced major repairs, the actual payment amount according to the contract with the contractor;

+ For self-performed major repairs, the actual reasonable cost incurred.

For certain special industries where fixed assets require periodic major repairs, the pre-determined amount for major repair depreciation may be included in production and business costs, but it must be used solely for major repairs of fixed assets and not for expansion investments or deepening investments. The maximum pre-determined major repair depreciation rate shall not exceed the level specified in Decision 507 TC/DTXD dated July 22, 1986 of the Ministry of Finance. Local tax bureaus shall examine and decide on each specific case.

b) Raw material, material, fuel, energy costs (collectively referred to as material costs):

- Material costs are only calculated for materials directly related to the production and business operations and forming taxable income during the tax period.

- Material consumption standards: These are reasonable actual consumption standards based on national regulations or authorized agencies' standards. In cases where there are no standards, they should be based on previous years' actual standards and linked to material conservation efforts.

- Material prices: The price for calculating material costs includes the actual purchase price, transportation, loading and unloading, procurement, processing, refining costs, import taxes for imported materials (if applicable). For inventory materials, their value can be reassessed when prices change according to regulations. For self-produced materials, the cost is based on the actual reasonable production cost.

- During the use of materials, if scrap is recovered, the recovered scrap value can be deducted from material costs at either the selling price or the assessed value at the time of recovery.

- Rewards for material procurement and extraction shall not be included in material costs.

- For trade and catering industries, the purchase price of goods sold is considered part of material costs. However, transportation, loading and unloading, procurement, and storage costs shall not be included in the purchase price.

c) Labor and wage costs:

Labor and wage costs are calculated based on the number of employees of the entity and the current wage scale and allowances (if any), tied to the entity's production and business results.

- Employees include those within the establishment, short-term and long-term contracts, and seasonal workers participating in production and business activities generating taxable income during the tax period;

- Enterprises paying wages based on unit labor costs, revenue, or production and business performance must base their unit labor cost on the current wage system:

+ For products and services under state pricing control, the unit labor cost is set by the state.

+ For other products and services, the enterprise sets the unit labor cost based on the current wage system.

- All unit labor costs used to calculate taxable income must be registered with the direct tax management agency;

- Any wage payments outside the established system and reasonable unit rates shall not be included in costs for calculating taxable income;

- For non-state-owned economic entities (cooperatives, production groups, private enterprises, individual households, joint-stock companies), labor and wage costs are calculated based on agreed unit labor costs and product wages between the worker and the enterprise.

To ensure fairness and reasonableness, provincial and municipal tax bureaus may determine wage and labor cost standards for each industry based on the wage system applied to state-owned enterprises and market conditions, and submit these to the provincial or municipal People's Committee for approval during specific periods.

- Determining allowable labor and wage costs for calculating taxable income must adhere to the principle that the growth rate of the wage fund must be lower than the growth rate of realized income.

- Private household business owners receive all income from business operations after deducting reasonable and legitimate expenses and paying all required taxes (including income tax). Therefore, labor and wage costs for private household business owners are not considered deductible expenses when calculating taxable income.

d) Other allowable costs include those specified in Article 9 of the Income Tax Law and Point 5, Clause 4 of Decree No. 57-CP dated August 28, 1993, and current government regulations, specifically:

- Management costs include general expenses such as administrative management costs, labor protection costs, recruitment and training costs, interest on loans including deepening investment loans calculated at the lending rate set by the State Bank;

- Costs for purchasing and using technical documents, patents, technology transfer licenses, and technical services (excluding fixed assets) shall be allocated gradually over time as business expenses.

- Expenses directly related to the consumption of products or provision of services that generate taxable income for the tax period such as packaging costs, finished product storage costs, transportation and handling fees, advertising expenses, product consumption in accordance with general regulations;

- Insurance fund expenditures under the unified system of the State such as social insurance, property insurance for business establishments, health insurance as stipulated in Circular No. 12/TTLT-BTC-BYT-BLDT dated September 18, 1992 issued jointly by the Ministry of Finance, Ministry of Health, and Ministry of Labor, War Invalids and Social Affairs;

- Various taxes payable such as turnover tax, special consumption tax, resource tax, revenue from capital usage, various fees... related to determining taxable income for the tax period;

- Annual contribution payments;

e) Other expenses not mentioned above, such as hospitality, ceremonial, transactional, and external expenses directly related to the production and business process calculated based on actual reasonable costs, but the maximum level of expenditure shall not exceed 5% of total expenses;

All expenses specified in points a, b, c, d, and e above must have valid receipts and invoices. For agricultural, forestry, fishery products... purchased directly from producers who do not have invoices, a purchase list must be established detailing the name, address of the seller, quantity, unit price, and total amount;

4- The following items shall not be included in business expenses to determine taxable income or deducted from taxable income:

- Interest payments on overdue bank loans and interest payments on borrowed funds from other entities exceeding the interest rate prescribed by the State Bank;

- Capital preservation amounts higher than the actual required level;

- Product damage losses exceeding the quota set by the State for certain industries (casting, glass...);

- Production stoppage losses due to external causes, self-inflicted causes, natural disasters, unexpected accidents; losses of assets, materials, capital due to inability to identify responsible parties for material compensation such as losses in accounts receivable settlement;

- Losses caused by individual responsibility;

- Costs for subsidizing monthly ticket purchases for staff and employees, travel expenses for annual leave;

- Fine payments: fines for violations of economic contracts, reporting systems, business registration, tax declaration, delayed tax payment, false declarations, hidden taxes, violations of invoice and receipt systems...;

- Training expenses not included in approved plans;

- Expenses covered by other sources of funding:

+ Expenses for staff and employee sightseeing and vacation;

+ Expenses for collective dining halls;

+ Regular and emergency hardship allowances;

+ Construction investment expenses, expenses for experts serving construction projects;

+ Expenses supporting localities, associations, social organizations...;

+ Clothing expenses exceeding the prescribed quota;

+ Lunch expenses;

+ Bonuses such as savings bonuses, other bonus payments;

- Other losses except those specified in point d, Article 13 of Decree No. 57-CP dated August 28, 1993 of the Government;

5- Determine other income items for calculating taxable income;

Other income of business establishments includes bank deposit interest, lending interest (excluding banks, credit institutions, financial institutions), income from asset leasing, proceeds from asset liquidation, asset transfer, share transfer (excluding real estate businesses, stocks, bonds), income from equity participation, financial activities, income from joint ventures and cooperatives;

Specifically, income derived from joint venture and cooperative activities is handled as follows:

a) In cases where enterprises contribute capital to establish domestic joint ventures in the form of joint-stock companies or limited liability companies, and have paid corporate income tax at the receiving joint venture unit, the portion of income distributed from joint ventures according to the contributed capital does not count towards the taxable income of the enterprise, but enterprises must record and declare it as income of the enterprise;

b) In cases where domestic enterprises (organizations, individuals) jointly venture with foreign organizations or individuals under a cooperation agreement as stipulated in Article 8 and Article 17 of Decree No. 18-CP dated April 15, 1993 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam, the income received by the Vietnamese side is included in the taxable income of the enterprise and taxed at the applicable tax rate for the industry of the joint venture activity as stipulated in Article 15 of Decree No. 57-CP dated August 28, 1993 of the Government;

- In cases where domestic individuals and economic organizations jointly venture with each other under a contract, the income derived from joint venture activities must be taxed at the applicable tax rate for the industry of the joint venture activity. The receiving party of the joint venture has the responsibility to declare and pay corporate income tax. After paying corporate income tax, the distributed income does not count towards taxable income, but must be recorded and declared as income;

If the joint venture contract is implemented in the form of profit sharing, the portion of the product shared that has not yet been subject to corporate income tax must be declared and taxed by the enterprise;

Enterprises engaged in joint ventures and cooperatives must report and provide all relevant documents to the tax authority, such as joint venture contracts, reconciliation statements, confirmation from the local tax authority regarding the tax already paid, then the distributed income does not count towards taxable income;

c) For enterprises engaged in consignment sales, agency sales, and entrusted sales activities, the tax treatment of consigned goods, entrusted sales, and agency sales is as follows:

- Enterprises and individuals that are domestic businesses with business registration have goods for consignment or agency accompanied by invoices or invoices combined with warehouse release forms; the income from such consigned or agency goods shall be included in the income of the entity sending the goods for consignment or agency to determine taxable income.

- Organizations and individuals within the country but not being enterprises, having goods for consignment or agency sale without accompanying invoices or invoices combined with warehouse release forms, and not subject to declaration and payment of income tax, the party receiving the consigned or agency goods for sale must pay the income tax on behalf of the party sending the goods for consignment or agency.

- Foreign organizations and individuals having goods for consignment or agency shall have their income tax handled specifically as follows:

+ If foreign organizations and individuals belong to countries that have signed double taxation avoidance agreements with Vietnam, the payment of income tax shall be carried out according to the provisions regarding income tax in the agreement.

+ If foreign organizations and individuals belong to countries that have not signed double taxation avoidance agreements with Vietnam, the Vietnamese party receiving the consigned or agency goods for sale must pay the income tax on behalf of the party sending the goods for consignment or agency.

The income tax paid by the party receiving the consignment, agency, or sales agency on behalf of the party sending the consignment, agency, or sales agency is uniformly calculated at a rate of 3% on the actual selling price minus commission for consignment or agency.

The substituted tax amount can be deducted from the proceeds of consignment or agency sales payments.

6- Income tax rate.

a) The stable income tax rate prescribed in Article 5 of Decree No. 57-CP dated August 28, 1993, of the Government detailing the implementation of the Income Tax Law and amendments to certain articles of the Income Tax Law, is applied as follows:

The taxpayers subject to a stable income tax rate based on annual taxable income for each industry group include business establishments that can determine their taxable income (excluding small traders and itinerant traders).

The income tax rate is applied according to Point a, Article 5 of Decree No. 57-CP dated August 28, 1993.

The taxpayers mentioned in Article 5 above, when classifying industries, shall base on the national economic sector classification table issued by the General Statistics Office.

Repair activities involving industrial work such as vehicle and machinery repair should be classified according to the nature of the activity into corresponding industrial sectors.

Example: Repairing ships and automobiles shall be classified under the 25% production of transportation equipment income tax rate.

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

Other income is subject to income tax at the rate applicable to the main business activity. In cases where multiple tax rates apply to the main business activity, other income is taxed at the rate corresponding to 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 income tax rate according to each industry. If a business establishment cannot separately account for the taxable income of each industry, the highest income tax rate applicable to the industry with the highest proportion of business activities will be applied to the total taxable income of the establishment.

b) Additional income tax rate.

According to Article 6 of Decree No. 57-CP dated August 28, 1993, of the Government, business establishments, in addition to paying income tax at the stable rate as mentioned above, if their taxable income exceeds the specified level, must pay additional income tax as follows:

- Individual private businesses, if their average monthly taxable income exceeds 10 million VND, the portion exceeding 10 million VND must pay additional income tax at 25%.

- Economic organizations outside state-owned enterprises such as joint-stock companies, limited liability companies, collective economies, etc., if their average monthly taxable income per capita exceeds 10 million VND, the portion exceeding 10 million VND must pay additional income tax at 25%.

Example: Joint-stock Company X in the textile industry has a charter capital of 2 billion VND divided into 100 shares, with 10 shareholders equally holding the shares, and the total taxable income in a year is 1.8 billion VND.

+ Income tax payable at the stable rate:

1.8 billion VND x 35% = 630 million VND.

+ Portion of taxable income not subject to additional income tax: 10 million VND x 12 months x 10 shareholders = 1.2 billion VND.

+ Additional income tax payable:

(1.8 billion VND - 1.2 billion VND) x 25% = 150 million VND.

+ Total income tax payable by Company X:

630 million VND + 150 million VND = 780 million VND.

- State-owned enterprises with high taxable income due to objective advantages must pay additional income tax. The additional income tax is calculated on the remaining income after paying the stable income tax rate of the industry and setting aside three funds as stipulated by the Government (Promotion Fund for Production and Business Development, Welfare Fund, Reward Fund).

+ Enterprises with objective advantages are those with more favorable conditions in business operations compared to other enterprises, such as: advantageous locations, supply of raw materials and materials, product sales, service provision; state investment and capital support, priority technical equipment, operation in less competitive industries, etc.

+ Each year, based on the conditions and effectiveness of production and business operations, the Provincial and City Tax Departments will identify enterprises required to pay additional income tax and specify the specific amounts.

+ The additional income tax rates are applied as follows:

* A tax rate of 30% applies to resource extraction, production, construction, and transportation industries;

* A tax rate of 40% applies to trade, catering, and various service industries;

+ Business establishments applying additional income tax shall use a single tax rate. In cases where a business establishment operates in multiple industries, the additional income tax rate shall be 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 Promotion Fund for Production and Business Development is calculated as 35% of the remaining taxable income after deducting the income tax calculated at the stable rate.

Welfare Fund and Reward Fund: Each fund is calculated based on six months of the average actual rank salary of the enterprise according to the wage system prescribed by the Government in Decree No. 26-CP dated May 23, 1993.

+ In cases where business establishments allocate specialized funds such as the supplementary capital reserve fund, risk prevention fund..., the source for allocation shall be from the remaining profit after paying income tax and additional 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:

- Total reasonable annual average actual rank salary fund as stipulated: 864 million.

- Stable rate income tax: 1,219.5 million - enterprise funds [(2,750 million - 1,219.5 million) * 35%] + 864 million = 1,399.6 million.

- Additional income tax payable (at the commercial service tax rate).

(2,750 million - 1,219.5 million - 1,399.6 million) x 40% = 52.4 million.

- Total income tax payable

1,219.5 million + 52.4 million = 1,271.9 million.

Additional income tax is determined when there is an official settlement for the entire year and must be paid once within 20 days from receiving the notification from the tax authority.

c) The taxpayers subject to income tax at a fixed rate based on revenue are individual traders and small private businesses as specified in Clauses 1, 2, and 3 of Article 11 of the Income Tax Law.

- The average monthly revenue subject to fixed-rate taxation of small-scale businesses is decided by the tax authority based on revenue investigation results, with public and democratic discussion with the business establishment.

- Revenue of individual traders is the value of each consignment calculated based on wholesale prices at the market at the departure point.

Taxpayers subject to fixed-rate income tax must simultaneously pay turnover tax according to the specific tax schedule for each type of business activity.

III- TAX DECLARATION, PAYMENT OF INCOME TAX

1- Organizations and individuals engaged in economic activities must comply with accounting regulations as prescribed by the Accounting and Statistics Ordinance promulgated by the State Council under Decree No. 06/LCT-HĐNN dated May 20, 1988, and the Organizational Accounting Regulations issued by the Council of Ministers under Decree No. 25-HĐBT dated May 18, 1989, along with guiding decisions and circulars of the Ministry of Finance.

The basis for determining taxable income includes accounting vouchers, reports, and related documents of the business establishment that have been verified and confirmed as reasonable and valid by the tax authority according to state regulations. If the business establishment does not comply with the prescribed accounting regulations, the tax authority has the right to determine the taxable income, in which case the business establishment must pay income tax according to the tax authority's decision.

2- To ensure accurate calculation and payment of income tax as prescribed, the business establishment must declare fully and accurately, and submit declaration forms to the tax authority within the prescribed time limit.

3- Organizations and individuals engaged in business activities not subject to fixed-rate or periodic (monthly, quarterly) taxation must submit provisional income tax declaration forms (attached) to the tax authority within the first ten days of the following month. The period for tax payment is regulated by the directly managing tax authority.

The tax authority must check, calculate, and notify the amount of income tax payable no later than the 15th day of the following month.

The business establishment is responsible for temporarily paying income tax monthly according to the tax authority's notification, no later than the 20th day of the following month.

4- At the end of the year, upon final settlement, the business establishment must submit an income tax declaration form (attached) to the tax authority no later than 45 days after the end of the year. The tax authority is responsible for checking, calculating, and issuing a notification of the total income tax payable for the year, the provisional income tax already paid, and the additional income tax payable by the business establishment. The business establishment must pay the full amount of additional income tax due no later than 15 days after receiving the tax authority's notification. In cases where the business establishment overpays income tax, the excess tax will be refunded in the following year by offsetting it against the income tax payable in the following year.

5- Small-scale businesses and individual traders who pay tax based on revenue must pay tax definitively monthly or per consignment. There is no need for a final settlement with the tax authority at the end of the year.

Business establishments that dissolve, merge, divide, or cease operations must declare and submit an income tax declaration form to the tax authority before officially dissolving or ceasing operations, and must pay all due income tax according to Article 14 of the Income Tax Law.

IV- EXEMPTIONS AND REDUCTIONS OF INCOME TAX

A- CASES OF INCOME TAX EXEMPTION

1- Elderly, disabled persons, small-scale traders, sideline workers contributing to family economy... whose monthly income only ensures the minimum living standard for themselves (minimum living standard is the average monthly income of 90,000 VND) per labor force directly involved in production and business.

2- Transportation activities using primitive means in mountainous areas such as bicycles, handcarts, hand-pulled carts, animal-drawn carts, rafts, non-motorized boats.

3- Newly established production units officially operating from 1993 are exempt from income tax for the first two years from the date they start generating income.

Example: An enterprise officially started operations in 1993, incurred losses in 1993. If it made a profit in 1994, it would be exempt from income tax for the years 1994 and 1995.

4- Business establishments relocating from lowland to mountainous or island areas are exempt from income tax for the first three years from the date they start operating in mountainous or island areas, provided they have confirmation letters from both the place of origin and destination, and a new business license issued by the destination.

5- Scientific research activities and scientific and technological service contracts as stipulated in Points 1, 2, and 3 of Section I of Circular No. 55/TT-LB dated October 2, 1992, by the Ministry of Finance and the State Science Council, and meeting the conditions specified in Points 1 and 2 of Section II of Circular No. 55/TT-LB. Only the income derived from implementing scientific contracts and scientific and technological service contracts is exempt from income tax. For business establishments that engage in both production and business activities and scientific research and scientific and technological service activities, separate accounting of income from each activity is required.

6- Exempt income tax for six months from the start of trial production for products produced under the provisions of Point 4, Section I - Circular No. 55/TT-LB. The exemption applies only to the income generated by trial products. Entities must separately account for the actual income realized from trial products.

7- Ancillary activities and family economy operations must meet the following conditions:

- Individuals engaged in family economy must be state employees or cooperative members working additional hours beyond those stipulated by their agencies, factories, or collective units;

- Those working together must be parents, spouses, children outside the working age, or relatives outside the working age listed in the household registration;

- Production and service activities of retired individuals, if not considered individual or private economies, shall be deemed ancillary family economies;

In cases where one or more persons within the working age who are not state employees or cooperative members work exclusively in a family economic unit for three years, they must register as individual business households.

B- SITUATIONS ELIGIBLE FOR INCOME TAX REDUCTION

1- New production facilities established after being exempted from income tax for the first two years as provided in Point 3, Section A of Part IV above shall be eligible for a 50% reduction in income tax payable for the next two years.

For new production facilities established in difficult areas, a 50% reduction in income tax payable shall apply for the next four years.

2- Organizations and individuals operating in difficult areas may be eligible for a maximum 50% reduction in income tax payable, with the tax reduction period not exceeding two years.

3- Production facilities and certain other industries that require investment encouragement, if they expand production and business operations or deepen investments resulting in higher efficiency than before, shall be eligible for income tax reduction.

The eligibility for income tax reduction for these production and business facilities must satisfy the following conditions:

- The facilities have actually invested in expansion;

- The investment must result in higher efficiency, demonstrated by higher income achieved compared to before;

- The amount of income tax reduction equals the actual expenditure on reinvestment, excluding self-funded capital, i.e., the difference between the total amount spent on reinvestment and the investment construction fund, development incentive fund, and other self-funded capital; however, the maximum reduction cannot exceed 50% of the annual income tax payable and cannot exceed the additional income generated by the investment;

- Income tax reduction will not be granted for expansion or deepening investments for entities already exempted or reduced from income tax according to Points 3 and 4, Section A, Points 1 and 2, Section B above, and entities permitted to deduct higher depreciation rates for fixed assets than the prescribed rate.

To alleviate difficulties and encourage businesses to expand and deepen investments with high economic returns, during the year of assessment, businesses with investments can temporarily retain a portion of the income tax payable; the temporary retention of income tax shall not exceed 30% of the planned annual income tax payable and shall not exceed 50% of the additional income tax generated by the investment according to the feasibility study.

The formal income tax reduction for the facility will be determined based on the annual settlement.

Example:

In 1993, the business entity invested 90 million VND in expanding production and business operations: Of which, 20 million VND was invested using the basic construction fund of the business entity.

According to the approved economic feasibility study, the additional income tax due to the investment's effectiveness is 50 million VND per year.

The business entity was assigned a plan to pay 120 million VND in income tax for 1993.

- The temporary income tax reduction for 1993 is calculated as follows:

+ Actual investment expenditure for expanding production and business operations, excluding self-funded capital, is: 90 million - 20 million = 70 million VND;

+ The temporary income tax reduction for 1993 is 25 million VND (equal to 50% of the additional income tax due to the investment's effectiveness according to the approved economic feasibility study and lower than 30% of the planned annual income tax for 1993).

- At the end of 1993, based on the actual settlement, the additional income due to the investment's effectiveness is 56 million VND. The total income tax payable for the entire year of 1993 is 130 million VND.

+ The actual income tax reduction for 1993 is 56 million VND.

4- Enterprises producing goods to replace imported goods according to the list published by the State Planning Commission may be eligible for a maximum 50% reduction in income tax payable for the goods replacing imported goods for one year, starting from when production generates income.

The conditions for being considered for tax reduction are:

- Goods produced by production units listed in the "list of goods to replace imported goods" published by the State Planning Commission during each period and while this list remains effective.

- New production units that start producing such goods after the publication date of the list of goods to replace imported goods. Starting production includes cases where production was previously carried out or switched to another product for at least two years, and now production has resumed.

- Production units strictly comply with accounting records, invoices, and full, clear, accurate profit calculations of goods intended to replace imported goods, providing grounds for considering tax reduction on profits.

In special cases, there must be a written request from the People's Committee of the province or centrally governed city, or from the relevant ministry, and it must be approved by the Government. The Ministry of Finance may consider reducing taxes on profits for specific cases.

Production units must report in writing to the direct tax collection management agency, clearly explaining according to the above conditions to report to higher-level tax authorities for consideration of tax reduction on profits for the unit.

Difficult areas are regions with harsh natural conditions, extremely weak infrastructure, directly affecting production and business results and workers' income, only ensuring a minimum living standard for themselves, equivalent to the minimum wage stipulated in the state wage system.

Newly established production and business units are those newly invested and constructed according to the decision of the competent authority, obtaining a business registration permit. Units that were established earlier but have been reorganized, merged, or split into new units, old production units renamed or improved, expanded, changed products, are not considered newly established units and do not fall under the category of tax reduction on profits as prescribed herein.

C- CASES ALLOWED TO CARRY FORWARD LOSSES TO THE FOLLOWING YEAR

Production and business units encountering difficulties due to natural disasters, enemy attacks, accidents, unexpected risks, or objective and irresistible reasons resulting in losses, confirmed by the direct tax collection management agency, are allowed to carry forward losses from the current year to the next year to offset taxable profits before calculating corporate income tax. The period for carrying forward losses for tax purposes shall not exceed two years.

*Example: - A business suffered a loss of 90 million VND in 1993.

- Taxable profits:

+ In 1994, it was 30 million VND.

+ In 1995, it was 50 million VND.

- The business will be allowed to carry forward losses to offset taxable profits in the two following years.

+ In 1994, it was 30 million VND.

+ In 1995, it was 50 million VND.

- The remaining loss of 10 million VND from 1993 cannot be carried forward to offset taxable profits in the third subsequent year (1996).

D- AUTHORITY FOR CONSIDERING TAX EXEMPTIONS AND REDUCTIONS ON PROFITS AND CARRYING FORWARD LOSSES TO THE FOLLOWING YEAR.

1- The tax authority directly managing the production and business units is responsible for strictly checking according to the conditions stipulated in this Circular to exempt and reduce taxes on profits and carry forward losses for cases specified in Point 3-Section A-Part IV; Point 1-Section B-Part IV; Section C-Part IV mentioned above. Exemption and reduction of taxes on profits for cases specified in this point and carrying forward losses to the following year do not require a decision and are implemented when finalizing corporate income tax.

2- Cases of tax exemption and reduction specified in Points 1, 2, 4, 5, 6, 7 of Section A, Point 2 of Section B, Part IV of this Circular are examined and decided by the Director of the General Department of Taxation for exemptions and reductions below 50 million VND.

3- Cases of tax reduction specified in Point 3, Section B, Part IV of this Circular and cases of tax exemption and reduction specified in Point 2, Section D, Part IV of this Circular are examined and decided by the Director-General of the General Tax Administration for exemptions and reductions from 50 million VND to 100 million VND, and those over 100 million VND are decided by the Minister of Finance.

4- The competent authority deciding on tax exemptions and reductions is also the authority deciding to temporarily retain taxes on profits as stipulated in Point 3, Section B, Part IV.

E- APPLICATION FORMS AND PROCEDURES FOR REQUESTING TAX EXEMPTIONS AND REDUCTIONS ON PROFITS

1- For tax exemptions specified in Point 1, Point 2, Section A, Part IV of this Circular, the following must be provided:

Production and business units must submit a tax exemption application form (two copies), clearly stating the reasons for requesting tax exemption, with confirmation from local authorities (People's Committee of the commune, ward) and the local tax authority, which will verify against the stipulated conditions, confirm (sign and stamp) at the end of the form, then send one copy to the unit and keep one copy at the tax authority.

2- For tax exemptions specified in Point 3, Section A, Part IV of this Circular, the following must be provided:

- Decision to establish a new enterprise.

- Business registration, tax declaration (tax registration certificate, turnover tax).

- Completion and handover documents for the new production facility.

- Annual settlement report, annual tax settlement report.

3- For tax reductions specified in Point 1, Section B, Part IV of this Circular, the following must be provided:

- Declaration forms for tax exemption in the first two years.

- Settlement reports of related years for tax reduction.

- Documents confirming difficult areas.

4- For tax reductions specified in Point 4, Section A, Part IV of this Circular, the following must be provided:

- Application for tax exemption and reduction.

- Local government decision allowing closure of the office at the place of relocation.

- Business registration.

- Previous years' tax exemption and reduction decisions (if any).

- Official annual settlement.

- Inspection report and recommendation of the direct tax management agency.

5- For tax reductions specified in Point 4, Section B, Part IV of this Circular, the following must be provided:

- Application for tax exemption and reduction.

- Official annual settlement, including detailed profit calculation of substitute products for imported goods.

- Inspection report and recommendation of the direct tax management agency.

6- For tax reductions specified in Point 5, Section A, Part IV of this Circular, the following must be provided:

- Application for tax exemption and reduction.

- Establishment decision of the competent authority. If it is a collective organization or individual, they must have a scientific research activity registration certificate issued by the provincial or municipal science management agency as stipulated in Article 15 of Decree No. 35-HĐBT dated January 25, 1992.

- Business license (for business establishments);

- Scientific research contracts, scientific service contracts. These contracts must ensure complete documentation as required under current regulations for managing research topics and projects (decisions of competent authorities). Specifically, contracts between organizations and individuals (including foreign entities) must be confirmed by state management agencies responsible for science management:

+ Contracts valued at 100 million dong or more must be confirmed by the Ministry of Science, Technology, and Environment;

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

- Official annual settlement statement of the establishment with detailed information on the results of scientific research and service activities;

- Annual settlement inspection record and recommendation from the direct tax administration agency;

7- In cases where tax reduction is provided for in point 6, section A, part IV of this Circular, the following must be provided:

- Economic and technical justification approved by the supervising authority, determining the product as a trial production item;

- Official annual settlement statement detailing the effectiveness of trial production activities for new products;

- Annual settlement inspection record and recommendation from the direct tax administration agency;

8- In cases where tax reduction is provided for in point 2, section B, part IV of this Circular, the following must be provided:

- Official annual settlement.

- Annual settlement inspection record and recommendation from the direct tax administration agency;

- Report on employee income;

Documents confirming that the area is difficult;

9- In cases where tax reduction is provided for in point 3, section B, part IV of this Circular, the following must be provided:

- Official annual settlement statement (annual financial plan for cases where retained earnings tax is temporarily withheld);

- Economic justification for deep investment plans; expansion and annual investment plans (for cases where retained earnings tax is temporarily withheld);

- Inspection record of production and business results, tax settlement, and related documents explaining the actual expenditures: invoices, payment vouchers, final settlement documents for investment projects, and local tax authority letters requesting clarification on the amount of reinvestment funds not yet settled (investment capital needs according to the plan for cases where retained earnings tax is temporarily withheld), investment capital available during the year (basic construction fund, production and business development fund...);

10- In cases where loss carryforward is allowed as provided for in section C, part IV of this Circular, the following must be provided:

- Record of the Valuation Committee (with representation from the direct tax administration agency) for cases involving natural disasters, enemy actions, accidents;

- Official annual settlement report detailing the value of losses due to natural disasters, accidents, etc.;

- Official annual settlement inspection record and recommendation from the direct tax administration agency;

- The direct tax administration agency is responsible for reviewing and examining relevant data and circumstances related to tax exemption and reduction applications. Cases outside its jurisdiction must provide written opinions and recommendations along with the enterprise's tax exemption and reduction application to be reviewed by higher-level tax authorities. All exemption and reduction review documents must be originals; if copies, they must be notarized.

Tax exemption and reduction reviews will be conducted upon receipt of the official annual settlement report.

V- RESPONSIBILITIES OF BUSINESS ESTABLISHMENTS

1- When the tax authority requests relevant documents for tax verification, the business establishment has the responsibility to:

a) Provide all necessary documents within the specified time frame;

b) Explain and prove unclear items in tax declarations, accounting books, and vouchers;

c) Inventory raw materials and goods stock to reconcile with accounting books and vouchers.

Business establishments may not refuse to present, provide, or explain necessary documents based on confidentiality reasons when requested by the tax authority.

2- Business establishments have the right to request the tax authority not to disclose to other organizations or individuals without responsibility the documents presented or provided by the business establishment which are confidential.

VI- PENALTY AND REWARD

Penalty and reward procedures under Articles 27, 29, and 30 of the Corporate Income Tax Law shall be implemented in accordance with Circular No. 11 TC/TCT dated February 24, 1993, issued by the Ministry of Finance, guiding the implementation of Decree No. 01 CP dated October 18, 1992, of the Government on administrative penalties in the field of taxation. For late payment of taxes or fines, in addition to paying the full amount of tax and fine as stipulated by law, a daily penalty of 0.2% (two thousandths) of the overdue tax amount will be imposed.

VII- DUTIES AND LIMITS OF THE TAX AUTHORITY

1- The duty of managing corporate income tax collection is carried out by the tax system under the Ministry of Finance at various levels.

2- The authority of each level of the tax agency regarding the examination of appeal petitions is as follows:

- Higher-level tax agencies examine appeals handled by lower-level tax agencies.

If further appeals exist, the Minister of Finance will make the decision.

During the appeal process, organizations or individuals must still pay the full amount of tax or fine as notified.

VIII- EFFECTIVE DATE

- This Circular takes effect from September 1, 1993.

- Corporate income tax settlement for the year 1993 will be averaged monthly throughout the year: the first eight months will be calculated based on the tax rate prescribed in the Corporate Income Tax Law, while the last four months will be calculated based on the revised tax rate.

- Tax exemption and reduction will be applied for the 1993 settlement period.

This Circular replaces Circular No. 47 TC/TCT dated October 4, 1990, and other provisions contrary to this Circular.

Any issues encountered during implementation should be promptly reported to the Ministry of Finance (General Department of Taxation) for resolution.