Circular No. 88/2004/TT-BTC amending and supplementing Circular No. 128/2003/TT-BTC guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax.

CIRCULAR

Amending and supplementing Circular No. 128/2003/TT-BTC dated December 22, 2003

of the Ministry of Finance guiding the implementation of Decree No. 164/2003/NĐ-CP

dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax

business income

____________________

Pursuant to Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax and Decree No. 152/2004/NĐ-CP dated August 6, 2004 of the Government amending and supplementing certain articles of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax;

Pursuant to Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax and Decree No. 152/2004/NĐ-CP dated August 6, 2004 of the Government amending and supplementing some articles of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax;

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;

The Ministry of Finance guides the amendment and supplementation of some contents of Circular No. 128/2003/TT-BTC dated December 22, 2003 guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax as follows:

1. Paragraph two, Section III, Part C shall be amended as follows:

"Households and individuals engaged in business with income from transferring land use rights or land lease rights shall not pay corporate income tax on the transfer of land use rights or land lease rights according to the guidance provided in this Circular but shall pay taxes in accordance with the current Law on Land Transfer Tax."

2. In item 2.1.b, Point 2, Section VII, Part C, replace the phrase "tax declaration form No. 02D/TNDN" with the phrase "tax declaration form for income from transferring land use rights or land lease rights (form No. 02C/TNDN)."

3. Supplement item 5.3 into Point 5, Section II, Part D as follows:

5.3. For households and individuals engaged in business that do not fully comply with accounting records, invoices, and receipts when providing agency services at correct prices (such as insurance agents, mobile phone card resellers), they must pay corporate income tax on the commission received. The amount of corporate income tax payable in this case is determined at a fixed rate of 5% of the commission (including all support payments from the principal) received by households and individuals engaged in business. The business entity assigning the agency has the responsibility to withhold the corporate income tax from the commission payable to households and individuals engaged in business and remit it to the State budget."

4. The first bullet point in Point 2, Section I, Part E shall be amended as follows:

- In special-class cities and class 1 cities: 100 people"

5. Section II, Part E shall be amended and supplemented as follows:

5.1. Point 1 shall be amended and supplemented as follows:

5.1.1. Item 1.2, Point 1 shall be amended and supplemented as follows:

1.2. A tax rate of 20% shall apply to: newly established businesses from investment projects in area B; newly established service providers from investment projects carried out in Industrial Zones."

5.1.2. Item 1.4, Point 1 shall be amended and supplemented as follows:

1.4. A tax rate of 15% shall apply to: newly established businesses from investment projects in area C; newly established service providers from investment projects carried out in Export Processing Zones; newly established production facilities from investment projects carried out in Industrial Zones."

5.1.3. Item 1.5, Point 1 shall be amended and supplemented as follows:

1.5. A tax rate of 10% shall apply to: cooperatives established in area C; newly established businesses in industry A and operating in area C; newly established infrastructure development businesses from investment projects developing infrastructure in Industrial Zones and Export Processing Zones; newly established export processing enterprises in manufacturing regardless of whether inside or outside Export Processing Zones; newly established businesses from specially encouraged investment projects; newly established foreign-invested enterprises in healthcare, education, training, and scientific research."

5.1.4. The last paragraph of Point 1 "Businesses with investment projects producing goods and services subject to different preferential tax rates must separately account for income from each project. If separate accounting for income from each project is not possible, the business must pay tax at the highest applicable tax rate." shall be replaced with the following new paragraph:

For businesses currently operating that have investment projects to build new production lines, expand scale, update technology, improve ecological environment, and enhance production capacity, the preferential tax rate applied to additional income generated by such investments shall be as follows:

- In cases where the investment project is in the same industry, field, and location as the main office of the business, the additional income generated by the investment project shall be taxed at the current tax rate of the business.

- In cases where the investment project is in a different industry, field, or location than the main office of the business, and the industries, fields, or locations mentioned above are encouraged for investment, the preferential tax rate applied to the additional income generated by the investment project shall be determined based on the degree to which the project meets the conditions for preferential investment.

- In cases where the investment project is in a different industry, field, or location than the main office of the business, and the industries, fields, or locations mentioned above are not encouraged for investment, the additional income generated by the investment project must be taxed at a rate of 28%."

5.2. Item 2.1, Point 2 shall be amended and supplemented as follows:

2.1. A tax rate of 10% shall be applied for 15 years, starting from when the cooperative and newly established businesses from investment projects begin operations. In cases requiring higher encouragement, the Ministry of Finance shall submit to the Prime Minister for approval the duration of applying a 10% tax rate throughout the implementation period of the project."

6. Section III, Part E shall be amended and supplemented as follows:

6.1. Point 1 shall be amended and supplemented as follows:

6.1.1. Add item 1.13 with the following content:

1.13. Newly established businesses from investment projects implemented in Industrial Zones and Export Processing Zones shall enjoy tax exemptions and reductions as follows:

a. Exempt from tax for two years, starting from when taxable income begins, and reduce by 50% of the tax payable for the next six years for newly established service providers from investment projects carried out in Industrial Zones;

b. Exempt from tax for three years, starting from when taxable income begins, and reduce the amount of tax payable by fifty percent for the next seven years for: new service establishments established from investment projects implemented in Export Processing Zones; new production establishments established from investment projects implemented in Industrial Zones.

c. Exempt from tax for four years, starting from when taxable income begins, and reduce the amount of tax payable by fifty percent for the next seven years for: new infrastructure development establishments established from investment projects to develop infrastructure in Industrial Zones and Export Processing Zones; export processing enterprises in manufacturing sectors regardless of whether they are inside or outside Export Processing Zones.

6.1.2. Replace the last part from "New business establishments formed from investment projects and business establishments that have relocated their location are exempted from tax, reduced tax..." until the end of point 1 with the following new paragraph:

Business establishments established under the following circumstances shall not be entitled to preferential treatment on corporate income tax as new business establishments formed from investment projects:

- Business establishments established through division, separation, merger, or consolidation as provided by law;

- Business establishments established due to changes in enterprise form or ownership (except for cases of shareholding conversion of state-owned enterprises and transfer, sale of state-owned enterprises according to Decree No. 64/2002/NĐ-CP dated June 19, 2002, Decree No. 103/1999/NĐ-CP dated September 10, 1999, and subsequent decrees amending and supplementing these decrees issued by the Government);

- New private enterprises established from individual business households with the same business activities and business premises as before;

- New private enterprises, partnerships, limited liability companies, or cooperatives established where the legal representative or the person with the highest capital contribution in such business establishment has participated in business operations as a private enterprise owner, partnership member, legal representative, or person with the highest capital contribution in other operating business establishments or dissolved business establishments but less than twelve months have passed since the dissolution of the old business establishment to the establishment of the new business establishment.

6.2. Point 2 is amended and supplemented as follows:

2. Business establishments operating in economic zones shall enjoy tax exemption and reduction periods decided by the Prime Minister, but not exceeding four years of tax exemption, starting from when taxable income begins, and reducing the amount of tax payable by fifty percent for the next nine years.

New business establishments formed from special encouraged investment projects, medical facilities, educational institutions, training centers, and scientific research organizations with foreign direct investment shall be exempt from tax for four years, starting from when taxable income begins, and reducing the amount of tax payable by fifty percent for the next nine years.

6.3. Amend and supplement the beginning of Point 4 as follows:

4. Production and trading establishments exporting goods in industries and fields specified in Section III, List A, in addition to being exempt from tax and reduced corporate income tax as guided in Points 1, 2, and 3 of this Section, shall also enjoy additional preferential treatment on corporate income tax as follows:"

7. Point 1, Section IV, Part E is amended and supplemented as follows:

1. Principles for implementing tax exemptions and reductions.

1.1. The tax exemptions and reductions stipulated in Sections II and III of this Part only apply to business establishments meeting the conditions for tax preferences; maintaining full accounting records, invoices, and supporting documents; registering taxes and paying taxes based on declarations.

1.2. During the same period, if a portion of income is subject to tax exemptions and reductions under different circumstances, the business establishment may choose the most favorable circumstance according to the regulations and inform the tax authority.

1.3. During the tax exemption and reduction period, if the business establishment engages in multiple business activities, it must separately track and account for the income from the business activities subject to tax exemptions and reductions. In cases where separate tracking and accounting are not possible, the income from the business activities subject to tax exemptions and reductions shall be determined by multiplying the total taxable income by the percentage of revenue from the business activities subject to tax exemptions and reductions relative to the total revenue of the business establishment during the tax period.

1.4. Business establishments currently enjoying preferential treatment on corporate income tax who undergo changes in enterprise form, ownership transfer, or mergers with other business establishments according to the law shall continue to enjoy preferential treatment on corporate income tax for the remaining preferential period, provided they still meet the investment preference conditions.

1.5. The tax exemption and reduction year is determined in accordance with the Tax Period. The tax exemption and reduction period is calculated continuously from the Tax Period when the business establishment first begins to generate taxable income (excluding losses carried forward from previous Tax Periods). If, in the first Tax Period, the business establishment already generates taxable income but its operational period for goods and services is less than twelve months, the business establishment has the right to register with the tax authority to calculate the tax exemption and reduction period from the first Tax Period or from the subsequent Tax Period.

8. Point 3, Part I "Implementation Organization" is supplemented as follows:

3. Foreign-invested enterprises and foreign parties participating in joint venture contracts that have been granted Investment Licenses; domestic business establishments that have been granted Investment Preference Certificates shall continue to enjoy tax exemptions and reductions listed in their Investment Licenses and Investment Preference Certificates. In cases where the level of tax exemptions and reductions listed in the Investment Licenses and Investment Preference Certificates is lower than the levels of tax exemptions and reductions stipulated in this Circular, the business establishments shall enjoy the levels of tax exemptions and reductions stipulated in this Circular for the remaining preferential period (the preferential tax period according to the Investment License and Investment Preference Certificate minus the preferential tax period already enjoyed up to January 1, 2004).

Domestic business establishments established prior to this that have enjoyed investment incentives under previous regulatory legal documents but have not been issued an Investment Incentive Certificate shall enjoy tax incentives according to the conditions of those previous investment incentives for the remaining incentive period starting from January 1, 2004.

Domestic business establishments established prior to this that were not eligible for investment incentives but now meet the conditions for investment incentives as guided by this Circular shall enjoy tax incentives as guided by this Circular for the remaining incentive period starting from January 1, 2004.

Domestic business establishments currently enjoying tax exemptions or reductions under the Law on Corporate Income Tax dated May 10, 1997, if they still have a remaining exemption or reduction period, shall continue to enjoy the full remaining exemption or reduction period.

Foreign-invested enterprises and foreign parties participating in joint venture contracts that have completed their tax incentive periods according to their Investment Licenses shall switch to applying a 25% tax rate; in cases where they are currently paying corporate income tax at a 25% rate, they shall continue to apply the 25% tax rate until the expiration of their Investment Licenses. Domestic business establishments that have completed their tax incentive periods shall switch to applying a 28% tax rate; domestic business establishments currently applying a 32% tax rate shall switch to applying a 28% tax rate, effective from the date this Circular takes effect.

9. Amend some forms issued together with Circular No. 128/2003/TT-BTC as follows:

9.1. Repeal Form No. 01/TNDN "List of Purchased Goods and Services from Organizations and Individuals Not Engaged in Business Without Invoices or Supporting Documents According to the Established Regulations." and replace the phrase "Form No. 01/TNDN" in Section 2.2, Point 2, Subsection III, Part B with the phrase "Form No. 04/GGT - List of Purchased Goods Without Invoices Issued Together with Circular No. 120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance guiding the implementation of Decree No. 158/2003/NĐ-CP dated December 10, 2003 of the Government."

9.2. Amend the names of some indicators and appendices issued together with the Corporate Income Tax Final Settlement Declaration (Form No. 02D/TNDN) and issue a new Corporate Income Tax Final Settlement Declaration (Form No. 02D/TNDN) accompanying this Circular.

10. Implementation organization

For investment projects establishing new business establishments from January 1, 2004 to the date this Circular takes effect, if applying a higher level of incentives according to Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance than the level of incentives guided by this Circular, the business establishment shall enjoy the incentives according to Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance for the remaining incentive period of the project.

This Circular shall take effect 15 days after its publication in the Official Gazette and shall apply to tax periods starting from 2004.