Circular No. 90/TC-TCT provides guidance on certain aspects of tax policy for joint venture banks and foreign bank branches operating in Vietnam.

CIRCULAR

OF THE MINISTRY OF FINANCE

Guidelines on certain points regarding tax policies

for joint venture banks and foreign bank branches in Vietnam

Pursuant to the Law on Foreign Investment in Vietnam and current Tax Laws, Decree No. 18/CP dated April 16, 1993 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam, Decree No. 55-CP dated August 28, 1993 of the Government detailing the implementation of the Law Amending and Supplementing Certain Provisions of the Law on Business Income Tax, and the Regulations on Foreign Bank Branches and Joint Venture Banks Operating in Vietnam issued by Decree No. 189/HĐBT dated June 15, 1991 of the Council of Ministers; the Ministry of Finance issues guidelines on certain points regarding tax policies for joint venture banks and foreign bank branches operating in Vietnam (hereinafter referred to as foreign banks) as follows:

1. Business income tax.

According to the Law on Business Income Tax dated June 30, 1990 and the Law Amending and Supplementing Certain Provisions of the Law on Business Income Tax dated July 5, 1993, foreign banks operating in Vietnam must pay business income tax on all business income generated from their operations within the territory of Vietnam.

a) Taxable income:

Taxable income is defined as follows:

For banking credit activities: it is the difference between interest income from loans and deposits of the bank and interest expense paid on borrowed funds and customer deposits.

For foreign exchange trading activities: buying and selling securities issued by state agencies and economic organizations in Vietnam, buying and selling gold, silver, precious stones; it is the difference between the purchase price and the sale price of foreign currencies, gold, silver, precious stones, and the aforementioned securities.

For providing banking service activities such as agency payments, money transfers, and guarantees: it is the amount of revenue received or commission earned from these services.

For other business activities such as leasing, selling assets, etc.: it is the total amount of revenue generated from these activities.

b) Business income tax rate:

The business income tax rate is defined as follows:

For banking credit activities, the tax rate is 15% of taxable income.

For foreign exchange trading activities and buying and selling securities with value, the tax rate is 25% of taxable income.

For buying and selling gold, silver, and precious stones, the tax rate is 15% of taxable income.

For providing banking service activities, the tax rate is 6% of taxable income.

For other business activities, the business income tax rate shall be applied according to the business income tax schedule issued by Decree No. 55-CP dated August 28, 1993 of the Government, appropriate to the nature and content of each business activity.

2. Profit tax.

According to Decree No. 16/CP dated April 16, 1993 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam, foreign banks must pay profit tax on all profits generated from their business activities, from ownership or usage rights of assets both within and outside the territory of Vietnam.

a) Taxable profit:

Taxable profit is determined by the difference between income subject to profit tax and reasonable and legitimate expenses, plus other profit taxes.

Income subject to profit tax includes revenues from banking credit activities, foreign exchange trading, securities with value issued by state agencies and economic organizations in Vietnam, selling gold, silver, and precious stones, providing banking service activities, and other business activities, not yet deducted by any expenses of the foreign bank in the tax year.

Reasonable and legitimate expenses include:

Expenses for raw materials and energy serving the bank's activities.

Wages, salaries, and allowances paid to Vietnamese and foreign employees based on labor contracts in accordance with the regulations on labor management for enterprises with foreign investment capital issued by Decree No. 233-HĐBT dated June 22, 1990 of the Council of Ministers (now the Government).

Depreciation of fixed assets. The deduction of depreciation of fixed assets must comply with the provisions of Circular No. 31-TC/TCĐN dated July 18, 1993. In cases where the bank wishes to deduct higher than the level prescribed in this circular, it must obtain written approval from the Ministry of Finance.

Expenses for purchasing or selling technical documents, patents, technology, and technical services...

Advertising expenses.

Taxes, fees, and charges (excluding profit tax, tax on repatriation of profits abroad, and taxes levied on income).

Insurance premiums paid by the foreign bank for its employees in accordance with Article 46 of Decree No. 233-HĐBT dated June 22, 1990 of the Council of Ministers (now the Government).

Insurance premiums for the bank's assets under the unified system of the Vietnamese State.

Reasonable interest and discount rates paid on deposits, borrowed funds, or other financial instruments.

Management costs including administrative costs, warehouse and building maintenance costs, labor protection costs, environmental protection costs, fire prevention and extinguishing costs, security, and safety costs.

Other costs not mentioned above, but not exceeding 5% of the total costs mentioned above.

Losses carried forward from previous years. The period for carrying forward losses does not exceed five consecutive fiscal years following the fiscal year in which the loss was incurred.

The following costs shall not be deductible when determining taxable profit.

Costs for materials, energy, wages... used for purposes unrelated to the formation of taxable profit.

Business interruption losses due to any cause.

Losses that have been settled by insurance agencies.

Interest payable on borrowed funds used to contribute to the registered capital (or formed capital) or for excess deposit fund mobilization beyond the prescribed limit; interest payable on borrowed funds mobilized contrary to the prescribed interest rate regime.

Other income includes income arising from asset transfer activities, capital transfer, asset liquidation, and income allocated from the home country bank to foreign bank branches (income received from foreign branches by joint venture banks).

b) Tax rate on income tax

Foreign banks pay income tax at a tax rate of 25% of taxable income.

In cases where the business license stipulates a tax rate for income tax, the tax rate specified in the business license shall be applied.

c) Collection of income tax on income of foreign branches of joint venture banks.

Where there is a Double Taxation Agreement or other agreements containing relevant provisions on taxation between Vietnam and the country where the branch of a joint venture bank is located, the collection of tax on the income of the foreign branch of the joint venture bank shall be carried out according to the provisions of these agreements.

In other cases, if the foreign branch of a joint venture bank must pay income tax in the country where the branch is located, the amount of taxable income of the joint venture bank shall be determined but the reduction amount shall not exceed 15% of the taxable income of the branch as specified in Article 2a of this Circular.

3. Tax on profit repatriation abroad.

When transferring profits abroad, foreign banks must pay tax on profit repatriation at the rate prescribed in Article 70 of Decree 18-CP dated April 16, 1993 of the Government.

In cases where the business license stipulates a tax rate for profit repatriation tax, the tax rate specified in the business license shall be applied.

4. Export tax, import tax.

Foreign banks are exempt from import tax on goods imported under investment capital according to the standards and quantities specified in Document No. 102-CN-NH5 dated March 10, 1993 of the State Bank. When importing goods subject to tax exemption as mentioned above, foreign banks must complete tax exemption procedures with the Ministry of Finance in accordance with the current Law on Export Tax and Import Tax.

5. Ground rent.

Foreign banks renting headquarters and offices from Vietnamese organizations and individuals or rented land by the Vietnamese State for headquarters and offices must pay ground rent according to Decision No. 210a-TC-VP dated April 1, 1990 and Circular No. 50-TC/TCĐN dated July 3, 1993 of the Ministry of Finance.

In cases where foreign banks rent headquarters and offices on a package basis, i.e., paying both house rent and ground rent, the Vietnamese organization or individual leasing will be responsible for collecting the ground rent that the tenant must pay to the state budget.

The specific ground rent for each bank is decided by the Ministry of Finance based on the proposal of the foreign bank and the opinion of the People's Committee of the province or city where the land is rented.

While awaiting the decision on the specific ground rent by the Ministry of Finance, the tax authority directly collects ground rent based on a provisional rate according to the guidelines in Circular No. 50-TC-TCĐN dated July 3, 1993 of the Ministry of Finance, which will adjust the collected amount according to the provisions of this decision, collecting additional (or refunding) the shortfall (or excess) paid.

6. Other types of taxes and revenues not mentioned in this document shall be implemented according to current laws and guidelines in Circular No. 51-TC-TCT dated June 31, 1993 of the Ministry of Finance.

7. Tax registration.

Within one month after obtaining the operating permit, foreign banks must complete tax registration procedures with the local tax office where the bank's headquarters is located (including locations where the bank has branches or dependent branches). During the course of operation, foreign banks must comply with tax inspection and management by the tax authority where they are registered and the Ministry of Finance.

This Circular replaces Circular No. 7-TC-TCT dated January 19, 1993 of the Ministry of Finance and takes effect from September 1, 1993./.