Circular No. 94/TC-TCT guiding procedures, sequence, and authority for tax exemption and reduction according to the Law on Encouraging Domestic Investment and Decree No. 29 dated May 12, 1995 detailing the implementation of the Law on Encouraging Domestic Investment.

CIRCULAR

Guidelines on procedures, steps, and authority for examining tax exemptions and reductions according to the Law on Encouraging Domestic Investment and Decree No. 29/CP dated May 12, 1995 of the Government detailing the implementation of the Law on Encouraging Domestic Investment

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Pursuant to current tax laws and Articles 18 and 19 of the Law on Encouraging Domestic Investment; provisions in Chapter III and Articles 26 and 27 of Decree No. 29/CP dated May 12, 1995 of the Government detailing the implementation of the Law on Encouraging Domestic Investment, the Ministry of Finance provides guidelines on procedures, steps, and authority for examining tax exemptions and reductions for domestic investors as follows:

I. APPLICABLE OBJECTS

The subjects eligible for tax incentives under this Circular are those specified in Article 4 of the Law on Encouraging Domestic Investment and Article 1 of Decree No. 29/CP dated May 12, 1995 of the Government detailing the implementation of the Law on Encouraging Domestic Investment, including:

1. Enterprises belonging to various economic sectors:

- State-owned enterprises;

- Enterprises of political and social organizations;

- Individuals, household business owners, independent business groups, and other business entities;

- Limited liability companies;

- Joint-stock company;

- Private enterprise.

2. Business units operating under Decree No. 66/HĐBT dated March 2, 1992 of the Council of Ministers (now the Government).

3. Enterprises directly invested in Vietnam by overseas Vietnamese.

4. Enterprises of foreign individuals residing long-term in Vietnam investing directly in Vietnam.

The subjects mentioned in Points 1, 2, 3, and 4 must:

- Operate in accordance with their business registration;

- Strictly comply with regulations on the use of purchase and sale invoices, service supply certificates, accounting systems, statistical records, tax payment registration, and full tax declaration and payment according to current laws.

5. Organizations and individuals purchasing shares or contributing capital to enterprises, including state-owned enterprises permitted to diversify ownership.

II. PROCEDURES, STEPS AND AUTHORITY FOR EXAMINING TAX EXEMPTIONS AND REDUCTIONS

1. Examination of tax exemptions and reductions on income and profit for new production and business establishments from investment projects as stipulated in Articles 16, 17, 18, and 19 of Decree No. 29/CP dated May 12, 1995 of the Government:

New establishments established from January 1, 1995 (the date when the Law on Encouraging Domestic Investment came into effect) are considered new establishments that have been granted production and business licenses. Existing establishments that have undergone division, separation, merger, name change, or expansion, renovation, modification, or addition of goods or industries do not qualify for tax exemptions and reductions as new establishments.

1a. Procedures for examining tax exemptions and reductions for establishments eligible for tax exemptions and reductions must submit application files to the competent tax authority, which include:

- Decision or business registration certificate;

- Tax payment registration;

- Investment incentive certificate issued by the Ministry of Planning and Investment or the People's Committee of provinces/cities directly under the central government (hereinafter referred to as provincial level);

A statement from the establishment accompanied by confirmation and specific recommendation from the Provincial Tax Bureau or District Tax Office (if within the jurisdiction of the Provincial Tax Bureau);

- Audit settlement report and settlement of the year being examined for tax exemption and reduction.

1b. Steps and authority for examining tax exemptions and reductions:

Production and business establishments submit applications for tax exemptions and reductions to the competent tax authority. Within a maximum period of 30 days from the date of receipt of the application file, the competent authority must decide on tax exemptions and reductions, or notify the production and business establishment of reasons for non-resolution or rejection.

Authority for examining tax exemptions and reductions:

- The Director of the Provincial Tax Bureau examines and decides on tax reductions for production and business establishments managed by local authorities with an average monthly tax reduction up to five million dong; and a tax reduction or exemption of up to fifty million dong annually.

- The Director-General of the State Revenue Administration examines and decides on tax reductions for production and business establishments managed by local authorities with an average monthly tax reduction exceeding five million dong; and a tax reduction or exemption exceeding fifty million dong annually.

- The Minister of Finance examines and decides on cases where the average monthly tax reduction exceeds fifty million dong; and a tax reduction or exemption exceeding one hundred million dong annually.

Tax reductions and exemptions are conducted annually following the end of the production and business year. To avoid difficulties in tax collection management as well as for production and business establishments, during the period eligible for tax exemptions and reductions, the head of the directly managing tax authority will check the specific decision or business registration certificate, investment incentive certificate, and compare them with the specific criteria and conditions stipulated in Decree No. 29/CP to temporarily refrain from collecting taxes monthly (for cases eligible for tax exemption on profits); or temporarily defer payment of no more than 50% of the monthly provisional tax payable for production and business establishments.

1c. Other related issues:

a) The provisions for tax exemptions and reductions for newly established production and business establishments eligible for investment incentives as stipulated in Articles 16, 17, 18, and 19 of Decree No. 29/CP encompass all tax exemptions and reductions on income and profit already prescribed in the Law on Encouraging Domestic Investment and current Income Tax Law and Profit Tax Law regarding newly established entities. Therefore, for newly established entities from January 1, 1995, which also fall under investment incentive projects under the Law on Encouraging Domestic Investment, the competent authority shall only examine tax exemptions and reductions on income and profit according to the percentage and duration specified in Articles 16, 17, 18, and 19 of Decree No. 29/CP (regarding newly established entities).

Newly established production establishments that do not meet the eligibility criteria for incentives under the Law on Encouraging Domestic Investment and Decree No. 29/CP continue to be eligible for tax exemptions and reductions under the Income Tax Law, Profit Tax Law, and detailed implementing regulations and guidance issued by the Government and the Ministry of Finance concerning these tax laws.

b) Pursuant to Article 28 of Decree No. 29/CP, production and business establishments that were established before the Domestic Investment Encouragement Law came into effect and are eligible for investment incentives shall enjoy such incentives during the remaining period starting from January 1, 1995. These establishments shall base their industry, trade, and goods specified in the establishment decision, business license, or registration, and Decree No. 29/CP. The Ministry of Planning and Investment or the Provincial People's Committee shall issue an investment incentive certificate. When applying for tax exemptions or reductions, these establishments must submit tax exemption and reduction application documents to the competent authority, including procedures as outlined in Section II (Clause 1) above, to be considered for revenue tax and profit tax exemptions under Decree No. 29/CP, and continue to benefit from tax exemptions or reductions for the remaining period starting from January 1, 1995. The State will not refund any taxes or other obligations that the establishment was required to fulfill prior to the Domestic Investment Encouragement Law coming into effect (January 1, 1995).

Example: Company A, a canned food manufacturing company located in a delta province, was established before January 1, 1995. Now, the company has been granted an investment incentive certificate by the municipal people's committee, qualifying for tax incentives under Clause 1, Article 16 of Decree No. 29/CP, specifically as follows:

- A 50% reduction in revenue tax for one year (starting from the month of revenue tax generation).

- Exemption from profit tax for the first two years (starting from the month of taxable profit generation) and a 50% reduction in profit tax for the following four years.

Assuming there are several cases:

a) A company was established, began operations, and generated revenue in January 1994, and made a profit in 1994, then:

- Revenue tax: Company A has exceeded the period for tax reduction (from January 1, 1994, when revenue tax generation started, until January 1, 1995, which is one year).

- Profit tax: Exempted for one year in 1995 and reduced by 50% for the next four years: 1996, 1997, 1998, 1999.

b) A company was established, began operations, and generated revenue on January 1, 1993, and made a profit in 1993, then:

- Revenue tax: As of January 1, 1995, the company had been operating for two years since revenue generation began, thus it no longer qualifies for revenue tax reduction.

- Profit tax: Reduced by 50% for the next four years: 1995, 1996, 1997, 1998.

c) A company was established, began operations, and generated revenue on January 1, 1992, with losses in both 1992 and 1993. It began making profits in 1994:

- Revenue tax: Not eligible for reduction because by January 1, 1995, the company had been operating for three years since revenue generation began.

- Profit tax: Exempted for 1995; reduced by 50% for the next four years: 1996, 1997, 1998, 1999.

2. Exemption from profit tax in cases of additional reinvestment and expanded reinvestment.

According to Article 20 of Decree No. 29/CP, production and business establishments that invest additional capital or use remaining profits for expanded reinvestment to increase production capacity, improve production capabilities, and modernize technology shall be exempt from profit tax on the increased profit of the following year resulting from such investments.

To qualify for the aforementioned tax exemption, production and business establishments must meet the following conditions:

- Actual expenditures on investment and reinvestment, excluding state budget funds, self-supplemented basic construction investment funds, and production development encouragement funds.

- Investments and reinvestments must be linked to the achieved benefits, reflected in higher profits compared to the previous year.

- The amount of tax exemption or reduction equals the difference between the profit of the following year and the profit of the year with investment, but shall not exceed the additional profit calculated based on the increase in investment capital.

2a. Procedures and authority for tax exemption review:

Production and business establishments eligible for tax exemption due to additional reinvestment and expanded reinvestment must have the following complete procedures:

- An investment incentive certificate issued by the Ministry of Planning and Investment or the provincial people's committee.

- A request letter explaining the reasons for requesting tax exemption, accompanied by inspection records and recommendations from the directly managing tax authority.

- Relevant investment documents including:

+ For state-owned enterprises, economic and technical feasibility studies of investment plans approved by authorized bodies; final accounts of projects and construction funds.

+ For limited liability companies and joint-stock companies, investment plans or feasibility studies approved by the board of directors; final accounts of projects and construction funds.

+ For private enterprises, contracts and final settlement reports of construction and installation equipment; if self-built, invoices for purchased materials, machinery, and equipment, and actual installation and operation of such machinery and equipment must be presented.

- Final accounts report of the investment year, accompanied by acceptance and payment records of projects and final accounts reports of the year following the investment year.

Authority to review and grant tax exemption for production and business establishments eligible for profit tax exemption due to additional reinvestment and expanded reinvestment shall be carried out as stipulated at Point 1(1b), Section II of this Circular.

2b. To alleviate difficulties and encourage production and business establishments to engage in additional reinvestment and expanded reinvestment, during the year under consideration for tax exemption, the establishments may temporarily retain up to 50% of the tax payable on the increased profit according to the investment plan, but not exceeding 30% of the planned tax payable for the year.

Example: Company A has the following situation:

+ In 1995, it raised its own capital to expand production, increasing its capital by 20% compared to the previous year.

+ Total profit in 1996 reached 500 million VND, which is 110 million VND higher than in 1995. Therefore, the additional profit exempted due to additional investment is only 500 million VND x 20% = 100 million VND, not 110 million VND.

+ In the same example, if the profit in 1996 was only 80 million VND higher than in 1995, then Company A would only be exempted from tax on the additional profit of 80 million VND, not 100 million VND.

3. Exemption from profit tax or income tax on income derived from organizations or individuals purchasing shares or contributing capital to businesses.

According to Article 22 of Decree No. 29/CP dated May 12, 1995 of the Government, organizations and individuals (subjects mentioned in Section I of this Circular) purchasing shares or contributing capital to enterprises, including state-owned enterprises permitted to diversify ownership, shall be exempt from income tax or personal income tax, including additional income tax for high-income earners, on the income derived from such shares or contributions for a period of three years, starting from the first time they receive such income (continuously for thirty-six months), regardless of whether there are months without income.

Note: The subjects exempted from tax under this provision are organizations and individuals receiving income from enterprises due to purchasing shares or contributing capital to enterprises. Except in cases where they are not required to pay taxes according to the Law on Income Tax, the Ordinance on Additional Income Tax for High-Income Earners, and detailed regulations and guiding documents issued by the Government and the Ministry of Finance, organizations and individuals with taxable income must declare specifically and present fully to the competent authority the evidence proving their shareholdings, capital contributions, income, and other financial benefits received.

The income distributed to organizations and individuals purchasing shares or contributing capital to enterprises is the income after the enterprise has paid corporate income tax.

The procedures, sequence, and authority to grant tax exemptions and reductions in this case are as follows:

- Enterprises receiving capital contributions or selling shares must notify the district, county, or town tax authority managing the organization or individual contributing capital or purchasing shares about the amount of capital contribution or the value of shares along with the enterprise's profit distribution decision (to be kept at the enterprise).

- Organizations or individuals contributing capital or purchasing shares subject to taxation must declare to the local tax authority where they contribute capital or purchase shares regarding the place of contribution or purchase, the value of capital contribution or shares, and the portion of profits received, accompanied by a request for tax exemption confirmed by the directly managing tax authority to be sent to the Provincial Tax Department.

- The Provincial Tax Department decides on the tax exemption within the latest period of thirty days from the date of receipt of the application. In cases where the exemption is not resolved or denied, the reason must be clearly communicated to the organization or individual who submitted the application.

The tax exemption will be granted to each organization or individual for the entire separate income obtained from purchasing individual shares or contributing individual amounts of capital to enterprises over a continuous period of three years.

Example: A company has three sources of income from purchasing shares beginning in January, May, and October 1995.

The decision on tax exemption will be calculated as follows:

- Exempting tax on the income from shares generated in May 1995 for a continuous three-year period (until May 1998).

- Exempting tax on the income from shares generated in January 1995 for a continuous three-year period (until January 1998).

4. Examination of Import Duty Exemption for Machinery and Equipment:

Article 2 of Decree No. 29/CP dated May 12, 1995 stipulates: "Investment projects for constructing technical infrastructure, developing education, healthcare, ethnic culture, scientific research and technology, investment projects in counties belonging to ethnic minority areas, mountainous regions, and islands shall be exempt from import duties (imported directly or through agency imports) for equipment, machinery, and spare parts installed in production lines. The equipment, machinery, and spare parts exempted from import duties must be modern and not yet produced domestically.

The procedures for examining import duty exemption in this case include:

- An import permit issued by the Ministry of Trade.

- An agency import contract (if it is an agency-imported item).

- An import declaration form issued by the customs authority (already settled and taxed).

- An investment incentive certificate approved by the Ministry of Planning and Investment or the People's Committee of the province.

The investment project and list of equipment, machinery, and spare parts must be approved by the ministry in charge or the provincial People's Committee.

- Confirmation from the Ministry of Science, Technology, and Environment that the machinery and spare parts are types of modern equipment not yet produced domestically.

Imported equipment, machinery, and spare parts for use in the above investment projects, after being exempted from import duties, if used for purposes other than those intended, then within the latest period of two days, the project investor must report to the customs authority where the import procedures were carried out to pay back the import duty that was exempted. In cases of intentional non-reporting, in addition to paying back the exempted import duty, a fine of two to five times the amount of the duty payable will be imposed.

The authority to decide on import duty exemptions provided herein is determined by the Minister of Finance.

5. Tax on Repatriation of Profits:

According to Article 23 of Decree No. 29/CP, overseas Vietnamese investing according to the forms prescribed in Article 4 of the Law on Encouraging Domestic Investment, when repatriating profits abroad, must pay a tax equal to 5% of the amount transferred abroad. The method of determining the tax payable and the procedures for payment are implemented according to Point 2 and 3 of Section II of Circular No. 51 TC/TCT dated July 3, 1993 of the Ministry of Finance guiding the implementation of tax regulations applicable to foreign-invested enterprises in Vietnam.

III. IMPLEMENTATION ORGANIZATION.

- After enjoying tax incentives according to the guidance in this Circular, if there is a change in the investor, the new investor will continue to enjoy the remaining tax incentives for the project according to the regulations and has the responsibility to fulfill all obligations to enjoy the registered tax incentives.

- If the investor has been granted tax incentives based on the conditions registered for the investment project, but during the implementation process, the investor changes the registered conditions leading to a change in the tax incentive regime according to Decree No. 29/CP, then within the latest period of five days, the investor must report to the authority responsible for granting tax incentives to change the tax incentive decision, supplement or revoke part or all of the previously decided tax incentives.

- The investor who engages in fraudulent acts to enjoy tax incentives without declaring changes in investment conditions, intentionally alters tax incentives in the direction specified in this Circular, shall, in addition to being required to refund the tax incentives already enjoyed, be subject to administrative penalties or criminal prosecution according to the provisions of the law.

- Tax officials and other individuals who abuse their positions or powers, intentionally certify or act contrary to the provisions of this Circular to enable investors to enjoy tax incentives, causing damage to the state budget, shall be disciplined, administratively fined, or criminally prosecuted according to the provisions of the law depending on the severity of the violation.

- Tax authorities at all levels are responsible for directing and strictly managing investment projects implemented under the Law on Encouraging Domestic Investment, the conditions registered by investors for each project within their jurisdiction that relate to tax exemption and reduction regimes, while creating favorable conditions for investors during the implementation of projects, and promptly detecting and preventing fraudulent acts aimed at evading or avoiding taxes.

- Tax authorities must maintain records and retain all relevant documents concerning the examination of tax exemptions and reductions for each investment project.

This Circular takes effect from the date of signature. Guidelines regarding procedures, processes, and authority for tax exemptions and reductions for cases not covered by the Law on Encouraging Domestic Investment and Decree No. 29/CP will continue to be implemented according to current guiding documents.