CIRCULAR No. 88/2004/TT-BTC OF SEPTEMBER 1, 2004 AMENDING AND SUPPLEMENTING THE FINANCE MINISTRY’S CIRCULAR No. 128/2003/TT-BTC OF DECEMBER 22, 2003 GUIDING THE IMPLEMENTATION OF THE GOVERNMENT’S DECREE No. 164/2003/ND-CP OF DECEMBER 22, 2003 DETAILING THE IMPLEMENTATION OF THE LAW ON ENTERPRISE INCOME TAX 

Pursuant to the Law on Enterprise Income Tax, passed on June 17, 2003 by the XIth National Assembly;

Pursuant to the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 detailing the implementation of the Law on Enterprise Income Tax and the Government’s Decree No. 152/2004/ND-CP of August 6, 2003 amending and supplementing a number of articles of the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 detailing the implementation of the Law on Enterprise Income Tax;

Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance hereby guides the amendments and supplements to a number of contents of Circular No. 128/2003/TT-BTC of December 22, 2003 guiding the implementation of the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 detailing the implementation of the Law on Enterprise Income Tax as follows:

1. The second paragraph of Section III, Part C, is amended as follows:

“Business households and individuals earning incomes from land-use right or land-rent right transfer shall not pay tax on such incomes under the guidance in this Circular but pay tax according to the provisions of the current Law on Land Use Right Transfer Tax.”

2. The phrase “tax declarations made according to Form No. 02D/TNDN” at Item 2.1.b, Point 2, Section VII, Part C, is replaced with the phrase “declarations of tax on incomes earned from land-use right or land-rent right transfer (Form No. 02C/TNDN).”

3. The following Item 5.3 is added to Point 5, Section II, Part D:

“5.3. Business households and individuals that have not yet fully applied the accounting, invoice and voucher regime prescribed for commissioned sale service agents (for example, insurance agents and mobile phone card sale agents) shall have to pay enterprise income tax on their earned commission amounts. The payable enterprise income tax amounts in these cases shall be determined at the fixed ratio of 5% of the commission amounts (including supports provided by the principals, which business households and individuals enjoy. Business establishments being the principals shall have to deduct the enterprise income tax amounts from the commission amounts payable to business households and/or individuals and remit such amounts into the State budget.”

4. The first em rule of Point 2, Section I, Part F is amended as follows:

“- In special-grade and grade-I urban centers: 100 persons”

5. Section II of Part F is amended and supplemented as follows:

5.1. Point 1 is amended and supplemented as follows:

5.1.1. Item 1.2 of Point 1 is amended and supplemented as follows:

“1.2. The tax rate of 20% shall apply to business establishments newly set up under investment projects in geographical areas B; service establishments newly set up under investment projects executed in industrial parks.”

5.1.2. Item 1.4 of Point 1 is amended and supplemented as follows:

“1.4. The tax rate of 15% shall apply to business establishments newly set up under investment projects in geographical areas C; service establishments newly set up under investment projects executed in export-processing zones; production establishments newly set up under investment projects executed in industrial parks.”

5.1.3. Item 1.5 of Point 1 is amended and supplemented as follows:

“1.5. The tax rate of 10% shall apply to cooperatives set up in geographical areas C; business establishments newly set up in branches, trades and/or domains A, which are executed in geographical areas C; business establishments dealing in infrastructure development, which are newly set up under investment projects for development of infrastructures of industrial parks or export-processing zones; export-processing enterprises newly set up in production domains, regardless of whether they are located inside or outside the export-processing zones; business establishments newly set up under projects in which investment is particularly encouraged; newly set up foreign-invested establishments for medical examination and treatment, education and training or scientific research.”

5.1.4. The last paragraph of Point 1 “Business establishments which have investment projects in goods production or service provision subject to different preferential tax rates shall have to separately account incomes earned from each investment project. In cases where they cannot separately account incomes earned from each investment project, they shall have to pay tax at the highest tax rate currently applied to them” is replaced with the following new one:

“For operating business establishments which have investment projects for building new production chains, expanding production scope, renewing technologies, improving ecological environment and raising production capacity, the tax rate applicable to the additional incomes brought about by the investment shall be as follows:

- For investment projects in the same branches and domains and located in the same geographical areas where the business establishments are headquartered, the tax rate for the additional incomes brought about by the investment projects shall comply with the tax rate currently applied to the business establishments.

- For investment projects in different branches or domains or located in geographical areas other than the areas where business establishments are headquartered, if the above-stated branches, domains or geographical areas are eligible for investment encouragement, the preferential tax rate applicable to the additional income brought about by investment projects shall be determined according to the extents of projects’ satisfaction of conditions for investment preferences.

- For investment projects in different branches or domains or located in geographical areas other than areas where the business establishments are headquartered, if the above-stated branches, domains or geographical areas are not eligible for investment encouragement, the additional income brought about by investment projects shall be subject to the tax rate of 28%.”

5.2. Item 2.1 of Point 2 is amended and supplemented as follows:

“2.1. The tax rate of 10% shall be applied for 15 years after cooperatives and business establishments newly set up under investment projects commence their business operations. In special cases where particularly greater encouragement is needed, the Ministry of Finance shall propose to the Prime Minister for decision the application of the tax rate of 10% throughout the project implementation duration.”

6. Section III of Part F is amended and supplemented as follows:

6.1. Point 1 is amended and supplemented as follows:

6.1.1. The following Item 1.13 is added with the following contents:

“1.13. Business establishments newly set up under investment projects executed in industrial parks or export-processing zones shall enjoy tax exemption and reduction as follows:

a/ The tax exemption for 2 years after taxable incomes are generated and the 50% reduction of the payable tax amounts for the subsequent 6 years for service establishments newly set up under investment projects executed in industrial parks;

b/ The tax exemption for 3 years after taxable incomes are generated and the 50% reduction of the payable tax amounts for the subsequent 7 years for service establishments newly set up under investment projects executed in export-processing zones and production establishments newly set up under investment projects executed in industrial parks;

c/ The tax exemption for 4 years after taxable incomes are generated and the 50%  reduction of the payable tax amounts for the subsequent 7 years for business establishments dealing in infrastructure development, which are newly set up under investment projects for development of infrastructures in industrial parks or export-processing zones, and export-processing enterprises operating in production domains, regardless of whether they are located inside or outside the export-processing zones.”

6.1.2. The last paragraph from “business establishments newly set up under investment projects and relocated business establishments shall enjoy tax exemption or reduction …” to the end of Point 1 is replaced with the following new one:

“Business establishments set up in the following cases shall be ineligible for preferences on enterprise income tax as business establishments newly set up under investment projects:

- Business establishments set up in cases of division, separation, merger or consolidation according to law provisions;

- Business establishments set up due to enterprise transformation or ownership conversion (except for cases of equitization, assignment and sale of State enterprises under the Government’s Decree No. 64/2002/ND-CP of June 19, 2002, Decree No. 103/1999/ND-CP of September 10, 1999 and the decrees amending and supplementing the above-stated Decrees).

- Private enterprises newly set up by business households’ masters with the same business lines and the same business location.

- Newly set up private enterprises, partnerships, limited liability companies and cooperatives of which the representatives at law or the biggest capital contributors have joined in business activities with their role as owners of private enterprises, partners, representatives at law or the biggest capital contributors of business establishments which are being operating or have been dissolved within 12 months counting from the time of dissolving old business establishments to the time of setting up new business establishments.”

6.2. Point 2 is amended and supplemented as follows:

“2. For business establishments operating in economic zones, the duration for tax exemption or reduction shall be decided by the Prime Minister, but the tax exemption duration shall not exceed 4 years after taxable incomes are generated and the 50% tax reduction duration shall be the subsequent 9 years.

Business establishments newly set up under projects in which investment is particularly encouraged, newly set up foreign-invested establishments for medical examination and treatment, education and training or scientific research shall enjoy tax exemption for 4 years after taxable incomes are generated and the 50% reduction of the payable tax amounts for the subsequent 9 years.”

6.3. The first paragraph of Point 4 is amended and supplemented as follows:

“4. Establishments engaged in export goods production and trading in branches and/or domains prescribed in Section III, on List A shall, apart from enjoying the enterprise income tax exemption and/or reduction under the guidance at Points 1, 2 and 3 of this Section, also be entitled to the following enterprise income tax preferences:”

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

“1. Principles for tax exemption or reduction

1.1. The enterprise income tax preferences provided for in Sections II and III of this Part shall only apply to the business establishments which fully meet the conditions for tax preferences; fully observe the accounting, invoice and voucher regimes; or have already registered and paid tax according to their declarations.

1.2. In the same period, if an income is entitled to tax exemption or reduction in different cases, business establishments shall choose by themselves the most beneficial tax exemption or reduction cases according to the prescribed regimes and notify such to the tax offices.

1.3. In the tax exemption or reduction duration, if business establishments conduct several business activities, they must monitor and separately account incomes earned from activities entitled to tax exemption or reduction. In cases where they cannot make separate accounting, the incomes earned from business activities entitled to tax exemption or reduction shall be determined as being equal to (=) the total taxable income multiplied by (x) the proportion (%) of business turnover entitled to tax exemption or reduction to the total turnover of the business establishments in tax calculation period.

1.4. Business establishments, which, while enjoying the enterprise income tax preferences, are subject to transformation or ownership conversion or merged with other business establishments according to law provisions, shall continue enjoying the enterprise income tax preferences for the remaining preferential duration, provided that they still meet the conditions for investment preferences.

1.5. Tax exemption or reduction year shall be determined suitably to tax calculation period. The tax exemption or reduction duration shall be counted continuously from the tax calculation period when the business establishments begin to generate taxable incomes (without subtracting the loss amounts carried forwarded from previous tax calculation periods). In cases where the business establishments have earned taxable incomes right at the first tax calculation period, but the period of goods production and/or service provision is less than 12 months, they may register with the tax offices to calculate the tax exemption or reduction duration right from the first tax calculation period or the following period.”

8. Point 3 of Part I “Organization of implementation” is supplemented as follows:

“3. Foreign-invested enterprises and foreign parties to business cooperation contracts, which have been already granted investment licenses, and domestic business establishments already granted certificates of investment preferences shall continue enjoying the enterprise income tax preferences stated in their investment licenses or certificates of investment preferences. In cases where the levels of enterprise income tax preferences stated in the investment licenses or certificates of investment preferences are lower than those guided in this Circular, the business establishments shall enjoy the enterprise income tax preferences guided in this Circular for the remaining preferential duration (tax preferential duration under investment licenses or certificates of investment preferences minus (-) duration of tax preferences enjoyed up to January 1, 2004).

Domestic business establishments already set up, which are eligible for investment preferences under former legal documents but have not yet been granted certificates of investment preferences, shall enjoy the tax preferences under the former investment preferential conditions for the remaining preferential duration counting from January 1, 2004.

Domestic business establishments already set up, which were not eligible for investment preferences but now are eligible for investment preferences under the guidance in this Circular, shall enjoy tax preferences guided in this Circular for the remaining preferential duration counting from January 1, 2004.

Business establishments which are enjoying tax exemption or reduction under the May 10, 1997 Law on Enterprise Income Tax, if the tax exemption or reduction duration has not yet expired, shall continue enjoying tax exemption or reduction for the remaining tax exemption or reduction duration.

Foreign-invested enterprises and foreign parties to business cooperation contracts, upon the expiry of the duration for tax rate preferences under their investment licenses, shall shift to apply the tax rate of 25%; or if they have been paying enterprise income tax at the tax rate of 25%, they shall continue being subject to the tax rate of 25% until the expiry of their investment licenses. Domestic business establishments, upon the expiry of the duration for tax rate preferences, shall shift to apply the tax rate of 28%; those domestic business establishments, which have been applying the tax rate of 32%, shall shift to apply the tax rate of 28% as from the effective date of this Circular.”

9. To amend a number of forms issued together with Circular No. 128/2003/TT-BTC as follows:

9.1. To annul form No. 01/TNDN “List of goods and services purchased from non-business organizations or individuals without the prescribed invoices and vouchers” and replace the phrase “form No. 01/TNDN” at Item 2.2, Point 2, Section III, Part B with phrase “form No. 04/GGT – List of goods purchased without invoices, issued together with the Finance Ministry’s Circular No. 120/2003/TT-BTC of December 12, 2003 guiding the implementation of the Government’s Decree No. 158/2003/ND-CP of December 10, 2003.”

9.2. To change names of a number of norms and appendices issued together with the declaration on enterprise income tax settlement (form No. 02D/TNDN) and to issue together with this Circular new declaration on enterprise income tax settlement (form No. 02D/TNDN).

10. Organization of implementation

For investment projects on setting up business establishments as from January 1, 2004 to the effective date of this Circular, if the preferential levels stated in the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003 are higher than those provided for in this Circular, business establishments shall enjoy the preferences under the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003 for the remaining preferential duration.

This Circular takes effect 15 days after its publication in the Official Gazette and applies to tax calculation period from 2004 on.

For the Minister of Finance
Vice Minister
TRUONG CHI TRUNG