Recently, the Ministry of Finance has received reports from a number of units on problems arising in the course of tax collection management according to provisions of the Ministry of Finance�s Circular No. 169/1998/TT-BTC of December 22, 1998 guiding tax regulations applicable to foreign organizations and individuals doing business in Vietnam outside the investment forms prescribed by the Law on Foreign Investment in Vietnam. For the unified implementation, the Ministry of Finance hereby additionally guides Circular No. 169/1998/TT-BTC as follows:

In cases where a foreign construction and installation contractor or sub-contractor has its management office located in a locality but has its project constructed in another locality, it shall have to make tax declaration and payment with the tax authority of the locality where its project is constructed.

In cases where a foreign construction and installation contractor or sub-contractor does not follow Vietnam�s accountancy regime (pays tax by direct method), the contractual Vietnamese party shall make the declaration and registration of operations of such foreign contractor or sub-contractor in Vietnam according to form 02/NT-TCT, issued together with the Ministry of Finance�s Circular No.169/1998/TT-BTC with the tax authority of the locality where its head office is located for monitoring purpose, and at the same time the Vietnamese party shall sign a contract for tax registration, declaration and payment on behalf of such foreign contractor or sub-contractor with the tax authority of the locality where its project is constructed.

After signing contracts to share part of their works to Vietnamese sub-contractors, the foreign construction and installation contractors and/or sub-contractors shall have to send copies of the signed contracts to the investors so that the investors fill in the procedures for declaration and registration with the local tax authorities as prescribed.

When making periodical settlements with the investors, the foreign contractors and sub-contractors shall have to clearly analyze the value of each part of work performed by themselves separately from the work performed by Vietnamese sub-contractors under the signed contracts. On such basis, the investors shall calculate and declare payable tax amounts of the foreign contractors and sub-contractors with the tax authorities of the localities, where the projects are situated, on the value of project parts directly performed by such foreign contractors and sub-contractors; and at the same time deduct and pay such payable tax amounts into the State budget on behalf of the foreign contractors and sub-contractors under the guidance in Section C of the Ministry of Finance�s Circular No.169/1998/TT-BTC.

The value added tax amounts already paid on behalf of the foreign contractors and sub-contractors are input value added tax amounts of the contractual Vietnamese parties and shall be deducted under the guidance in Point 2, Section II, Part C of Circular No.169/1998/TT-BTC. Documents for determining the deductible input tax amounts of the Vietnamese parties are value added tax payment receipts or the State Treasury�s written certifications of tax amounts already remitted into the State budget.

The Vietnamese sub-contractors shall directly make the tax declaration and payment with tax authorities as prescribed.

- In cases where the Vietnamese party is responsible for the overall accounting and the parties enter into profit-sharing contracts, the Vietnamese party shall carry out the declaration, payment and final settlement of value added tax and enterprise income tax as prescribed on the total generated turnover amount, and at the same time conduct separate accounting of each contract.

- In cases where the parties enter into product-sharing contracts, or join partnerships to contract a work, but each contractual party performs a separate part of work and the parties issue by themselves invoices for their respective turnover amounts generated from the goods sale or the performance of work part under the contracts, the parties shall have to declare and pay by themselves value added tax and enterprise income tax on their respective generated turnover amounts. They shall also register tax payment method(s) and carry out the tax declaration, payment and final settlement by themselves with the tax authorities directly managing the tax collection as prescribed.

- In cases where the parties enter into a contract by mode of turnover sharing, but the contracted work is not divided into separate parts, the contractual Vietnamese party (in cases where many Vietnamese parties enter into a contract, the contractual parties shall nominate a representative to conduct the overall accounting) shall have to issue invoices to customers, and at the same time make declaration, payment and final settlement of value added tax on the whole turnover with the tax authority.

When the remuneration is paid to the concerned parties, the concerned parties shall have to issue value added tax invoices to serve as basis for the input tax deduction for the contractual Vietnamese party(ies). The registered parties shall pay tax on turnover amounts divided to them to the tax authority.

- In cases where foreign organizations and individuals (contractors) apply the direct tax calculation method, the contractual Vietnamese party(ies) shall have to deduct the value added tax and enterprise income tax of such foreign organizations and individuals before paying or transferring money to them. The value added tax amounts already paid on behalf of the foreign contractors and sub-contractors are input tax amounts of the contractual Vietnamese party(ies) and shall be deducted under the guidance in Point 2, Section II, Part C of Circular No.169/1998/TT-BTC of the Ministry of Finance.

Investors that import materials and goods, then deliver them to contractors and sub-contractors (including cases where contractors undertake turn-key contracts or where foreign contractors supply materials for the contracted projects) shall have to pay value added tax for imported materials and raw materials according to the customs� tax notices. The already paid value added tax amounts are determined being input tax amounts of the investors, and the input tax for the fixed assets shall be deducted under the guidance in Section III, Part B of the Ministry of Finance�s Circular No.89/1998/TT-BTC of June 27, 1998.

In cases where foreign organizations and individuals that have no permanent bases in Vietnam deal in goods and services in Vietnam through their agents being Vietnamese organizations and individuals:

After signing agency contracts, Vietnamese organizations and individuals that are to act as agents shall have to declare and register tax payment with the tax authorities according to provisions of the Ministry of Finance�s Circular No.169/1998/TT-BTC.

When selling goods or providing services, the agents shall have to use value added tax invoices. In cases where the agents pay value added tax by direct method, they shall use goods sale invoices. In both above-said cases, Vietnamese organizations and individuals acting as agents shall have to separately monitor the turnover from such goods sale or service provision and shall account into their revenues only the commissions they have enjoyed.

Before remitting revenues to the foreign organizations and individuals, the agents shall have to deduct value added tax and enterprise income tax, and declare and pay such taxes into the State budget on behalf of the foreign organizations and individuals. The deduction of taxes of the foreign organizations and individuals shall be made as follows:

a/ For agents paying taxes by deduction method:

For value added tax: The deduction shall be made under guidance in Point 2, Section II, Part C of the Ministry of Finance�s Circular No.89/1998/TT-BTC. The value added tax amounts in the import process which have been paid by the agents on behalf of the foreign organizations and individuals upon importing goods into Vietnam shall be deducted when calculating payable value added tax amounts, concretely:

Payable VAT = Output VAT - Input VAT

In which:

- Output VAT: is the value added tax amounts inscribed on sale invoices.

- Input VAT: is the value added tax amounts on imported goods.

For enterprise income tax: The deduction shall be made under guidance in Point 2, Section I, Part C of the Ministry of Finance�s Circular No.169/TT-BTC.

b/ For agents paying taxes by direct method:

The agents shall deduct, declare and pay value added tax and enterprise income tax on behalf of the foreign organizations and individuals according to provisions of Section I, Part C of the Ministry of Finance�s Circular No.169/19998/TT-BTC. The value added tax amounts already paid by the agents upon importing goods into Vietnam shall not be deducted when determining payable tax amounts of foreign organizations and individuals.

This Circular takes effect after its signing. Any problems arising in the course of implementation shall be reported by the concerned agencies and units to the Ministry of Finance for consideration and timely handling.