CIRCULAR

GUIDING THE PERFORMANCE OF TAX OBLIGATIONS APPLICABLE TO FOREIGN ORGANIZATIONS AND INDIVIDUALS DOING BUSINESS OR EARNING INCOMES IN VIETNAM

Pursuant to the Socialist Republic of Vietnams current laws and ordinances on taxes, fees and charges and the Governments decrees detailing laws and ordinances on taxes, fees and charges;
Pursuant to June 3, 2008 Law No. 13/2008/QH12 on Value-Added Tax; and the Governments Decree No. 123/2008/ND-CP of December 8, 2008, detailing and guiding a number of articles of the Value-Added Tax Law;
Pursuant to June 3, 2008 Law No. 14/2008/QH12 on Enterprise Income Tax; and the Governments Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Governments Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance guides the performance of tax obligations applicable to foreign organizations and individuals doing business or earning incomes in Vietnam as follows:

A. SCOPE OF APPLICATION

I. APPLICABLE SUBJECTS

1. Application of this Circular

The guidance under this Circular is applicable to the following subjects (other than those specified in Section II. Part A of this Circular):

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- Foreign businesses with or without Vietnam-based permanent establishments; and resident or non-resident foreign businessmen doing business in Vietnam or earning incomes in Vietnam under contracts, agreements or commitments between them and foreign contractors to perform part of contractor agreements (below collectively referred to as foreign subcontractors).

2. Taxpayers

Taxpayers under the guidance of this Circular include:

2.1. Foreign contractors and subcontractors satisfying the conditions specified at Point 1, Section II, Part B of this Circular that do business or earn incomes in Vietnam, including Vietnams territorial seas, areas beyond and attached to Vietnams territorial seas, and in accordance with Vietnams laws and international laws, under which Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above. Such business is done under contractor contracts with Vietnamese organizations or individuals or under subcontractor contracts with other foreign organizations or individuals currently doing business in Vietnam.

Foreign contractors and subcontractors shall be identified as having Vietnam-based permanent establishments or as residents in Vietnam according to the Law on Enterprise Income Tax, the Law on Personal Income Tax and their guiding documents.

When double taxation avoidance agreements which the Socialist Republic of Vietnam has signed otherwise define permanent establish-ments and residents, those agreements prevail.

2.2. Organizations established and operating under the law of Vietnam, organizations registering operation under the law of Vietnam, other organizations and businessmen buying services or services accompanying goods, or paying incomes generated in Vietnam under contractor or subcontractor contracts (below collectively referred to as Vietnamese parties), including:

- Businesses established under the Enterprise Law, the State Enterprise Law (now the Enterprise Law), the Law on Foreign Investment in Vietnam (now the Investment Law) and the Law on Cooperatives;

- Economic institutions under political organizations, socio-political organizations, social organizations, socio-professional organizations, armed units, non-business organizations and other organizations;-

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- Branches of foreign companies licensed to operate in Vietnam;

- Foreign organizations or representatives of foreign organizations licensed to operate in Vietnam;

- Vietnam-based booking offices and agents of foreign airlines licensed for Vietnam-inbound and -outbound transportation on their own or in partnership;

- Organizations and individuals trading in shipping services of foreign shipping agencies; Vietnam-based agents of foreign forwarding and warehousing and delivery firms;

- Securities companies, securities issuing organizations, fund management companies and commercial banks where securities investment funds or foreign organizations open securities investment accounts;

- Other organizations in Vietnam;

- Individual producers and businessmen in Vietnam.

Before paying foreign contractors, taxpayers specified at Point 2.2, Section I, Part A of this Circular shall credit value-added tax and withhold enterprise income tax in accordance with Section III, Part B of this Circular.

3. Applicable taxes

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3.2. Foreign contractors and subcontractors being business individuals shall pay VAT under this Circular and personal income tax under the law on personal income tax.

3.3. Foreign contractors and subcontractors shall pay other taxes, fees and charges in accordance with other current legal documents on taxes, fees and charges.

II. NON-APPLICABLE SUBJECTS

This Circular is not applicable to:

1. Foreign organizations and individuals doing business in Vietnam under the Investment Law, the Petroleum Law and the Law on Credit Institutions.

2. Foreign organizations and individuals supplying goods for Vietnamese organizations and individuals without accompanying services in Vietnam in the following forms:

- Goods delivery at foreign border gates: Sellers are liable for all obligations, expenses and risks related to the export and delivery of goods at foreign border gates; buyers are liable for all obligations, expenses and risks related to the receipt and transportation of goods from foreign border gates to Vietnam.

- Goods delivery at Vietnamese border gates: Sellers are liable for all obligations, expenses and risks related to the transportation of goods to places of delivery at Vietnamese border gates; buyers are liable for all obligations, expenses and risks related to the receipt and transportation of goods from Vietnamese border gates.

3. Foreign organizations and individuals earning incomes from services provided and used outside Vietnam.

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Company H of Hong Kong provides the service of arranging cargos at ports in Hong Kong for the international fleet of Company A in Vietnam. Company A has to pay charges for this service to Company H.

In this case, such service is provided and used in Hong Kong and, therefore, is not subject to taxes in Vietnam.

4. Foreign organizations and individuals providing overseas the following services form Vietnamese organizations and individuals:

- Repair of means of transport (aircraft, aircraft engines, spare parts of aircraft and ships), machinery, equipment (including sea cables, transmission equipment) with or without accompanying spare parts of supplies and equipment;

- Advertising, marketing;

- Investment and trade promotion;

- Brokerage for goods sale;

- Training;

- Division of charges (paid charges) for international post and telecommunications services, which are provided outside Vietnam, among Vietnamese and foreign parties under the Ordinance on Post and Telecommunication; lease of foreign transmission lines and satellite frequency bands.

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In this Circular, the terms below are construed as follows:

1. Contractor contract means a contract, agreement or commitment between a foreign contractor and a Vietnamese party.

2. Subcontractor contract means a contract, agreement or commitment between a subcontractor and a foreign contractor.

Subcontractors include foreign and Vietnamese subcontractors.

B. TAX BASES AND TAX CALCULATION METHODS

I. VAT-LIABLE OBJECTS AND EIT-LI ABLE INCOMES

1. VAT-liable objects

1.1. Services or services accompanying VAT-liable goods provided by foreign contractors or subcontractors under contractor or subcontractor contracts for production, business and consumption in Vietnam (other than those specified in Section II, Part A of this Circular), comprising:

- Services or services accompanying VAT-liable goods provided in Vietnam by foreign contractors or subcontractors for consumption in Vietnam.

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1.2. When goods are supplied under a contract by mode of goods delivery at a place in the Vietnamese territory (including Vietnams territorial seas, areas beyond and attached to Vietnams territorial seas on which, under the law of Vietnam and in accordance with international laws. Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above); or these goods are supplied together with services provided in Vietnam, such as installation, trial operation, warranty, maintenance and replacement and other services accompanying goods supply, even when the provision of those services is included or not included in the value of the goods supply contract, the goods value is only subject to VAT at the stage of importation under regulations while the service value is subject to VAT under the guidance of this Circular. When it is impossible to separate the value of goods from that of accompanying services, the contracts total value will be subject to VAT.

For example:

Enterprise A in Vietnam signs with overseas enterprise B a contract to buy machinery and equipment for a cement plant project. The contracts total value is USD 100 million, including USD 80 million worth of machinery and equipment (including VAT-liable equipment with a 10% tax rate) and USD 20 million worth of installation instruction and supervision, and warranty and maintenance services.

When importing the machinery and equipment, enterprise A - the importer - has paid VAT for the VAT-liable equipment.

Company Bs VAT payment for the value of the contract signed with enterprise A shall be determined as follows:

- VAT shall be calculated based on the service value (USD 20 million), not on the value of imported machinery and equipment.

- When it is impossible to separate the value of machinery and equipment from that of services, VAT shall be calculated based on the contracts total value (USD 100 million).

2. EIT-liable incomes

2.1. Foreign contractors or subcontractors incomes earned from the provision of services or services accompanying goods in Vietnam under foreign contractor or subcontractor contracts (other than goods and services specified in Section II, Part A of this Circular).

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For example:

Company A in Vietnam signs with overseas company B a contract to buy machinery and equipment for a cement plant project. The contracts total value is USD 100 million (VAT-exclusive), including USD 80 million worth of machinery and equipment and USD 20 million worth of installation instruction and supervision and warranty and maintenance services.

Company Bs EIT obligations for the contract value shall be determined as follows:

- EIT shall be calculated separately for the machinery and equipment value (USD 80 million) and the service value (USD 20 million) at respective EIT rates under regulations.

- When it is impossible to separate the value of machinery and equipment from that of services, EIT shall be calculated based on the contracts total value (USD 100 million) at EIT rates under regulations.

2.3. Foreign contractors or subcontractors incomes generated in Vietnam are incomes received in any form under foreign contractor or subcontractor contracts (other than cases of service provision specified in Section II, Part A of this Circular), regardless of the places of business activities of foreign contractors or subcontractors, including:

- Incomes from the transfer of rights over asset ownership or use.

- Incomes from copyrights are those in any form paid for the use or transfer of intellectual property rights and technology transfer (including amounts paid for the use and transfer of author rights and work owner rights; transfer of industrial property rights; and technology transfer).

Author rights, work owner rights, industrial property rights and technology transfer are defined in the Civil Code of the Socialist Republic of Vietnam and its guiding documents.

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- Incomes from loan interests, which are a lenders incomes earned from loans provided in any form, whether or not those loans are guaranteed with mortgage and lenders are entitled to borrowers rights over revenues; incomes from deposit interests (other than those of foreigners and those arising from deposit accounts to maintain operation in Vietnam of diplomatic missions and representative agencies of international organizations and non-governmental organizations in Vietnam), including bonuses attached to deposit interests (if any); incomes from interests for deferred payment under contracts.

Loan interests include fees payable by Vietnamese parties under loan contracts.

- Incomes from securities investment.

- Fines and compensations received from contract breaching parties.

- Other incomes under law.

II. VAT PAYMENT ACCORDING TO THE CREDIT METHOD, EIT PAYMENT BASED ON TURNOVER AND EXPENSE DECLARATION FOR EIT-LIABLE INCOME DETERMINATION

1. Subjects of and conditions for application

Foreign contractors and subcontractors shall pay taxes according to Section II, Part B of this Circular if they satisfy the following conditions:

(i) Having a permanent establishment or being a resident in Vietnam;

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(iii) Applying the Vietnamese accounting system.

A Vietnamese party signing a contract with a foreign contractor, or a foreign contractor signing a contract with a foreign subcontractor shall notify in writing a tax agency of the foreign contractors or subcontractors VAT payment according to the credit method and EIT payment based on turnover and expense declaration for EIT-liable income determination within 20 working days from the date of signing the contract.

2. Value-added tax shall be paid in accordance with the Value-Added Tax Law and its guiding documents.

3. Enterprise income tax shall be paid in accordance with the Law on Enterprise Income Tax and its guiding documents.

4. A foreign contractor or subcontractor performing tax obligations according to Section II, Part B of this Circular, which signs another foreign contractor or subcontractor contract in Vietnam while still performing the old foreign contractor or subcontractor contract, shall continue declaring and paying taxes according to Section II, Part B of this Circular.

A foreign contractor or subcontractors shall perform tax obligations according to Section II, Part B of this Circular for a new contractor or subcontractor contract which is signed after the termination of the old contractor or subcontractor contract if it satisfies the conditions specified at Point 1, Section II, Part B of this Circular.

When a foreign contractor or subcontractor concurrently performs several contracts one of which satisfies the conditions for the foreign contractor or subcontractor to pay taxes according to Section II, Part B of this Circular, other contracts (including ineligible ones) are also subject to tax payment according to Section II, Part B of this Circular.

III. VAT PAYMENT ACCORDING TO THE TAX CALCULATION METHOD DIRECTLY BASED ON ADDED VALUE. EIT PAYMENT ACCORDING TO THE PERCENTAGE BASED ON TURNOVER

1. Subjects of and conditions for application

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A Vietnamese party shall make tax registration with a tax agency to pay taxes for a foreign contractor or subcontractor within 20 working days from the contract signing.

2. Value-added tax

Tax bases are the added value of services or services accompanying VAT-liable goods and VAT rate.

Payable VAT amount = Added value x VAT rate

2.1. Added value

The added value of services or services accompanying VAT-liable goods is the turnover for VAT calculation multiplied by the percentage (%) of the added value to turnover.

2.1.1. Turnover for VAT calculation

a/ Turnover for VAT calculation is the total turnover received by a foreign contractor or subcontractor from the provision of services or services accompanying VAT-liable goods inclusive of payable taxes, including expenses (if any) paid by a Vietnamese party for the foreign contractor or subcontractor.

b/ Determination of turnover for VAT calculation in some specific cases:

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Turnover for VAT calculation

=

VAT-exclusive turnover

1 - The percentage of added value to turnover x VAT rate

For example:

Foreign contractor A provides a Vietnamese party with the service of supervising construction of cement plant Z. The contracts tax-exclusive value is USD 300,000. In addition, the Vietnamese party arranges accommodations and working places for the foreign contractors supervisors at the cost of USD 40,000. Under the contract, the Vietnamese party shall pay VAT for the foreign contractor.

The foreign contractors VAT-liable turnover shall be determined as follows:

To determine taxable turnover:

VAT liable turnover

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300,000 + 40.000

= USD 357,894.73

(1 - 50% x 10%)

b2/ When a foreign contractor signs a contract with a Vietnamese or foreign subcontractor, which pays taxes under Section II, Part B of this Circular, to assign part of the work value under a contractor contract signed with a Vietnamese party, the foreign contractors turnover for VAT calculation is exclusive of the value of work and machinery and equipment performed by the Vietnamese or foreign subcontractor.

The Vietnamese or foreign subcontractor shall declare and pay taxes under Points 2 and 3, Section II, Part B of this Circular.

This regulation is not applicable when a foreign contractor signs contracts with suppliers in Vietnam to purchase goods and services for the performance of the contractor contract.

For example:

Foreign contractor A signs with a Vietnamese party a contract to build cement plant Z with a total value of USD 10 million (inclusive of VAT). Under the contract, foreign contractor A shall assign the installation (under the contractor contract signed with the Vietnamese party) valued at USD 1 million to Vietnamese subcontractor B.

In this case, foreign contractor As turnover for VAT calculation shall be determined as follows:

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b3/ When a subcontractor is a foreign subcontractor paying taxes under Section III, Part B of this Circular, a foreign contractors turnover for VAT calculation is the total turnover it receives under the contract signed with a Vietnamese party. The foreign subcontractor is not required to pay VAT for the value of work it performs under the contract it signs with the foreign contractor.

b4/ For international forwarding and warehousing services, the turnover for VAT calculation is exclusive of international freights payable to carriers (by air or sea).

b5/ For international delivery services from Vietnam to overseas, the turnover for VAT calculation is the total turnover received by a foreign contractor.

2.1.2. Added value percentages:

a/ The percentages of added value to turnover for VAT calculation for a number of business lines:

No.

Business line

Percentage (%) of added value to turnover for VAT calculation

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50

2

a/ Construction, installation with materials or machinery, equipment attached to construction works

30

b/ Construction, installation without materials or machinery, equipment attached to construction works

50

3

Transportation, production, other business

30

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b 1/ For a contractor or subcontractor contract covering different business activities or part of the contract value is not subject to VAT, the application of the percentages of added value to turnover for VAT calculation upon determining payable VAT shall be based on the turnover for VAT calculation of each business activity performed by the foreign contractor or subcontractor under the contractor or subcontractor contract. When it is impossible to separate the value of one business activity from another, the highest added value percentage for the business lines and the highest tax rate for the total contract value shall be applied.

b2/ For a contract to supply machinery and equipment together with installation instruction, training, operation and trial run services, if it is possible to separate the value of machinery and equipment from that of services upon determining payable VAT, the added value percentages relevant to each part of the contract value shall be applied. When il is impossible to separate the value of machinery and equipment from that of services, the added value-VAT calculation turnover percentage of 30% shall be applied.

For example:

South Korean contractor H, which does not apply the Vietnamese accounting system, signs with enterprise B in Vietnam a USD 10 million contract to supply machinery and equipment together with installation and trial operation services. When it is impossible to separate the value of machinery and equipment from that of installation and trial operation services under this contract, the applicable added value percentage is 30%.

b3/ Turnover for VAT calculation in the case of lease of machinery, equipment and vehicles is the total rents. When the turnover of machinery, equipment and vehicle lease includes expenses directly paid by the lessor, such as vehicle insurance, maintenance, registry certification, machinery and equipment operators and transportation of machinery and equipment from overseas to Vietnam, the turnover for VAT calculation is exclusive of those expenses if documents evidencing the expenses are available.

2.2. VAT rates

VAT rates for VAT-Iiable goods and services are the tax rates prescribed in the Value-Added Tax Law and its guiding documents.

Foreign contractors and subcontractors paying VAT according to the method of calculation directly based on added value under Point 1, Section III, Part B of this Circular are not entitled to VAT credit for goods and services bought for the performance of foreign contractor and subcontractor contracts (including VAT for subcontractor contracts performed by Vietnamese subcontractors).

3. Enterprise income tax

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Payable EIT amount = Turnover for EIT calculation x EIT rate based on turnover for EIT calculation

3.1. Turnover for EIT calculation

a/ Turnover for EIT calculation

Turnover for EIT calculation is the total turnover exclusive of VAT and inclusive of payable taxes (if any) received by a foreign contractor or subcontractor. Turnover for EIT calculation also includes expenses (if any) paid by a Vietnamese party for a foreign contractor or subcontractor.

b/ Determination of turnover for EIT calculation in some specific cases:

b1/ When, under a contractor or subcontractor contract, the turnover received by a foreign contractor or subcontractor is exclusive of payable EIT, turnover for EIT calculation shall be determined according to the following formula:

Turnover for EIT calculation

=

EIT-exclusive turnover

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For example:

Foreign contractor A provides a Vietnamese party with the service of supervising construction of cement plant Z. The contracts tax-exclusive value is USD 300,000. In addition, the Vietnamese party arranges accommodations and working places for the foreign contractors supervisors at the cost of USD 23,000. Under the contract, the Vietnamese party shall pay EIT and VAT for the foreign contractor. The foreign contractors payable EIT shall be determined as follows:

Determination of turnover for EIT calculation:

Turnover for EIT calculation

=

300,000 + 23,000

= USD 340,000

(1-0.05)

b2/ When a foreign contractor signs a contract with a Vietnamese or foreign subcontractor, which pays taxes under Section II, Part B of this Circular, to assign part of the work value under a contractor contract signed with a Vietnamese party, the foreign contractors turnover for EIT calculation is exclusive of the value of work and machinery and equipment performed by the Vietnamese or foreign subcontractor.

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This regulation is not applicable when a foreign contractor signs contracts with suppliers in Vietnam to purchase goods and services for the performance of the contractor contract.

For example:

Foreign contractor A signs with a Vietnamese party a contract to build cement plant Z with a total value of USD 10 million (exclusive of VAT). Foreign contractor A shall assign the installation (under the contractor contract signed with the Vietnamese party) valued at USD 1 million to Vietnamese subcontractor B.

In this case, foreign contractor As turnover for EIT calculation shall be determined as follows:

Turnover for EIT calculation = USD 10 million - USD 1 million = USD 9 million

b3/ When a subcontractor is a foreign subcontractor which pays taxes under Section III, Part B of this Circular, the foreign contractors turnover for EIT calculation is the total turnover it receives under the contract signed with a Vietnamese party. The foreign subcontractor is not required to pay EIT for the value of work it performs under the contract it signs with the foreign contractor.

b4/ Turnover for EIT calculation in the case of lease of machinery, equipment and vehicle is the total rents. When the turnover of machinery, equipment and vehicle lease includes expenses directly paid by the lessor, such as vehicle insurance, maintenance, registry certification, machinery and equipment operators and transportation of machinery and equipment from overseas to Vietnam, the turnover for EIT calculation is exclusive of those expenses if documents evidencing the expenses are available.

b5/ Foreign airlines turnover for EIT calculation is passenger ticket sales, aviation bills of lading and other incomes (other than amounts collected for the State or organizations under law) generated in Vietnam from the transportation of passengers, cargoes and other objects by flights of those airlines or joint flights.

For example:

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Foreign airline As turnover for EIT calculation of the first quarter of 2009 shall be determined as follows:

Turnover for EIT calculation = 100,000 -(1,000 + 2,000) = USD 97,000

Foreign airlines booking offices and agents in Vietnam shall declare EIT according the form attached to this Circular (not printed herein) and remit the declared taxes into the state budget.

b6/ A foreign shipping firms turnover for EIT calculation is the total freights for the passenger and cargo transportation and other surcharges it receives from a Vietnamese port of loading to the final port of unloading (including freights for shipments transported through intermediate ports) and/or freights collected from the transportation of cargoes between Vietnamese ports.

Freights used as a basis for calculating EIT are exclusive of freights already calculated for EIT at Vietnamese ports for foreign ship owners and freights paid to Vietnamese transportation enterprises for their transportation of cargoes from a Vietnamese port to an intermediate port.

For example:

Company A is an agent of foreign shipping firm X. Under the transportation agent contract. Company A, on behalf of firm X, may receive cargoes to be transported overseas, issue bills of lading and collect freights.

Vietnamese enterprise B hires firm X (via company A) to transport cargoes from Vietnam to the United States at a freight of USD 100,000.

Company A hires a ship of a Vietnamese enterprise or a foreign ship to transport cargoes from Vietnam to Singapore at a freight of USD 20,000 and from Singapore cargoes will be transported to the United States by a ship of firm X.

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EIT-liable turnover = 100,000 - 20.000 = USD 80,000

b7/ For international forwarding and warehousing services, turnover for EIT calculation is exclusive of international freights paid to carriers (by air or sea).

b8/ For international delivery services from Vietnam to Overseas, turnover for EIT calculation is the total turnover received by a foreign contractor.

b9/ For reinsurance services, turnover for EIT calculation is overseas reinsurance premiums.

b10/ For the transfer of securities, turnover for EIT calculation shall be determined as follows:

+ Total sales of securities at the time of transfer, for the transfer of securities (other than tax-exempt bonds);

+ Total sales of bonds (including the face value inscribed on bonds and received bond interests) at the time of receiving interests, for bond interests.

b11/ Loan interests under foreign loan contracts signed prior to January 1, 1999, are not subject to taxes under this Circular.

+ For the extension or rescheduling of a debt period without changes in interests and payment conditions under a loan contract and the extended time of the debt period of a short-term loan is maximum equal to a production and business cycle, but must not exceed 12 months and the extended time of the debt period of a medium- or long-term loan is maximum equal to of the loan term under a loan contract, loan interests are not subject to EIT.

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+ For the extension or rescheduling of a debt period without changes in interests and payment conditions under a loan contract, but such extended time exceeds the time limit prescribed above, loan interests arising during the time beyond the prescribed time limit are subject to EIT.

+ For the modification of a loan contract together with changes in principal contents of the contract, such as interests, lending mode, payment conditions and loan term, loan interests arising after the termination of the effect of the principal loan contract are subject to EIT.

3.2. EIT rate (%) based on turnover for EIT calculation

a/ EIT rate (%) based on turnover for EIT calculation

No.

Business line

EIT rate (%) based on turnover for EIT calculation

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Trade: distribution and supply of goods, raw materials, supplies, machinery and equipment accompanying services in Vietnam

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2

Services, machinery and equipment lease, insurance

5

3

Construction

2

4

Other production and business activities, transportation (by sea and air)

2

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Lease of aircraft, aircraft engines, spare parts of aircraft, ships

2

6

Reinsurance

2

7

Securities transfer

0. 1

8

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10

9

Copyright incomes

10

b/ EIT rate (%) based on turnover for EIT calculation in some specific cases:

b 1/ For a contractor or subcontractor contract covering different business activities, the application of EIT rates based on turnover for EIT calculation upon determining payable EIT shall be based on EIT-liable turnover of each business activity performed by the foreign contractor or subcontractor under the contract. When it is impossible to separate the value of one business activity from another, the highest EIT rate for the business lines shall be applied for the total contract value.

b2/ For a contract to supply machinery and equipment together with installation instruction, training, operation and trial run services, if it is possible to separate the value of machinery and equipment from that of services, tax rates shall be applied separately for each part of the contract value. When it is impossible to separate the value of machinery and equipment and that of services, the 2% EIT rate based on turnover for EIT calculation shall be applied.

For example:

Foreign contractor A signs with a Vietnamese party a USD 70-million contract to build power plant F. The contract value includes:

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+ USD 5 million worth of technology line design and other designs.

+ USD 10.5 million worth of workshops, other supporting facilities, construction and installation.

+ USD 3 million worth of installation supervision and instruction services.

+ USD 1.5 million worth of technical training and trial operation services.

When it is possible to separate the value of machinery and equipment from that of services, the EIT rate shall be applied as follows: the machinery and equipment value is subject to the rate for trade; the value of designing, installation supervision, training and trial operation services, to the rate for service; the construction and installation value (USD 10.5 million), to the rate for construction.

When it is impossible to separate those values, the 2% EIT rate shall be applied for the total contract value (USD 70 million).

4. Tax declaration and payment for foreign contractors entering into multi-partner partnerships or partnerships with Vietnamese economic organizations to do business in Vietnam under contractor contracts

- When partners set up an executive board which makes cost-accounting, opens bank accounts and issues invoices; or a Vietnamese economic organization to a partnership makes common cost-accounting and divides profits to partners, such executive board or Vietnamese economic organization shall declare, pay and finalize VAT and EIT for the total turnover under a contractor contract according to regulations.

- When partners share turnover and products, or receive a work as a whole with each performing a separate work item and partners can determine their own turnover, each partner may pay taxes according to Part B of this Circular.

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This Circular takes effect 15 days after its publication in CONG BAO, is applied on January 1, 2009, and replaces the Finance Ministrys Circular No. 05/2005/TT-BTC of January 11, 2005, guiding the tax regime applicable to foreign organizations without Vietnamese legal person status and foreigners doing or earning incomes in Vietnam, and Circular No. 16/1999/TT-BTC of February 4, 1999. guiding taxes on freights for the shipping of cargoes by foreign shipping firms doing business in Vietnam.

In the course of implementation, units and businesses should promptly report arising problems to the Ministry of Finance for timely settlement.

FOR THE MINISTER OF FINANCE
VICE MINISTER




Do Hoang Anh Tuan