CIRCULAR

SUPPLEMENTING THE FINANCE MINISTRY'S CIRCULAR NO. 134/2008/TT-BTC OF DECEMBER 31, 2008, GUIDING THE PERFORMANCE OF TAX OBLIGATIONS OF FOREIGN ORGANIZATIONS AND INDIVIDUALS DOING BUSINESS OR EARNING INCOMES IN VIETNAM

Pursuant to the Socialist Republic of Vietnam's current laws and ordinances on taxes, fees and charges and the Government's decrees detailing laws and ordinances on taxes, fees and charges;
Pursuant to June 3, 2008 Law No. 13/2008/QH12 on Value-Added Tea and the Government s Decree No. 123/2008/ND-CP of December 8, 2008, detailing and guiding a number of articles of the Law on Value-Added Tax (VAT);
Pursuant to June 3, 2008 Law No. 14/2008/ QH12 on Enterprise Income Tax and the Government's Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax (EIT);
Pursuant to the Government's 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 supplements Circular No. 134/2008/TT-BTC of December 31, 2008, guiding the performance of tax obligations of foreign organizations and individuals doing business or earning incomes in Vietnam as follows:

Article 1. To add Section IV to Part B of Circular No. 134/2008ATT-BTC as follows:

"IV. VAT payment according to the credit method and EIT payment according to a percentage of taxable turnover

Foreign contractors and subcontractors that satisfy conditions (i) and (ii) prescribed at Point 1, Section II, Part B of the Finance Ministry's Circular No. 134/2008/TT-BTC of December 31, 2008, and make accounting under the accounting law and the Finance Ministry's guidance shall register with tax offices for VAT payment according to the credit method under Point 2. Section II. Part B and EIT payment under Point 3. Section III, Part B of the Finance Ministry's Circular No. 134/2008/TT-BTC of December 31, 2008.

Within 20 working days after signing a contract, the Vietnamese party signing a contract with a foreign contractor or a foreign contractor signing a contract with a foreign sub-contractor shall notify in writing the tax office in the locality where the foreign contractor or sub-contractor makes tax payment registration of the foreign contractor's or sub-contractor's direct VAT registration and payment according to the credit method and FIT payment according to a percentage of taxable turnover."

Article 2. To add to the first paragraph, Part C of Circular No. 134/2008/TT-BTC the following:

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- For goods and services supplied by foreign contractors or subcontractors which were not liable to VAT under VAT laws effective prior to January 1, 2009, but subject to VAT from January 1. 2009. turnover for VAT calculation for foreign contractors and sub-contractors will be determined under Circular No. 134/2008/TT-BTC.

For example:

In 2008, enterprise A in Vietnam signed with overseas enterprise B a contract to buy machinery and equipment for a cement plant project. The contract's total value is USD 100 million, including USD 80 million for machinery and equipment (which cannot be produced at home) and USD 20 million for installation instruction and supervision, warranty and maintenance services.

Under VAT laws effective prior to January 1, 2009, machinery and equipment which cannot be produced at home and are imported to create fixed assets of enterprises are not liable to VAT, In 2009, enterprise A imports machinery and equipment under the contract signed with enterprise B and has paid VAT at the importation stage. In this case, the turnover for VAT calculation for the foreign contractor (enterprise B) will be determined according to Point 1.2. Section I, Part B of Circular No. 134/2008/TT-BTC.

- For income amounts paid from January 1. 2009. to foreign contractors and sub-contractors that arc business individuals, income tax obligations will comply with the law on personal income tax."

Article 3. Effect

This Circular takes effect 45 days from the date of its signing.

Any problems arising the process of implementation should be promptly reported to the Ministry of Finance for settlement.-

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FOR THE MINISTER OF FINANCE
DEPUTY MINISTER




Do Hoang Anh Tuan