CIRCULAR

GUIDING THE GOVERNMENT'S DECREE NO. 100/2009/ND-CP OF NOVEMBER 3, 2009, PROVIDING FOR THE COLLECTION OF A SURCHARGE ON THE VOLUME OF OIL DIVIDED AS PROFIT TO PETROLEUM CONTRACTORS WHEN THE PRICE OF CRUDE OIL INCREASES

THE MINISTRY OF FINANCE

Pursuant to the Petroleum Law and guiding documents;
Pursuant to the Tax Administration Law and guiding documents;
Pursuant to the Government's Decree No. 100/2009/ND-CP of November 3, 2009, guiding the collection of a surcharge on the volume of oil divided as profit to petroleum contractors when the price of crude oil increases;
Pursuant to the Government's Decree No. 118/2008/ND-CP of November27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the collection of a surcharge on the volume of oil divided as profit to petroleum contractors when the price of crude oil increases as follows:

Article 1. Scope of regulation and subjects of application

1. This Circular guides the collection of a surcharge on the volume of oil divided as profit to petroleum contractors when the price of crude oil increases.

2. Petroleum contractors defined in this Circular are Vietnamese or foreign organizations or individuals conducting petroleum activities in Vietnam under the Petroleum Law (below collectively referred to as contractors).

Article 2. Surcharge payers

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2. For petroleum contracts signed in the form of joint-execution contracts, surcharge payers are joint-execution companies that enter into these contracts on behalf of petroleum contractors.

3. For petroleum contracts signed in the form of joint-venture contracts, surcharge payers are joint-venture enterprises that enter into these contracts on behalf of petroleum contractors.

4. In case the Vietnam Oil and Gas Group or corporations and companies of the Vietnam Oil and Gas Group conduct petroleum activities on its/their own, surcharge payers are the Vietnam Oil and Gas Group or corporations and companies of the Vietnam Oil and Gas Group.

Article 3. Currency for surcharge payment

1. In case crude oil is sold for US dollar or a freely convertible foreign currency, the currency for surcharge payment is US dollar or such freely convertible foreign currency.

2. In case crude oil is sold for Vietnam dong, the currency for surcharge payment is Vietnam dong.

3. In case crude oil is sold for both US dollar or a freely convertible foreign currency and Vietnam dong. the currency for surcharge payment is Vietnam dong.

4. The conversion of US dollar or a freely convertible foreign currency into Vietnam dong for tax payment shall be made at the average inter-bank exchange rate announced by the State Bank of Vietnam at the time of surcharge payment.

Article 4. Places for surcharge registration, declaration and payment

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Article 5. Objects to be surcharged

The whole oil volume divided as profit on a quarterly basis to a contractor is liable to a surcharge, in which:

1. Profit oil is the crude oil volume left after subtraction of royalty oil and oil for cost recovery from the net oil volume under the Petroleum Law. In case a petroleum contract contains no agreement on cost recovery rate which serves as a basis for determining the profit oil volume specified in this Clause, such rate will be 35%, except for oilfields to be further exploited after the petroleum contract expires.

2. Profit oil to be divided to a petroleum contractor on a quarterly basis means the profit oil volume specified in Clause 1 of this Article shared to that contractor under a signed petroleum contract.

3. In case the Vietnam Oil and Gas Group or corporations and companies of the Vietnam Oil and Gas Group conduct petroleum activities on its/their own. to be liable to a surcharge is the whole profit oil volume generated on a quarterly basis by the Vietnam Oil and Gas Group or corporations and companies of the Vietnam Oil and Gas Group.

Article 6. Determination of payable surcharge amounts

1. For petroleum projects eligible for investment promotion: A quarterly payable surcharge amount is equal to 30% of the profit oil volume divided to a contractor on a quarterly basis when the average sale price of crude oil in a quarter increases by over 20% compared to the base price in the corresponding year. The surcharge amount shall be determined as follows:

Quarterly payable surcharge amount

= 30% x

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- 1.2 x

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

In which:

a/ The average sale price of crude oil in the quarter is the price calculated by the contractor based on statistical data on actual daily sale prices of crude oil in each quarter, in which:

- The first quarter is the period from January 1 to March 31:

- The second quarter is the period from April 1 to June 30;

- The third quarter is the period from July 1 to September 30;

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b/ The base price in the corresponding year is the price estimated for the corresponding year which is stated in the approved oilfield development plan. In case the approved oilfield development plan is modified or supplemented, the base price in the corresponding year is the price estimated in the approved oilfield development plan which has been modified or supplemented for the year of implementation. For oilfields planned for further exploitation after the expiration of petroleum contracts, the base price of the last year of the petroleum contract will apply.

c/ Petroleum projects eligible for investment promotion are those under which petroleum activities will be conducted offshore, in deep-water seas or areas with extremely difficult geographical conditions or complex geological conditions or other listed areas to be decided by the Prime Minister.

For example: Determination of the payable surcharge amount for a petroleum project in which investment is encouraged:

Presuming that:

- Base price of a year: USD 50/barrel

- Oilfield output: 24 million barrels/year

- Oil for cost recovery: 35% of turnover

- Royalty: 8% of turnover

- Profit divided to the host country: 50%

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With the above presumption, the oil volume divided as profit to the petroleum contractor on a quarterly average shall be determined as follows:

No

Item

Percentage of turnover (%)

Converted into oil (barrel)

1

Annual exploitation output (barrel)

24,000,000

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Average quarterly output (barrel)

6,000,000

3

Oil for cost recovery

50%

2,100,000

4

Royalty

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480,000

5

Profit oil = (2) -(3) - (4)

57%

3,420,000

6

Profit divided to the host country = 50% x (5)

28.5%

1,710,000

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Profit divided to the contractor = 50% x (5)

28.5%

1,710,000

The crude oil price in a year is estimated as follows:

Items

Quarter I

Quarter II

Quarter HI

Quarter IV

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Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

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Dec

Average monthly price (USD/barrel)

48

50

51

54

56

58

61

...

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65

70

80

90

Average quarterly price (USD/barrel)

49.67

56

63

80

...

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...

0.99

1.12

1.26

1.6

According to the above figures, the contractor shall pay a surcharge for the third and fourth quarters, which shall be specifically calculated as follows:

For the third quarter:

Surcharge amount payable for the third quarter

= 30% x

Average sale price of crude oil in the quarter

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...

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

= 30% x [ 63 - 1.2 x 50 ] x 1,710,000

= 30% x [63-60] x 1,710,000

= 30%x3x 1,710,000

= USD 1,539,500

For the fourth quarter:

Surcharge amount payable for the fourth quarter

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Average sale price of crude oil in the quarter

- 1.2 x

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

= 30% x [ 80 - 1.2 x 50 ] x 1,710,000

= 30% x [ 80 - 60 ] x 1,710,000

= 30% x 20 x 1,710,000

= USD 10,260,500

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2. For petroleum projects not specified in Clause 1 of this Article: Surcharge amounts payable on a quarterly basis at partially progressive rates shall be determined as follows:

a/ In case the average sale price of crude oil in the quarter increases by between more than 20% and 50% over the corresponding base price, the surcharge amount payable on a quarterly basis shall be determined as follows:

Surcharge amount payable on a quarterly basis

= 50% x

Average sale price of crude oil in the quarter

- 1.2 x

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

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...

- The average sale price of crude oil in the quarter is the price calculated by contractors themselves based on statistical data on actual daily sale prices of crude oil in each quarter under the guidance of Point a. Clause 1, Article 6 of this Circular, but must not exceed 150% of the base price in the corresponding year.

- The base price in the corresponding year is that guided at Point b, Clause 1, Article 6 of this Circular.

b/ In case the average sale price of crude oil in the quarter increases by more than 50% over the corresponding base price, the surcharge amount payable on a quarterly basis shall be determined as guided at Point a of this Clause plus an additional surcharge calculated as follows:

Payable surcharge amount corresponding to crude oil sale price on a quarterly average which is over 50% higher than base price

= 60% x

Average sale price of crude oil in the quarter

-1.2 x

Base price in the corresponding year

x

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In which:

- The average sale price of crude oil in the quarter is the price calculated by contractors themselves based on statistical data on actual daily sale prices of crude oil in each quarter under the guidance of Point a. Clause 1. Article 6 of this Circular, but may be applied at a rate exceeding 150% of the base price in the corresponding year.

- The base price in the corresponding year is that guided at Point b. Clause 1, Article 6 of this Circular.

For example: The surcharge amount to be paid for the third and fourth quarters by the contractor of a petroleum project ineligible for investment promotion, with a presumption like that in the example provided at Point b, Clause 1, Article 6 of this Circular, shall be specifically calculated as follows:

For the third quarter:

Surcharge amount payable for the third quarter

= 50% x

Average sale price of crude oil in the quarter

-1.2 x

...

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x

Volume of oil divided as profit to contractor on a quarterly basis

= 50% x [ 63 - 1.2 x 50 ] x 1,710,000

= 50%x[63 - 60]x 1,710,000

= 50%x3x 1,710,000

= USD 2,565,500

For the fourth quarter:

- The surcharge amount payable at the rate of 50% when the average sale price of crude oil in the quarter increases by up to 50% over the base price:

Surcharge amount payable for the fourth quarter

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Average sale price of crude oil in the quarter

- 1.2 x

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

= 50% x [ 150% x 50 - 1.2 x 50 ] x 1,710,000

= 50%x[75 -60]x 1,710,000

= 50%x 15 x 1,710,000

= USD 12,825.000

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Surcharge amount payable for the fourth quarter

= 60% x

Average sale price of crude oil in the quarter

-1.5 x

Base price in the corresponding year

x

Volume of oil divided as profit to contractor on a quarterly basis

= 60% x [ 80 - 1.5 x 50 ] x 1,710,000

= 60%x[ 80- 75 ]x 1,710,000

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= USD 5,130,000

- The surcharge amount payable for the fourth quarter is: USD 12,825,000 + USD 5,130,000 = USD 17,955.000

The whole year = third quarter + fourth quarter = USD 2,565,500 + USD 17,955,000 = USD 20,520,500

Article 7. Surcharge declaration and payment

1. Declaration and payment of temporarily calculated surcharge amounts: a/ Determination of temporarily calculated surcharge amounts:

- For a petroleum project eligible for investment promotion, the temporarily calculated surcharge amount payable on a quarterly basis shall be determined as follows:

Temporarily calculated surcharge amount payable on a quarterly basis

= 3% x

Average sale price of crude oil in the quarter

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Base price in the corresponding year

x

Volume of oil divided as temporarily calculated profit to contractor on a quarterly basis

In which: The volume of oil divided as temporarily calculated profit to the contractor on a quarterly basis determined under the petroleum law is that temporarily calculated at the time of taking the oil share, using the net oil output available for taking in the quarter estimated on the basis of the quarter's exploitation plan. Other items shall still be determined under the guidance in Clause 1, Article 6 of this Circular.

- For a petroleum project ineligible for investment promotion, the temporarily calculated surcharge amount payable on a quarter basis at a partially progressive rate shall be determined as follows:

+ In case the average sale price of crude oil in the quarter actually increases by between more than 20% and 50% over the base price:

Temporarily calculated surcharge amount payable on a quarterly basis

= 50% x

Average sale price of crude oil in the quarter

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...

Base price in the corresponding year

x

Volume of oil divided as temporarily calculated profit to contractor on a quarterly basis

+ In case the average sale price of crude oil in the quarter actually increases by more than 50% over the base price:

Temporarily calculated surcharge amount payable on a quarterly basis

= 60% x

Average sale price of crude oil in the quarter

-1.5 x

Base price in the corresponding year

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Volume of oil divided as temporarily calculated profit to contractor on a quarterly basis

In which: The volume of oil divided as temporarily calculated profit to the contractor on a quarterly basis determined under the petroleum law is that temporarily calculated at the time of taking the oil share, using the net oil output available for taking in the quarter estimated on the basis of the quarter's exploitation plan. Other items shall still be determined under the guidance in Clause 2. Article 6 of this Circular.

b/ Declaration and payment of temporarily calculated surcharge amounts:

- Based on the crude oil output planned to be exploited annually and volume of oil divided as temporarily calculated profit on a quarterly basis, the base price of a year and the average sale price of crude oil in the previous quarter, a surcharge payer shall assess the temporarily calculated surcharge amount payable for the quarter according to the declaration of temporarily calculated surcharge, made according to a set form (not printed herein), and submit the dossier to the local tax office where its tax registration is made no later than the 30,h day of the subsequent quarter. In case such deadline falls on a Saturday. Sunday, public holiday or new year festival (below collectively referred to as weekend or holiday), the deadline for submitting the dossier of declaration of temporarily calculated surcharge is the day following such weekend or holiday. In case the period for calculating the surcharge payable for the first quarter or the last quarter is equal to or less than I month, such period may be added to the subsequent quarter or the last quarter for surcharge calculation to make up a full quarter for surcharge calculation.

- The deadline for payment of temporarily calculated surcharge is that for submission of the dossier of declaration of the temporarily calculated surcharge specified at this Point.

2. Surcharge finalization

a/ Payable surcharge amounts shall be determined under the guidance in Article 6 of this Circular.

b/ Determination of surcharge amounts underpaid (or overpaid) in a year:

Surcharge amount underpaid (or overpaid) in a year

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Surcharge amount payable on a quarterly basis for the whole year

-

Temporarily calculated surcharge amount paid for the whole year

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Surcharge amount overpaid in the previous year (if any) 

c/ A completed declaration form for surcharge finalization. made according to a form applicable to petroleum projects eligible for investment promotion or other petroleum projects as provided in this Circular (not printed herein);

- A list of exploited crude oil outputs and sale prices, made according to a form provided in this Circular (not printed herein);

- A list of temporarily calculated surcharge amounts already paid, made according to a form provided in this Circular (not printed herein).

d/ The deadline for submission of dossiers of declaration for surcharge finalization:

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- The 45^th day after the expiration of a petroleum contract.

In case that deadline falls on a weekend or holiday, it will be the working day following that weekend or holiday.

e/ Payment of surcharge according to dossiers of declaration for surcharge finalization:

- If the temporarily calculated surcharge amount in a year is larger than the payable one, the overpaid amount may be cleared against the payable surcharge amount of the next payment of temporarily calculated surcharge or refunded under tax refund regulations of the current tax administration law.

- If the temporarily calculated surcharge amount in a year is smaller than the payable one. the surcharge payer shall fully remit the deficit into the State Treasury before the deadline for submission of the dossier of declaration of surcharge finalization.

Article 8. Surcharge exemption

For petroleum projects which need investment incentives higher than surcharge incentives provided in Clause 1, Article 4 of Decree No. 100/2009/ND-CB project investors or surcharge payers shall send their written requests enclosed with written explanations (clearly stating the necessity of proposal on surcharge exemption for projects to be decided by the Prime Minister; specific calculation figures and impacts of surcharge collection on projects under Decree No. 100/2009/ND-CP and this Circular) to the Ministry of Finance for subsequent submission to the Prime Minister for consideration and decision.

Article 9. Organization of implementation

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

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3. If the average sale price of crude oil in a quarter actually increases by up to 20% of the base price of the corresponding year, surcharge payers shall still fill in dossiers of temporarily calculated surcharges and finalize surcharges under this Circular.

4. For petroleum contracts signed or not yet signed but approved by the Prime Minister before January 1, 2010, surcharge will not be collected under Decree No. 100/2009/ND-CP and this Circular. For petroleum projects with negotiation and signing or re-signing of petroleum contracts from January 1, 2010, surcharge shall be collected under Decree No. 100/2009/ND-CP and this Circular.

5. Surcharge amounts already paid by petroleum contractors on oil volumes divided as profit to them when the crude oil price increases shall be regarded as expenses deductible upon determination of their taxable incomes if they pay value-added tax by the credit method and pay enterprise income tax based on their declarations of turnover and expenses for determination of taxed incomes. In case contractors pay value-added tax by the method of calculation directly based on added value and pay enterprise income tax in proportion to turnover, their taxed turnover will be the whole turnover they have earned, exclusive of value-added tax. other payable tax amounts (if any) and this surcharge.

6. Any problems arising in the course of implementation should be promptly reported to the Ministry of Finance for timely settlement.-

FOR THE MINISTER OF FINANCE
DEPUTY MINISTER




Do Hoang Anh Tuan