CIRCULAR

GUIDING THE IMPLEMENTATION OF TAX AND FINANCIAL PREFERENCES REGIME FOR COOPERATIVES AS PRESCRIBED IN DECREE No.15-CP AND DECREE No.16-CP OF THE GOVERNMENT

Pursuant to the current tax and financial legislation;
Pursuant to Decree No.15-CP on the "Policies to Promote the Development of Cooperatives" and Decree No.16-CP on the "Transformation and Registration of Cooperatives, the Organization and Operation of the Union of Cooperatives" issued by the Government on February 21, 1997;
Under the Prime Minister�s direction in Official Dispatch No.4166/KTN of the Government Office of August 20, 1997 guiding the implementation of Decree No.15-CP and Decree No.16-CP of the Government detailing the implementation of the Law on Cooperatives;
The Ministry of Finance hereby provides the following guidance for the implementation of tax and financial preferences regime for the cooperatives:

I. OBJECTS AND SCOPE OF REGULATION

1. Objects of regulation:

Subjects eligible for tax and financial preferences provided for in this Circular are: the cooperatives, the unions of cooperatives and the people�s credit funds (hereafter referred collectively to as the cooperatives) which have been newly established and granted certificates of business registration under the Law on Cooperatives.

2. Scope of regulation:

This Circular’s provisions on tax and financial preferences shall apply to cooperatives defined in Point 1, Section I, which conduct production and business activities in all branches and trades such as: production, construction, transportation, trading, service and other business activities.

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II. TAX PREFERENCES

Cooperatives must strictly abide by the regulations on registration, declaration, collection and payment of taxes and charges in accordance with law provisions currently in force, below are guidances for tax preferences applicable to cooperatives:

1. Regarding turnover tax and profit tax

The newly established cooperatives that are granted certificates of business registration under the Law on Cooperatives shall be considered newly set up establishments and entitled to tax preferences in accordance with provisions on newly set up establishments, as follows:

a/ Cooperatives engaged in agricultural production (cultivation, husbandry, aquaculture, salt making...) shall not have to pay turnover tax and profit tax;

Cooperatives in rural areas that directly serve the agricultural production, forestry, fishery and salt production by providing such services as: water irrigation and drainage, soil preparation, preservation of goods, domestic animals and planted trees, plant protection, manufacture and repair of salt making tools, etc., shall not have to pay turnover tax and shall enjoy profit tax exemption for the first two years (24 months) from the date profits are made from such operations. Services provided for other objects and not directly serving the agricultural production shall not be entitled to tax preferences stipulated at this point.

b/ Newly established cooperatives engaged in cottage-industrial and handicraft production and business activities (specified in Section I of the Turnover Tax Table issued together with Decree No.96-CP of December 27, 1995) shall be entitled to:

- 50% turnover tax reduction for one year (12 months) from the date the turnover is generated; those cooperatives meeting with numerous difficulties and making losses in the subsequent year shall be entitled to turnover tax reduction for a certain period, the amount of turnover tax reduction shall correspond to the loss amount but shall not exceed 50% of the payable turnover tax and the total tax reduction duration shall not exceed two years (24 months); particularly for newly established cooperatives in mountainous or island areas, the total duration of turnover tax reduction shall not exceed 3 years (36 months) from the first month of tax reduction.

- Profit tax exemption for the first 2 years (24 months) from the time the profit is made and entitled to 50% reduction of the profit tax amount in two subsequent years (24 months); particularly for newly established cooperatives in mountainous or island areas, such tax reduction period shall be prolonged for two more years.

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Cooperatives which are engaged in off-shore fishing, established and granted certificates of business registration under the Law on Cooperatives from May 29, 1997 on shall be entitled to tax preferences in accordance with Decision No.358-TTg of May 29, 1997 of the Prime Minister on tax preferences for off-shore fishing activities and the Ministry of Finance�s documents guiding this Decision.

d/ Cooperatives engaged in rudimentary loading and unloading activities shall be entitled to turnover tax reduction for two years (24 months) from the date they are granted certificates of business registration under the Law on Cooperatives and exempt from the profit tax for two years (24 months) from the date profit is made.

e/ Cooperatives engaged in production and business activities in mountainous and island areas and other areas meeting with difficulties as prescribed by the Government shall be exempt from the turnover tax for two years (24 months) from the date they are granted certificates of business registration under the Law on Cooperatives and exempt from the profit tax for two years (24 months) from the date profit is made.

2. Regarding the license tax

Dependent cost-accounting business establishments belonging to cooperatives, business households or individuals that are cooperative members and assigned tasks by their cooperative shall not have to directly pay license tax, which shall be paid by the cooperatives. The license tax levels shall be set in accordance with law provisions on license tax applicable to each kind of object.

3. Regarding the registration fee

Cooperative members� production means contributed as capital to the cooperative as well as their capital shares, when being transferred to other members of the same cooperative for use, shall be exempt from registration fee.

4. Regarding to the land rental and the land use levy

a/ Cooperatives assigned land by the State for use in agricultural production, forestry, aquaculture, salt making shall be exempt from land use levy;

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c/ Other cooperatives (not defined in Points a and b of this Clause) which have already been granted certificates of business registration under the Law on Cooperatives and are eligible for land lease in accordance with provisions of the land legislation shall enjoy 50% land rent reduction for the first two years (24 months) from the date they are granted certificates of business registration under the Law on Cooperatives.

5. Other financial preferences

Apart from their entitlement to borrow business capital (including medium- and long-term loans) from the commercial banks under to the banks� conditions and interest rates, cooperatives are also entitled to borrow capital from socio-economic programs, the national employment fund, the national investment support fund and other development and investment funds of the State as prescribed by the Government, and to receive and implement investment projects funded by capital and aid from foreign countries and international organizations when such cooperatives meet all conditions prescribed by the State.

III. THE PROCEDURES, ORDER AND COMPETENCE FOR CONSIDERING TAX EXEMPTION OR REDUCTION

To be eligible for tax exemption or reduction under the guidance in this Circular, cooperatives must meet all the following conditions which shall serve as basis for determining the right objects and the amounts of tax exemption or reduction as prescribed:

- Operating in accordance with the business registration;

- Strictly abiding by the regulations on the use of vouchers for goods purchase and sale or service provision, issued by the Ministry of Finance as well as the regulation on accounting, statistical work, registration and declaration for full tax payment in accordance with current law.

1.- The consideration for turnover and profit tax exemption or reduction

a/ The procedures and dossier for tax exemption or reduction:

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+ The business registration certificate granted under the Law on Cooperatives of March 20, 1996 clearly stating the production and/or business lines and goods items;

+ The tax payment registration and declaration certified by the tax agency.

b/ The competence for considering tax exemption or reduction:

The head of tax sub-department is entitled to consider the turnover tax and profit tax exemption and reduction for cooperatives as provided for in this Circular after reporting the case to the director of his/her superior tax department for consideration and approval.

2. The consideration for land rental exemption or reduction

- A cooperative’s dossier of application for land rental exemption or reduction must be submitted to the managing tax agency, including:

+ The business registration certificate granted under the Law on Cooperatives of March 20, 1996 clearly stating production and/or business lines and goods items;

+ The tax payment registration and declaration certified by the tax agency.

- The director of the provincial/municipal tax department is entitled to consider and decide the land rental exemption or reduction for cooperatives as provided for in this Circular.

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- A cooperative�s dossier of application for registration fee exemption or reduction must be submitted to the registration fee management agency of the locality where the cooperative’s head office is located, including:

+ The business registration certificate granted under the Law on Cooperatives of March 20, 1996 clearly stating the production and/or business lines and goods items;

+ Papers related to the assets as required when registering for registration fee payment.

- The head of the registration fee management agency shall be competent to decide registration fee exemption or reduction for the cooperative assets as provided for in this Circular.

4. The order and procedures for considering tax exemption or reduction

A cooperative applying for tax exemption or reduction shall, in every case, have to make a dossier of application therefor as prescribed then submit it to the tax agency that manages the cooperative. Upon receiving the dossier of application for tax exemption or reduction, the tax agency managing the cooperative shall have to examine such dossier and clearly determine whether or not the cooperative is eligible for tax exemption or reduction as prescribed by law, whether or not the dossier is properly or fully made, then compare it with the reality and verify the figures and situation related to the tax exemption or reduction.

If the dossier is inadequate or improper, the tax agency shall request the cooperative to promptly make supplements or amendments thereto.

In case the cooperative is considered ineligible for tax exemption or reduction as prescribed by law, the tax agency shall notify in writing the cooperative of the reason(s) for non-exemption or non-reduction.

For cases of tax exemption or reduction not falling within the competence of the tax agency that manages the cooperative, the tax agency shall, after examining the dossier and actual situation of the cooperative, submit all the dossier already examined together with its written comments thereon to the higher-level tax agency for settlement, and at the same time notify in writing the cooperatives of where the dossier has been forwarded. The dossier forwarded to the higher-level tax agency must list documents included therein.

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Basing itself on tax exemption or reduction decision, the tax agency shall, together with the cooperative, make final account of payable tax amount and re-determine the cooperative�s profit or loss and other State budget remittances.

The agency that considers and decides tax exemption or reduction shall have to keep and manage the tax exemption or reduction dossier as prescribed.

5. The time limit for considering and deciding tax exemption or reduction.

Within 30 days from the date of receiving the dossier, the tax agency handling dossier for tax preferences for cooperatives as provided for in this Circular shall have to issue a decision on tax exemption or reduction or notify the cooperative of the reasons for the delay or refusal.

6. Regarding the legality of the tax exemption or reduction dossier.

The tax exemption or reduction dossier submitted by a cooperative to the tax agency as prescribed above must be the original which go through all administrative procedures required for a document. In cases where the dossier includes copies of documents or vouchers issued by other agencies or bodies such as the business registration certificate, the establishment decision, etc., they must be notarized; if they are copies of documents issued by the cooperative such as: the final account statement or relevant vouchers, they must be affixed with seal of the cooperative.

IV. HANDLING OF EXISTING PROBLEMS IN THE COURSE OF TRANSFORMATION AND BUSINESS REGISTRATION UNDER THE LAW ON COOPERATIVES:

1. Regarding land

- In cases where a cooperative assigned land by the competent State agency before September 9, 1996 (the effective date of the Ordinance on amendments and supplements to the Ordinance on the rights and obligations of domestic organizations with land assigned or leased by the State), which is now eligible for land rent under the provisions of land legislation, the land rental shall be paid as follows:

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+ If the land use levy has already been paid with the money not coming from the State budget, such payment shall be accounted into its land rental according to the common guidance of the Ministry of Finance.

- In cases where a cooperative is using land (before September 9, 1996) which was previously residential land lawfully used by a household or an individual and after it is permitted by the competent State agency to use such land area for office and/or production and business establishment, the land use shall not be transformed into land rent and the cooperative shall continue to pay land and housing tax in accordance with provisions of the current law.

2. Regarding debt liabilities

a/ For a cooperative that decides to be transformed, the transformation preparatory committee shall make a dossier determining exactly and fully all debts owed by the cooperative and clarifying the debt types, forms, origins and characteristics. The cooperative must pay all debts before being allowed to be transformed and register its business under the Law on Cooperatives. If the debts have not yet been fully paid, the cooperative must make commitment to take the debt (transferred to the newly-formed cooperative for continued payment) before being allowed to be transformed and register business under the Law on Cooperatives.

b/ In cases where a cooperative is dissolved under the Law on Cooperatives, the procedures for paying all debts must be carried out. If the cooperative cannot discharge all debts, the provisions of the Law on Bankruptcy shall apply.

c/ For debts owed by the cooperative to the State, the preparatory committee for transformation shall work out plan for debt payment, clearly identifying the persons liable to pay such debts. In case the cooperative is incapable of paying debts, the provisions of the Law on Bankruptcy shall apply; or the committee shall propose the competent State agency to consider the write-off, reduction or deferred payment of each specific debt amount, so that the cooperative can carry out the transformation, business registration under the Law on Cooperatives, more concretely:

- For debts derived from the State’s previous investment, it shall propose the State agency that issued the decision on investment of such capital to consider and settle;

- Those debts owed to State enterprises, which the cooperative is incapable of paying due to objective reasons, shall be settled as follows:

+ For debts owed by the cooperative due to ordinary economic and/or commercial relations (on the basis of mutual agreements) between the cooperative and the enterprise, the enterprise shall have to settle them in accordance with the current legislation on financial management;

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d/ The debts owed by the cooperative as a result of its previous borrowings from the State-run banks for infrastructure construction in service of the population community such as roads, kindergartens, medical stations... shall be transferred to the local administration for further handling in accordance with the State’s general guidelines, as follows:

- The district Finance Sections shall have to receive assets and relevant documents handed over to district or commune administration. The provincial/municipal Finance and Pricing Departments shall have to receive assets and relevant documents handed over to the administration of provincial/municipal or equivalent level. Upon receiving the handed-over assets, the finance agency must make a record thereon, clearly stating the full names of the representatives of the transferring party, the receiving party and the finance agency; the quantity, types, state, quality, origins and seal number (if any) of the handed over assets and the enclosed relevant documents and dossier, together with signatures of the representatives of the transferring party, the receiving party and the finance agency.

- On the basis of quantity, types, state, quality... of the handed-over assets and/or the market price at the time of hand-over, the finance agency shall determine the value of the assets handed over by the cooperative and use the local budget to pay the debts according to such value. In case this expense has not yet been included in the local budget draft, the payment shall be deducted from the reserve funds or from the following year’s budget.

- The cooperative shall be liable to pay debts to the banks after receiving payment from the finance agency.

V. ORGANIZATION OF IMPLEMENTATION

- The cooperatives entitled to the preferences provided for in this Circular may also be entitled to enjoy other preferential policies (if any) as prescribed by law.

- The tax agency, the finance agency and the agency managing the State’s capital and assets at enterprises in localities shall have to monitor, urge and guide the cooperatives to strictly observe the current tax and financial policies and this Circular.

- All violations of the provisions of this Circular shall be handled in accordance with law provisions currently in force.

- This Circular takes effect from March 6, 1997 (the effective date of Decree No.15-CP and Decree No.16-CP). The previous guidances of the Ministry of Finance on cooperatives which are contrary to this Circular are now annulled. Problems arising in the course of implementation of this Circular shall be promptly reported to the Ministry of Finance for study, guidance and supplement.

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FOR THE MINISTER OF FINANCE VICE MINISTER




Pham Van Trong