CIRCULAR

PROVIDING INSTRUCTIONS FOR THE ACCOUNTING OF THE VALUE ADDED TAX (VAT) AND THE CORPORATE INCOME TAX APPLIED TO FOREIGN-INVESTED BUSINESSES, ORGANISATIONS AND INDIVIDUALS WHICH INVEST IN VIETNAM ACCORDING OR NOT ACCORDING TO THE LAW ON FOREIGN INVESTMENT IN VIETNAM

- In accordance with Value Added Tax (VAT) Law 02/1997/QH9 dated May 10, 1997; and Corporate Income Tax Law 03/1997/QH9 of May 10, 1997;
- In accordance with Governmental Decree No.28/1998/ND-CP dated May 11, 1998, stipulating in detail the implementation of the Value Added Tax Law ; and Governmental Decree No.30/1998/ND-CP dated May 13, 1998, regulating details of the implementation of the Corporate Income Tax Law;
- In accordance with Circular No.89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance providing guidelines for the implementation of Govemmental Decree No.28/1998/ND-CP of May 11, 1998 which stipulates in detail the implementation of the Value Added Tax Law;
- In accordance with Circular No.99/1998/TT-BTC of July 14, 1998 of the Ministry of Finance instructing in detail the implementation of the Corporate Income Tax Law;
- In accordance with Circular No.100/1998/TT-BTC dated July 15, 1998 of the Ministry of Finance with instructions for the accounting of the Value Added Tax and the Corporate Income Tax; and Circular No.180/1998/TT-BTC of December 26, 1998 from the Ministry of Finance which provides guidelines for additional accounting of the Value Added Tax;
- In accordance with Circular No.169/1998/TT-BTC of December 22, 1998 of the Ministry of Finance on the tax regime applicable to foreign organisations and individuals which run business in Vietnam and are not subject to forms of investment under the Law on Foreign Investment in Vietnam;
The Ministry of Finance instructs the accounting of the Value Added Tax (VAT) and the Corporate Income Tax (CIT) applied to foreign-invested businesses, organisations and individuals in Vietnam as follows:

I. SCOPE OF APPLICATION

This Circular is effective for foreign-invested businesses and organisations which invest in Vietnam under the Law on Foreign Investment in Vietnam. These include branches, foreign lawyer organisations in Vietnam which operate in accordance with the regulations on law consulting for foreign lawyer organisations in Vietnam; and foreign organisations and individuals conducting business in Vietnam beyond the scope of investment modes under the Law on Foreign Investment in Vietnam.

II. ACCOUNTING OF THE VALUE ADDED TAX (VAT)

1. Foreign-invested businesses and organisations which apply Vietnamese business accounting regimes must account for the Value Added Tax (VAT) in accordance with Circular No.100/1998/TT- BTC dated July 15, 1998 of the Ministry of Finance on the accounting of VAT and CIT and Circular No.180/1998/TC-BTC dated December 26, 1998 by the Ministry of Finance on additional accounting of VAT.

2. Foreign-invested businesses and organisations which apply other regular accounting regimes are also requested to conduct the accounting of VAT as decreed in Circular No.100/1998/TT-BTC of July 15, 1998 and Circular No.180/1998/TT-BTC of December 26, 1998 by the Ministry of Finance as well as the following instructions:

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It is a must to use either VAT-included receipts issued by the customs office or VAT-included receipts which are issued by the business itself, but already registered and approved by the General Department of Customs. When issuing receipts, businesses of this kind must observe the regulation on issuance, management and utilisation of receipts clarified in Decision No.885/QD-BTC dated July 16, 1998 by the Finance Minister.

2.2- Accounts and accounting methods:

a- Add the Deductible Value Added Tax Account which indicates the amount of deductible input VAT. The account number must match that of the account system currently applied by the business.

The purpose of using the account; structure and content of Debit and Credit of the Deductible Value Added Tax Account; and methods of accounting for newly-emerging economic professional operations shall be implemented as applied to Deductible Value Added Tax Account 133 which is identified in Circular No.100/1998/TT-BTC.

b- Rename the Turnover Tax Account to the Must-be-paid Value Added Tax Account in the account system currently observed by the business which shows output VAT, must-be-paid VAT, must- be-paid VAT on imports, paid VAT and will-be-paid VAT.

Structure and content of Debit and Credit of the Must-be-paid Value Added Tax Account as well as methods of accounting for newly-emerging economic professional operations are implemented as applied to Must-be-paid Value Added Tax Account 3331 recognised in Circular No.1011/1998/TT-BTC.

2.3- Accounting books:

Detailed accounting books which clearly indicate norms for deductible input VAT, output VAT, must-be-paid VAT, must-be- paid VAT on imports, refundable VAT, and reducible VAT shall be kept.

2.4- Financial reports:

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3- Foreign organisations and individuals which conduct business in Vietnam and are not subject to forms of investment under the Law on Foreign Investment in Vietnam:

3.1- Foreign main and supplementary contractors who run business through their permanent bases in Vietnam and apply Vietnamese business accounting regimes must conduct the accounting of VAT as stipulated in Circular No.100/1998/TT-BTC dated July 15, 1998 and Circular No.180/1998/TT-BTC of December 26, 1998 of the Ministry of Finance as well as the following instructions:

a) In cases where the contractor signs the contract to undertake the entire package bid and share supplementary bids to foreign and Vietnamese parts:

* Foreign main contractors:

- When issuing VAT-included receipts which include the value of work handled by the sub-contractor or the Vietnamese business co-operator, make entries as follows:

Debit: Account 131 - Must be collected from the customer

Credit: Account 511 - Sales turnover

Credit: Account 333 - Tax and accounts payable to the State Budget (33311)

- When receiving results of sub-contractors or business co-operators, make entries as follows:

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Debit: Account 133 - Deductible VAT (1331)

Credit: Account 331 - Must be paid to the seller

- When specifying the amount of VAT payable for the term:

For input and output VAT deductions, make entries as follows:

Debit: Account 333 - Tax and accounts payable to the State Budget (33311)

Credit: Account 133 - Deductible VAT (1331)

For identifying VAT that must be paid and has already been paid, make entries as follows:

Debit: Account 333 - Tax and accounts payable to the State Budget (33311)

Credit: Accounts 111 and 112

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- For purchase of input materials; fixed assets (VAT-included receipts), and operational outlay costs, make entries as follows:

Debit: Accounts 152, 211, 642 etc.

Debit: Account 133 - Deductible VAT (1331, 1332)

Credit: Accounts 111, 112 and 331

- When transferring work results of the sub-contractor to the main contractor, the sub-contractor issues VAT-included receipts and indicates sales turnover, make entries as follows:

Debit: Account 131 - Must be collected from the customer

Credit: Account 511 - Sales turnover

Credit: Account 333 - Tax and accounts payable to the State Budget (33311)

- When specifying VAT payable for the term:

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Debit: Account 333 - Tax and accounts payable to the State Budget (33311)

Credit: Accounts 111 and 112

b) In cases where the contractor co-operates in business with the Vietnamese side on the basis of signing the contract and sharing the turnover:

- When receiving the turnover shared by the Vietnamese part according to factual business results, the contractor issues VAT-included receipts and indicates sales turnover, make entries as follows:

Debit: Account 131 - Must be collected from the customer

Credit: Account 511 - Sales turnover

Credit: Account 333 - Tax and accounts payable to the State Budget (33311)

- For purchase of input materials; fixed assets (VAT-included receipts) ; and operational outlay costs, make entries as follows:

Debit: Accounts 152, 211, 642 etc.

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Credit: Accounts 111, 112 and 331

- When clarifying VAT payable for the term:

+ For deductions of input and output VAT, make entries as follows:

Debit: Account 333 - Tax and accounts payable to the State Budget (33311)

Credit: Account 133 - Deductible VAT (1331)

+ For defining VAT that must be paid and has already been paid, make entries as follows;

Debit: Account 333 - Tax and accounts payable to the State Budget (33311)

Credit: Accounts 111 and 112

3.2- Foreign contractors and sub-contractors which apply other regular accounting regimes and pay VAT under the form of directly calculating added value are requested to monitor the accounts to ensure honest and sufficient reports on sales turnover, the value of materials, goods and fixed assets, and input purchase services which serve as a basis for defining payable VAT under the tax fixing method.

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1- Foreign-invested businesses and organisations which apply Vietnamese corporate accounting regime must fulfil the accounting of the Corporate Income Tax as regulated in Circular No.100/1998/TT-BTC dated July 15, 1998 of the Ministry of Finance on the accounting of VAT and CIT.

2- Foreign-invested businesses and organisations in Vietnam which are allowed by the Ministry of Finance to apply other regular accounting regimes are also required to conduct the accounting of CIT in accordance with the regulations of Circular No.100/1998/TT-BTC of July 15, 1998 of the Ministry of Finance on the accounting of VAT and CIT and with the following regulations:

- CIT is defined on the basis of pre-CIT profit and tax rates as per the existing regulations. CIT is a required contribution to the State (if the business is profitable in the fiscal year) which is noted in the account�s Debit and indicates original profit in the fiscal year.

- In cases where foreign-invested businesses and organisations are allowed by the competent body to reduce CIT, the accountant is requested to make entries which are contrary to that after defining payable CIT (i.e. take notes of the increase in the corporate income and the decrease in the contribution to the State).

3- Foreign-invested organisations and individuals which run business in Vietnam and are not subject to forms of investment under the Law on Foreign Investment in Vietnam:

3.1- Foreign contractors and sub-contractors, which conduct business in Vietnam and are subject to paying CIT on the account of the declaration form, must conduct the accounting in observation of Vietnamese corporate and CIT accounting regimes as decreed in Circular No.100/1998-TT-BTC dated July 15, 1998 of the Ministry of Finance.

3.2- Foreign-invested contractors and sub-contractors, which apply other regular accounting regimes and pay CIT under the fixing tax method, must monitor the accounts so as to indicate sales turnover by defining turnover in accordance with the regulations in Article 2 of Part C of Circular No.169/1998/TT-BTC dated December 22, 1998 of the Ministry of Finance on the tax regime applied to foreign-invested organisations and individuals that run business in Vietnam and are not subject to forms of investment as ruled in the Law on Foreign Investment in Vietnam. This serves as a basis for identifying payable CIT.

IV. Implementation provision

This circular is effective from January 1, 1999. Other issues related to the accounting of VAT and CIT and not mentioned in this Circular must observe the existing accounting regimes.

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P/P FINANCE MINISTER
DEPUTY MINISTER




Pham Van Trong