To: Provincial/municipal Tax Departments

The Ministry of Finance has received official letters from a number of enterprises requesting for guidance on tax policies applicable to foreign currency option transactions. Concerning this issue, the Ministry of Finance gives the following opinions:

1. On value added tax (VAT) on foreign currency option transactions:

Under the guidance at Point 7, Section II, Part A of the Finance Ministry’s Circular No. 120/2003/TT-BTC of December 12, 2003 and based on the characteristics of foreign currency option transactions, these transactions are not subject to VAT.

2. For foreign currency payment flows between Vietnamese customers or Vietnamese banks and foreign banks (excluding option charges and payments due to reassessment):

As these flows generate no income or added value, they give no rise to tax payment obligations.

3. On income tax withheld at source for option charges and incomes earned from foreign currency option transactions:

At present, the Ministry of Finance is studying and considering the application of income tax withheld at source to foreign banks or organizations which do not have permanent establishments in Vietnam but earn incomes from foreign currency option transactions in Vietnam. Therefore, the Ministry of Finance acknowledges enterprises’ proposals and shall provide specific guidance in the coming time.

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FOR THE MINISTER OF FINANCE
VICE MINISTER




Truong Chi Trung