CIRCULAR 

Guiding the accounting of value added tax and enterprise income tax applicable
to enterprises, organizations and individuals with foreign investment capital in Vietnam
operating under the Law on Foreign Investment  in Vietnam or not under the
Law on Foreign Investment  in Vietnam
******

Pursuant to Law on Value Added Tax No. 02/1997/ QH9 of May 10, 1997; Law on Enterprise Income Tax No. 03/1997/QH9 of May 10, 1997;

Pursuant to Decree No. 28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax; Decree No.30/1998/ ND-CP of May 13, 1998 of the Government detailing the implementation of the Law on Enterprise Income Tax;

Pursuant to Circular No.89/1998/TT-BTC of June 27, 1998 of the Ministry of Finance guiding the implementation of Decree No.28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax;

Pursuant to Circular No.99/1 998/TT-BTC of July l4, 1998 of the Ministry of Finance guiding the implementation of Decree No.30/1998/ND-CP of May 13, 1998 of the Government detailing the implementation of the Law on Enterprise Income Tax;

Pursuant to Circular No. 100/1998/TT-BTC of July 15, 1998 of the Ministry of Finance guiding the accounting of value-added tax and enterprise income tax; Circular No. 180/1998/TT-BTC of December 26, 1998 of the Ministry of Finance providing additional guidance on the accounting of value added tax;

Pursuant to Circular No.169/1998/TT-BTC of December 22, 1998 of the Ministry of Finance guiding tax regulations applicable to foreign organizations and individuals doing business in Vietnam outside the investment forms prescribed by the Law on Foreign Investment in Vietnam;

The Ministry of Finance hereby guides the accounting of Value Added Tax (VA T) and Enterprise Income Tax (EIT) applicable to enterprises, organizations and individuals with foreign investment capital in Vietnam, as follows:

I. SCOPE OF APPLICATION

This Circular shall apply to foreign-invested enterprises and organizations in Vietnam that make investment under the Law on Foreign Investment in Vietnam: the branches of the foreign lawyers' organizations in Vietnam operating under the Regulation on legal consultancy practice by foreign lawyers' organizations in Vietnam, foreign organizations and individuals conducting business activities in Vietnam outside the investment forms prescribed by the Law on Foreign Investment in Vietnam.

II. ACCOUNTING OF VALUE ADDED TAX (VAT)

1. Foreign-invested enterprises and organizations that apply the Vietnamese enterprises' accounting regime shall have to account VAT according to Circular No.l00/1998/TT-BTC of July 15, 1998 of the Ministry of Finance guiding the accounting of VAT and EIT and Circular No.180/1998/TT-BTC of December 26, 1998 of the Ministry of Finance providing additional guidance on VAT accounting.

2. The foreign-invested enterprises and organizations that apply other commonly used accounting regimes shall also have to account VAT according to Circular No.100/1998/TT-BTC of July 15. 1998 and Circular No.180/1998/TT-BTC of December 26, 1998 of the Ministry of Finance and the following guidance and supplements:

2.1. Regarding the goods sale invoices:

They shall have to use VAT invoices issued by the tax agency or use the VAT invoice forms printed by themselves, which have been registered with and approved by the General Department of Tax. When issuing invoices, they shall have to comply with the regime of issuance, management and use of goods sale invoices prescribed in Decision No.885/QD-BTC of July 16, 1998 of the Minister of Finance.

2.2. Regarding the accounting accounts and methods:

a/ Account "Deductible VAT" is added to reflect the deductible input VAT amount. The code number of this account shall be compatible with those of the accounting account system currently applied in the concerned units.

The use purpose, structure and content reflected in Debit and Credit sides of account "Deductible VAT", and the method for accounting of economic operations shall comply with regulations on Account 133 "Deductible VAT" prescribed in Circular No.100/ 199 8/TT-BTC.

b/ Account "Turnover tax" is renamed as Account "Payable VAT" in the accounting account system currently applied in the concerned units to reflect the output VAT, the payable VAT, the payable import VAT, the VAT amount already paid and to be paid.

The structure and contents to be reflected in the Debit and Credit sides of account "Payable VAT" and the method for accounting of economic operations shall comply with regulations on Account 3331 "Payable VAT" prescribed in Circular No.100/1998/ TT-BTC.

2.3. Regarding the accounting book:

It is necessary to open detailed accounting books to clearly reflect the indices of deductible input VAT, output VAT, payable VAT, payable import VAT, reimbursed VAT and reduced VAT.

2.4. Regarding the financial report:

On the accounting balance sheet, the report on business results and the financial report explanation, the contents related to the implementation of the VAT Law must also be presented (deductible, already deducted and to be deducted input VAT: output VAT, payable, already paid and to be paid VAT; to be reimbursed and already reimbursed VAT, reduced VAT of the fiscal quarter or year).

3. Organizations and individuals doing business in Vietnam outside the investment forms prescribed by the Law on Foreign Investment in Vietnam.

3.1. Foreign contractors and sub-contractors conducting business activities through their resident establishments in Vietnam which apply the Vietnamese enterprises' accounting regime shall have to account VAT according to Circular No.100/1998/ TT-BTC of July 15, 1998 and Circular No.180/1998/ TT-BTC of December 26, 1998 of the Ministry of Finance and the guidance on the following particular points:

a) In cases where the contractor signs the contract for the whole contracting package and subcontract it to the foreign party and Vietnamese party:

- At the foreign principal contractor: When issuing (VAT) invoices which cover the value of the work volume performed by the subcontractor or the Vietnamese business cooperation party, the entries shall be made as follows:

Debit: Account 131 - To be collected from customers

Credit: Account 511 - Goods sale turnover

Credit: Account 333 - Taxes and State budget remittances (33311)

- When receiving results from the subcontractor, or from the business cooperation partner, the entries shall be made as follows:

Debit: Account 632 - Cost prices of sold goods

Debit: Account 133 - Deductible VAT (1331)

Credit: Account 331 - To be paid to the seller

- When determining the VAT amount to be paid in the period:

The deductible input VAT shall be deducted against output VAT, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Account 133 - Deductible VAT (1331)

Determining the VAT amount to be paid and already paid, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Accounts 111, 112 .

At the foreign subcontractor:

- When purchasing input materials and fixed assets ((VAT) invoices), or paying business expenses, the entries shall be made as follows:

Debit: Accounts 152, 211, 642...

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

Credit: Accounts 111, 112, 331

- When handing over the results performed by the subcontractor to the principal contractor, the former shall issue (VAT) invoices and reflect goods sale turnover, writing:

Debit: Account 131 - To be collected from customers

Credit: Account 511 - Goods sale turnover

Credit: Account 333 - Taxes and State budget remittances (33311)

- When determining the VAT amount to be paid in the period:

The deductible input VAT shall be deducted against output VAT, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Account 133 - Deductible VAT (1331)

- Determining the VAT amount to be paid and already paid, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Accounts 111, 112

b) In cases where the contractor enters into a business cooperation contract with a Vietnamese party whereby the business results shall be divided in form of turnover writing:

- Upon receiving turnover shared by the Vietnamese party from business results, the contractor shall issue (VAT) invoices and reflect the goods sale turnover, writing:

Debit: Account 131 - To be collected from customers

Credit: Account 511 - Goods sale turnover

Credit: Account 333 - Taxes and State budget remittances (33311)

- When purchasing input materials and fixed assets ((VA) invoices), or paying business expenses, the entries shall be made as follows:

Debit: Accounts 152. 211, 642...

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

Credit: Accounts 111, 112, 331

- When determining the VAT amount to be paid in the period:

. The deductible input VAT shall be deducted against output VAT, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Account 133 - Deductible VAT (1331)

. Determining the VAT amount to be paid and already paid, writing:

Debit: Account 333 - Taxes and State budget remittances (33311)

Credit: Accounts 111, 112

3.2. Foreign contractors and subcontractors that apply other commonly used accounting regimes and pay VAT by method of direct calculation on the added value shall have to organize the book-keeping so as to ensure the full and truthful reflection of goods sale turnover, value of materials, goods, fixed assets and purchased services to serve as basis for determining the payable VAT by the tax fixing method.

III. ACCOUNTING OF ENTERPRISE INCOME TAX (EIT)

1. Foreign-invested enterprises and organizations that apply the Vietnamese enterprises' accounting regime shall have to account EIT according to Circular No.100/1998/TT-BTC of July 15, 1998 of the Ministry of Finance guiding the VAT and EIT accounting .

2. Foreign-invested enterprises and organizations in Vietnam which are permitted by the Ministry of Finance to apply other commonly used accounting regimes shall also have to account EIT according to Circular No.100/1998/TT-BTC of July 15, 1998 of the Ministry of Finance guiding the VAT and EIT accounting and the following stipulations:

- The EIT shall be determined on the basis of pre- EIT profit and the EIT rates according to the current regulations. EIT is a State budget remittance (provided that the fiscal year's business operation is profitable) and shall be written on the Debit side of the account reflecting the undivided profit of the fiscal year.

- In cases where the foreign-invested enterprises and organizations are permitted by the competent agency(ies), to reduce their EIT, their accountants shall make entries in reverse of those made when determining the payable EIT amount (writing the increase of the enterprises' income and the reduction of State budget remittance).

3. Foreign organizations and individuals doing business outside the investment forms prescribed by the Law on Foreign Investment in Vietnam:

3.1. Foreign contractors and subcontractors doing business in Vietnam, who are liable to pay EIT by the declaration method shall have to conduct the book- keeping according to the Vietnamese enterprises' accounting regime and the EIT accounting according to Circular No.100/1998/TT-BTC of July 15, 1998 of thc Ministry of Finance.

3.2. Foreign contractors and subcontractors that apply other commonly used accounting regimes and pay EIT by the tax fixing method shall have to organize the book-keeping so as to reflect the goods sale turnover with the method for determining turnover prescribed in Point 2, Part C of Circular No.169/1998/ TT-BTC of December 22, 1998 of the Ministry of Finance guiding the tax regime applicable to foreign organizations and individuals doing business in Vietnam outside the investment forms prescribed in the Law on Foreign Investment in Vietnam and serve as basis for determining the payable EIT.

IV. IMPLEMENTATION PROVISIONS

This Circular takes effect from January 1st, 1999, other contents on VAT and EIT accounting which are not guided by this Circular, shall comply with the current accounting regime.

Any difficulties and problems arising in the course of implementation shall be reported to the Ministry of Finance for consideration and solution.