THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIETNAM
Independence – Freedom – Happiness
No. 6873 TC/TCT
Re: Guidance on settlement of unsolved application files for freight tax exemption under the Agreement on the avoidance of double taxation
Hanoi, June 22, 2004
- The Department of Taxation of provinces and centrally managed cities
- Association of Shipping Agents
- Shipping Agents
In the recent time, the Ministry of Finance - the General Department of Taxation released a number of Official Letters providing guidance on freight tax exemption under the Agreement on the avoidance of double taxation (“DTA”). Different shipping agents prepared the application files for freight tax exemption in accordance with the guidance as set forth in these Official Letters. On September 24, 2003, the Ministry of Finance received Official Letter No. 274/CV-Visaba from the Vietnam Shipping Agents and Brokers Association posing its queries regarding to the procedures for freight tax exemption and reduction under the DTA. To solve radically queries of the shipping agents and foreign shipping companies with respect to the procedures for application of freight tax exemption under the DTA in the recent time, the Ministry of Finance provides the following guidelines:
I. REGULATIONS ON FREIGHT TAX AND SCOPE OF FREIGHT TAX EXEMPTION AND REDUCTION UNDER THE DTA:
1. Regulations on freight tax:
Circular No. 16/1999/TT/BTC dated February 4, 1999 of the Ministry of Finance providing guidelines for the implementation of freight tax levied on maritime shipping services of foreign shipping companies operating in Vietnam provides that:
1.1 Freight tax payers: foreign organizations and individuals engaging in transportation of cargo by vessels from a seaport in Vietnam to overseas or between different seaports in Vietnam. Circular No. 16/1999/TT/BTC dated February 4, 1999 of the Ministry of Finance shall not apply to maritime shipping services of foreign individuals and entities established and operating under the laws of Vietnam.
1.2. The freight which is used as the basis for calculation of tax shall be the total freight arised from the transportation of cargo from the port of loading in Vietnam to the last port of delivery (including freight in respect of cargo which is transhipped through transit ports) and/or freight arised from the transportation of cargo between ports of Vietnam.
1.3. The stipulated freight tax rate shall be 3%, in which the rate of corporate income tax shall, as the basis for determining the reduction or exemption under the provisions of the DTA, be 1% of the total tax rate of 3%.
2. Scope of the freight tax reduction and exemption under the DTA
Pursuant to each DAT to which Vietnam is a signatory and in effect, the rate of corporate income tax shall, as the basis for determining the reduction or exemption under the provisions of the DTA, be 1% or 0.5% of the total of freight tax rate of 3%.
II. GENERAL REGULATIONS ON PROCEDURES FOR AND APPLICATION FILES FOR EXEMPTION FROM FREIGHT TAX UNDER THE DTA.
Regulations on procedures for and application files for freight tax exemption currently were provided in Circular No. 95/1997/TT/TCT dated December 29, 1997, Circular No. 37/2000/TT/BTC dated May 5, 2000 and Circular No. 52 TC/TCT dated August 16, 1997, further detailed in Official Letter No. 713 TC/TCT dated January 22, 2002 of the Ministry of Finance, Official Letter No. 4870 TCT/HTQT dated December 25, 2002 and Official Letter No. 1635 TC/HTQT dated May 13, 2003 of the General Department of Taxation on handling the problems on freight tax reduction and exemption under the DTA. Upon the following necessary procedures, the tax agency shall consider and approve the freight tax reduction and exemption in line with each DTA entered into between Vietnam and other countries:
- Application letter with full information on the shipping company, applicable articles of the DTA and commitments of true declaration made by applicant;
- Power of attorney made by foreign shipping company to Vietnamese agent or legal representation acting as applicant;
- Tax residence certificate to determine the country which entered into the DTA with Vietnam for the appropriate application.
- Business registration certificate or tax registration certificate to determine scope and related provisions of the DTA.
- Ship operation documents and the list of turnovers subject to freight tax reduction and exemption for each ship to determine reduction and exemption beneficiary who is direct managing person (owning means of transport) and the reduced and exempted amount in compliance with the scope of application under Article 8 of the International Transportation of the Agreement on the avoidance of double taxation.
III. GUIDELINES FOR HANDLING OUTSTANDING APPLICATION FILE FOR FREIGHT TAX REDUCTION AND EXEMPTION UNDER THE DTA OF PERIOD OF 1999-2001.
1. Simplified procedures for application file for freight tax reduction and exemption under the DTA.
- Shipping agents (shipping companies) are entitled to use the certification letter issued by port authorities certified their ships entering into Vietnam ports (specifying name of agent, name of ship, name of shipping company, entry/exit date) in stead of submission of ship operation documentation as currently provisions. Hence, shipping agents (shipping company) is entitled to submit one of their following documentations: a copy of shipping registration certificate that is notarized or certified by shipping agent (shipping company); a copy of ship leasing contract that is notarized or certified by shipping agent (shipping company); an original or copy of the fixed route ship permit certified by the port authority; an original or copy of entrying permit certified by the port authority; an original of the port authority’s certification on ships owned by these shipping companies entered into Vietnam ports.
- Tax residence certificate (legalized copy): tax residence certificate in which the year is unclear but granted in or after the period of 1999-2000 shall be approved . This stipulation only applies to files for requesting the application of the DAT for the period of 1999-2001. The application files from 2002 up to now shall be applied in accordance with the current provisions (provided that tax residence certificate must clearly state the residence year at the country where the tax residence certificate granted).
- In order to take advantage for shipping companies having their official agents or head office of these agents and sub-agents or branches located in different areas in Vietnam, these agents or shipping companies shall submit the originals of residence certificate and business registration certificate, those are legalization, and its copies (notarized or certified by orginal agents) to the Department of Taxation where the sub-agents or branches of shipping companies located and the location of submitting these originals must be clearly stated in the file requesting the application of the DTA.
2. Handling outstanding freight tax of the period 1999-2001
In fact, certain shipping agents do not properly keep these documents as stated in above and the collection and payment for and on behalf of foreign shipping companies have not exactly accounted, the settlement of outstanding file shall be determined upon the consideration of the actual file requesting the freight tax exemption of shipping agents (shipping companies), specifically:
2.1 For shipping company transported via fixed route in which the agent contract that signed with Vietnamese enterprises is liquidated before the year 2002 and shipping company transported via non-fixed route:
In fact, it is difficult for shipping agents to contact with shipping companies to complete the application file for freight tax exemption under the DTA, and thus the Ministry of Finance shall not collect outstanding freight tax of the period 1999-2001. However, shipping agents, for clear explanation, shall have responsibility for submitting the application files, attached to the following documents to the Department of Taxation which directly suppervised the agent.
- Tax residence certificate, business registration certificate or tax registration certificate (if any);
- A notarized copy of the agent contract and minute on liquidation of the agent contract;
- Name, address of Vietnamese enterprise that is a new shipping agent of the shipping company (if any);
- Detailed information on the foreign shipping company (name, address and tax code); and
- The table of outstanding freight tax and outstanding amount of container storage.
The Department of Taxation shall consider and settle the exemption from freight tax (after comparing data between shipping agent and the Department of Taxation). The Department of Taxation shall synthesize information on foreign shipping companies and actual exempted amount in order to report to the General Department of Taxation for exchanging information with foreign tax agencies.
2.2. For fixed route shipping company operating in Vietnam through shipping agents being Vietnamese enterprises:
Pursuant to the Official Letter No. 713 TC/TCT dated January 22, 2002 of the Ministry of Finance guiding the order, procedures for exemption and reduction of 1% freight tax applicable to shipping agents and shipping companies for tax finalization of the year 2001, the General Department of Taxation shall not collect outstanding freight tax of the period of 1999-2000.
The Department of Taxation shall consider the freight tax exemption for the year 2001 vis-µ-vis application file of shipping companies satisfying the proper documentations which have been submitted by shipping companies. Upon the list of 2001 outstanding freight tax for each ship, the Department of Taxation shall settle upon the shipping operation documentation as follows:
- If the ship have shipping operation documentation, the Department of Taxation shall consider and exempt from all 2001’ outstanding freight tax of each ship.
- If the ship does not have shipping operation documentation, the Department of Taxation shall retroactively collect all 2001’ outstanding freight tax of such ship. This freight tax shall be divided into 6 months and the first payment is July 2004. If the shipping agents submitted the additional documents, the paid freight tax will be refunded or deducted to payable tax amount of the next payment.
For example: Company A is a shipping agent of shipping company B, come from a country which entered into an Agreement with Vietnam, has 10 international shipping vessels incurred freight charge in Vietnam for the period of 1999-2001, and the company A showed out three (03) shipping operation documents. The Department of Taxation exempt all outstanding freight charge of 10 vessels for the year 1999 and 2000. Based on the application file as requested and the list of outstanding freight charge for the year 2001, the Department of Taxation will exempt all outstanding freight tax for 3 vessels having documentations mentioned above and collect all outstanding freight tax of other 7 vessels which have no documentation. This payable freight tax amount will be divided into 6 and paid in 6 months; the first payment will be July 2004. If company A additionally submit shipping operation document of 2 vessels in September 2004, then the freight tax which have been paid for those two vessels will be deducted to the next payment.
In case, where the shipping companies are a tax residence in Singapore, Norway, England, Denmark, Ukraine, India, Canada and Taiwan (those countries entered into DAT with Vietnam, in which Article 8 stated the exempting from container storage fees), the storage fees of those shipping companies shall also be considered together with the application file for exemption of freight tax under the DTA for containers attached with the ship which is considering for freight tax exemption in the list compiled in compliance with the guidelines of the Official Letter No. 4870 TCT/HTQT dated December 25, 2002 and Official Letter No. 1635 TCT/HTQT dated May 13, 2003 of General Department of Taxation.
3. Guidelines for calculation of turnover of freight charges and collect other receivable.
Turnover for freight tax calculation are freight charges and other fees that the customer have to pay to the transporter, this amount is equivalent to “freight charge” stated in Bill of Lading of shipping companies (means net freight charge and additional fee for fluctuation of prices, war risks). Based on those, the Department of Taxation will check and recalculate the turnover that shipping agents declared turnover is net freight charges (without additional fee) in order to reduce taxable amount, the Department of Taxation will collect retroactively the unpaid tax on the undeclared freight and take administrative sanction against the shipping agent after deciding exempting 1% of freight tax following the Agreement on Tax.
Where other turnovers of shipping companies incurred other than freight charges such as container storage amount (for the DTA do not provide the exemption of freight tax for container storage amount), turnover received from liquidation of container, documentation fees, etc., the Department of Taxation shall retroactively collect in accordance with provisions of the Circular 169/1998/TT-BTC dated December 22, 1998 of the Ministry of Finance (5% of corporate income tax) dividing into implemented 6 months after issuing decision on exemption from 1% freight tax under the DTA.
IV. FINALIZATION OF CORPORATE INCOME TAX FOR INTERNATIONAL SEA SHIPPING ACTIVITIES UNDER THE DTA FROM 2002 ONWARD:
1. Shipping agents (shipping companies) shall be responsible for finalizing freight tax from 2002 onward with the Department of Taxation in accordance with Official Letter No. 713 TC/TCT dated January 22, 2002 (as detailed in Official Letter No. 4870 TCT/HTQT dated December 25, 2002 and Official Letter No. 1635 TCT/HTQT dated May 13, 2003) and guidelines for simplying procedures as stated in Section III.1 of this Official Letter.
2. The determination of freight taxable turnover and other incomes other than freight tax shall be applied in accordance with Section III.3 of this official letter.
The Ministry of Finance notifies the Department of Taxation, shipping agents and Association for implementation.
FOR THE MINISTRY OF FINANCE
ON BEHALF OF GENERAL DIRECTOR OF THE GENERAL DEPARTMENT OF TAXATION
DEPUTY GENERAL DIRECTOR
Nguyen Thi Cuc