CIRCULAR

GUIDING THE IMPLEMENTATION OF TAX OBLIGATIONS WITH REGARD TO FOREIGN SUB-CONTRACTOR DOING BUSINESS IN PETROLEUM PRODUCT SHARING CONTRACT IN VIETNAM

Based on the existing tax laws and decrees in Vietnam and on the Law on foreign Investment in Vietnam, the Ministry of finance temporarily enforces the following tax policies on foreign sub-contractor who runs a business involving activities in petroleum product-sharing-contract in Vietnam:

I. Scope of application

- All the regulations in this Circular are to be applied to foreign organizations and individuals who work as sub-contractors in petroleum product-sharing-contract according to the Law on foreign Investment in Vietnam.

- If the Socialist Republic of Vietnam and the countries where the sub-contractor come from have signed Agreements concerning the regulations in this Circular those Agreements will prevail.

II. Definitions

In this Circular, the terms will be regarded as follows:

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2. "Sub-contractor" is a foreign economic organization or individual who signs a contract with the contractor to carry out a part of the contractor's assignment in the petroleum product-sharing-contract in accordance with the Law on foreign Investment in Vietnam.

3. "Petroleum product-sharing-contract" is the document signed between PetroVietnam and the contractor to carry out petroleum activities in accordance with the Law on foreign Investment in Vietnam.

III. Types of tax applied

Based on the existing laws and decrees, the sub-contractor has the responsibility to pay the following types of tax:

1. Turnover Tax;

2. Corporate Income Tax;

3. Personal Income Tax;

4. Import-Export Tax; and

5. Other Taxes.

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1. All taxes mentioned in part III of this Circular are applied only to revenues, corporate income and personal income originated in Vietnam from the contract between the contractor and the sub-contractor.

2. To facilitate assessment and payment of turnover tax and corporate income tax, these two types of tax are jointly assessed by multiplying the value of each field of contractor with the percentage of tax given below:

Fields tax rates

a. Drilling ship service 4%

b. Carota service 4%

c. Technical service on drilling frame 4%

d. Services of seismic vessel and site survey vessel 4%

e. Services of supplying materials, chemical products and labor forces

- In which services of bit, pipe and casing 8% 4%

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For a package contract that covers more than one field, the rate for the field in which the value of that part of the contract accounts for more than 50% of the total value of the contract shall be applied.

3. For Personal Income Tax applicable to employees having high income, the Decree on Personal Income Tax and the related guidance notes of the Ministry of finance shall be applied.

4. For Import-Export tax, the Law in Import-Export tax shall be applied.

5. For other types of tax, the existing regulations shall be applied.

V. Organization for implementation

1. Taxpayers:

PetroVietnam (Tong Cong ty Dau khi Viet Nam) is the unit which is authorized by the Ministry of finance to withhold all types of tax stipulated in this Circular and then pay over to the State budget. Sub-contractors are taxpayers stipulated in this Circular.

2. Procedures for filling and paying taxes:

a/ With regard to turnover tax and corporate income tax (jointly assessed in one amount as stated in paragraph IV.2 of this Circular):

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- Within 5 days of receiving the copy of the contract, PetroVietnam has to send the copy of the contract (in Vietnamese) and the tax return to the local tax authority where PetroVietnam has its main office.

- Within 3 days of receiving the copy of the contract and the tax return, the local tax authority has to make a tax notice to PetroVietnam.

- Bases on this notice, within 3 days, PetroVietnam has to notify the contractor the amount of tax due.

- Within 10 days of receiving the notice from PetroVietnam, the Contractor has to withhold and pay the amount of tax to PetroVietnam before remitting the payment to sub-contractor.

- On the last day of each month, PetroVietnam has to pay the total amount of taxes collected in the month to State budget.

b/ Personal Income Tax

- Based on each contract signed between the contractor and the sub-contractor, the former has to inform PetroVietnam of the number of Vietnamese employees as well as foreign employees working for the sub-contractor and the personal income of each employe e in the working period.

- Based on this notification, within 2 days, PetroVietnam has to inform the local tax authority (where PetroVietnam has its main office) with tax return.

- Within 2 days of receiving the notice and the tax return, the local tax authority has to assess and send a tax notice to PetroVietnam, including the amount of tax due.

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- PetroVietnam has to pay the whole amount of taxes already collected to the State budget every month.

c/ Import-Export tax and other types of tax:

- The existing regulations shall be applied.

3. The total amount of tax due stipulated in this Circular is considered recoverable expenditures of the contractor in the petroleum product-sharing-contract between PetroVietnam and contractor.

VI. Penalties and rewards

1. The handling of violations against the regulations in this Circular will be based on existing regulations.

2. PetroVietnam will be entitled to a commission of 0.5% on the amount of tax paid to the State budget.

This Circular has effect to all product-sharing-contracts signed after July 1, 1991. If there is any difficulty in implementing this Circular, the Ministry of finance should be informed in time so that guidance or addition or amendment will be provided, if necessary.

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FOR MINISTRY OF FINANCE
VICE MINISTER




Phan Van Dinh