OFFICIAL LETTER

ON CARRYING FORWARD OF LOSSES UPON MERGER OF ENTERPRISES

To: Provincial/municipal Tax Departments

The General Department of Taxation has recently received requests from a number of foreign-invested enterprises for guidance on the carrying forward of losses upon merger of enterprises. Concerning this issue, the General Department of Taxation hereby provides the following guidance:

Point 1, Section IV, Part D of the Finance Ministry's Circular No. 128/2003/TT-BTC of December 22, 2003, stipulates: Business establishments undergoing transformation, ownership conversion, merger, consolidation, division, separation, dissolution or bankruptcy must settle business income tax (BIT) with tax authority up to the time the decisions on enterprise transformation, ownership conversion, merger, consolidation, division, separation, dissolution or bankruptcy are issued by competent authority.

Enterprises’ losses incurred before the merger, division or separation shall be monitored in detail on the basis of the year of incurring in order to ensure that the loss-carrying duration must not exceed 5 years.

For example: Enterprise A was merged into enterprise B in 2004; if enterprise A’s losses have not yet been carried forward fully, enterprise B shall have to monitor separately enterprise A's losses incurred in each fiscal year and ensure that such losses shall be further carried forward and offset by profits generated within 5 subsequent years, counting from the year each loss was incurred. Losses which were incurred more than 5 years ago but not yet fully offset by profits generated in subsequent years are not allowed to be further carried forward, but shall be offset with investors’ post-BIT profits.

The General Department of Taxation hereby notifies the aforesaid guidance to provincial/municipal Tax Departments thereof for compliance.