What are tax obligations incurred in case of unused Fund for Science and Technology Development in enterprises in Vietnam?

What are tax obligations incurred in case of unused Fund for Science and Technology Development in enterprises in Vietnam?

In Clause 2, Article 4 of Circular 67/2022/TT-BTC (effective from December 23, 2022) stipulating tax obligations incurred in case of unused or underused Fund as follows:

2. Tax obligations incurred in case of unused or underused Fund

a) Within 05 (five) years from the establishment of the Fund as prescribed in Article 2 of this Circular, if none or less than 70% of the amounts annually contributed to the Fund has been used, the enterprise shall incur the CIT on unused amounts and interests on such CIT amount payable. Interests charged on the CIT amount payable shall be determined according to the provisions of Point b Clause 2 of this Article.

In case of transfer between Funds, the 05-year period regarding the amount transferred to the Fund of an enterprise shall start from the CIT period in which money is transferred to the enterprise’s Fund.

b) Interests shall be charged on the CIT amount payable on the unused amounts of the Fund at the interest rate of 1-year treasury bonds in effect upon the payment of such CIT amount for a period of 02 years as prescribed in Clause 2 Article 17 of the Law on corporate income tax No. 14/2008/QH12.

c) The used amounts of the Fund include: payments properly made using the Fund which have been recorded as prescribed; the sums advanced which are supported by adequate invoices and receipts but yet to be recorded for performing the Fund’s activities; amounts transferred from the Fund of a corporation to its affiliates, or from a parent company to its subsidiaries or vice versa; and amounts paid to the National Foundation for Science and Technology Development or to the relevant ministerial or provincial Fund for science and technology development (if any) in accordance with regulations of the Ministry of Science and Technology of Vietnam.

Transfer of money between Funds of a parent company or corporation and its subsidiaries or affiliates shall only apply to subsidiaries or affiliates of which 100% of charter capital is held by the parent company or corporation, and is not applied in the following cases:

- Transfer of money from a foreign-invested enterprise to its parent company located abroad;

- Transfer of money from a parent company located in Vietnam to its subsidiaries located abroad.

What is determination of CIT payable in case an enterprise makes contribution to its Fund for Science and Technology Development in enterprises in Vietnam?

In Clauses 3, 4 and 5, Article 4 of Circular 67/2022/TT-BTC (effective from December 23, 2022) stipulating determination of CIT payable in case an enterprise makes contribution to its Fund for Science and Technology Development in enterprises:

3. If both the receiving enterprise and the transferring enterprise are not eligible to CIT incentives, the CIT rate used for calculating the CIT amount payable shall be the one applied to the enterprise in each tax period upon contribution to its Fund or at the time of transfer of money between their Funds.

4. Determination of CIT payable in case an enterprise makes contribution to its Fund while it is enjoying CIT incentives:

a) If an enterprise makes contribution to its Fund while it is enjoying CIT incentives (preferential CIT rate, tax exemption or tax reduction), and misuses or uses none or less than 70% of the amounts contributed to its Fund during the period of enjoyment of CIT incentives, the CIT amount payable shall be calculated at the preferential CIT rate applied upon its contribution to the Fund.

b) If an enterprise makes contribution to its Fund while it is enjoying CIT incentives, has received money from the Fund of another enterprise (transferring enterprise), and misuses or uses none or less than 70% of the sum of amounts contributed to its Fund and received amounts, the CIT amount payable shall be calculated as follows:

- With regard to amounts contributed by the enterprise to its Fund, the CIT amount payable shall be calculated at the preferential CIT rate applied upon its contribution to such Fund.

- With regard to amounts received from another enterprise, the CIT amount payable shall be calculated as follows:

+ If the transferring enterprise is not eligible to CIT incentives at the time of transfer, the CIT amount payable shall be calculated at the normal CIT rate.

+ If the transferring enterprise is enjoying CIT incentives at the time of transfer, the CIT amount payable shall be calculated at the preferential CIT rate applied to the transferring enterprise at the time of transfer.

The unused or misused portion of received amounts shall be determined according to the proportion of such received amounts to the Fund balance (i.e. the sum of amounts contributed by the enterprise to the Fund and received amounts).

5. Each enterprise shall itself calculate, declare and pay CIT amount payable on misused or unused amounts of its Fund, and assume legal responsibility in accordance with regulations of the Law on tax administration.

What is handling for each enterprise to document the fixed assets created using its Fund for Science and Technology Development in enterprises in Vietnam?

In Clause 1, Article 5 of Circular 67/2022/TT-BTC (effective from December 23, 2022), each enterprise shall document the fixed assets created using its Fund for Science and Technology Development in enterprises, including the following cases:

1. Each enterprise shall document the fixed assets created using its Fund to have them managed in accordance with regulations of law, and shall not include depreciation of these fixed assets in its deductible expenses upon determination of its income subject to CIT. Such fixed assets include:

a) Fixed assets created to serve the enterprise’s science and technology activities;

b) Machinery and equipment purchased with transferred technologies as prescribed in Article 7 of the Law on Technology Transfer in order to partially or entirely replace the enterprise’s technologies in use with more advanced ones with the aims of enhancing productivity and quality of products or developing new products according to Point c Clause 3 Article 10 of the Government’s Decree No. 95/2014/ND-CP dated October 17, 2014;

c) Machinery and equipment purchased to serve technology innovation or directly serve the enterprise’s business in 02 years (2022 and 2023) as prescribed in Point b Clause 3 Article 3 of the National Assembly’s Resolution No. 43/2022/QH15 dated January 11, 2022.

Best Regards!