Official Letter No. 6274/TCT-CS 2024 Regarding Tax Policy

To: NYD Line Co., Ltd.

(Address: 25 Road No. 5, Him Lam Urban Area, Tan Hung Ward, District 7, Ho Chi Minh City)

The General Department of Taxation has received Official Letter No. 03/NYD dated October 4, 2024, from NYD Line Co., Ltd. regarding tax policy. In response to this matter, the General Department of Taxation has the following opinion:

Article 5, Clause 51 of the Law on Tax Administration No. 38/2019/QH14 stipulates:
“5. Household businesses and individual businesses with revenue and labor scales that meet the highest criteria of ultra-small enterprises as prescribed by the law on support for small and medium-sized enterprises must comply with accounting regimes and pay taxes under the declaration method.”

Clause c, Article 5, Clause 7 of Decree No. 126/2020/ND-CP dated October 19, 2020, of the Government provides detailed guidance on certain provisions of the Law on Tax Administration:
“c) Organizations cooperating with individuals are responsible for declaring VAT on all business revenue of the cooperation activities in accordance with tax law and organizational tax management regulations, regardless of how the cooperation results are shared. They must also declare and pay individual income tax on behalf of the individual cooperating. In cases where the organization cooperates with an individual business or household business as defined in Clause 5, Article 51 of the Law on Tax Administration, and the individual operates in the same field of business as the cooperation, both the organization and the individual shall independently declare taxes according to the actual results of the cooperation.”

Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance regarding corporate income tax stipulates:
“1. Except for non-deductible expenses listed in Clause 2 of this Article, a company is allowed to deduct all expenses if they meet the following conditions:
a) The expense is directly related to the business activities of the company.
b) The expense is supported by legal invoices and documents as prescribed by law.
c) For expenses that involve the purchase of goods or services with a single invoice worth 20 million VND or more (inclusive of VAT), payments must be made through non-cash methods…”

Clause b, Article 1, Clause 8 of Circular No. 40/2021/TT-BTC dated June 1, 2021, of the Ministry of Finance guiding VAT, individual income tax, and tax management for household businesses and individual businesses:
“1. Organizations and individuals that declare taxes on behalf of, or pay taxes on behalf of individuals, in the following cases:
b) Organizations cooperate with individuals.”

Based on Annex I - List of industries subject to VAT and personal income tax at a percentage rate on revenue, issued with Circular No. 40/2021/TT-BTC dated June 1, 2021, of the Ministry of Finance.

According to the above regulations and the business cooperation contract between NYD Line Co., Ltd. and Ms. Tran Thi Kim Yen, the company issues VAT invoices to customers and declares VAT for the entire revenue of the cooperation contract. When distributing revenue to the individual as per the cooperation agreement, the company is responsible for withholding personal income tax and declaring and paying taxes on behalf of the individual at the applicable percentage rate on the individual's share of the revenue based on the specific business sectors listed in Annex I of Circular No. 40/2021/TT-BTC.

Regarding the deduction of expenses related to the payment made to the partner under the business cooperation agreement, the Ministry of Finance has issued guidance in Official Letters No. 4597/BTC-TCT dated April 9, 2015, and No. 18512/BTC-TCT dated December 27, 2016.

In cases where the organization cooperates with an individual as a household business or individual business as stipulated in Clause 5, Article 51 of the Law on Tax Administration, and the individual’s business is in the same sector as the cooperative activity, both the organization and the individual must declare taxes in accordance with the actual results of the cooperation.

The General Department of Taxation responds so that NYD Line Co., Ltd. is informed and requests the company to base its operations on legal regulations and the actual situation of the business cooperation, and to contact the directly managing tax authority for further guidance in accordance with the law.

(Address: 477 An Duong Vuong Street, Ward 3, District 5, Ho Chi Minh City)

In response to Official Letter No. 1208/CV-CTY dated December 8, 2014, from Thai Binh Construction and Hotel Business Co., Ltd. and Official Letter No. 110/CT-TTHT dated January 7, 2015, from the Ho Chi Minh City Tax Department regarding tax policy for the investment cooperation contract between Thai Binh Construction and Hotel Business Co., Ltd. and the Border Guard Command, the Ministry of Finance provides the following opinion:

Clause 16, Article 3 of the Investment Law No. 59/2005/QH11, dated November 29, 2005, stipulates:
“16. A business cooperation contract (hereinafter referred to as a BCC) is an investment form signed between investors to cooperate in business, sharing profits and products without forming a legal entity.”

Point l, Clause 3, Article 8 of Decree No. 124/2008/ND-CP, dated December 11, 2008, detailing and guiding the implementation of some provisions of the Corporate Income Tax Law, stipulates:
“l) For business activities under a business cooperation contract (BCC) without establishing a legal entity:

• In cases where the parties involved in the BCC share business results based on the revenue from the sale of goods or services, the taxable revenue is the revenue of each party as divided under the contract;
• In cases where the parties involved in the BCC share business results based on products, the taxable revenue is the revenue from the products shared between the parties according to the contract;
• In cases where the parties involved in the BCC share business results based on pre-tax profit, the revenue to determine the pre-tax income is the amount from the sale of goods or services under the contract.”

Point b, Section 1.6, Article 44 of Circular No. 200/2014/TT-BTC, dated December 22, 2014, of the Ministry of Finance, guiding the accounting regime for enterprises, stipulates:
“b) In the case of a BCC that defines profit-sharing after tax, the accounting and tax settlement entity must base its accounting on the nature of the contract as follows:

• If the BCC specifies that the other participating parties receive a fixed profit regardless of the business results of the contract, even though the legal form of the contract is BCC, the essence of the contract is a lease agreement. In this case, the entity responsible for accounting and tax settlement, which has the authority to manage and control the BCC's operations, must apply the accounting method for lease agreements and recognize the payable amounts to the other parties as expenses for determining the business results for the period. Specifically:

• Record all revenue, costs, and after-tax profits of the BCC in the income statement; Earnings per share and financial analysis indicators are calculated based on the total revenue, costs, and profits of the BCC;
• Record the total after-tax profit of the BCC in the 'undistributed after-tax profits' item of the balance sheet, and financial indicators related to the after-tax profit margin are determined based on the total results of the BCC;
• The other parties record rental revenue from the share received from the BCC.”

Based on the above regulations, the cooperation contract between Thai Binh Construction and Hotel Business Co., Ltd. and the Border Guard Command regarding the investment and operation of the K9B guesthouse, the monthly fixed payment made by Thai Binh Construction and Hotel Business Co., Ltd. to the Border Guard Command as agreed upon in the contract will be handled for tax purposes as follows:

• If the parties involved in the cooperation determine that the fixed payment mentioned above is part of the after-tax profit of the business cooperation contract, then Thai Binh Construction and Hotel Business Co., Ltd. cannot account for this payment to the Border Guard Command as an expense when determining the taxable income of the business cooperation between the two parties.
• If the parties involved in the cooperation determine that the fixed payment mentioned above constitutes revenue from leasing property (the guesthouse) by the Border Guard Command, this revenue will be subject to VAT and corporate income tax as prescribed. If the two parties agree that Thai Binh Construction and Hotel Business Co., Ltd. will bear the taxes related to the payment to the Border Guard Command, then the company may account for this payment as an expense when determining the taxable income from the business cooperation.

The Ministry of Finance responds for the Ho Chi Minh City Tax Department and Thai Binh Construction and Hotel Business Co., Ltd. to be informed and to comply with these provisions.