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Circular 123/2012 – Changes to Corporate Income Tax Law for 2012 tax year

Further to the issuance of Decree No. 122/2011/ND-CP (see Vietnam-1, News 10 January 2012), the Ministry of Finance (MoF) issued Circular 123/2012/TT-BTC (Circular 123/2012) on 27 July 2012, replacing Circulars 130/2008, 177/2009, 40/2010 and 18/2011. Circular 123/2012 came into effect on 10 September 2012 and is applicable from the 2012 tax year onwards. The significant changes are noted below:
Income
(a) Taxable income.

-   Leasing. Revenue from the leasing assets may be recognized over the lease term or in full in the tax year, except where the income qualifies for CIT incentives. In which case, it should be allocated over the lease term.
-   Insurance. Taxable income from insurance brokerage activities is the amount after offsetting receipts and payments, rebates and refunds of insurance brokerage commissions. The taxable income does not include revenue collected on behalf of other related entities.

(b) Other taxable income.

-   Gains on the revaluation of assets (not including land use rights) used for capital contribution is to be recognized and taxed in the relevant tax period and may no longer be allocated over a period of time. However, gains on revaluation of land use rights used for capital contribution are to be spread over a maximum of 10 years. The tax authorities must be notified of the allocation period.
-   Profits from the transfer of projects or rights to exploit, explore and process minerals must be separately recorded. The profits/losses of these activities may only be set off against profits/losses from the same activities or from the transfer of property.
-   Gains arising from share swaps and the transfer of securities for non-cash consideration are subject to tax. The non-cash consideration is valued at the market selling price at the time of receipt.

(c) Non-taxable income.
Non-taxable income includes share premiums on the issue of shares.
Deductions
Non-deductible expenses:

-   Cost of damaged goods due to expiration or natural spoilage:previously, the cost of such damaged goods was tax deductible provided that (i) the cost fell within the amount provided for by the company and (ii) required supporting documents are available. The first requirement has been removed under Circular 123.
-   Depreciation: tools and equipment which do not qualify as fixed assets are allowed to be amortized over a maximum period of 2 years.

CIT rate
The CIT rate applicable to activities of prospecting, exploration and exploitation of rare and precious resources (except petroleum) in Vietnam is from 40% to 50%, depending on location.
The deemed rate applicable to pre-sales of real estate (where expenses corresponding to the progress payment cannot be determined) has been reduced from 2% to 1%.
Tax losses
Current year tax losses may be offset against the current year income (including income eligible for tax incentives), except for income arising from the transfer of immoveable assets and the transfer of projects.
Prior year tax losses may only be carried forward and must be offset against income arising from the same business activity as the loss. However, where it is not possible to segregate the losses according to business activity, the carried forward losses should be utilised first against income that is eligible for tax incentives.
CIT incentives

-   Where there is a change in the financial year, a company may opt to:
   
-   continuously apply CIT incentives in the conversion year (which is less than 12 months), or
-   apply the standard CIT rate to the conversion year and defer the use of CIT incentives to the subsequent tax year.
-   A company which is only newly established in legal form (i.e. has not changed location and is an existing business which has been taken over) is not considered as a newly-established company for CIT incentive purposes.
-   Circular 123/2012 however, does not provide guidance for companies which were previously entitled to incentives based on the export ratio (which was repealed by Decree 122/2011/ND-CP).

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