CIRCULAR No.04-TC/TCT OF JANUARY 23, 1997 GUIDING A NUMBER OF POINTS IN THE TAXATION POLICY TOWARDS THE BRANCHES OF FOREIGN LAWYERS� ORGANIZATIONS OPERATING IN VIETNAM

I. SCOPE OF REGULATION

1. The tax obligations mentioned in this Circular shall apply to the Branches of foreign lawyers� organizations (hereunder referred to as Lawyers� Branches) established under the Regulations on the practice of legal consultancy issued together with Decree No.42-CP of July 8, 1995 of the Government.

2. In case the State or the Government of Vietnam has acceded to or signed an International Treaty, an Agreement or a Legal Commitment with International Organizations or with the State or the Government of another country, which has other stipulations on taxes on the operation of the Branches of foreign lawyers� organizations than those mentioned in this Circular, the stipulations of that International Treaty, Agreement or Commitment shall apply.

II. THE TAXES APPLIED

According to the Law on Foreign Investment in Vietnam and the legal documents guiding its implementation, the Turnover Tax Law of June 30, 1990, the Law on the Amendment and Supplement to a Number of Articles of the Turnover Tax Law of July 5, 1993, and the Law on the Amendment and Supplement to a Number of Articles of the Turnover Tax Law passed by the National Assembly on October 28, 1995, the Branch of a foreign lawyers� organization operating in Vietnam with a turnover from its business activities in Vietnam must pay turnover tax.

All the money obtained by the Branches of foreign lawyers� organizations from their business activities during the taxation period, whether already or not yet collected, is liable to turnover tax.

The taxable turnover does not include the money entrusted by customers to the care of a Law Branch.

If local and/or foreign organizations and individuals sign a contract with a Law Branch to carry out part of the work defined in the contract which it has already signed with customers, the taxable turnover of the Law Branch does not include the payment made to those organizations and individuals that carry out that part of work.

The turnover tax rate set for the legal consultancy of the Law Branches is 4% of the taxable turnover (as stipulated in Point 3, Section VI of the Turnover Tax Table issued together with the Law on the Amendment and Supplement to of a Number of Articles in the Turnover Tax Law passed by the IXth National Assembly at its 8th Session on October 28, 1995).

The Law Branch shall register and make a declaration for paying turnover tax as stipulated in Circular No.97-TC/TCT of December 30, 1995 of the Ministry of Finance guiding the implementation of Decree No.96-CP of December 27, 1995 of the Government stipulating in detail the implementation of the Turnover Tax Law and the Law on the Amendment and Supplement to a Number of Articles in the Turnover Tax Law.

In case a Law Branch signs a contract with foreign organizations and individuals to carry out part of the work as mentioned in Point 1.a, then before making payment to those organizations and individuals, the Law Branch must deduct the amount of tax for remittance to the State Budget as stipulated in Circular No.37-TC/TCT of May 10, 1995 of the Ministry of Finance.

According to the Law on Foreign Investment in Vietnam and the legal documents guiding its implementation, the profit earned by the branches of foreign lawyers� organizations from their business activities in Vietnam and other profits including the profit distributed by a foreign lawyers� organization to its Law Branch in Vietnam (if any) are liable to profit tax.

If a Law Branch has subsidiaries inside and outside Vietnam, the profits made by these establishments shall be added to its profit for calculating the taxable profit.

The taxable profit of a Law Branch is the difference between its total turnover and the reasonable and legitimate expenses related to the formation of the taxable profit plus other profits (including auxiliary profits collected from the sale or liquidation of property, the difference between the deposit interest and the loan interest, the difference in exchange rates... and the profit distributed by a Foreign Lawyers� Association to its Law Branch in Vietnam) during the taxation year. Of these:

a1. The turnover for calculating the taxable profit is all the money collected by a Law Branch from its business activities which fits in with the turnover for calculating turnover tax defined according to the guidance in Point 1.a., Section II, of this Circular.

a2. The reasonable and legitimate business expenses include the following:

+ The salary, payment and allowances paid to Vietnamese and foreign personnel according to a labor contract which conforms to the Labor Regulations and laws currently in force.

+ Expenses in materials, raw materials and energy for the supply of services.

+ The depreciation of immovable property used in the supply of services. The rate of property depreciation shall be fixed according to the rate stipulated in Circular No.31-TC/TCDN of July 18, 1992 and Decision No.1062-TC/QD/CSTC of November 14, 1996 on the issue of the system of management, use and depreciation of immovable property by the Ministry of Finance.

+ Purchase or rental of documents used and services supplied.

+ Management and operating cost of the Law Branch.

In case the Regulations of a foreign lawyers� organization provide for the distribution of managerial and operational expenses by the Head-office to its Law Branches in other countries, the managerial and operating cost actually distributed to the Law Branch in Vietnam shall be added to the expenses for calculating the taxable profit if these expenses are enclosed with reasonable and valid vouchers. In this case, the ratio of expenses actually assigned to the Law Branch in Vietnam to the total expenditure of the foreign lawyers� organization shall not exceed the ratio of the taxed turnover registered in Vietnam to the total turnover of the foreign lawyers� organization. After three months at the latest from the last day of the fiscal year, the Law Branch must file the accounting report of the Head-office already audited by an independent auditing organization to the taxation office to determine the managerial cost and regulate the distribution of the operational expenses.

+ The premiums which the Law Branch is obliged to pay to the social insurance fund for the laborers as stipulated by the current social insurance regime.

+ The property insurance bought by the Law Branch.

+ Taxes, fees and tax-related fees paid (except profit tax)

+ Other expenses not yet mentioned above, but these should not exceed 5% of the above-mentioned total expenditure.

All the above-mentioned expenses must be accompanied with reasonable and valid vouchers. Any expense which has no reasonable and valid voucher cannot be accepted when calculating the taxable profit.

When determining the turnover and the expenses to be deducted in order to determine the taxable profit, the taxation office can consider the reasonableness of revenues and expenses in consultancy service contracts and in the payment and transaction relations between the Law Branch and organizations and individuals, or between the Law Branch and the Foreign Lawyers� Organization which manages it. If the book of account and the payment and transaction relations or service contracts are not clear, or are not registered on the principle of fair transaction, the taxation office can decide the taxable turnover and the taxable profit.

a3. The other profits for calculating taxable profits include but are not limited to the following:

+ The profit gained from the ownership and use of property of the Law Branch.

+ Other financial profits such as the difference between the interest collected from deposits and the interest of loans; the profit from the buying or selling of stocks...

+ The profit distributed by the Head-office to the Law Branch.

The rate of profit tax for the legal consultancy activities of a Law Branch is 25% of the taxable profit (as stipulated by the Law on Foreign Investment in Vietnam and the legal documents guiding its implementation).

The Law Branch shall register its operation, make a declaration to pay and settle the accounts of profit tax as stipulated by the legal documents guiding the implementation of the Law on Foreign Investment in Vietnam.

These are foreigners and Vietnamese working at the Law Branches obliged to pay income tax as provided for by the Ordinance on Income Tax for High-Income Earners issued on May 19, 1994 and the legal documents guiding its implementation.

When transferring their profit abroad, the Law Branches must pay a tax representing 10% of the profit transferred. The procedure of making a declaration to pay tax for the transfer of profit abroad shall comply with the guidance of the legal documents on the implementation of the Law on Foreign Investment in Vietnam.

In addition to the above-mentioned taxes, the Law Branches are obliged to pay registration tax, export duty, import tariff, and other taxes and fees as provided for by the current Tax Laws and Tax Ordinances and the legal documents guiding their implementation.

In the process of operation, the Law Branches are obliged to declare, deduct and pay to the Vietnamese State the following taxes (if any):

- Income tax for the sale of copyrights as stipulated in Circular No.08-TC/TCT of February 5, 1994 of the Ministry of Finance guiding the payment of taxes for copyright income.

- Tax which foreign organizations and individuals operating in Vietnam are obliged to pay as stipulated in Circular No.37-TC/TCT of May 10, 1995 of the Ministry of Finance guiding the application of tax system to those economic organizations and individuals doing business in Vietnam outside the forms of investment defined by the Law on Foreign Investment in Vietnam (including the supply of services by Foreign Lawyers� Organizations to their Law Branches in Vietnam).

The tax year for the Law Branches begins on January 1 and ends on December 31 of the solar calendar. The first tax year begins on the date when they register their operation and ends on December 31 of the same year.

III. RESPONSIBILITY OF THE BRANCHES OF FOREIGN LAWYERS� ORGANIZATIONS OPERATING IN VIETNAM

1. Within 5 days at the latest before they begin to operate, dissolve, or move their operational head-office to a new location, the Law Branches must go through the procedure of registering and paying tax to the taxation office of the province or city directly under the Central Government where they install their operational head-office as provided for by the legal documents guiding the implementation of the Law on Foreign Investment in Vietnam.

2. Strictly observing the stipulations on making a declaration form, registering and paying tax as defined by the legal documents guiding the implementation of the Law on Foreign Investment in Vietnam and this Circular.

3. Producing all the books, accounting reports and other necessary documents concerning the calculation of taxes and tax payment upon request by the taxation office.

4. Making full tax payment when it is due as stipulated by the tax laws currently in force in Vietnam.

IV. HANDLING OF VIOLATIONS AND SETTLEMENT OF COMPLAINTS

All acts of violation of the stipulations of Tax Laws shall be handled according to the laws currently in force in Vietnam.

Those Law Branches which fail to comply with the stipulations on the procedure of registering, making a tax declaration, keeping a book of accounts, using and keeping vouchers shall be warned or fined, depending on the seriousness of their violation, according to the laws currently in force in Vietnam.

The Law Branches which falsify their declarations, evade tax payment or delay paying the taxes or fines written in the notice or order for tax collection or in the decisions of the taxation office on the handling of tax violations shall be handled according to the stipulations of the Tax Law and the stipulations of Decree No.22-CP of April 17, 1996 of the Government on the handling of administrative violations in tax payment.

Any complaints about taxes shall be settled by the local taxation office which directly manages the collection of taxes from the Law Branches. The complaint paper must be sent to the local taxation office which issues decisions on the handling of tax violations, within 30 days after a Law Branch receives a decision on the handling of tax violations. If the complainant is not yet satisfied with the handling of violation by the taxation office directly in charge of tax collection, he/she can send his/her complaint to the General Taxation Department and the Ministry of Finance. The decision on the handling of violation issued by the Minister of Finance is final. Pending a decision on the handling of violation from the authorized level, the complainant must comply with the conclusion made by the local taxation office directly in charge of tax collection.

Any complaints about taxes concerning the stipulations of an Agreement signed between the Vietnamese Government and the Government of another country shall be settled according to the procedures of settling complaints and disputes stipulated in that Agreement.

V. ORGANIZATION OF IMPLEMENTATION

The Taxation Departments of the provinces and cities directly under the Central Government shall have to manage the collection of taxes popularize the stipulations of this Circular to the Branches of the Foreign Lawyers� Organizations operating in Vietnam, and guide them to strictly comply with it.

This Circular takes effect on the date of its signing. The stipulations in this Circular are the basis for checking the payment of taxes by the Law Branches in 1996. Any alteration (if any) in the Tax Laws and the sub-law documents after the date of issuing this Circular shall be applicable to the corresponding taxes defined in this Circular.

If any problem arises in the process of implementing this Circular, the Law Branches and the Taxation Departments are requested to inform the Ministry of Finance for further guidance.

For the Minister of Finance,

Vice-Minister,