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CIRCULAR

GUIDING THE DETERMINATION OF TAXABLE INCOMES FOR DIFFERENCES RESULTING FROM ASSET REVALUATION

Pursuant to June 3, 2008 Law No. 14/2008/ QHI2 on Enterprise Income Tax;
Pursuant to the Government's Decree No. 124/2008ND-CP of December II, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax:
Pursuant to the Government's Decree No. II8/2008/ND-CP of November 27, 2008, defining the functions, tasks, power and organizational structure of the Ministry of Finance;
The Ministry of Finance specifically guides the determination of enterprise income tax-liable incomes for differences resulting from asset revaluation as follows:

Article 1. Subjects and scope of application

1. This Circular applies to organizations producing or trading in goods or providing services and earning taxable incomes under the Law on Enterprise Income Tax (below referred to as enterprises).

2. This Circular regulates differences resulting from the revaluation of assets of enterprises under regulations.

Article 2. Tax bases

1. For a wholly state-owned enterprise that revaluates its fixed assets under regulations for its transformation into a joint-stock company, the value of its fixed assets recorded for depreciation is the revaluated value and the positive difference between the revaluated value and the residual book value of the fixed assets shall be recorded as an increase of state capital portion at the enterprise.

2. For an enterprise that revaluates its assets under regulations for capital contribution or for the redistribution of such assets upon its division, splitting up. consolidation, merger or transformation (except the case specified at Point 1. Article 2 above), enterprise income tax shall be calculated and paid as follows:

a/ The difference resulting from an enterprise's revaluation of its fixed assets for capital contribution or for redistribution of these assets upon an enterprise's division, splitting up. consolidation, merger or transformation shall be accounted as other incomes for determining enterprise income tax-liable incomes. Specifically as follows:

-The difference resulting from the revaluation of fixed assets for capital contribution shall be incrementally allocated to other incomes for determining enterprise income tax-liable incomes of the enterprise. The incremental allocation of this difference shall be based on the remaining number of years of fixed asset depreciation at the capital contribution-receiving enterprise.

- The difference resulting from the revaluation of assets for redistribution upon an enterprise's division, splitting up. consolidation, merger or transformation shall be accounted once as other incomes for determining enterprise income tax-liable incomes of the enterprise.

b/ The difference resulting from the revaluation of short-term land use rights for capital contribution or for asset redistribution upon an enterprise's division, splitting up. consolidation, merger or transformation, if the land use right transferee is allowed to depreciate the land use right value under regulations, shall be accounted as other incomes for determining enterprise income tax-liable incomes on the principle specified at Point 2a. Article 2 above.

For the difference resulting from the revaluation of long-term land use rights for capital contribution or for asset redistribution

upon an enterprise's division, splitting up. consolidation, merger or transformation, in case the land use right transferee has utilized the land use right value in its production or business operation but is not allowed to depreciate the land use right value under regulations, enterprise income lax will temporarily not be paid. After capital contribution if the enterprise continues transferring its land use rights or further contribute its land use right value as capital to another enterprise, the capital contribution-receiving enterprise shall declare and pay enterprise income tax.

In case a land use right value-transferring enterprise further contributes as capital to another enterprise its revaluated land use rights for capital contribution or for asset redistribution upon its division, splitting up. consolidation, merger or transformation, the cost price of land shall be specifically determined as follows:

- For land categorized as fixed asset eligible for depreciation (land for short-term use), the cost price of its use rights upon transfer shall be determined to be the residual land use right value (the residual land use right value the value indicated in the written record of revaluation for capital contribution or for distribution upon the enterprise's division, splitting up. consolidation, merger or transformation - (minus) the depreciation already accounted as the enterprise's expenses).

- For land categorized as fixed asset ineligible for depreciation, the cost price of its land use rights upon transfer shall be calculated according to the land use right value indicated in the written record of capital contribution or asset redistribution before the revaluation for capital contribution.

For example: Enterprise A has the rights to use a land area of 1.000 square meters with a price of VND 5 billion as recorded in its accounting book. It has contributed its rights to use this land area as capital to enterprise B and the two sides have agreed on and made a written record of the contributed land use rights revaluated at VND 10 billion. So. upon making capital contribution, enterprise A is required to make a written record of capital contribution clearly stating the land use right value of VND 5 billion before revaluation and the land use right value of VND 10 billion revaluated upon capital contribution. The difference resulting from the revaluation of the long-term land use right value for capital contribution in case the land use right transferee is not allowed to depreciate the land use right value is temporarily not liable to enterprise income tax.

In case enterprise B does not utilize these land use rights in its production and business operation but further transfers them to enterprise C or further contributes them as capital to enterprise C at the price value of VND 12 billion, it shall declare and pay enterprise income tax. The cost price of the land use rights for determining taxable incomes will be the land use right value of VND 5 billion before the revaluation as indicated in the capital contribution record.

c/ The difference resulting from the revaluation of land use rights for contribution as capital to investment projects on building houses or infrastructure for sale shall be accounted once as other incomes for determining enterprise income tax-liable incomes of the enterprise whose assets are revaluated for capital contribution. For long-term land use rights, such difference is that between their revaluated value

and book value. For short-term land use rights, such difference is that between their revaluated value and residual value.

d/ Upon capital contribution or asset redistribution, the two parties shall make a written record of capital contribution or asset redistribution clearing stating the assets' residual book value before the revaluation and revaluated value, the remaining number of years for fixed asset depreciation (for fixed assets eligible for depreciation), enclosed with a set of asset title documents.

3. Enterprises receiving fixed assets contributed as capital or assets redistributed upon their division, splitting up. consolidation, merger or transformation may depreciate these assets according to their revaluated value (except cases in which land use rights are ineligible for depreciation under regulations).

Article 3. Organization of implementation

This Circular takes effect 45 days from the date of its signing and applies to the finalization of enterprise income tax from 2009.

In case a treaty or international agreement to which the Socialist Republic of Vietnam is a contracting party contains provisions on handling of differences resulting from asset revaluation which are different from this Circular's guidance, such treaty or international agreement prevails.

Any problems arising in the course of implementation should be reported to the Ministry of Finance for timely guidance or settlement.-

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