The Ministry of Finance (“MoF”) has issued Circular 36/2016/TT-BTC dated 26 February 2016 guiding the taxation of upstream oil & gas (“O&G”) activities (“Circular 36”). Circular 36 takes effect from 12 April 2016 and shall apply from 2016 onwards. It replaces Circular 32/2009/TT-BTC dated 19 February 2009.
Notable changes are highlighted as below.
• Capital assignment profits tax (“CAPT”) will apply to the indirect transfer of an interest in a PSC, except for an internal restructuring. The Circular provides some guidance on how CAPT will be applied in such situations but there are many uncertainties.
• The standard royalty rates have been removed from Circular 36 and reliance will now be placed on separate royalty regulations and th PSC.
• An annual reconciliation of export duties is now required. There is guidance on payment of additional export duties but no mention of how to deal with an overpayment.
• If a party to a PSC incurs their own CIT deductible expenses, these need to be “transferred” to the party declaring tax on their behalf (i.e. the operator) by using a list of expenses (rather than using value added tax invoices as the previous regulations).
• Other income directly related to O&G activities (e.g. interest) is to be offset against recoverable costs. For other income not related to O&G activities will be treated as taxable income subject to the standard CIT rate.
• Guidance is provided in relation to the CIT implications of abandonment fund which is not fully utilised.
• Circular 36 reiterates that Value added tax ( VAT) incurred during exploration and development phases is fully creditable and will not be clawed even if there is no commercial discovery.
Please click PwC Vietnam NewsBrief_New Circular guiding taxation of upstream oil and_ gas activities_EN for more information and PwC Vietnam NewsBrief_New Circular guiding taxation of upstream oil and_ gas activities_VN for Vietnamese version.
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