Question:
Our company has been renting a premises from Enterprise A since 2016 to construct a workshop for manufacturing and business activities. The lease agreement stipulates that our company is not allowed to sublease to any third party but is permitted to cooperate, form a joint venture, or partner with other businesses to organize production and business activities. However, the production and business activities at this premises have not been effective up to 2019. Another Enterprise X wishes to enter into a business cooperation contract with our company to exploit this premises. In the business cooperation contract, it is stipulated that Enterprise X will share a fixed profit with our company on a monthly basis, regardless of the business results of the contract.
However, Point b, Clause 1.6, Article 44 of Circular No. 200/2014/TT-BTC dated December 22, 2014, issued by the Ministry of Finance, which provides guidance on enterprise accounting regulations, states:
“b) In the case where the business cooperation contract (BCC) stipulates profit distribution after tax, the party responsible for accounting and tax settlement must base the contract’s nature to account for it in a suitable manner following the principle:
If the BCC specifies that other parties participating in the BCC receive a fixed profit not dependent on the business results of the contract, in this case, despite the legal form of the contract being a BCC, the essence of the contract is the lease of assets. In this case, the party responsible for accounting and tax settlement essentially has the right to operate and control the activities of the BCC, and must apply the asset leasing accounting method to the contract, recognizing the amount payable to other parties as expenses to determine the business results for the period…”
To comply with tax laws, how should the two parties in the business cooperation contract for premises exploitation between our company and Enterprise X proceed?
Answer:
-Based on Circular No. 219/2013/TT-BTC dated December 31, 2013, issued by the Ministry of Finance, which provides guidance on Value Added Tax (VAT);
-Based on Circular No. 78/2014/TT-BTC dated June 18, 2014, issued by the Ministry of Finance, which provides guidance on Corporate Income Tax (CIT);
-Based on Circular No. 39/2014/TT-BTC dated March 31, 2014, issued by the Ministry of Finance, which provides guidance on invoices and documents for the sale of goods and provision of services.
In the case where your company enters into a business cooperation contract for premises exploitation between your company and Enterprise X, and the contract stipulates that Enterprise X will share a fixed profit with your company on a monthly basis, regardless of the business results of the contract, this arrangement is considered a form of leasing assets. When receiving payment, your company must issue a VAT invoice, calculate and declare 10% VAT on the revenue without VAT specified in the contract. At the same time, you should determine the revenue for CIT purposes as per regulations.
