GENERAL TAX DEPARTMENT
TAX DEPARTMENT OF VINH LONG PROVINCE

SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness

No: 789/CTVLO-TTHT
Re: Determining depreciation period for land lease payments
Vinh Long, July 19, 2024

To:
Mekong Bros Co., Ltd.
Tax Code: 1501082090
Address: Lot A4, Binh Minh Industrial Zone, My Hung 2 Hamlet, My Hoa Commune, Binh Minh Town, Vinh Long Province

On July 11, 2024, the Tax Department of Vinh Long Province received Official Letter No. 03/CV-2024BR dated June 27, 2024, from Mekong Bros Co., Ltd. (hereinafter referred to as the Company) regarding the depreciation period for assets. The Tax Department of Vinh Long Province provides the following comments:

Based on Clause 2, Article 2, Clauses 1 and 2, Article 3, Point d, Clause 2, Article 4, and Clause 2, Article 11 of Circular No. 45/2013/TT-BTC dated April 25, 2013, by the Ministry of Finance, guiding the management, use, and depreciation of fixed assets:

Article 2. Terms used in this Circular are understood as follows:

...
2. Intangible fixed assets: are assets without physical form, representing an amount of value that has been invested to meet the standards of intangible fixed assets, participating in many business cycles, such as certain costs related directly to land use; costs for issuance rights, patents, copyrights, etc.

Article 3. Standards and identification of fixed assets:

1. Labor tools are tangible assets with independent structures or a system consisting of multiple separate assets linked together to perform one or more specific functions, such that if any part is missing, the entire system cannot operate. If they meet the following three criteria, they are considered fixed assets:
   a) Clearly expected to generate economic benefits in the future from using the asset;
   b) Have a usage time of more than one year;
   c) The asset’s original price must be reliably determined and valued at least 30,000,000 VND (thirty million VND).

...
2. Criteria and identification of intangible fixed assets:
Any actual expenses that the enterprise has incurred, which meet all three criteria outlined in Clause 1 of this Article, but do not form tangible fixed assets, are considered intangible fixed assets.

Expenditures that do not meet all three criteria mentioned in Clause 1 of Article 3 of this Circular are either directly accounted for or gradually allocated to the enterprise's business expenses.

Article 4. Determining the original value of fixed assets:
2. Determining the original value of intangible fixed assets:
...
d) Intangible fixed assets are land use rights:

• Intangible fixed assets as land use rights include:

• Land use rights granted by the state with payment for land use or legally transferred land use rights (including land use rights for a term, land use rights without term).

• Land use rights leased before the effective date of the 2003 Land Law, where the land rent has been paid for the entire lease period or paid in advance for several years, with at least five years remaining on the lease term, and a certificate of land use rights issued by the competent authority.

The original value of the intangible fixed asset being land use rights is determined as the total amount paid to acquire the legal land use rights, plus any compensation for site clearance, land leveling, registration fees (excluding costs for constructing buildings on the land); or the value of land use rights received as capital contributions.

• Land use rights that are not recognized as intangible fixed assets include:
  ...

• Leasing land with a lump-sum payment for the entire lease period (land lease after the effective date of the 2003 Land Law, without a certificate of land use rights), in which case the land lease payment is gradually allocated to business expenses over the lease term.

• Leasing land with annual payments, in which case the land lease payment is accounted as business expenses in the period corresponding to the annual lease payment.

Article 11. Determining the depreciation period for intangible fixed assets:
...
2. For intangible fixed assets as land use rights with a term, or leased land rights, the depreciation period is the period the enterprise is permitted to use the land.

Based on the above regulations and the content presented by the Company in Official Letter No. 03/CV-2024BR, the Tax Department of Vinh Long Province provides the following guidance:

• In case the Company leases land for production and business purposes, if the competent authority grants a land use rights certificate, meeting the criteria for fixed assets as prescribed in Clause 2, Article 3, and Point d, Clause 2, Article 4 of Circular No. 45/2013/TT-BTC, it can be depreciated according to regulations, with the depreciation period being the permitted land use period of the enterprise as guided in Clause 2, Article 11 of Circular No. 45/2013/TT-BTC.

• In the case where the land use rights are not recognized as fixed assets under Point d, Clause 2, Article 4 of Circular No. 45/2013/TT-BTC, the handling will be as follows:

• If the land lease is paid in a lump sum for the entire lease term, the land lease payment will be gradually allocated to business expenses over the lease term.

• If the land lease is paid annually, the land lease payment will be accounted as business expenses in the period corresponding to the annual lease payment.