TAX ALERTCIRCULAR 48/2019 ON MAKINGPROVISION

On 08 August 2019, the Ministry of Finance issued CircularNo. 48/2019/TT-BTC (“Circular 48”) replacing Circular No.
228/2009/TT-BTC and other related regulations providing
guidance on treatment of provisions for inventory devaluation,
losses from investment, doubtful debts, and warranty of products, goods, services, and constructions.

Provision for loss from investments►We would like to summarize some salient points as follows:

Securities are those, at the time of making provision,
being issued by domestic business organizations, listed
or registered for trading and available for buying andselling on the domestic stock market;

Some general points►

Circular 48 guides the provisioning as a basis for determining deductible expenses when determining the CIT
taxable income, confirming the time of making and reversing the provisions is to be upon preparing year-end
financial statements, instead of the end of the annual
accounting period or the last day of the fiscal year (underthe previous regulations).

►Credit organizations and banks must follow the regulations on making and managing provision under this Circular, unless clearly regulated in other specific laws.

►Enterprises under some other specific respect such as
insurance, debt trading, etc also apply the Circular
48/2019 and some specific guidance from the Ministry of
Finance (if any) on making provision.

Provision for devaluation of inventories►Circular 48/2019 remove the clause on provision forinventories that are deteriorated, degraded, oldfashioned, technically obsolete, slowly moving goods,
etc. and work in progress of products and services.
Goods belonging to this category would be disposed of,or directly liquidated, without going through provisionmaking process;►Partial regulation removal: prohibition of provision for raw
materials of which the net realizable value is lower thanthe historical costs, but the sales price of the goods manufactured from such raw materials is not reduced.

►Supplementation of subjects permitted for provision suchas goods out of warehouse, goods in transit, goods onconsignment, goods in tax-suspension warehouses;

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Circular 48/2019 re-categorize the subjects of provision
for loss from investments, including (i) securities investments and (ii) other investments (previously known as
long-term financial investments), which explicitly regulates as follows:

Other investments are the investments into domestic
business organizations that exclude securities investments above.
►Circular 48/2019 removes the prohibition of provision forthe projected losses in accordance with business plansprior to investments due to the necessity of making provision for potential capital loss, even in cases of projectedlosses;►Under the Circular 48/2019, enterprises are entitled tomaking provision based on the latest quarterly financial
statements of the invested-business organizations incase such business organizations are permitted to prepare annual financial statements at other year-end thanthose of the investors.

►However, Circular 48/2019 does not allow enterprises tomake provision for offshore investment losses. In addition, the balance of the provision for loss of offshore investments that enterprises have made (if any) is required
to be reversed, recorded as a decrease in expenses at
the time of making financial statement 2019.

Provision for doubtful debts►Regarding the requirement of documents to prove baddebts, enterprises may choose to use a written request
for debt confirmation or a written debt claim (with postmark or confirmation of the delivery company) in case thedebt reconciliation or the contract liquidation is not available.

►Supplementation for the case in which an enterprise incurs both payable and receivable debts with the sameorganization, then the enterprise is permitted to makeprovision based on the net receivable balance, upon
offsetting with the payable amounts;

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Supplementation of the provision for doubtful debts for telecommunications service enterprises and goods retailingenterprises, receivable debts of telecommunications services, information technology, post-paid television and thedebt receivable due from retail sales of goods in the form ofdeferred/ installment payment of individual debtors that areoverdue.

Provision for warranty of products, goods, services,constructions►►

Supplementation of the form "Building construction services"to the subjects of provision, and at the same time moreclearly define the warranty subjects, specifically: "products,goods, services, construction works which are sold/ supplied/ handed over to the buyer within the warranty period
and the enterprise is still liable for continuing the warranty
under the contract or commitment with the customer;
Changes to the treatment of provision for warranty of constructions in cases that the amount of provision is lower thanthe outstanding balance of provision: enterprises record
expense reduction in the same period (previously to be recorded in other incomes).

CONTACTUHY Auditing and Consulting Co., Ltd
Nguyen Trung Thanh - Partner
E: thanhnt@uhyvietnam.com.vn
Tran Thi Bo - Director
E: bott@uhyvietnam.com.vn
Franklin Bak - Director
E: bakjw@uhyvietnam.com.vn

K. Muraishi - Director
E: muraishik@uhyvietnam.com.vn
Hanoi Head Office
9th Floor, HL Tower, 82 Duy Tan Street, Cau Giay
District, Hanoi
Phone: +84 243 755 7446
Fax: +84 243 755 7448
Ho Chi Minh City
46 Truong Quyen Street, District 3, Ho Chi Minh City

Effects

Phone: +84 283 820 4899
Fax: +84 283 820 4909

Circular 48/2019/TT-BTC takes effect from 10 October 2019 andapplies from the financial year 2019.

Website: www.uhy.vn

Our comments►Circular 48/2019 supplements appropriate updates andchanges while remaining consistent with the principles of tax
administration in accordance with current legal documents.

►The Ministry of Finance is increasingly facilitating businesses in the direction of simplifying and diversifying legal basis
for making provisions.

►New points of the Circular 48 have contributed to improving
the rights of enterprises in expense record, directly affecting
the calculation of deductible expenses when determining
CIT in the annual reporting period to offset losses which may
occur in the following year, ensuring that enterprises reflect
the value of inventories, investments not higher than market
prices and the value of receivable debts not higher than therecoverable value upon preparing the annual financial statements.

Should Esteemed Enterprises need more information or any
support on tax and accounting, please contact us.

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