Value Added Tax (“VAT”)

Scope of Application VAT applies to goods and services used for production, trading and consumption in Vietnam (including goods and services purchased from non-residents). A domestic business must charge VAT on the value of goods or services supplied.
 In addition, VAT applies on the duty paid value of imported goods. The importer must pay VAT to customs authorities at the same time they pay import duties. For imported services, VAT is levied via the FCT mechanism.
 VAT payable is calculated as the output VAT charged to customers less the input VAT suffered on purchases of goods and services. For input VAT to be creditable, the taxpayer must obtain a proper VAT invoice from the supplier. For VAT paid on imports the supporting document is the tax payment voucher and for VAT collected via the FCT mechanism, the supporting document is the FCT payment voucher.
 Goods or Services where VAT declaration and payment are not required For these supplies, no output VAT has to be charged but input VAT paid on related purchases may be credited. These supplies include:
 ·       Compensation, bonuses and subsidies, except those provided in exchange for marketing/promotional services;·       Transfers of emission rights and other financial revenues;·       Certain services rendered by a foreign organisation which does not have a PE in Vietnam where the services are rendered outside of Vietnam, including repairs to means of transport, machinery or equipment, advertising, marketing, promotion of investment and trade to overseas; brokerage activities for the sale of goods and services overseas, training, certain international telecommunication services;·       Sales of assets by non-business organisations or individuals who are not registered for VAT;·       Transfer of investment projects;·       Sale of agricultural products that have not been processed into other products or which have just been through preliminary processing;·       Capital contributions in kind;·       Certain asset transfers between a parent company and its subsidiaries or between subsidiaries of the same parent company;·       Collections of compensation/indemnities by insurance companies from third parties;·       Collections on behalf of other parties which are not involved in the provision of goods/services (e.g. if company A purchases goods/services from company B, but pays to company C and subsequently company C pays to company B, then the payment from company C to company B is not subject to VAT);·       Commissions earned by (i) agents selling services, including postal, telecommunications, lottery, airlines/bus/ship/train tickets, at prices determined by principals; and (ii) agents for international transportation, airlines and shipping services entitled to 0% VAT; and (iii) insurance agents;·       Commissions from the sale of exempt goods/services. Exempt Goods and Services There are stipulated categories of VAT exemption, including inter alia:
 ·       Certain agricultural products;·       Goods/services provided by individuals having annual revenue of VND 100 million or below;·       Imported or leased drilling rigs, aeroplanes and ships of a type which cannot be produced in Vietnam;·       Transfer of land use rights (subject to limitations);·       Financial derivatives and credit services (including credit card issuance, finance leasing and factoring); sale of VAT able mortgaged assets by the borrower under the lender’s authorization in order to settle a guaranteed loan and provision of credit information.
·       Various securities activities including fund management;·       Capital assignment;·       Foreign currency trading;·       Debt factoring;
   ·       Certain insurance services (including life insurance, health insurance, agricultural insurance and reinsurance);·       Medical services;·       Teaching and training;·       Printing and publishing of newspapers, magazines and certain types of books;·       Passenger transport by public buses;·       Transfer of technology, software and software services except exported software which is entitled to 0% rate;·       Gold imported in pieces which have not been processed into jewellery;·       Exported unprocessed mineral products such as crude oil, rock, sand, rare soil, rare stones, etc.;·       Imports of machinery, equipment and materials which cannot be produced in Vietnam for direct use in science research and technology development activities;·       Equipment, machinery, spare parts, specialised means of transport and necessary materials which cannot be produced in Vietnam for prospecting, exploration and development of oil and gas fields;·       Goods imported in the following cases: international non-refundable aid, including from Official Development Aid, foreign donations to government bodies and to individuals (subject to limitations). Tax Rates There are three VAT rates as follows:
 0%       This rate applies to exported goods/services including goods/services sold to overseas/non-tariff areas and consumed outside Vietnam/in the non-tariff areas, goods processed for export or in-country export (subject to conditions), goods sold to duty free shops, certain exported services, construction and installation carried out for export processing enterprises, aviation, marine and international transportation services.
 5%        This rate applies generally to areas of the economy concerned with the provision of essential goods and services. These include: clean water; fertiliser production; teaching aids; books; unprocessed foodstuffs; medicine and medical equipment; husbandry feed; various agricultural products and services; technical/scientific services; rubber latex; sugar and its by-products; certain cultural, artistic, sport services/products and social housing.
 10% This "standard" rate applies to activities not specified as not-subject to VAT, exempt or subject to 0% or 5%.
 When a supply cannot be readily classified based on the tax tariff, VAT must be calculated based on the highest rate applicable for the particular range of goods which the business supplies.
 Exported Goods and Services Services directly rendered and goods sold to foreign companies, including companies in non-tariff areas, are subject to 0% VAT if they are consumed outside Vietnam or in non-tariff areas.
 Various supporting documents are required in order to apply 0% VAT to exported goods and services (except for international transportation services): e.g. contracts, evidence of non-cash payment and customs declarations (for exported goods).
 There are a number of services specified in the VAT regulations which do not qualify for 0% VAT, in particular advertising, hotel services, training, entertainment, tourism provided in Vietnam to foreign customers; and various services provided to non-tariff areas (including leasing of houses, transport services for employees to and from their work place, certain catering services and services in relation to trading or distribution of goods in Vietnam).
   VAT Calculation Methods There are two VAT calculation methods, the tax deduction method and the direct calculation method.
 Method one - Deduction method This method applies to business establishments maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including:
 -           Business establishments with annual revenue subject to VAT of VND1 billion or more;-           Certain cases voluntarily registering for VAT declaration under the deduction method. ·       Determination of VAT payable VAT payable = Output VAT – Input VAT
 ·       Calculation of output VAT The output VAT to be charged is calculated by multiplying the taxable price (net of tax) by the applicable VAT rate. With respect to imported goods, VAT is calculated on the import dutiable price plus import duty plus special sales tax (if applicable) plus environment protection tax (if applicable). For goods sold on an instalment basis (except for real estate), VAT is calculated on the total price without interest, rather than the instalments actually received.
 ·       Input VAT For domestic purchases, input VAT is based on VAT invoices. For imports, as there is no VAT invoice, input  VAT credits are based on the tax payment voucher. VAT invoices can be declared and claimed any time before the company receives notice of a tax audit by the tax authorities. Input VAT credits on payments of VND20 million or more can only be claimed where evidence of non-cash payment is available. Input VAT withheld from payments to overseas suppliers (i.e. under the foreign contractor tax system) can also be claimed where the taxpayer makes VATable supplies.
 If a business sells exempt goods or services it cannot recover any input VAT paid on its purchases. This contrasts with supplies entitled to 0% VAT or not subject to VAT, where the input VAT can be recovered. Where a business generates both VATable and VAT exempt sales, it can only claim an input VAT credit for the portion of inputs used in the VATable activity.
 Method two - Direct method This method applies to:
 -           Business establishments with annual revenue subject to VAT of less than VND1 billion;-           Individuals and business households;-           Business establishments which do not maintain proper books of account and foreign organisations or individuals carrying out business activities in forms not regulated in the Law on Investment;-           Business establishments engaging in trading in gold, silver and precious stones. ·       Determination of VAT payable VAT payable = value added of goods or services sold x VAT rate
 Where there is a negative value added from the trading in gold, silver or precious stones in a period, it can be offset against any positive value added of those activities in the same period. Any remaining negative balance can be carried forward to a subsequent period in the same calendar year but cannot be carried over to the next year.
 Once selected, the VAT declaration method must be maintained for 2 consecutive years.
   Discounts and Promotions Price discounts generally reduce the value on which VAT applies. However, certain types of discounts may not be permitted as a reduction before the calculation of VAT and various rules and conditions apply.
 Goods and Services for internal consumption Goods or services for internal use are no longer subject to output VAT, provided that they relate to the business of the company.
Administration All organisations and individuals producing or trading VATable goods and services in Vietnam must register for VAT. In certain cases, branches of an enterprise must register separately and declare VAT on their own activities.
 Taxpayers must file VAT returns on a monthly basis by the 20th day of the subsequent month, or on a quarterly basis by the 30th day of the subsequent quarter (for companies with prior year annual revenue of VND 50 billion or less).
 Refunds Where the taxpayer’s input VAT for a period exceeds its output VAT, it will have to carry the excess forward for a period of twelve months. It can then claim a refund from the tax authorities. In certain cases (e.g. exporters where excess input VAT credits exceed VND300 million), a refund may be granted on a monthly/ quarterly basis. Newly established entities in the pre-operation investment phase may claim VAT refunds on a yearly basis or where the accumulated VAT credits exceed VND300 million.
 Newly established entities and certain investment projects which are in the pre-operation stage may be entitled to refunds for VAT paid on imported fixed assets based on shorter timelines than normal, subject to certain conditions.
 Tax Invoices Entities in Vietnam can use pre-printed invoices, self-printed invoices or electronic invoices. The tax invoice template must contain stipulated items and be registered with the local tax authorities. For exported goods, commercial invoice can be used instead of domestic tax invoices.

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