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VALUE ADDED TAX

Lecturer: Le Phuong Thao, MBA School of Business - International University

Objective
After complete this lecture, you are able to

Determine the legal documents on Value Added Tax Understand the scope of Value Added Tax Understand the tax bases and methods of tax computation Understand tax registration, declaration, and finalization

Legal Documents on Corporate Income Tax

VAT
Law No. 13/2008/QH12
Degree No. 123/2008/N-CP Degree No 121/2011/N-CP

Law No. 31/2013/QH13


Decree No. 92/2013/ND-CP
Circular 141/2013/TT-BTC
guiding the implementation of the Governments Decree No. 92/2013/ND-CP on elaborating the implementation of some articles that comes into effect from July 1, 2013 in the Law on the Amendments and Supplement to the Law on Enterprise Income Tax and the Law on Amendment and Supplement to the Law on Value Added Tax

Circular 06/2012/TT-BTC

What is VAT?

The Value Added Tax, or VAT, is based consumption tax assessed on the value added to goods and services.

paid to the tax authorities by the seller of the goods, who is the taxpayers", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax. each taxpayer in the chain of supply from manufacturer through to retailer charges VAT on his or her sales and is entitled to deduct from this amount the VAT paid on his or her purchases. the effect of offsetting VAT on purchases against VAT on sales is to impose the tax on the added value at each stage of production hence Value-Added Tax. a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.

Scope of VAT

Taxable objects

Goods and services used for production, business and consumption in Vietnam (including goods and services purchased from organizations and individuals abroad), Except for those specifically exempted to VAT

Scope of VAT
Goods or Services are subject to VAT
A. B.

Pomina steel products are exported to Cambodia Pomina steel products are sold to a company in

VSIP I
C.

Pomina imported raw material to produce steels in Vietnam

D.

B & C are correct

VAT taxpayers

VAT payers are organizations and individuals producing and trading in VAT-liable goods and services in Vietnam and organizations and individuals that import goods or purchase services liable to VAT from abroad

Business organizations established and registering business under the Law on Enterprises, the Law on State Enterprises (now the Law on Enterprises) or the Law on Cooperatives Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, peoples armed forces units, non-business organizations and other organizations Foreign-invested enterprises and foreign parties to business cooperation contracts under the Law on Foreign Investment in Vietnam; foreign organizations and individuals conducting business activities in Vietnam without establishing legal entities in Vietnam; Individuals, households, independent groups of business people and other business entities conducting in production, business or import activities. Organizations and individuals that conduct production or business in Vietnam and purchase services (including services associated with goods) from foreign organizations without permanent establishments in Vietnam or overseas individuals who do not reside in Vietnam.

Exempted VAT objects


Certain agricultural products; Imported or leased drilling rigs, aeroplanes and ships of a type which cannot be produced in Vietnam; Transfer of land use rights; Financial derivatives and credit services (including credit card issuance, finance leasing and factoring); 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);

Exempted VAT objects


Medical services; Teaching and training; Printing and publishing of newspapers, magazines, and certain types of books such as political books, textbooks, Public-utility post and telecommunications services and internet services Radio and television broadcasting funded with the state budget 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;

Exempted VAT objects


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 nonrefundable aid, including from Official Development Aid, foreign donations to government bodies and to individuals (subject to limitations).
Further details can be found in Section 1, Chapter II, Circular 06/2012/TT-BTC

Zero-Rated VAT vs. VAT Exempt


Zero-Rated VAT objects, such as books, do have VAT on them, but to promote the manufacturing, trading, and consumption of these objects, the VAT is at zero percent VAT output = 0 VAT input is deductible

BUT
VAT Exempt objects, such as agricultural products, do not have VAT on them (not even at 0%). So, the VAT input relating to these objects cannot be reclaimed (nondeductible) VAT output is not chargeable VAT input is nondeductible

Zero-Rated VAT vs. VAT Exempt


Turnover: VND 100mil

Purchase: VND 50mil


VAT input: VND 5mil

Zero-Rated VAT VAT output = VND 100mil x 0% = 0


VAT payble = 0 VND5mil = (VND5mil) refund VAT Exempt No VAT; VAT output = 0 BUT VAT payable = 0

Zero rated objects

Exported goods and services

Exported goods

Goods exported to foreign countries including via authorized agents Goods sold into non-tariff zones under the Prime Ministers regulations; goods sold to duty-free shops Goods treated as exports under the commercial law

Transitional processed goods (forward processing) Processed goods for on-the-spot export (domestically export) Export goods for sale at fairs and exhibitions oversea

Export services: services provided directly to organizations and individuals overseas or in non-tariff zones

Zero rated objects

Other goods and services


1.

2.

3.

4.

Construction and installation operations of export processing enterprises International transportation of passengers, luggage and cargoes along international routes from Vietnam to abroad or from abroad to Vietnam. In case an international transportation contract covers also a domestic stage, international transportation include the domestic stage; Goods and services not subject to VAT upon their exportation Aircraft and sea-going ship repair services provided to foreign organizations and individuals.

Zero rated objects

Cases ineligible for the tax rate of 0%


Petrol and oil sold to automobiles of business establishments in non-tariff zones; Automobiles sold to organizations and individuals in non-tariff zones. Services provided by domestic business establishments to organizations and individuals in non-tariff zones but performed and used outside these zones, such as lease of houses, meeting halls, offices, hotels, warehouses; transportation services for employees Offshore re-insurance; offshore transfer of technologies or intellectual property rights; offshore capital transfer, credit provision or securities investment; derivative financial services; international post and telecommunications services; exported products being exploited natural resources or minerals not yet processed into other products; goods and services provided to individuals without business registration in non-tariff zones, except for other cases specified by the Prime Minister;

Non Tariff Zone

export processing zones, export processing enterprises, bonded zones, bonded warehouses, special commercial and economic zones, commercial and industrial zones other economic zones established and enjoying tax incentives like non-tariff zones under the Prime Ministers decisions.

Goods purchase, sale and exchange relations between these zones and outside areas are import and export relations.

Non Tariff Zone


Son Ha Co. provides the transportation service (transferring employees to the workplace) to a company located in the Tan Thuan export processing zone. The the service provided is:
A.

VAT exempt 0% VAT

B.

5% VAT rate objects


1. 2.

3. 4.

5.

6.

Clean water for production and daily life Fertilizers; ores used for fertilizer production; insecticides, pesticides and growth stimulants for livestock and plants. Feeds for cattle, poultry and for other livestock Services of digging, embanking and dredging canals, ditches, ponds and lakes for agricultural production; cultivating, tending and preventing and eliminating pests for plants; preliminarily processing and preserving agricultural products Cultivation, husbandry, aquatic and marine products (paddy, rice, maize, potatoes, cassava and wheat) which are unprocessed or have been preliminarily processed by cleaning, sun-drying, heatdrying, peeling, pitting, slicing, grinding, freezing, salting or other ordinary methods of preservation at the trading stage Preliminarily processed rubber latex in the forms of crepe, sheets, strips or granules; preliminarily processed pine resin; nets, net ropes and yarns for plaiting fish nets, including fishing nets, assorted yarns and ropes for exclusive use in plaiting fishing nets, regardless of their production materials.

5% VAT rate objects


7. 8. 9.

Fresh and raw foods; forest products not yet processed, at the trading stage Sugar and by-products in sugar production, including molasses, bagasse, dregs. Products made of jute, rush, bamboo, rattan, leaves, straw, coir, water hyacinth, and other handicraft products made of raw materials from agricultural production Specialized machinery and equipment for agricultural production Medical equipment and instruments

10. 11. 12. 13.

Teaching and learning aids


Cultural, exhibition, physical training and sport activities; art performances; film production; film importation, distribution and screening. Childrens toys; books of various kinds Scientific and technological services the sales, lease and hire-purchase of social houses according to the Law on Housing the 50% reduction of the 10% VAT from 01 July 2013 until 30 June 2014 on the sales, , lease and hire-purchase of commercial houses, which are finished apartments smaller than 70 m2 and sold at price of less than VND 15 million/m2.

14. 15.

From 1.7.2013:

VAT calculation

VAT amount = VAT taxable price x VAT rate


Normal case

VAT taxable price = exclusive VAT price (net of price reduction & trade discount) + Special Sale Tax (if any) + Environment protection tax (if any)

VAT taxable price

Imported goods:

VAT taxable price = exclusive VAT price (net of price reduction & trade discount) + Import duty + Special Sale Tax (if any) + Environment protection tax (if any)

Goods and services used for purpose of exchange, gift, donation OR for internal consumption, paid as wages for employees
VAT taxable price = market value as normal sale Example : VietAim manufactures electric fans and installs 50 fans at its workshops, the sale price (inclusive of VAT) of this type of fans is VND 1,100,000/fan. The output VAT amount payable for these internally used fans is: VND100,000

VAT taxable price

Goods sold as installments or credit sales:


VAT taxable price = lump sum price of the goods (excluding interest or deferred payment)

For services of leasing such assets as houses, offices, means of transport, machinery, equipment, etc.,

VAT taxable price = VAT-exclusive rents

Books sold at the cover price Stamps, freight or fare tickets or construction lottery tickets,

The cover price is VAT inclusive price Payment documents showing VAT-inclusive payment prices

VAT taxable price

Tourism business with package price


Package price is VAT inclusive price In case the package price covers also air fares for tourists coming from abroad into Vietnam and from Vietnam to abroad, expenses for meals, lodgings and sight-seeing and some other expenses incurred abroad (if with lawful receipts), sums of money collected from tourists to cover these expenses may be subtracted from taxable prices (turnover).

Example : DPS Tourist Company performs a contract for taking tourists from Vietnam to China on a five-day tour at the package price of USD 400/person. If it has to pay a Chinese tourist company USD 300/person Taxable turnover = USD 400 - USD 300 = USD 100/person VAT taxable price = 100 x 20,000 / (1+10%)
Further details can be found in Section 1, Chapter II, Circular 06/2012/TT-BTC

Tax point
1.

For sale of goods, it is the time of transfer of the right to own or use goods to purchasers, regardless of whether sellers have collected the money.

2.
3.

For imported goods, it is the time of registration of customs declarations.


For services, it is the time of completing service provision or the time of billing the service provision, regardless of whether providers have collected the money. For supply of electricity and clean water, it is the date of recording water or electricity meter readings written on water or electricity bills. For activities of dealing in real estate, building infrastructure or houses for sale, transfer or lease, it is the time of collection of money according to project implementation or payment collection schedules stated in contracts. Based on collected sums of money, business establishments shall declare output VAT amounts arising in the period. For construction and installation, it is the time of takeover test and handover of completed works, work items, construction or installation volumes, regardless of whether contractors have collected the money.

4.

5.

6.

VAT calculation methods


Deduction method
Applied to business establishments that implement proper accounting, invoice, and document regime Except: gold/silver/precious stones/foreign currency traders are always subject to direct method

Direct method

Gold/silver/precious stones/foreign currency traders Business individuals or households failing to implement proper accounting, invoice, and document regime Foreign organization and individual without legal entities and do not meet conditions on accounting and vouchers for deduction method

Deduction method
Payable VAT amount

Output VAT amount

Deductible input VAT amount

The output VAT amount is equal to the total VAT amount of goods sold or services provided indicated on value added invoices. The input VAT amount is equal to total VAT amount indicated on value added invoices for purchased goods or services (including also fixed assets) used for the production of and trading in VAT-liable goods and services

Determination of deductible input VAT


The business establishment must separate
Input VAT for taxable turnover (direct use for production) deductable Input VAT for non-taxable turnover (personal use, exempted goods and services) nondeductible

If

it is impossible to separately account these amounts, input VAT will be deductible according to the ratio (%) of VAT-liable turnover to total turnover of sold goods or provided services.

Determination of deductible input VAT


Vietsourcing company provides training and accounting services. In Oct 2013, company generated VND 150 mil turnover, of which VND 100mil is turnover from training and VND 50mil is turnover from accounting services. In the month, the company used and purchased followings services and goods:

Photocopy services (used for training activities) VND6mil


Office rental (used for both services) VND 20mil Salary (used for both services) VND 70mil Laptops (used for both services) VND 10mil Car (used for both services) VND 1.8mil Transportation services (used for accounting activities) VND 4mil

Calculate VAT payable for Oct 2013.

Conditions to deduct VAT input


1.

Having lawful added value invoice for goods or services

purchased or a receipt for VAT payment at the stage of


importation
2.

Having a receipt for payment via a bank for goods or

services purchased, except where total value VAT inclusive


less than 20 mil to an invoice
3.

Exported goods or services: contracts for sale of goods or

services purchased or processing of goods, customs


declaration of exported goods with certification by customs office of actual export, payment for exported goods or services must be made via a bank

Special cases _ Deductible

Input VAT on fixed assets used for the production of and trading in both goods and services liable and not liable to VAT may be wholly deductible. Input VAT on goods (including also goods from outside purchase or manufactured by enterprises themselves) used by enterprises for sales promotion or advertisement in various forms to serve the production of and trading in VAT-liable goods and services

Input VAT on goods and services used in prospecting, exploring and developing oil and gas fields

Special cases _ Deductible

Production establishment in agriculture or forestry, cultivating, catching, or exploiting aquatic products

Input VAT on goods and services purchased by business establishments for use in the production of or trading in goods and provision of services to foreign organizations and individuals or international organizations for humanitarian aid or non-refundable aid

Special cases _ Deductible

Input VAT arising in a month shall be declared for credit when the tax

amount payable in that month is determined, regardless of whether


relevant goods or services have been delivered for use or still remain in stock.

The time limit for additional declaration and credit is 6 (six) months
from the month when missing invoices and vouchers are issued.

From 1.7.2013, additional VAT declarations could be conducted anytime


before the tax authorities issued the decisions on tax inspection

Special cases _ Nondeductible

Input VAT on purchased goods & services used for the production or

trading of goods and services not subject to VAT

Input VAT on purchased goods or fixed assets which are lost or damaged due to natural disasters, fires or unexpected incidents Input VAT on purchased passenger automobiles of 9 seats or less (excluding automobiles used for commercial cargo or passenger transportation, tourist or hotel business) with valued at more than VND 1.6 billion, input VAT on the value in excess of VND 1.6 billion.

Input VAT on purchased aircraft and yachts not used for business of
transportation, tourist or hotel business

Direct method calculation


VAT payable = Value added x tax rate Value added = Sales Costs of sales Example : Establishment A produces wood articles. In a month, it sells 150 products and earns a total sale turnover of VND 25 million. The value of supplies and materials purchased from outside for the production of these 150 products is VND 19 million, of which:
+ Principal raw material (timber): VND 14 million. + Other materials : VND 5 million.

The applicable VAT rate is 10%.


+ The added value of the sold products: VND 25 million - VND 19 million = VND 6 million. + The payable VAT amount: VND 6 million x 10% = VND 0.6 million.

Direct method calculation

For business establishment keeping sufficient sales and purchase invoices and proper accounting books:

Value added = actual invoice sale price - actual invoice purchase price

For business establishment keeping sufficient sales invoices but NOT purchase invoices imposed value added rate

Commerce (goods distribution and supply): : 10% Services and construction (except for construction with the contracted supply of materials) : 50% Production, transportation, services associated with the supply of goods, construction with the contracted supply of materials: 30%

For business establishment NOT keeping sufficient sales and purchase invoices payment at rate stipulated by MOF

VAT administration

VAT filling

No later than 20th of subsequent month

VAT payment
No later than 20th of subsequent month Importers pay VAT on each shipment of import VAT payment must be in VND

VAT adjustment and finalization


Adjustment no later than 90th day after year end or within 45 days after any change Finalization applied for direct method only Project owners and foreign contractors must submit finalization returns prior to termination of project

Further details can be found in VAT Law 13/QH 12

The End