VALUE ADDED TAX

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 CONTENT

OVERVIEW OF CONSUMPTION TAX

1
AND VALUE ADDED TAX

2 MAIN CONTENT OF VAT LAW IN VIETNAM

 Consumption tax

 Definition

A consumption tax (also known as an expenditure

tax or consumed-income tax) is a tax levied on
what people spend on goods and services.
 Consumption tax

Characteristics

 indirectly collected
 Often regressive in comparison with
income
 Principles of consumption taxation

 Origin principle: goods and services are

taxed at country of production.

 Destination principle: goods and services

are taxed at country of consumption.
 Principles of consumption taxation

Origin principle Destination principle

- goods and services are goods and services are

taxed at country of taxed at country of
production. consumption.
- Exports are taxable - Exports are non- taxable
- Imports are non- taxable - Imports are taxable
 Advantages & Disadvantages

Origin principle Destination principle

Ad. No need for border control Do not discriminate between

on trade flows foreign and domestic
producers

Disad. Discriminate between Needs for monitoring cross-

domestically produced border trade flows
goods and imports
 OVERVIEW OF VAT

 Definition

 VAT levies on added values of goods and

services arising in the process from production,
business circulation (wholesale, retail) to final
consumption.
 OVERVIEW OF VAT

 Characteristics

 Indirect tax
 Often regressive in comparison with income
 Multi-stage consumption tax
 Highly economic neutrality
Product A
Production Wholesale Retail Final C
10 12 15 20
Added Value
10 2 3 5
VAT 10%
1 0.2 0.3 0.5
Total 2 = 20 X 10%  no more
 Legal documents

 Vietnam Law 13-2008: Law on Value Added Tax

 Vietnam Law 31-2013: Amended Law on Value
Added Tax
 Vietnam Decree 209-2013: Decree on Value Added
Tax
 Vietnam Circular 219-2013: Circular on Value
Added Tax
2. MAIN CONTENT OF VAT LAW IN VIETNAM

2.1. SCOPE OF APPLICATION

2.2. TAX CALCULATION BASIS

2.3. TAX CALCULATION METHODS

2.4. INVOICES & DOCUMENTS

2.5. TAX DECLARATION, SUBMISSION AND REFUND

 2.1. SCOPE OF APPLICATION

 Taxable objects
 Non-taxable objects
 Taxpayers
 Taxable objects

Goods and services used for production,

trading and consumption in Vietnam
(including those purchased from
overseas organizations and individuals),
except non-taxable objects
 Non-taxable objects

 goods and services that are

 Essential
 Used for social and philanthropic
purposes
 Of encouraged industries (e.g. Cultivation
or livestock industry)
 Difficult to determine the added values
 Imported goods which actually are not
used for production, trading and
consumption in Vietnam.
 Imported G&S are can not produced in
VN but used for special purposes.
 Non-taxable objects

 Some typical groups of goods and services.

E.g.

(1) Products from farming, breeding and

aquaculture that are produced, catched and
sold or imported; and are not processed into
other products (unprocessed) or have only
been preprocessed.
(3) Irrigation services, plowing services,
dredging in-field channels; havesting services.
 Non-taxable objects (26)

(7) Insurance services

(8) Finance, banking and securities
services
(16) Public transport by bus and tram within
a procince, a city or routes adjecent to the
city as prescibed by the Ministry of
Transport.
 Non-taxable objects (26)

(9) Medical services and Veterinary services

(13)Education and vacational traning as

prescribed by law
+ Preschool – High school: revenues from meal
and student transport
+ College & University: revenues from boarding
school services; revenues from training
(including examinations and issuance of
qualifications)
 Non-taxable objects (26)

(17) Goods that cannot be manufactured in

Vietnam and must be imported, including:
 Imported machinery, equipment, parts
and supplies directly serving scientific
research and techonological development
 Imported machinery, equipment, parts
and specialized vehicles and supplies
serving petroleum exploration and
extraction
 Airplanes (including engines), oil rigs and
ships
 Non-taxable objects (26)

(20) Goods forwarded through Vietnam’s teritory:

 Goods temporarily imported;
 Goods temporarily exported;
 Raw materials imported for manufacturing or
export processing under contracts with foreign
partners;
 Goods and services traded between a
foreign party and a free trade zone or
among free trade zones.
(23) Exported natural resources that are not
processed into other products.
 Taxpayers

Organizations,
Individuals

Manufacture Import VAT-

and trade taxable
VAT-taxable goods and
goods and services from
services in abroad
Vietnam
 2.2. TAX CALCULATION BASIS

 Taxable prices

 Tax rates
 TAXABLE PRICES

Rule: Taxable prices are VAT-exclusive prices

a) Domestically produced goods and services

VAT
Taxable
exclusive
prices
prices

 Including surcharges excluded from the selling

prices that are received by the business entity.
 If the seller offer a discount, the taxable price is
the discounted price – written on the invoice.
Taxable prices are VAT-exclusive prices

a) Domestically-produced goods &

services – particular cases
 Taxable prices of goods and services
subject to Excise tax and(or) Environmental
protection tax; are the prices inclusive of
Excise tax and (or) Environmental tax, and
exclusive of VAT.
Taxable prices are VAT-exclusive prices

a) Domestically-produced goods &

services – particular cases
 Taxable prices of goods and services used
as gifts, or used internally are the taxable
prices of the same kinds or equivalent
goods and services at the time of using as
gifts or internally (if gift program is not
approved by Ministry of Commerce/ Internal
use not for business)
 If a commodity is paid for by installments,
the taxable price is the original price
exclusive of VAT.
Taxable prices are VAT-exclusive prices

a) Domestically-produced goods &

services – particular cases
 Taxable prices of goods and services used
for sales promotion in accordance with trade
laws are zero (0).
- Free gifts: Taxable prices = 0
- Reduced prices: Taxable prices = reduced
prices
- Vouchers: VAT is not levied on vouchers
Taxable prices are VAT-exclusive prices

a) Domestically-produced goods &

services – particular cases
 Taxable prices of goods and services using
special receipts on which the selling prices
are VAT-inclusive, such as stamps, bus
tickets, lottery tickets:

Selling
price
VAT
taxable
price
1 + tax
rate(%)
VD
 Taxable prices are VAT-exclusive prices

b) Imported goods

Special
Import
Taxable Import excise EPT(if
tax (if
price price tax (if any)
any)
any)

VD
 Eg. 1.

- Hyundai i20 active, fully imported by India

- Import price: CIF = 10.000 USD ~ 220mil VND
- Import tax rate (C/O India: 70%)
- Excise tax rate: 50%
- VAT tax rate: 10%
1. What is the VAT taxable price of this car? How
does the car’s price change after importing into
Vietnam? VAT PAYABLE AT CUSTOM?
2. SHOWROOM IN HN SOLD 1 CAR IN
DOMESTIC, VAT EXCLUSIVE PRICE = 630
MIL. VAT PAYABLE AT TAX OFFICE?
Back
 Time for determining VAT

Goods Services Import

goods

• When the • When the When the customs

ownership service declaration is
• or provision is registered
• The right to use completed
goods is • Or
transferred to • When the
the buyer invoice is made

Whether the payment is made or not

 VAT TAX RATES

 0%: exported goods and services

 5%: Essential goods and services directly

used for production and consumption.

 10%: Ordinary goods and services

 0% tax rate

Applicable objects

 Exported goods and services

 Construction and installation overseas and in
free trade zones
 International transport
 0% tax rate

Condition for application of 0% tax –

exported goods and services
 A sale contract, export processing contract or
export entrustment contract.
 A custom declaration.
 Bank receipts for payment for exported goods
and services.
 Legal VAT invoices for input
 0% tax rate

0% tax is not applied to:

 Oversea reinsurance; technology transfer;
transfer of intellectual property right to abroad;
capital transfer, securities investment overseas;
outbbound postal and telecom services.
 Exported natural resouces that are not processed
into other products.
 Goods and services provided for individuals that
do not register to do business in free trade zones.
 0% tax rate

0% tax is not applied to:

 Oil and gas purchased from domestic market and

sold to automobiles (cars) in the free trade zones
 Automobiles sold to the companies in free trade
zones
 Services provided for the companies in free trade
zones but the locations of consumption are
outside the free trade zones.
 5% tax rate

Particular cases:
 Clean water serving manufacture and everyday
life (except for bottled water)
 The farming, breeding, aquaculture products that
are unprocessed or preprocessed at trading
stage.
 Medical equipments
 Teaching aids
 2.3. TAX CALCULATION METHODS

 Credit-invoice method
 Direct method basing on value
added
 CREDIT-INVOICE METHOD

Applied by
Taxpayers that adhere to the accounting and
invoicing practice according to accounting and
invoicing laws, including:
 Any taxpayer that earns at least 1billion
VND in annual revenue; except for business
individuals and households.
 Any taxpayer voluntarily applies credit-
invoice method; except for business
individuals and households.
 CREDIT-INVOICE METHOD

 Calculating formula

VAT Output Deductible

payable VAT input VAT
 CREDIT-INVOICE METHOD

Output VAT
 The total VAT on sold goods and services written on
the VAT invoices

Taxable
Output prices of VAT tax
VAT goods & rates
services

 VAT invoices: VAT-exclusive price, VAT, selling

price.

VD
If you sell a customer a product or a service, you
need to give them an invoice (bill) by law if both
you and the customer are registered for VAT (a
business to business transaction). An invoice is
not the same as a receipt, which is an
acknowledgement of payment.
The invoice must include certain information
such as:
•how much the customer needs to pay you
•when the customer must pay you
 Legitimate invoice

Must be included:
 a unique identification number
 your company name, address and contact information
 the company name and address of the customer you’re
invoicing
 a clear description of what you’re charging for
 the date the goods or service were provided (supply date)
 the date of the invoice
 the amount(s) being charged
 VAT amount if applicable
 the total amount owed
 Eg. 2

ABC ltd. sold 10 computers at 100 mil VND

(VAT-exclusive price)
Calculate the output VAT, given the VAT tax
rate of 10%.

Back
 CREDIT-INVOICE METHOD

Output VAT
 If the VAT invoice only has the selling price (except
for special invoices) => the VAT shall be levied on
the selling price

 Special VAT invoices(stamps, bus tickets, lottery):

the selling price is VAT-inclusive

Selling
Output price/ Tax
VAT (1+tax rate
rate)
 CREDIT-INVOICE METHOD

Output VAT
 Incorrect tax rates

+ Tax rate on the invoice > tax rate prescribed by VAT

laws => taxpayer must pay tax at the rate written on
the invoice.
+ Tax rate on the invoice < tax rate prescribed by VAT
laws => taxpayer must pay tax at the rate prescribed
by VAT laws
 CREDIT-INVOICE METHOD

Input VAT
is the total of:
 Total VAT on VAT invoices for purchase of goods
and services (including fixed assets) serving
manufacture or sale of taxable goods and services.

 VAT on receipts for payment of tax on imported

goods and services or payment of VAT on behalf of
a foreign organization.
 Principles for input VAT deduction

1. Deduction according to usage purposes

2. Principle of total deduction
3. Principle of invoices
P.1: Deduction according to usage purposes

Deductible input VAT is input VAT on

goods and services serving manufacture
or sale of goods and services subject to
VAT.
- Including non-refundable input VAT on
damaged goods.
P.1: Deduction according to using purposes

Notes:

 The taxpayer must separate the deductible input

VAT from non-deductible one.
 Otherwise, input VAT shall be deducted according
to the ratio of taxable revenue to the total revenue
from felling goods and services.

VAT
Deductible Total
Taxable Input VAT
input VAT revenue
revenue

VD
 Eg. 3

A tea producer incurs two activities

+ Grow & sell fresh tea leaves with the revenue of 100 mil
VND
+ Produce & sell tea boxes with the revenue of 300 mil VND

The total input VAT is 20 mil VND

Calculate the Deductible input VAT.
1. OUTPUT VAT = 300 X 10% = 30
2. DEDUCTIBLE INPUT VAT = 20 X (300/ 400) = 15
3. VAT PAYABLE = 15

Back
 P.1: Deduction according to using purposes

Notes: (cont.)

 If the value of a fixed asset that is a car smaller

than 10 seater cars (except for those that are
used for cargo transport, passenger transport,
tourism or hotel services) exceeds 1.6 bil VND
(VAT-exclusive), the VAT on the proportion
beyond 1.6 bil VND must not be deducted.
 Eg. 4

Calculate the deductible input VAT:

1. A ltd. bought a 4-seaters Camry worth 2.4
bil VND to use for company directors.
2. B corp. bought a 16-seaters Sprinter worth
2 bil VND to use for employee transportation.
3. A travel company bought a 9-seaters car
worth 1.8 bil VND to use for business.
4. A tourist company bought a 8-seaters car
worth 2.0 bil VND to use for business.
Back
 P.1: Deduction according to using purposes

Notes: (cont.)

 Input VAT on goods and services forming fixed

assets such as canteen, recreation room, locker
room, parking lot, restroom, water tank serving
workers at the work place; housing and medical
facility for workers in industrial parks shall be
deducted in full.
 P.2: Principle of total deduction

 VAT shall be declared and deducted in the

period during which it is incurred, whether
the products are used up or still in storage.
 P.2: Principle of total deduction

Notes: Adjustment of deduction

If the taxpayer finds that the input VAT is incorrectly

declared, an adjustment may be made before the
tax authority or a competent authority announces
the decision on tax inspection at the taxpayer’s
premises.
 P.3: Principle of invoices

Only input VAT on legitimate VAT invoices or

receipts for payment of VAT on imported
goods is deductible.
 P.3: Principle of invoices

VAT invoices must not be deducted IF

 The VAT invoice is not legitimate, such as VAT is
not written (except for special invoices);
 The name, address or tax code of the buyer on the
invoice is incorrect.
 The VAT invoice or the receipt for VAT payment is
fake; the invoice is changed or fictitious (made
without actual sale)
 The invoice does not reflect the actual value of
goods and services.
 P.3: Principle of invoices

Condition: Non-cash payments

The payments of inputs qualified for

deductible input VAT must be non-cash
payment; except for the purchases of goods
and services that cost below 20 mil VND
inclusive of VAT.
 Some special cases

 Input VAT of goods (whether

purchased externally or produced by
the taxpayer) used as gifts, used for
sale promotions or advertising serving
the manufacture or sale of taxable
goods may be deducted.
 Non-refundable input VAT on damaged
goods is deductible.
 Incorrect tax rates on input invoices

 Input VAT rate > rate prescribed by VAT

laws => VAT shall be deducted at the rate
prescribed by tax laws.
 Input VAT rate < rate prescribed by VAT
laws => VAT shall be deducted at the rate
written on the invoice.
 Eg. 5

Revenue of tea producer A (VAT-exclusive)

includes:
 Domestically produce and sell fresh tea leaves: 100
mil VND
 Export fresh tea leaves: 200 mil VND
 Domestic retail of tea boxes: 250 mil VND
 Export tea boxes: 450 mil VND

Input VAT gathered on legitimate invoices: 20 mil VND

VAT tax rate on tea boxes is 10%
Calculate the VAT payable of A.
Past exam F6 ACCA
DIRECT METHOD BASING ON VALUE ADDED

Applied by
 Trading, fashioning of gold, silver and gemstones
 The operational companies and cooperatives that earn
less than 1 billion VND in annual revenue; except for
those that voluntarily apply credit-invoice method.
 Business household and business people.
 The foreign entity doing business in Vietnam without
following the Law on Investment; the organizations that
fail to adhere to accounting and invoicing practice.
 The business organizations other than companies and
cooperatives, except for those that voluntarily apply
credit-invoice method.
DIRECT METHOD BASING ON VALUE ADDED

Calculating VAT payable

 Trading, fashioning of gold, silver and
gemstones

VAT tax
VAT Value
rate
payable added
(10%)
DIRECT METHOD BASING ON VALUE ADDED

Calculating VAT payable

 Other cases

VAT
Rate (%) Revenue
payable
 Direct VAT rates

Business lines Rate

From goods distribution or goods supply 1%

From service or construction exclusive of building materials 5%

Manufacturing, transport, services associated with goods, 3%

constuction inclusive of building materials
Other lines of business 2%
 2.4. INVOICES & DOCUMENTS

 Export invoice - used in exporting goods and

services abroad or into non-tariff zones
 Value-added invoice - reserved for organizations
and individuals that declare value-added tax by the
credit method
 Sale invoice - reserved for organizations and
individuals that declare value-added tax by the
direct method;
 Invoices are not required for goods or services with
a total payment of under VND 200,000, unless the
buyer so requests. At the end of the day, the
business establishment shall make a general
invoice.
2.5. TAX DECLARATION, SUBMISSION AND REFUND

 Tax declaration

The business entities make and send to the tax

office
- Tax declaration form
- Other prescribed documents

* VAT declaration is monthly; except for taxpayers with

total annual revenue of no more than 20 bil VND, the
tax declaration is quarterly.
 Tax declaration form submission deadline

 Monthly VAT declaration: the 20th day of the

next month.
 Quarterly VAT declaration: the 30th day of the
next quarter.
2.5. TAX DECLARATION, SUBMISSION AND REFUND

 Tax submission: via bank transfer or in

cash.
 TAX REFUND

 If input VAT is not completely deducted in the

current month (or quarter), the taxpayer applying
credit-invoice method may deduct it from the tax
incurred in the next period.
Tax refund on exported goods & services

 In the month (quarter), if input VAT on

exported goods and services that remains
after deduction is 300 mil VND or above,
VAT shall be refund.
 If the input VAT is below 300 mil VND, it
shall be aggregated with that in the next
month (quarter).
 The significance of tax refund

 Help to solve funding difficulty of businesses.

 Encourage businesses to expand investments.
 Encourage export activities.
 Consistent with international practices.
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