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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 2/10/2014

Vietnam: VAT essentials 

Essential information regarding VAT as it applies in Vietnam.


Scope and Rates

What supplies are liable to VAT?


Generally, goods and services (including goods and services purchased from organizations and individuals overseas) used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except for those specifically being exempted under the VAT regulations.


What is the standard rate of VAT?


The prevailing standard rate of VAT is ten percent.


Are there any reduced rates, zero rates, or exemptions?


  • Zero rate is applicable to exported goods or services including goods exported to foreign countries and non-tariff zones; services provided to foreign individuals or organizations or which do not have a permanent establishment in Vietnam; processing of goods for export; construction and installation work performed in non-tariff zones; international transportation; certain airline and marine services provided directly or indirectly via agents to overseas organizations, aircraft or sea-going vessels repair services to foreign organizations or individuals; in-country export of goods on the spot exported goods.
  • 5 percent is applicable to the supply of specified essential goods and services including clean water; fertilizer; agricultural activities, products and equipments; fresh foodstuffs; semi-processed latex; sugar by-products; medical and educational equipment; children toys, books, cultural, sport and athletic activities; scientific and technological services; sale, lease or hire-purchase of houses under social housing scheme according to the Law on Housing
  • There are 26 categories of VAT exempt supplies including certain agricultural products; water supply and drainage; salt products; transfer of land use rights; life insurance, financial, medical, public postal, telecommunications, public hygiene services; construction work related to cultural work; education and vocational training; radio and television broadcasting; publication; public transportation; goods which cannot be produced in Vietnam, specialized arms; imported goods for humanitarian purposes; technology transfers; gold bars; unprocessed minerals and natural resources, goods in transit via the territory of Vietnam, goods temporarily imported and re-exported etc.
  • a number of cases for which VAT declaration and payment are not required including but not limited to: goods or services provided outside of Vietnam by Vietnamese VAT-registered parties; compensation, bonus and/or allowance receivable; proceeds from assignment of emission rights and other financial income services provided by foreign organizations (without permanent establishment in Vietnam) or non-resident individuals such as repair of transportation means, marketing and advertising services, and so on where such services are rendered outside of Vietnam; sales of assets by organizations or individuals not conducting business and not VAT-registered in Vietnam.

What are the other local indirect taxes beside VAT?


Other indirect taxes include:


  • special consumption tax
  • import and export duties
  • environment protection tax

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Registration

Who is required to register for Vietnamese VAT?


All organizations and individuals producing and trading taxable goods and services in Vietnam and importing taxable goods or purchasing taxable services from overseas, comprising:


  • business organizations
  • economic organizations of political, socio-political, social, or socio-professional organizations and other organizations
  • enterprises with foreign owned capital and foreign parties to business co-operation contracts;
  • foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam
  • individuals, family households, independent groups of persons conducting business and other business entities conducting production, trading or import activities and
  • organizations and individuals conducting production and business in Vietnam and purchasing services from foreign organizations without a permanent establishment in Vietnam or a foreign individual being a non-resident in Vietnam.

Are there penalties for not registering or late registration?


Any entity who fails to register within the stipulated deadlines (i.e. 10 working days from the required date) shall be subject to penalties:


  • an warning or a fine of between VND 100,000 and 1,000,000, for submitting from 10 to 20 days later than stipulated deadlines or
  • a fine of between VND 200,000 and 2,000,000 for submitting more than 20 days later than stipulated deadlines.

Is voluntary VAT registration possible for an overseas company?


Under the Foreign Contractor Tax (“FCT”) regime, i.e. comprises of Corporate Income Tax and VAT, an overseas company is subject to VAT on the income arising from Vietnam. The company may (i) register a tax code and declare VAT on its own (certain conditions including permanent establishment must be met to adopt this VAT declaration method) or (ii) choose to pay VAT under deemed VAT withholding method. Please see the section “Are there any simplifications that could avoid the need for an overseas company register for VAT” below for further details.


The advantage when adopting the method (i) is that the overseas company may recover/claim VAT credit with regards to the input VAT they incurred from its purchase of goods and services in Vietnam.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


Under the FCT regime, the overseas company can elect to pay VAT through the Vietnamese payer i.e. the deemed withholding tax method where the Vietnamese payer is required to register an FCT (comprising two components - VAT and Corporate Income Tax) code for the Vietnamese contracting party’s purpose of declaration and payment of FCT on behalf of the overseas company based on specific deemed tax rates. Under the deemed withholding tax method, the overseas company is not required to register for VAT in Vietnam.


Does an overseas company need to appoint a fiscal representative?


An overseas company does not need to appoint a fiscal representative in Vietnam unless it registers a tax code and declare VAT on its own (certain conditions including permanent establishment must be met to adopt this VAT declaration method).

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VAT grouping

Is VAT grouping possible?


VAT grouping is applicable between a head office and its branches in specific cases, i.e. branches conducting business in the province or city where their head office is located, or branches conducting business outside the province or city where their head office is located but they do not directly sell goods and have no sale turnover. Grouping for related party or associated entities is not permitted.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Generally, VAT declaration is made on a monthly basis (except for certain specific cases) by the 20th day of the following month.


For tax payers whose revenue of the nearest year is VND20 billion or less, VAT declarations may filed on a quarterly basis unless the tax payers elects to report on a monthly basis.


For foreign company paying VAT under deemed VAT withholding method, VAT shall be declared and withheld by the Vietnamese contracting party within 10 days from the date of making the payment.


Are there any other returns that need to be submitted?


  • Form 01/KHBS – Explanation of additional declarations or modifications
    If taxpayers detect errors in the VAT declaration already submitted to tax agencies which affect the payable tax amount, they may make additional declarations - Form 01/KHBS.
  • Form 01-4A/GTGT - Allocation of the creditable VAT amount
    Taxpayers that allocate the creditable VAT amount of the month according to the proportion of turnover of sold VAT-liable goods and services to the total turnover of goods and services sold in the month shall make allocation declaration according to Form 01-4A/GTGT.
  • Form 01-4B/GTGT - Declaration of modifications to the creditable input VAT amount of the year
    Taxpayers that recalculate the creditable VAT amount of the year based on the proportion of turnover of sold VAT-liable goods and services to the total turnover of goods and services sold in the year which is different from the total amount declared in the year shall make declaration of modification according to Form 01-4B/GTGT.

If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The average inter-bank foreign exchange rate announced by the State Bank of Vietnam at the date of invoice shall be applied. When the exchange rate between the collected foreign currency and Vietnam dong is unavailable, the cross exchange rate with another foreign currency announced by the State Bank of Vietnam shall be applied.

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VAT recovery

Can a business recover VAT if it is not registered?


No.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


In principle, input VAT on goods and services is creditable if:


  • the goods or services are used for VAT-able business activities
  • having legitimate supporting documents including VAT invoices or VAT payment vouchers (in case of VAT withheld and paid on behalf of overseas companies, or in case of VAT paid at the importation stage)
  • having payment vouchers via the bank in cases where the VAT inclusive price of purchased goods/ services is VND20 million or more.

Input VAT should be declared for credit purposes within the month or the quarter (for quarterly taxpayers) it arises (i.e. having VAT invoices). In case of omission of declaration of VAT invoices, relevant input VAT is still creditable as long as the declaration of such omitted VAT invoices is done within six (6) months from the month of the VAT invoices.


For purpose of creditability of input VAT relevant to the production of exported goods/services, the following documents/conditions must be available/satisfied:


  • export sales contract duly signed with foreign entities
  • customs declarations for the exported goods which are certified by customs offices to be actually exported
  • payment for exported goods/services must be received through bank transfer made from the importer’s bank account to exporter’s bank account in accordance with the mode of payment as agreed in the export sales contract and
  • VAT or export invoices for exported goods/services.

Input VAT rather than that mentioned in the foregoing will not be creditable.

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International Supplies of Goods and Services

How are exports of goods and services treated?


The tax rate of zero percent shall apply to exported goods and services.


Exported goods shall comprise:


  • goods exported to foreign countries
  • goods sold into non-tariff zones; goods sold to duty-free shops
  • cases deemed to be export:
    • ­transitional processed goods in accordance with the commercial law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties
    • on-the-spot exported goods. Export goods for sale at fairs and exhibitions overseas

Export services include services provided directly to organizations and individuals overseas or in non-tariff zones, in which: organizations overseas means foreign organizations which do not have any permanent establishment in Vietnam and are not VAT taxpayers in Vietnam; and individuals overseas means foreigners who do not reside in Vietnam or Vietnamese residing overseas and who are outside Vietnam during provision of the services.


Other goods and services deemed as export services, specifically applied zero percent VAT, include:


  • construction and installation operations of export processing enterprises
  • international transportation
  • aircraft and sea-going vessel repair services provided to foreign organizations or individuals and
  • goods and services not subject to VAT upon export, except for certain cases not entitled to the tax rate of zero percent including automobiles sold to organizations and individuals in non-tariff zones, reinsurance services with insurer overseas, etc.

How are goods dealt with on importation?


Depending on the type of imported goods, VAT rate of 5 percent or 10 percent will be applied. The importer needs to pay VAT to customs authorities at the same time they pay import duty.


How are services which are brought in from abroad treated for VAT purposes?


Services or services accompanying the sale of goods under a contract between a foreign company and a Vietnamese entity or individual - shall be subject to VAT under the FCT regime.

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Invoices

Is a business required to issue tax invoices?


Except for some cases for which VAT declaration and payment are not required (please see the section “Are there any reduced rates, zero rates, or exemptions?” above), a business is required to issue invoices for all of its sale transactions. Invoices may be:


  • VAT invoices (for domestic sales of sellers who pay VAT under Credit Method, i.e. output VAT minus input VAT)
  • sales invoices (for domestic sales of sellers who pay VAT under Deemed Method, i.e. deemed VAT rates on revenue)
  • export invoices (for exported goods/services) and
  • air freight receipts; international freight vouchers; banking service charge vouchers, etc. Their forms and contents comply with international practices and relevant laws.

What do businesses have to show on a tax invoice?


  • name of invoice type
  • symbol of invoice number pattern and symbol of invoice
  • names of copies of invoice
  • serial number of invoice
  • name, address and tax identification number of the seller
  • name, address and tax identification number of the buyer
  • name, unit of calculation, quantity and unit price of goods or service; total amount in figures and words
  • signatures and full names of the buyer and seller, seal of the seller (if any), and date of making out the invoice
  • name of the invoice printing organization (applicable for invoices printed on order)
  • invoices shall be made in Vietnamese. For an invoice requiring foreign language words, those words shall be put in brackets ( ) to the right of or just below the Vietnamese words with a font size smaller than that of the Vietnamese words. Figures written on an invoice are natural numerals: 0, 1, 2. 3, 4, 5, 6, 7, 8 and 9. Unless the taxpayer has registered its election with the tax authority to use the comma “,the digit representing thousands, millions, billions, trillions, million billions and billion billions must be followed by a dot (.).

Can businesses issue invoices electronically?


E-invoice, a collection of e-data messages on goods sale or service provision created, made, sent, received, stored and managed under the Law on E-Transactions and its guiding documents, is an allowable form of invoices.


Is it possible to operate self-billing?


An establishment may operate self-invoicing in respect of supplies used under specific cases, including:


  • promotion, advertising or samples for production and trading of goods and services: the invoice must specify the name and quantity of the goods, and that they are promotional, advertising or sample goods for which money is not receivable, and a diagonal line should be drawn across the lines for tax rate and VAT, i.e. VAT is not required to be calculated and paid
  • gifts, donations, exchange, substitutes for employees’ salary or for internal consumption: the invoice must be the same as in the case selling goods and services to customers, i.e. VAT is required to be calculated and paid accordingly.

Can a business issue VAT invoices denominated in a foreign currency?


Only those who are allowed to sell goods/services in foreign currency as per prevailing regulations can issue VAT invoices in foreign currency.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Capital transfer comprising transfer of all or part of invested capital, including sale of an enterprise to another enterprise for the purpose of production or business, transfer of securities and other forms of capital transfer is VAT exempted.


Sales of assets are not treated as capital transfer and will be subject to VAT, and the applicable VAT rates will depend on the type of assets.

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Options to Tax

Are there any options to tax transactions?


N/A.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


For branches conducting business in the province or city where head offices are located, taxpayers shall make a common VAT declaration for both head office and their branches, except for the cases that the branches conduct independent accounting, or they conduct dependent accounting but have their own seals and bank accounts, directly sell goods or services and wish to make separate tax declaration and payment.


For branches conducting business outside province or city where head offices are located, the branches shall submit VAT declaration dossiers to tax authorities directly managing them. If these branches do not directly sell goods and have no sale turnover, they shall all make tax declaration at head offices. If the branches have production function and do not maintain cost accounting systems while their head office declares and pays VAT according to credit method, the taxpayers shall pay VAT at the rate of 2 percent (in respect of goods subject to the VAT rate of 10 percent) or the rate of 1 percent (in respect of goods subject to the VAT rate of 5 percent) of the sales at pre-VAT prices of products produced or products of the same type in the locality where the production establishment is located. The amount of VAT payable by the taxpayer for the dependent production establishment shall be deducted from the amount of VAT payable by the taxpayer at the locality in which the head office is located.

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Bad Debt

Are businesses able to claim relief for bad debts?


No.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


Under the Law on Tax administration, a taxpayer that commits one of the specific acts, including using unlawful invoices or invoices for accounting costs of goods or input materials in operations that give rise to tax liability, thereby reducing the payable tax amount or increasing the creditable or refundable tax amounts; using other unlawful vouchers or documents to incorrectly determine the payable or refundable tax amount; failing to record in accounting books revenues related to the determination of the payable tax amount; etc, which are considered as tax evasion or tax fraud shall fully pay the tax amount according to regulations and be imposed a fine of between one and three times the evaded tax amount.


There are no GAAPs in Vietnam.

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Penalty Regime

What is the penalty and interest regime like?


For every act of tax-law violation, the violating individuals or organizations are liable to one of the following forms of sanctions:


  • Reprimands are applicable to first-time violations or second-time violations due to extenuating circumstances;
  • A fine is applicable to each act of tax-law violation as follows:
    • fine with an absolute sum of money for acts of violating the tax procedures with the maximum fine level of VND 100 million;
    • a fine of 0.05 percent per day is applicable to the tax liabilities in arrears which were incurred before 1 July 2013. Effective 1 July 2013, a fine of 0.05 percent per day is applicable to tax liabilities in arrears for a period up to 90 days, and 0.07 percent per day for tax amounts in arrears for more than 90 days
    • a fine of 20 percent is applicable to tax shortfalls detected by tax auditors (unless the tax shortfalls are rectified and settled by the taxpayer prior to a tax audit)

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Tax authorities

Tax audits


How often do tax audits take place?


Under the Law on tax administration, tax audit shall be conducted:


  • on a regular basis no more than once a year for enterprises with diversified business lines and a wide scope of business
  • when there is a sign of tax law violation
  • to settle complaints or denunciations or upon request of heads of tax administration agencies at all levels.

Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Not currently


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, formal rulings can be sought through the local/ provincial tax department. Any issue requiring an internal approval will be escalated to higher authorities to resolve.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Official rulings and decisions issued by the tax authorities are publicly available on the local tax departments’ website and the General Department of Taxation’s website .

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Machinery and equipment imported to form fixed assets of certain encouraged investment projects may be exempted from import VAT and import duties.

 

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