Positive changes include the clarification of the application of VAT exemption on several supplies including insurance, financial services, security and currency trading, factoring services, health and education services.
In addition, a new concept of “VAT-ignorable transactions” was introduced. This concept evolved from practical implementation of the VAT law, which prescribes transactions whereby suppliers are not required to charge VAT but are allowed to claim the input tax attributable to those transactions. VAT-ignorable transactions include (amongst others) supplies made outside of Vietnam by resident suppliers, indemnity claims, financial subsidies, services provided by non-resident entities, disposal of assets by sellers other than ordinary traders, disposal of assets mortgaged at a bank or credit institution, intercompany transfer of fixed assets (at book value) for the purpose of producing taxable supplies, injection of assets to form a new enterprise, insurers’ claims against third parties, cash collections on behalf of third parties and certain sales commissions.
Circular 06 also confirms the zero-rating for in-country import/export activities, international traffic and associated services. However, outbound postal and telecom services and certain onshore services for offshore customers are not zero-rated. Input tax attributable to several acquisitions is confirmed to be creditable. These include costs of damaged/expired inventories, mixed supplies (with both taxable and exempt components); give-away inventories; advertising, promotion and marketing expenditures; and goods and services produced/acquired for internal consumption.
There is currently an exposure draft being circulated for public comments, which proposes further changes to the current VAT regime. The amendments to VAT Law are expected to take effect on 1 July 2014, if approved by lawmakers in May 2013. The draft purports to expand further the list of exempt supplies. Although some are already prescribed by the existing regulation, Circular 06, they will be legislated into law. These include health insurance, insurance services relating to human well-being, agriculture and fishery, loans by lenders other than banks or credit institutions, foreign currency trading, factoring services and sole traders with annual turnover less than 100 million Vietnamese dong (VND) etc. The draft also prescribes the price of taxable supply to be inclusive of environment tax which was introduced to the Vietnam tax system in 2012. The draft also proposes a threshold of annual turnover of VND1 billion for businesses electing to report VAT under the conventional “deduction method” (i.e. VAT payable = output tax – input tax). Otherwise, the deemed method of VAT calculation will apply. The lead time for claims of input VAT credit is expected to increase from 6 months to 12 months and the minimum threshold for refunds is expected to increase from VND200 million to VND500 million.
Vietnam tax regulators expect that these changes will align Vietnam’s VAT regime with the proposed changes in other domestic tax laws and international practices, simplify compliance procedures and help taxpayers reducing compliance costs.