CIRCULAR

GUIDANCE ON IMPLEMENTATION OF THE LAW ON VALUE-ADDED TAX AND THE GOVERNMENT'S DECREE NO. 209/2013/ND-CP DATED DECEMBER 18, 2013 PROVIDING GUIDANCE ON SOME ARTICLES OF THE LAW ON VALUE-ADDED TAX.

Pursuant to the Law on Value-added tax No. 13/2008/QH12 dated June 03, 2008 and the Law No. 31/2013/QH13 dated June 19, 2013 on amendments to some Articles of the Law on Value-added tax;

Pursuant to the Law on Tax administration No. 78/2006/QH11 dated November 29, 2006 and the Law No. 21/2012/QH13 dated November 20, 2012 on the amendments to the Law on Tax administration;

Pursuant to the Government's Decree No. 209/2013/ND-CP dated December 18, 2013 providing guidance on some Articles of the Law on Value-added tax;

Pursuant to the Government's Decree No. 118/2008/ND-CP dated November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the request of the Director of the General Department of Taxation,

The Minister of Finance provides guidance on implementation of the Law on Value-added tax:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

This Circular provides guidance on the commodities and services that are subject to tax and not subject to tax, taxpayers, basis and methods for calculating, deducting, refunding tax, and the places to pay value-added tax (VAT).

Article 2.Taxable goods and services

Goods and services subject to VAT (hereinafter referred to as taxable goods and services) are those used for production, trading, and consumption in Vietnam (including those purchased from overseas organizations and individuals), except for the goods and services in Article 4 of this Circular.

Article 10. Taxpayers  

Payers of VAT are the organizations and individuals that manufacture, trade in taxable goods and services in Vietnam regardless of their lines and forms of business (hereinafter referred to as business establishments), the organizations and individuals that import goods or purchase  services from abroad (hereinafter referred to as importers), including:

1. The business organizations established and registered under the Law on Enterprises, the Law on State enterprises (now the Law on Enterprises), the Law on Cooperatives, and other business laws.

2. Business organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, the army, public service organizations, and other organizations;

3. Foreign-invested companies and the foreign participants under the Law on Foreign investment in Vietnam (now the Law on Investment); the foreign organizations and individuals (hereinafter referred to as foreign entities) that do business in Vietnam without establishing a legal entity in Vietnam;

4. Individuals, households, independent groups of businesspeople, and other entities that engage in manufacturing, trading, or importation;

5. Any business organization or businessperson in Vietnam that purchases services (including services attached to goods) from a foreign organization that does not have a permanent establishment in Vietnam, or from a foreigner that is not a resident in Vietnam, the business organization or businessperson that purchase services is the taxpayer, except for the cases in which VAT is exempt in Clause 2 Article 5 of this Circular.

Regulations on permanent establishments and residents are introduced in the laws on corporate income tax and personal income tax.

6. Branches of the export processing companies that are established to trade goods and do the tasks related to goods trading in Vietnam in accordance with the laws on industrial parks, export-processing zones, and economic zones.

Example 1: Sanko LLC. is an export processing company. Apart from manufacturing for exportation, Sanko LLC. is also licensed to import goods for sale or for exportation, and Sanko LLC. must establish a branch to do this task. This branch shall independently keep accounting records, declare and pay separate VAT on such task instead of including it in the VAT on manufacturing for exportation.

When importing goods for distribution (sale), the branch of Sanko LLC shall declare and pay VAT on the importation and on each sale (including exportation). Sanko LLC. shall use invoices, declare and pay VAT as prescribed.

Article 4. Goods and services that are not subject to VAT

1. Products from farming (including agroforestry products), breeding, and aquaculture that are produced, catched, sold, or imported and are not processed into other products (hereinafter referred to as unprocessed) or have only been preprocessed

Preprocessed products are those that have only been cleaned, dried, husked, grinded, milled, threshed, split, cut, salted, put in cold storage (cooled or frozen), preserved with sulfur dioxide, sulphur solution, or other solutions, and other common means of preservation.

Example 2: Company A signs a contract to raise pigs with company B, under which company A receives remuneration from company B or sells products to company B. The payment for pig raising paid by company B and the pigs sold to company B are not subject to VAT.

When company B sells the pigs or have them processed for sale, they are subject to VAT.

2. Breeds of livestock, plant varieties, including eggs, breeds, seeds, stems, tubers, semen, embryos, genetic materials that are raised, imported, and traded. The breeds of livestock and plant varieties that are not subject to VAT are the products of the importers and traders that have the certificates of registration of animal breed or plant variety trading issued by regulatory bodies. The animal breeds and plant varieties that apply quality standards of the state must satisfy the requirements imposed by the state.

3. Irrigation services, plowing services, dredging channels, dredging in-field trenches serving agricultural production; harvesting services.

4. Salt derived from seawater, rock salt, pure salt, refined salt, iodized salt composed primarily of sodium chloride (NaCl).

5. State-owned houses sold to tenants.

6. Transfer of right to use land (hereinafter referred to as land tenure).

7. Life insurance, health insurance, learner’s insurance, other insurance services related to humans; insurance for livestock, plants and other agriculture insurance services; insurance for ships and instruments for fishing; reinsurance.

8. The finance, banking, and securities services below:

a) Credit extension includes:

- Loan;

- Discounted transfer of negotiable instruments and other valuable papers;

- Bank guarantee;

- Finance lease;

- Issuance of credit cards.

When a financial institution collects fees for issuance of credit cards, the fees collected from the clients are classified as revenues from credit extension, such as fee for early repayment, penalties for late repayment, fee for debt restructuring, fee for loan management, and other fees classified as revenues from credit extension are not subject to VAT.

The fees related to card transactions are not classified as revenues from credit extension, such as fee for reissuance of PINs, fee for copies of invoices, claiming fee, fee for card replacement, fee for card destruction, fee for card conversion, and other fees are subject to VAT.

- Domestic and international factoring for the banks allow to process international payments;

- Revenue from liquidation of collateral by a credit institution or law enforcement authority in accordance with the laws on handling collateral.

If the owner of the collateral defaults on the debt and has to transfer the collateral to a credit institution, both parties must follow the prescribed procedure for transferring collateral.

Where both parties agree that the collateral owner may sell it to repay debt, VAT must be declared and paid if the owner is a VAT payer and the sold collateral is subject to VAT.

Where the credit institution takes the collateral to clear debt, credit institution shall record an increase in the value of business assets. When the credit institution sells the assets, VAT must be declared and paid if it is subject to VAT.

Example 3: In March 2014, company A, which pays VAT using credit-invoice method, pledges its machinery and equipment as collateral to take a loan at bank B, which is due in one year (the deadline is March 31, 2015). On March 31, 2015, company A defaults on the loan and has to transfer the collateral to bank B. Company A must follow the prescribed procedure for collateral transfer. When Bank B sells the collateral to recover the debt, the sold collateral is not subject to VAT.

- Information provision services provided by the units and organizations affiliated to the State bank for credit institutions to use for credit extension in accordance with the Law on the State bank.

Example 4: X is a unit of the State bank and is allowed by the State bank to provide credit information. In 2014, X signs contracts to provide information for some commercial banks to serve their credit extension and other activities. The revenue from provision of credit information serving credit extension is not subject to VAT; the revenue from provision of credit information serving other activities of the commercial banks beyond the Law on the State bank is subject to 10% VAT;

- Other forms of credit extension prescribed by law.

b) Separate loans that are not a business and irregularly given by taxpayers that are not credit institutions.

Example 5: Joint-stock company C has idle money and signs a contract to give a loan to company T, which is due after 06 months, and receives an interest. Such interest is not subject to VAT.

c) Securities services include: brokerage, proprietary trading, issuance guarantee, investment consultancy, depository, securities investment fund management, securities company management, securities investment portfolio management, market organization services of Stock Exchanges or Securities trading centers, services related to the securities registered and deposited at Vietnam Securities Depository, granting loans for margin trading, advance payment for securities and other types of securities trading prescribed by securities laws.

Information provision, auctions of shares of issuers, technical support for online transactions of Stock Exchanges.

d) Capital transfer includes the transfer of part of or the whole capital invested in another business organization (regardless of the creation of a new legal entity), securities transfer, transfer of the right to contribute capital, and other forms of capital transfer prescribed by law, including business acquisition in which the acquirer inherits all rights and obligations of the acquired company.

Example 6: In April 2014, company A contributes capital in the form of machinery and equipment to the creation of joint-stock company B. The company A’s contribution is valued at 2.5 billion VND, which is equal to 25% of company B’s total capital. In November 2014, company A sells this capital contribution to ABB Foundation for 4 billion VND. This amount of 4 billion VND is revenue from capital transfer and not subject to VAT.

dd) Selling debts;

e) Foreign currency trading;

g) Derivative financial services include: forward contracts, futures contracts, call option, put option, other derivative financial services prescribed by law;

h) Selling collateral put up by the organizations 100% charter capital of which is owned by the government to settle bad debts of Vietnamese credit institutions.

9. Medical services, veterinary services, including examination, treatment, and prevention of diseases for human and animals, birth control services, convalescence and rehabilitation services for patients, patient transport services, sickbed and sickroom rental services; testing, radiography services; blood and blood products for patients. 

If medicines are included in the service package (according to regulations of the Ministry of Health), the revenue from medicines in the package is also not subject to VAT.

10. Public postal and telecommunications services, and public Internet services provided by the government, postal and telecommunications services from abroad (inbound).

11. Maintenance of zoos, flower gardens, parks, street greeneries, public lighting, funeral services. The services mentioned in this Clause do not depend on the source of payment. In particular:

a) Maintenance of zoos, flower gardens, parks, street greeneries, and state-owned forests include management, tree planting and cultivation, protection of animals in the parks, zoos, public areas, national forests and national parks;

b) Public lighting includes lighting on the streets, in alleys, neighborhoods, flower gardens, and parks. Revenue from public lighting is not taxable;

c) Funeral services provided by the business establishments licensed to provide funeral services include funeral parlor and car rental service, burial service, cremation service, grave move service, and grave care service.

12. Maintenance, repairs, and construction funded by the people (including contributions and sponsorships), humanitarian aid for cultural and artistic works, public works, infrastructure, and housing for beneficiaries of incentive policies.

When a source of funding other than people’s contribution or humanitarian aid is used that does not exceed 50% of the total investment in the work, the value of the whole work is not subject to tax.

When a source of funding other than people’s contribution or humanitarian aid is used that exceeds 50% of the total investment in the work, the value of the whole work is subject to VAT.

Beneficiaries of incentive policies include the contributors, beneficiaries of social protection that receive benefits from government budget; members of poor households, and other cases.

13. Education and vocational training as prescribed by law, including foreign language training, artistic training, sports training, nursing, children’s nursing, and training of other professions in order to raise extend education, improve professional knowledge and skills.

The revenues from meal, student transport collected by educational institutions from preschool to high school are not subject to tax.

Revenues from boarding school services; revenues from training (including the examinations and issuance of qualifications are part of the training course) are not subject to VAT. If the training institution only organizes the examinations and issues qualifications that are part of the training course without running the course, the examinations and issuance of qualifications are also not subject to tax. The examinations and issuance of qualifications beyond the training course are subject to VAT.

Example 7: Training center X is appointed by a competent authority to provide training and issue qualifications in insurance agent. Center X appoints Y to provide the training while center X only holds the examinations and issues the qualification in insurance agent. The examinations and issuance of qualifications are not subject to VAT.

14. Audio and video broadcasting funded by government budget.

15. Publishing, importing newspapers, magazines, specialist newsletters, political books, textbooks, teaching materials, law books, scientific books, books using languages of ethnic minorities, propagation pictures, including those in the form of audio and video discs/tapes, electronic data; money and money printing.

Specialist magazines, specialist newsletters.

Political books are the books that propagate the political orientation of the Communist Party and the state to serve political objectives and anniversaries; the books that encourage good deeds; the books that contain speeches and researches of leaders of the Communist Party and the state.

Textbooks are those used for teaching and learning from preschool to high school (including books for reference that are conformable with school programs)

Teaching materials are the books used for teaching and learning in universities, colleges, junior colleges, and vocational schools.

Law books are the books that contain legislative documents.

Scientific books are those used for introducing scientific and technological knowledge related to manufacturing and branches of science.

The books using languages of ethnic minorities include bilingual books.

Propagation pictures and posters are those serving propagation, national flags, communist flags, etc.

16. Public transport by bus and tram within a province, a city or the routes adjacent to the city as prescribed by the Ministry of Transport.

17. Goods that cannot be manufactured in Vietnam and must be imported, including:

a) Imported machinery, equipment, parts, and supplies serving scientific research and technological development;

b) Imported machinery, equipment, parts, specialized vehicles and supplies serving petroleum exploration and extraction;

c) Airplanes (including engines), oil rigs, and ships that cannot be manufactured in Vietnam and are imported as fixed assets or leased from a foreign party to serve manufacturing, trading, or to sublease.

The importer must present the documents about customs procedure, customs supervision and inspection, export tax, import tax, and administration of tax on exported and imported goods prescribed by the Ministry of Finance to the customs.

The Ministry of Planning and Investment shall compile a list of machinery, equipment, parts, supplies serving scientific research and technology development that can be manufactured in Vietnam, a list of machinery, equipment, parts, and specialized vehicles serving petroleum exploration and extraction that can be manufactured in Vietnam, and a list of airplanes, oil rigs, and ships that can be manufactured in Vietnam as the basis for identifying those that cannot be manufactured in Vietnam and need importing.

18. Weapons and specialized vehicles serving national defense and security.

a) The weapons and specialized vehicles serving national defense and security enumerated in the list compiled by the Ministry of Finance in cooperation with the Ministry of National Defense and the Ministry of Public Security.

The weapons and specialized vehicles serving national defense and security that are not subject to VAT must be finished products, or parts, packages used for assembling finished products. If the weapons and specialized vehicles must be repaired, the repair services provided by the companies affiliated to the Ministry of National Defense and the Ministry of Public Security are not subject to VAT.

b) Imported weapons, and specialized vehicles (including supplies, machinery, equipment, parts) serving national defense and security that are exempt from import tax according to the Law on Export and import tax, or imported within annual quota imposed by the Prime Minister.

The procedure and documentation for imported weapons and vehicles are not subject to VAT during importation according to regulations of the Ministry of Finance on customs procedure, customs supervision and inspection, export tax, import tax, and administration of tax on exported and imported goods.

19. Imported goods, goods/services sold to other organizations and individuals as humanitarian aid or non-refundable aid in the following cases:

a) Goods imported as humanitarian aid or non-refundable aid must be certified by the Ministry of Finance or Services of Finance;

b) Gifts for regulatory bodies, political organizations, socio-political organizations, socio-political-professional organizations, social organizations, socio-professional organizations, and the army prescribed by the laws on gifts;

c) Gifts for individuals in Vietnam prescribed by the laws on gifts;

d) Belongings of foreign entities provided with diplomatic immunity prescribed by the laws on diplomatic immunity; belongings brought to Vietnam by Vietnamese people residing abroad;

dd) Belongings in luggage within tax-free allowance;

The limit on tax-free imported goods is specified in the Law on Export and import tax and its guiding documents.

Imported goods of the entities provided with diplomatic immunity are not subject to VAT. Any entity granted diplomatic immunity that purchases goods/services in Vietnam at VAT-inclusive prices may claim a refund according to Clause 7 Article 18 of this Circular.

Instructions on VAT refund for diplomatic missions, consular offices, and representative offices of international organizations in Vietnam are provided by the Ministry of Finance.

e) Goods and the goods/services sold to other organizations and individuals as humanitarian aid or non-refundable aid for Vietnam.

In order to be exempt from VAT, the international organization and or foreigner that buys goods/services in Vietnam as humanitarian aid and non-refundable aid must send a note to the seller, which specifies their name, the quantity or value of purchased goods, and bears certification of the aid by the Ministry of Finance and Services of Finance.

When selling goods, the seller must issue an invoice specifying that the goods are sold at VAT-exclusive prices to a foreign entity as non-refundable aid or humanitarian aid, keep the aforesaid note as an evidence when declaring tax. Any foreign entity or international organization that purchases goods/services in Vietnam as non-refundable aid or humanitarian aid at VAT-inclusive prices may claim a refund according to Clause 6 Article 18 of this Circular.

20. The goods forwarded through Vietnam’s territory; goods temporarily imported or temporarily exported, raw materials imported for manufacturing or export processing under contracts with foreign partners

The goods and services traded between a foreign party and a free trade zone, or among free trade zones.

Free trade zones include: export-processing zones, export processing companies, tax-suspension warehouses, bonded warehouses, special economic zones, commercial - industrial zones, and other economic zones established and provided with similar tax incentives as free trade zones according to Decisions of the Prime Minister. The transactions between a free trade zone and an external party are considered export/import.

The procedures and documents for considering VAT exemption must comply with instructions of the Ministry of Finance on customs procedure, customs supervision and inspection, export tax, and import tax.

21. Technology transfers according to the Law on Technology transfers; intellectual property right transfers according to the Law on Intellectual property. If a contract of technology transfer or intellectual property right transfer is associated with a transfer of machinery/equipment, only the value of transferred technology or intellectual property right is not subject to VAT. If such value cannot be separated, VAT shall be imposed on the total value of the transferred technology or intellectual property right and machinery/equipment.

Computer software including software products and software services as prescribed by law.

22. Imported gold in the form of bullions, pieces, and other forms that are not fashioned into jewelry or other items.

Gold in the form of bullions, pieces, and other forms of unfashioned gold shall be identified in accordance with the laws on gold trading.

23. Exported natural resources that are not processed into other products.

The natural resources that are not processed into other products include the minerals that have been filtered, grinded, refined, or the resources that have been cut.

Example 8: Taxpayer A exports natural stones in the form of blocks and slabs. The exported stones are not subject to VAT.

Example 9: Taxpayer B exports white limestone in the form of grains and powder. The exported white limestone grains and powder are not subject to VAT. If taxpayer B exports ultra-fine limestone powder (according to standards of competent authorities), or ultra-fine limestone powder coated with acid, they are considered processed into other products and thus taxable when being exported.

24.Prosthetic body parts, including those permanently implanted into the human body; crutches, wheelchairs, and other special instruments serving the disabled.

25. Goods/services provided by any business household or businessperson that earns an annual revenue of ≤ 100 million VND.

The tax liability of the business household or businessperson shall be determined in accordance with tax laws.

26. The goods and services below:

a) Duty-free goods at duty-free shops prescribed by the Prime Minister.

b) Goods in national reserve sold by national reserve authorities.

c) Charged activities of the state according to the laws on fees and charged.

d) Bomb and mine clearance carried out by the army at the constructions funded by government budget.

If the purposes of the goods that are not subject to VAT during importation are changed, VAT shall be declared and paid to the customs authority where the customs declaration is registered. The entities that sell goods to the domestic market must declare and pay VAT to their supervisory tax authorities.

Article 5. Cases of exemption declaring and paying VAT

1. An organization or individual receives a monetary compensation (including compensation for land and property on land that is withdrawn by a competent authority), bonus, allowance, or payment for transfer of emission permit, or other revenues.

Any taxpayer that receives a monetary compensation, bonus, allowance, payment for transfer of emission permits, or other revenues must make a receipt for such revenues. The taxpayer shall make receipts for spending according to the spending purposes.

If compensation is provided in the form of goods/services, the provider of compensation must issue an invoice, declare and pay VAT as if such goods/services are sold; the recipient of compensation shall declare and deduct tax as prescribed.

Any taxpayer that receives money from another entity to provide a service such as repair, warranty, sales promotion, or advertising must declare and pay tax as prescribed.

Example 10: Company P&C earns an interest from buying bonds and a dividend from buying shares of other companies. Company P&C is not required to declare and pay VAT on the interest buying bonds and the dividend.

Example 11: Company A receives a compensation of 50 million VND for contract termination from company B. Company A shall make a receipt and is not required to declare and pay VAT on such amount.

Example 12. Company X buys goods from company Y. Company X pays a deposit to company Y and is paid an interest on that deposit by company Y. Company X is not required to declare and pay VAT on such interest.

Example 13: Company X sells goods to company Z for totally 440 million VND. According to the contract, company Z shall pay in instalments for 03 months with an interest of 1% of the total payment per month. After 03 months, company X receives from company Z an amount that includes 440 million VND in price and 13.2 million VND in interest (440 million VND x 1% x 3 months). Company X is not required to declare and pay VAT on that 13.2 million VND.

Example 14: Insurer A and company B signs an insurance contract. When insurance is claimed, insurer A pays a compensation in cash to company B. Company B is not required to declare and pay VAT on this compensation.

Example 15: ABC is a milk company that pays its distributors to do a sales promotion (in accordance with the laws on trade promotion), marketing, and product display. When receiving the payment, the distributors that use credit-invoice method shall issue VAT invoices and calculate VAT at 10%, the distributors that use direct methods shall only use sale invoices and pay direct VAT at the prescribed rate.

2. A business organization or businessperson in Vietnam purchases services from a foreign organization that does not have a permanent establishment in Vietnam, or from am overseas individual that is not a resident in Vietnam. These services include: repair of vehicles, machinery, equipment (including supplies and parts); advertising, marketing; trade promotion; brokering sale of goods and services to abroad; training, international postal and telecommunications services that are provided outside Vietnam, lease on foreign satellite transmission lines and frequency bands.

3. The non-business organizations and individuals shall not pay VAT on the sale of their assets.

Example 16: Mr. A, who is not a businessperson, sells a 4 seater car to Mr. B for 600 million VND. Mr. A is not required to declare and pay VAT on the payment for the car.

Example 17: Mr. E, who is not a businessperson, pledges a 5 seater car at bank VC to take out a loan. Mr. E defaults on the loan when the repayment is due, thus bank VC liquidates the pledged car to recover the debt. The money collected from liquidating the car is not subject to VAT.

4. The entities that transfer project of investment in manufacturing or trade of goods/services subject to VAT to other companies or cooperatives.

Example 18: Company P executes a project of investment in an industrial alcohol factory. In March 2014, 90% of the project is completed according to the design, and the investment is 26 billion VND. Due to a financial difficulty, company P transfers the incomplete project to company X for 28 billion VND. Company X receives and keeps executing this project. Company P is not required to declare and pay VAT on the value of the transferred project.

5. Any company or cooperative that pays VAT using credit-invoice method and sells unprocessed or preprocessed farming, breeding, aquacultural products to another company or cooperative for commercial purposes is exempt from declaring and paying VAT. The sale price on the VAT invoice is VAT-exclusive price, the line of tax rate must be left blank and crossed out.

Any company or cooperative that pays VAT using credit-invoice method and sells unprocessed or preprocessed farming, breeding, aquacultural products to other entities such as business households, businesspeople, other organizations, or other individuals is required to declare and pay 5% VAT according to Clause 5 Article 10 of this Circular.

Any business household, businessperson, company, cooperative, or business organization that pays VAT directly on value added using direct method and sells unprocessed or preprocessed farming, breeding, aquacultural products for commercial purposes shall declare and pay direct VAT at 1% of the revenue.

Example 19: Company B, which pays VAT using credit-invoice method, purchases rice directly from the farmers or farming companies. This direct purchase of rice from the farmers or farming companies is not subject to VAT.

When company B sells rice to exporter C, company B is not required to declare and pay VAT on the rice sold to exporter C.

When company B sells rice to company D, which is a noodle producer, company B is not required to declare and pay VAT on the rice sold to company D.

On the invoices issued to exporter C and company D, company B must specify that the sale price is VAT-exclusive. The line of tax rate must be left blank and crossed out.

When company B directly sells rice to consumers, 5% VAT shall be declared and paid in accordance with the instructions in Clause 5 Article 10 of this Circular.

Example 20: Company A, which is a business organization that pays tax using credit-invoice method, buys coffee beans from farmers, then sells them to business household H. 5% VAT shall be levied on the revenue from selling coffee beans to business household H.

Example 21: After purchasing tea leaves from a farmer, Mr. X’s household sells them to Mr. Y’s household. Mr. X’s household must calculate and pay direct VAT at 1% of the revenue from selling tea leaves to Mr. Y’s household.

If VAT on the invoices for the unprocessed products or preprocessed products that are sold to a company or cooperative has been declared, the seller and the buyer must adjust the invoices to be exempt from VAT.

6. When transferring depreciated in-use assets between a business establishment and its wholly-owned subsidiaries or among the these subsidiaries to serve the manufacturing or trade of goods/services subject to VAT, invoices and VAT payment are not required. The taxpayer that transfers their assets must make a Decision on asset transfer enclosed with the documents about the asset origins.

When transferring a fixed asset, the value of which has been reassessed, or when transferring an asset to another business establishment that manufactures of trades in goods/services that are not subject to VAT, VAT shall be paid and VAT invoices must be made.

7. Other cases:

Taxpayers are not required to declare and pay tax in the following cases:

a) Assets are contributed to establish a new company. Contributed assets must have: contribution record, partnership or cooperation contract; asset valuation record (made by a valuation council or the contributor or an organization licensed for valuation), and documents about asset origins.

b) Assets are circulated among financially dependent subsidiaries of a company (hereinafter referred to as dependent units); assets are circulated when a company is divided, split, amalgamated, merged, or converted. When assets are so circulated, the taxpayer that has the circulated assets must make an asset circulation order enclosed with documents about the asset origins and is not required to issue invoices.

When assets are circulated among the financially independent subsidiaries or among the subsidiaries that have full legal status of the same taxpayer, the taxpayer that has the circulated assets must issue VAT invoice, declare and pay VAT as prescribed, except of the case in Clause 6 of this Article.

c) Compensation claimed from a third party under an insurance contract.

d) The delegated payments that are not related to the sale of goods/services of the taxpayer.

dd) The revenue from goods/services sold by agents, commissions paid to agents, including: postal and telecommunications services, lottery, air tickets, bus tickets, train tickets, ship tickets, international transport agents; air and maritime service agents entitled to 0% VAT; insurance agents.

e) Revenue and commissions on selling goods/services that are not subject to VAT.

Chapter II

TAX BASIS AND TAX CALCULATION METHOD

Section 1. Tax basis

Article 6. Tax basis

Tax basis is taxable prices and tax rates.

Article 7. Taxable prices

1.Taxable prices of goods and services sold by taxpayer are VAT-exclusive price. Taxable prices of goods and services subject to special excise tax are the prices inclusive of special excise tax and exclusive of VAT.

Taxable prices of goods and services subject to environmental protection tax are the prices inclusive of environmental protection tax and exclusive of VAT; taxable prices of goods and services subject to both special excise tax and environmental protection tax are the prices inclusive of special excise tax and environmental protection tax but exclusive of VAT.

2.Taxable prices of imported goods are the prices at the border checkpoint (hereinafter referred to as import price) plus (+) import tax (if any) plus (+) special excise tax (if any) plus (+) environmental protection tax (if any). Regulations on taxable prices of imported goods shall be applied to calculation of import prices.

If the goods are eligible for exemption or reduction of import duty, the taxable price is the import price plus (+) import tax payable after reduction or exemption.

3. Taxable prices of the goods and services (whether bought externally or not) used as gifts, donations, or substitute for wages are the taxable prices of the same kinds or equivalent goods and services at the same time.

Example 22: Unit A manufactures electric fans and exchange 50 fans with company B for steel. The sale price (tax-exclusive) is 400,000 VND/fan. Taxable price = 50 x 400,000 VND = 20,000,000 VND.

Taxable prices of the invitations (complimentary) to art performances, fashion shows, beauty pageants, and sports competitions permitted by competent authorities are zero (0). The organizer of the show or competition is responsible for the quantity of invitations and recipients before the show or competition takes places If the organizer charges these invitations, the organizer shall incur penalties prescribed by tax laws.

Example 23. Company X is permitted by a competent authority to hold a beauty pageant. Apart from the tickets that are sold, company X also sends invitations to some VIPs. The list of recipients is printed on these invitations. When declaring VAT, taxable price of the invitation is zero (0). If tax authority finds that company X collect money on these invitations, company X shall incur penalties prescribed by tax laws.

4. Taxable prices of goods and services for internal use.

Taxable prices of the goods and services serving the business (internal use) are the taxable prices of the same kinds or equivalent goods and services at the same time when such goods and services are used. VAT on the goods and services serving the manufacture or trading taxable goods and services may be declared and deducted.

The goods circulated internally such as goods put into storage or semi-finished products during the manufacture process within a business establishment are not subject to VAT.

If the taxpayer manufactures their own fixed assets serving the manufacture or trading of taxable goods and services, invoices are not required when such assets are completed and put into use. Input VAT on the fixed assets may be declared and deducted as prescribed.

Taxable prices of the goods and services used for manufacturing or trading of goods and services that are not subject to VAT are the sale prices of the same kinds or equivalent goods and services at the same time.

Example 24: Unit A manufactures electric fans and install 50 fans in the its own workshops. The sale price (VAT-exclusive) is 1,000,000 VND/fan. VAT rate is 10%.

Taxable price = 1,000,000 VND x 50 = 50,000,000 VND.

Unit A shall issue an internal invoice specifying 50,000,000 VND in taxable price and 5,000,000 VND in VAT. Unit A may deduct tax in this invoice.

Example 25. Company Y manufactures bottled water. The VAT-exclusive price of a bottle on the market is 4,000 VND. When company Y uses 300 bottles in a trip of the company, VAT on these 300 bottles, which do not serve the manufacture or trading, shall be levied: 4,000 x 300 = 1,200,000 (VND).

Example 26: Apparel company B has a threading workshop and a sewing workshop. When company B sends thread from the threading workshop to the sewing workshop to continue the process, VAT shall not be levied on such thread.

Example 27. Company AP purchases raw materials to manufacture animal feeds, and has deducted input VAT on the purchased raw materials. Part of the animal feeds manufactured is sold to the market, and the rest is used for internal animal breeding in the company. Company AP must issue a VAT invoice and pay VAT on the animal feeds used for animal breeding. VAT on the animal feeds used for animal breeding must not be deducted.

Example 28. Joint-stock company P builds a recreation room for workers within its premises. Company P does not appoint any unit to undertake this construction. When the recreation room is completed and put into use, company P is not required to issue an invoice. Input VAT on the recreation shall be declared and deducted as prescribed.

If a taxpayer uses goods/services for their business such as transport, aviation, rail transport, or post and telecommunications without calculating output VAT, the taxpayer must specify in writing the cases and the limits on the amount of goods and services used internally.

5. Taxable prices of goods and services used for sales promotion in accordance with trade laws are zero (0). In case they are not conformable with trade laws, tax shall be declared and paid as if they are used internally, given, or donated.

Some forms of sales promotion:

a) If goods or services are provided free of charge as samples or gifts, taxable prices are zero (0).

Example 29: Company P is a manufacturer of carbonated drinks. In 2014, company P does a sales promotion in the form of “buy 10 get 01 free" in May and December. The sales promotion in May 2014 is conformable with trade laws, thus taxable price of every product given free of charge in May 2014 is zero (0).

The sales promotion in December 2014 is not conformable with trade laws, thus company P must declare and pay VAT on the products given free of charge in December 2014.

b) If goods or services are provided at reduced prices, the taxable prices are the reduced prices during the sales promotion that has been registered or notified.

Example 30: N is a telecommunications company that sells prepaid cards. Company N registers a sale promotion in the form of price reduction from April 01, 2014 to the end of April 20, 2014, during which a prepaid card is sold for 90,000 VND is stead of 100,000 VND.

The taxable price of a prepaid card during the sales promotion = 90,000 VND : (1+10%)

c) If vouchers are given when goods or services are sold, VAT on is not levied on the vouchers.

6. Taxable prices of asset rental such as housing, offices, workshops, warehouses, yards, vehicles, machinery, equipment are the VAT-exclusive rents.

If the rent is paid by instalments or prepaid for a period of time, the taxable price is the instalment or the prepaid amount exclusive of VAT.

The rent agreed by both parties is the rent written in the contract. If a rent bracket is prescribed by law, the rent must be charged within that bracket.

7. If a commodity is paid for by instalments, the taxable price is the original price exclusive of VAT and interest.

Example 31: Company X sells allows its customer to pay for a motorbike by instalments. The total price is 25.5 million VND, including 25 million VND in sale price and 0.5 million VND in interest, thus taxable price is 25 million VND.

8. Taxable prices for goods processing are the prices under the processing contracts exclusive of VAT, inclusive of wages, costs of fuel, machinery, raw materials, and other expenses serving the processing.

9. Taxable prices of construction and installation are the VAT-exclusive values of the completed constructions or works.

a) If the price is inclusive of building materials, the taxable price is the VAT-exclusive price inclusive of building materials.

Example 32: Company B is contracted to complete a construction. The VAT-exclusive payment 1,500 million VND including 1,000 million VND in the value of building materials, then taxable price is 1,500 million VND.

b) If the price is exclusive of building materials, machinery, or equipment, the taxable price is the VAT-exclusive construction price exclusive of building materials, machinery, or equipment.

Example 33: Company B is contracted to complete a construction. The total value of the construction is 1,500 million VND (VAT-exclusive); the value of building materials provided by investor A is 1,000 million VND, then taxable price is 1,500 million VND - 1,000 million VND = 500 million VND.

c) Taxable prices of completed and transferred works are their VAT-exclusive value.

Example 34: Company X (party A) hires company Y (party B) to build a new workshop.

The total value (VAT-exclusive) of the construction is 200 billion VND, including:

- Construction value: 80 billion VND

- Value of equipment provided by party B: 120 billion VND

- 10% VAT: (80 billion VND + 120 billion VND) x 10% = 20 billion VND

- Total amount payable: 220 billion VND

- Party A shall:

+ Receive the completed workshop and record an increase of 200 billion VND in the value of fixed assets (VAT-exclusive)

+ 20 billion VND in VAT may be deducted from output VAT on sold products or refunded.

If party A agrees to pay 80 billion VND to party B for the completed and transferred works, the taxable prices is 80 billion VND.

10.When transferring real estate, taxable price is the transferring price minus (-) deductible land value.

a) Deductible land value is calculated as follows:

a.1) If land is allocated by the state to build houses for sale, the deductible land value include land levy and compensation for land clearance as prescribed by law.

Example 35: In 2014, real estate company A is allocated with land by the state to build houses for sale. Land levy is 30 billion VND (before deducting compensation for land clearance and land levy reduction) Land levy is reduced by 20%. Compensation for land clearance is 15 billion VND.

Total deductible land value:

- 20% reduction in land levy: 30 billion VND x 20% = 6 billion VND;

- Land levy payable after reduction: 30 billion VND - 6 billion VND - 15 billion VND = 9 billion VND;

- Deductible land value, including land levy payable (after reduction) and compensation for land clearance: 9 billion VND + 15 billion VND = 24 billion VND. The deductible land value is divided by the business area.

a.2) When land tenure is put up for auction, the deductible land value is the successful bid.

a.3) If land is leased to invest in infrastructure for lease or to build houses for sale, the deductible land value is the land rent payable to government budget (exclusive of land rent reduction) and compensation for land clearance as prescribed by law. The Law on Land 2013 shall apply to the pieces of land leased to build houses for sale from July 01, 2014.

Example 36. VN-KR is a joint-stock company specialized in infrastructure for industry and services. VN-KR leases land from the state and pays a lump sum of land rent to build infrastructure of an industrial park; the lease period is 50 years. The land area is 300,000 m², the rent is 82,000/m². Accordingly, the total land rent is 24.6 billion VND. VN-KR is not granted land rent reduction or exemption. After infrastructure is finished, VN-KR leases out 16,500 m² to an investor with a lease period of 30 years; the rent is 650,000 VND/m², inclusive of VAT.

Accordingly, the VAT-inclusive rent for the infrastructure for 30 years:

16,500 VND m² x [650,000 VND– (82,000 VND/m² : 50 years x 30 years)] = 9,9132 billion VND.

VAT-exclusive rent = 9.9132 billion VND : (1 + 10%) = 9.012 billion VND.

VAT = 9.012 billion VND x 10% = 0.9012 billion VND.

a.4) When a taxpayer receives land tenure from another entity, deductible land value is the land price when the transfer is made, inclusive of the value of infrastructure (if any); the taxpayer must not deduct input VAT on infrastructure value that has been included in the deductible land value.

If the deductible land value is exclusive of infrastructure value, the taxpayer may deduct input VAT on the infrastructure.

If the land price on the transferring date cannot be determined, deductible land value is the land price imposed by the People’s Committee of the province when the transfer contract is signed.

Example 37: In August 2013, company A buys 200 m² of land from Mr. B in Binh An Residential Area in province X for 6 billion VND. Company A sign a land transfer contract, which is notarized in accordance with land laws, and has a receipt for the payment of 6 billion VND. Company does not build any thing on this piece of land. In October 2014, company A sells this piece of land for 9 billion VND. Company A must issue a VAT invoice and pay VAT. The land value deducted from the taxable price is 6 billion VND.

Example 38: In November 2013, company A buys 300 m² of land and infrastructure thereon from Mr. B for 10 billion VND without sufficient documents to determine the land price at that time. In April 2014, company A sells this piece of land together with the infrastructure thereon for 14 billion VND. Accordingly, the deductible land value is the land price imposed by the People’s Committee of the province when company A buys the piece of land (November 2013).

Example 39:

In September 2013, company B buys 2,000 m² of land together with infrastructure thereon from real estate company A for totally 62 billion VND (including 40 billion VND in VAT-exclusive land price, meaning the unit price is 20 million VND/m²).

The invoice issued by company A indicates:

- VAT-exclusive sale price: 60 billion VND

- VAT-exclusive land price = 40 billion VND

- VAT on infrastructure: 2 billion VND

- Total amount payable: 62 billion VND

Company must declare VAT as follows:

VAT payable = output VAT - deductible input VAT

Assuming deductible input VAT is 1.5 billion VND, then VAT payable = 2 billion VND - 1.5 billion VND = 0.5 billion VND.

Company B keeps developing the infrastructure and 10 villas (200 m²/villa) for sale. Total input VAT on the villas is 3 billion VND.

On April 01, 2015, company B signs a contract to sell one villa to customer C for 10 billion VND. Deductible land value of the villa is calculated as follows:

- <