Value-added tax is a tax imposed on the added value of goods or services; it is levied on the price of a item at each stage of production, distribution. Accordingly, the tax bearer is an organization or individual that ultimately consumes goods and services in the Vietnamese territory through the purchase of goods and services at prices inclusive of VAT. Tax declarers and payers (essentially an intermediary for collection and payment) are the organizations and individuals that manufacture, trade taxable goods and services in Vietnam and individuals that import goods or purchase services from abroad. (See more details in Article 3, Circular 219/2013/TT-BTC).
The regulations related VAT present the following contents:
1. Taxable / Non-taxable item and Tax rates;
6. Steps for VAT declaration, payment.
7. Frequently asked questions (FAQs)
To make it easier for readers to learn and understand the above contents, we have analyzed a few cases and systematized the above contents as below.
To view all relevant documents please see here (tax related regulations)
1.Taxable / Non-taxable items and Tax rates
Goods and services subject to VAT (hereinafter referred to as taxable goods and services) are those used in production, trading, and consumption in Vietnam (including those purchased from overseas organizations and individuals).
- VAT rates:
- Tax rate of 0%: applied to exported goods and services and similar activities detailed in Article 9, Circular 219/2013/TT-BTC.
- Tax rate of 5%: usually applied to industries and sectors of the economy related to the supply of essential goods and services, see details in Article 10, Circular 219/2013/TT- BTC.
- Tax rate of 10%: applicable to subjects who are not subject to the VAT rate of 0% and subject to the VAT rate of 5%.
- Tax rate of 8%: VAT on goods and services that are currently subject to 10% VAT shall be reduced to 8%, except for the goods and services stated in Clause 1, Article 1, Decree 44/2023/ND-CP from 1 Jul 2023 to 31 Dec 2023.
- Note:
- For different types of goods and services, the time to determine VAT will be different, see details in Article 8, Circular 219/2013/TT-BTC.
- If the business establishment does not separate the business activities based on different tax rates, it must calculate and pay tax according to the highest tax rate of goods and services that the establishment produces and trades in.
- For imported goods, the tax rates specified in the Preferential Import Tariff shall apply.
Non-taxable objects include some objects such as:
- 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.
- Salt produced from seawater, rock salt, pure salt, refined salt, iodized salt composed primarily of sodium chloride (NaCl).
- Irrigation services, plowing services, dredging channels, dredging in-field trenches serving agricultural production; harvesting services.
- Etc.
See details of Goods and services that are not subject to VAT in Article 4, Circular 219/2013/TT-BTC and related supplementary laws.
Cases of exemption from declaring and paying VAT includes when 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, etc. See more detailed regulation in Article 5, Circular 219/2013/TT-BTC.
2. VAT calculation methods
There are two methods of calculating VAT: the credit method (also called the deduction method) and the direct method. The taxpayer will based on the conditions of the business to determine the appropriate tax calculation method.
2.1. The credit method
Conditions to apply: the taxpayers that adhere to the accounting and invoicing requirement under accounting and invoicing regulation:
- Any taxpayer earns at least 1 billion VND annually from selling goods and services which are subject to VAT, with exception of business households and individuals who apply the direct method.
- The taxpayers voluntarily apply the credit method, with exception of business households and individuals who apply the direct method.
VAT payable calculation formula:
|
VAT payable |
= |
Output VAT |
- |
Deductible input VAT |
- Output VAT = ∑ Taxable prices x Tax rate (goods and services when they are sold) = the total VAT on goods and services written on the selling VAT invoices.
- Input VAT equals total VAT on VAT invoice of purchased goods and services (including fixed assets), VAT payment vouchers of imported goods which fully meet conditions of creditable input VAT.
(See details in clause 5, article 12 Circular 219/2013/TT-BTC).
Of which: Taxable price see the table below and tax rate see Part 1. Taxable / Non-taxable items and Tax rates
Taxable price
|
Items |
Taxable price |
|
Goods and services sold by production or business establishments |
Price exclusive of VAT |
|
Goods and services subject to special excise tax |
Price exclusive of VAT + special excise tax |
|
Goods and services subject toenvironmental protection tax |
Price exclusive of VAT + environmental protection tax |
|
Goods and services subject to both special excise tax and environmental protection tax |
Price exclusive of VAT + special excise tax + environmental protection tax |
|
Imported goods |
The prices at the border gate + import tax (if any) + special excise tax (if any) + environmental protection tax (if any) |
|
Goods and services used as gifts, donations, or substitute for wages |
The taxable prices of the same kinds or equivalent goods and services at the same time. |
|
Goods and services used for sales promotion in accordance with trade laws |
0 |
|
Asset rental |
Rental price exclusive of VAT |
|
Commodity which is paid in instalments |
The original price exclusive of VAT and interest. |
|
Goods processing |
The prices under the processing contracts exclusive of VAT |
|
Construction and installation |
Values of the completed constructions or works exclusive of VAT |
|
Transfer of real estate |
The transferring price – land use right transfer price/land tax payable to the state budget |
|
Agents, brokers, commission services |
Remunerations or commissions exclusive of VAT |
(See more details for taxable prices in Article 7, Circular 219/2013/TT-BTC).
Note:
- The enterprise is not allowed to credit the input VAT of inputs purchased and used for production and sales of goods and services, that were not subject to VAT.
- When goods and services (including fixed assets) are purchased to serve the production or sales of both VAT subjected goods/services and VAT non-subjected goods/services, only the input VAT of goods and services related to the production or sales of VAT subjected goods and services shall be credited. (See details in Clause 9, Article 1, Circular 26/2015/TT-BTC).
2.2. Direct method
a. Direct method based on added value
- Applicable: trading, fashioning of gold, silver, and gemstones
- Formula of VAT payable calculation: See in Article 13, Circular 219/2013/TT-BTC.
b. Direct method based on revenue
- Applicable:
- Enterprises and cooperatives that earn less than 1 billion VND in annually, except for those voluntarily apply credit method.
- Business households and individuals.
- Foreign organizations and individuals doing business without a permanent establishment in Vietnam but having revenue in Vietnam and failing to adhere to accounting and invoicing regulations.
- VAT payable calculation formula:
|
VAT payable |
= |
Rate % |
x |
Revenue |
- The specified rates is as follows:
|
Revenue from: |
Rate % |
|
From goods distribution or goods supply |
1% |
|
From services or construction exclusive of building materials |
5% |
|
Manufacturing, transport, services associated with goods, construction inclusive of building materials |
3% |
|
Other lines of business |
2% |
- The taxable revenue: the total revenue from selling goods and services, written on the sale invoice of taxable goods and services, inclusive of the surcharges entitled by the seller.
3. Declaration và payment
- Tax declaration period: See the criteria for quarterly or monthly tax declaration in Article 8 and 9, Decree 126/2020/ND-CP.
- Tax declaration dossiers and related instructions are detailed in Article 13, Circular 80/2021/TT-BTC.
4. Finalization
At the end of the fiscal year, taxpayer does not need to finalize VAT, with the exception of at the end of contractor contract with multiple payments.
(See details at Point e, Clause 6, Article 8, Decree 126/2020/ND-CP)
5. Tax refund
Under VAT credit method, if input VAT is not fully credited in the month (monthly declaration) or in the quarter (quarterly ), the taxpayer may offset the outstanding amount with the tax payable of the next period. If there is still outstanding amount of input VAT, which was not completely credited, after 12 months or 4 quarters from the first month or quarter which the outstanding input VAT was incurred, the taxpayer shall receive a refund.
(See more cases of VAT refund and detailed instructions on tax refund conditions in Article 18, Circular 219/2013/TT-BTC and amendments supplemented in Clause 3, Article 1 of Circular 130/2016/TT-BTC).
6. Steps for VAT declaration and payment
Step 1: Determine whether the VAT calculation method is the credit method or the direct method according to Article 12, Circular 219/2013/TT-BTC.
Step 2: Determine whether the enterprise's tax declaration period is monthly or quarterly according to Article 8.9 of Decree 126/2020/ND-CP.
Step 3: Prepare monthly or quarterly VAT declaration.
Step 4: Finalization (for the specific cases).
Step 5: Tax refund (if any).
7. Frequently Asked Questions
See details in Frequently asked questions about taxes