Guidance on the contractor tax policy for the sale of scrap and defective products on behalf of foreign customers 

Company A in Vietnam signs a processing contract with Company B overseas. During processing scrap and defective products are created. Company A sells the above scrap and defective products to an enterprise in Vietnam, then company A will deduct the amount from the sale of the above scraps and defective products from the processing fee or transfer to company B (by agreement between the two parties):

• When Company A sells scrap and defective products during processing to a Vietnamese enterprise, Company A must issue an invoice to hand it over to the Vietnamese enterprise as regulated in point b, Clause 1, Article 16 of the Finance Ministry's Circular No. 39/2014/TT-BTC dated March 31, 2014, as amended and supplemented in Clause 7, Article 3 of Circular No.26/2015/TT -BTC dated February 27, 2015 of the Ministry of Finance, company A must declare VAT and record revenue according to the provisions of law. Simultaneously Company A must fully comply with the procedures prescribed by the Customs.
• The money from the sale of scrap and defective products during processing, company A is deducted from the processing fee or transfer to Company B, then company B is the subject to pay the contractor tax as prescribed in Clause 1, Article 1 of Circular No.103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance.