F6 ACCA TAXATION LESSION 2 - VALUE ADDED TAX
PART 1 - GENERAL INTRODUCTION
Trang 2Value Added Tax is an indirect tax on domestic consumption It is multi-stage tax which is collected at every stage of the production and distribution chain The tax is eventually passed on to the final consumer
I LEGISLATION
The Value Added Tax (VAT) is governed by the Law on VAT No 13/2008/QH12, effective from January 1, 2009, with subsequent amendments and supplementary regulations Key regulatory documents include:
Decree No 209/2013/ND-CP, as amended by Decree No 100/2016/ND-CP and Decree
No 49/2021/ND-CP, providing detailed guidance on VAT implementation Circular No 129/2008/TT-BTC, issued on December 26, 2008, which remains significant for examination purposes, offering comprehensive guidelines on VAT procedures and compliance Circular No 112/2009/TT-BTC, issued on June 2, 2009, regulating VAT for international transportation services Circular No 40/2021/TT-BTC, providing updated guidance on VAT, particularly for e-commerce and digital services
II SCOPE OF GOVERNING
1 What is subject to VAT?
Under VAT law, goods and services used for the purposes of production, business and consumption in Vietnam shall be subject to value added tax
This includes services and goods purchased from overseas suppliers
2 Tax payers
VAT tax payers shall include organizations and individuals producing and trading taxable goods and services and organizations and individuals importing taxable goods or services
III VAT EXEMPTION
Based on the latest regulations, particularly referencing Circular No 129/2008/TT-BTC issued on December 26, 2008, and supplemented by subsequent laws up to August 25,
2025, the following outlines the groups of goods and services exempt from Value Added Tax (VAT) in Vietnam, as per the framework provided in Circular 129, Part A.II, with updates to reflect current laws:
1 Unprocessed or Minimally Processed Agricultural, Husbandry, Aquaculture, and Seafood Products: Products produced, caught, or sold by organizations or individuals, or imported, including unprocessed or minimally processed cultivation, husbandry, aquaculture, or seafood products
Trang 32 Transfer of Land Use Rights: Transactions involving the transfer of land use rights are exempt from VAT
3 Insurance Services: This includes life insurance, health insurance, travel insurance, agricultural insurance, and reinsurance
4 Financial Services: These encompass credit services (e.g., lending, discounting of valuable papers, guarantees, financial leasing), securities business (e.g., trading, brokering, consulting), capital or securities transfers, and financial derivative services (e.g., options, forwards)
5 Medical Services: All medical services, including preventive and curative healthcare, are exempt from VAT
6 Imported Goods Not Yet Produced Domestically: Specific exemptions apply to:
o Machinery, equipment, or materials imported for direct use in scientific research and technological development
o Machinery, equipment, spare parts, specialized transportation vehicles, and materials imported for petroleum exploration and exploitation activities
o Aircraft (including engines), drilling platforms, or vessels imported to form fixed assets
or leased from overseas for production or sub-leasing
7 Goods in Transit and Related Activities: This includes goods in transit, temporarily imported for re-export, temporarily exported for re-import, materials imported for export processing, and goods and services traded between customs-free zones (e.g., export processing zones, bonded warehouses) or with foreign countries
8 Technology Transfers and Computer Software: Technology transfers and computer software (except exported software) are exempt from VAT
9 Education and Training Services: Services related to education and vocational training are exempt
Note: Circular No 129/2008/TT-BTC, Part A.II, provides detailed guidance on these exemptions Additional regulations, such as Circular No 40/2021/TT-BTC and amendments in Decree No 209/2013/ND-CP (as amended by Decree No 100/2016/ND-
CP and Decree No 49/2021/ND-CP), may further refine these provisions, particularly for emerging sectors like e-commerce For precise details and any new exemptions or conditions, consult the latest legal texts or official government sources
PART 2 - BASIS AND VAT COMPUTATION METHOD
Trang 4COMMENT: This is probably the most important area!
A BASIS FOR VAT COMPUTATION
Basis for VAT computation are VAT rate and VAT taxable price
Further, in practice, the determination of VAT taxing time is also very important
1 VAT rate
1.1 There are currently three rates of VAT, being 0%, 5 % and 10% (the standard rate) The applicable VAT rate shall depend on the category of goods or services to be supplied 1.2 VAT 0%
VAT exemption and 0% VAT both result in zero output VAT, the difference is the deductibility of the associated input VAT, input VAT incurred for exempt goods/services shall not be creditable but input VAT of 0% goods/services is creditable and generally results in a VAT refund
1.2.1 0% VAT rate applies to the following cases
(a) Exported goods or services, including the following cases:
• Normal export to overseas and authorized exports;
• Goods sold to customs-free zones or duty-free shops
• Deemed exports such as transitional processing, on-the-spot export processing or goods exported for sale at trade fairs or exhibitions overseas
(b) Exported services are those provided directly to overseas organizations or individuals
or those located in customs-free zones
(c) Other exported goods or services, including
• Construction and installation for export processing enterprises;
• International transportation (of goods and passengers from Vietnam to foreign countries and vice versa) If the international transportation includes a portion of domestic transportation, the entire transportation activity is considered as export
• Exempt goods or services which are exported, except for certain cases such as reinsurance, financial services, telecommunication, which shall be exempt, rather than 0%, even if exported
Trang 5• Repair of aircrafts, sea-going vessels for overseas organizations or individuals
1.2.2 0% VAT rate shall not apply to:
• Goods and services sold to non- business individuals in customs-free zones are not considered as exported goods or services
Example
Employees of an export processing enterprises order lunches from domestic caterers for use They order the foods using their own money The lunches provided to these employees are not considered as exported
If the enterprise orders lunches and provides to its employees as part of employment benefits, they are considered as export from domestic caterers
• Petrol sold for use of cars of businesses in customs-free zones
• Cars sold to businesses or individuals in customs-free zones;
• Services provided to businesses or individuals in customs-free zones but the place of provision or consumption is outside those areas, examples include house rental, office, transportation of workers, etc
1.2.3 In order to be entitled to 0% rate, exported goods and services must meet the following requirements:
(a) Appropriate contract (e.g sale contract, export processing contract or service contract,
as the case may be);
(b) Document showing that payment has been made through the banks;
(c) Customs declaration for exported goods
1.3 VAT 5%
There are a few items subject to 5% VAT rates, the detailed list is provided in Circular 129 Compared to previous regulations the list of goods and services subject to 5% has been significantly reduced Below are the major items:
• Specialized machinery and equipment for agricultural activities;
• Medical equipment and tools;
• Technological and scientific services
• Tools for teaching, training, research, etc
Trang 61.4 VAT 10%
10% rate (standard rate) will apply to taxable goods/services that are not subject to 0% or 5%
2 VAT taxable price
2.1 Under VAT regime, taxable price is the selling price excluding VAT
• For goods and services subject to special sales tax (SST), taxable price is the selling price including SST but excluding VAT
• Prices used for calculation of VAT on all types of goods and services will include additional levies and surcharges, excluding levies and surcharges payable to the State
• Where there is a discount to the selling price, the VAT taxable price will be the discounted selling price recorded in the invoice
Example
Company A charges it customer as follows:
Services fees: VND30,000,000
OPE: VND1,500,000:
Other miscellaneous fee: VND500,000
The taxable price will be: VND32,000,000
2.2 VAT Taxable price for specific case shall be as follows:
2.2.1 For imported goods, VAT taxable price is the imported price at the bordergate + import duties (if any) + SST (if any) The imported price at the bordergate used to calculate VAT shall be determined in accordance with the customs valuation regulations
Where imported goods are entitled to exemption from or reduction of import duties, the VAT taxable price shall be the price of the imported goods + import duties after the exemption or reduction
Example
Company X imports complete 4-seat cars, with the dutiable price of VND 300,000,000 per car Rates of import duty, SST and VAT are 100%, 80% and 10% respectively The VAT taxable price will be calculated as follows:
i Import duty payable: VND300,000,000 x 100% = VND300,000,000;
Trang 7ii SSTpayable: (VND300,000,000 + VND300,000,000) x 80% = VND480,000,000
iii VAT taxable price: VND300,000,000 + VND300,000,000 + VND480,000,000) = VND1,080,000,000;
iv VAT payable: VND 1,080,000,000x 10% = VND 108,000,000
2.2.2 For goods and services used for the purposes of exchange, internal consumption, gift or paid in lieu of wages, the VAT taxable price shall be the taxable price of products, goods and services of the same or equivalent category at the time of such use
Example
Company A, a garment manufacture, provides 2,000 T-shirts free of charge to its employees
on the occasion of Tet holidays The usual selling price of the soft drinks is VND150,000/shirt
Company A is required to calculate and pay VAT on the free T-shirt at VND150,000/shirt
Circular 129 further clarifies that only goods and services internally used to continue the production process are not subject to VAT, other internally used goods/services are considered as internal consumption, which are subject to VAT, regardless of whether they are consumed for production or not However, it is unclear whether the VAT on internally consumed goods/services for production is deductible to the business, it is likely non-deductible because allowing the deduction of input VAT for this case will result in zero VAT payable, thus making this rule redundant It appears unreasonable in this case the end result is a VAT calculated on more than the added value of the goods/services
Example
Company A manufactures voltage stabilizers and issues some of them for use in the factory, these stabilizers are considered as internally consumed and subject to VAT
Company B produces both fabrics and garments and frequently uses its fabrics it produced
to use in the making of garments In this case the company is not required to charged VAT
on the fabrics issued for garment production
2.2.3 In case the business leases machinery, equipment, transportation means, which are not yet produced in Vietnam, from overseas in order to sub-lease, the lease payment to overseas shall be deducted from the taxable price
This is consistent with the VAT exemption rules
Trang 82.2.4 In respect of goods sold by installment, the taxable price shall be the pre-tax lump sum price of the goods (one-off price) excluding interest on installments2, regardless of the installment scheme
Example
If a motor dealer supplies 100cc Honda motorcycles at the price payable by installments excluding VAT of VND 25.5 million per bike (comprising the sale price being VND 25 million and interest on installments being VND 0.5 million), the VAT taxable price shall be VND 25 million
2.2.5 For processing of goods, the VAT taxable price shall be the processing fee excluding VAT, including charges for labour, fuel, power, sub-materials and other expenses of processing incurred by the processor
2.2.6 For construction and installation for which payment is made on the completion progress, the VAT taxable price will be based on the value of the items or works completed and delivered
Example
Textile Company X (Party A) engages Construction Company Y (Party B) to carry out expansion of a production workshop
The total cost of the project before VAT is VND 200 billion, comprising:
• Value of construction, 80 billion;
• Value of equipment provided and installed by Party B, 120 billion;
• 10% VAT: (80 + 120) x 10% = 20 billion;
• Total payable by Party A is 220 billion
• When the workshop is completed and delivered to Party A, Party A shall credit the value offixed assets for depreciation purposes at 200 billion (value without VAT)
• The amount of VAT of 20 billion may be declared and deducted from output VAT on goods sold, or else a request for a refund may be made in accordance with regulations
If Party A accepts and takes delivery and agrees to pay Party B for each item of works completed (assuming that the value of works of construction and installment being VND
80 billion is accepted, delivered and agreed for first payment), then the VAT taxable price shall be VND 80 billion
Trang 92.2.8 For real estate sale, the taxable price shall be the selling price minus the land price
or land rental The deduction is based on actual land price or land rental, but the tax authorities may use the land price list published by the provincial people’s committee if they consider that the deduction claimed is not properly supported
Where the State leases land to businesses for investment in infrastructure facilities for sub¬leasing, the VAT taxable price shall be the land rental without VAT, less the land rental payable to the State Budget
Example:
The State leases to Industrial Zone Infrastructure Business Investment Company Y 500,000m2 of land for 50 years to construct technical infrastructure facilities for lease Land lease rent is VND 300,000 per m2 per year After investing in the infrastructure, Company Y leases to Company Z 5,000m2 of land for 20 years to construct a production workshop, the land lease rent without VAT (excluding the charge of public utilities) is VND 800,000 per m2 per year
Company Z pays rent for the infrastructure facilities once per year
The VAT taxable price on the income per year from the infrastructure facilities leased by Company Zfrom Industrial Zone Infrastructure Business Investment Company Yshall be: (5,000 m2 x VND 800,000) - (5,000 m2 x VND 300,000) x 1 year = VND 2,500,000,000 VAT shall be: VND 2,500,000,000 x 10% = VND 250,000,000
2.2.9 For goods or services of a special nature which use source documents such as postal stamps, transportation tickets, lottery tickets, etc, where the price is stated as VAT inclusive, the pre-VAT price shall be determined as follows:
Pre tax price = Sale price (price of ticket, stamp )/(1+ applicable tax rate)
2.2.10 For tourism services offered with a package price, the tax-inclusive price will be determined as the package contract price for the purpose of calculation of VAT
Where the package contract price includes items not subject to VAT, such as airfares for tourists from other countries to Vietnam and from Vietnam to other countries (i.e international transportation), meals and accommodation costs and excursion costs in foreign countries (provided that proper documents are available), such costs will be deducted from the VAT taxable price
Example:
Trang 10Ho Chi Minh Tourism Company performs a package tour contract with Thailand for 50 tourists for 5 days in Vietnam with total payment of USD 32,000 The Vietnamese company pays for all airfares, meals, accommodation and excursion tickets in accordance with the agreed program, and the cost of the return airfares between Thailand and Vietnam is USD 10,000 The exchange rate is VND 17,000for one US dollar
The payable VAT price under this contract shall be determined as follows:
• VAT taxable turnover shall be (USD 32,000 - 10,000) x VND 17,000 = VND 374,000,000
• VAT taxable price shall be: VND 374,000,000/(1+10%) = VND 340,000,000
Example 14:
Hanoi Tourism Company has a contract to take Vietnamese tourists to China at the package price of USD 400/per person for 5 days If Hanoi Tourism Company pays the Chinese Tourism Company USD 300/per person, the taxable turnover of Hanoi Tourism Company shall be USD 100/perperson (USD 400 - USD 300)
2.2.11 For pawn broking services, the taxable price will be the amount receivable from this service, comprising the interest receivable from providing loans and other revenue from disposing security deposits, i.e the interest from this service is not VAT-exempt
3 VAT taxing time
3.1 With respect to goods, the time to determine VAT taxable turnover is the time when the seller transfers the ownership or the right to use the goods regardless of whether the purchaser has made the payment or not
Example
Company A sells 10 laptops to Company B with delivery date of 20 July 2010, the parties agree that payment shall be made 2 months after delivery date and Company A retains ownership of the laptops until full payment
The turnover must be subject to VAT upon delivery date, i.e 20 July 2010
3.2 For the provision of services, whilst it is not possible to determine the exact time of service delivery, VAT regulations provide that the turnover must be recognized for VAT upon completion of services or upon issuance of sale invoice, regardless of whether the purchaser has made the payment or not
3.3 Imported goods are chargeable to VAT upon registration of the customs declarations
Trang 113.4 For real estate business where progress payments are common, VAT shall be imposed upon collection of progressive or advance payments as provided in the sale contracts
B METHODS OF VAT CALCULATION
VAT payable shall be calculated by the tax deduction method (may also be referred to as
“tax credit” method) or calculated directly on the basis of added value (VAT direct method)
I VAT DEDUCTION METHOD
1 Formula
In general, all the enterprises are required to pay VAT under the VAT deduction method, provided that they register for this method and adopt accounting system and maintain sufficient documents, invoices, etc
2 Output VAT
Where an invoice only states the total payable amount and not the pre-tax price and VAT (i.e due to the mistake of the seller), output VAT on the sold goods or services shall be calculated on the amount stated in the invoice or source document, which would result in
a higher output VAT amount
3 Input VAT
Input VAT = the aggregate amount of VAT as recorded in:
• the VAT invoices for the purchase of goods or services (including fixed assets) used for production and trading of taxable goods and services;
• the receipts for payment of import VAT on imported goods; or
• the receipts for payment of VAT on behalf of foreign contractors
If goods and services purchased with special vouchers stating the tax-inclusive price (e.g toll fee receipt, etc.), the pre-tax price and the input VAT will be determined as follow: VAT input = Payment price / (1+ VAT rate) * VAT rate
4 Determination of deductible input VAT