Value-added tax (VAT), or Goods and Services Tax (GST) in some countries, is a tax imposed on the added value of goods and services arising during the process from production, distribution to consumption. The number of productions that are subject to Vietnam VAT is rather large and your enterprise will be likely to have an obligation to pay this kind of tax.
For better understanding, BBCIncorp will guide you to go through some crucial aspects of Vietnam VAT, including what goods and services are taxable, the VAT rates in Vietnam, how to calculate VAT, VAT refund, and the obligations you need to fulfill.
>> Read more about Vietnam Tax System.
1. Introduction to Vietnam VAT
Taxpayers of value-added tax (VAT) in Vietnam are all organizations and individuals that produce, trade or provide goods and services which are subject to value-added tax. Furthermore, any organization or individual in Vietnam that imports goods or purchases services overseas also needs to pay VAT.
All types of goods and services used for production, trading and consumption in Vietnam are subject to value-added tax, except for those that are defined as non-taxable products.
The following products are exempt from Vietnam VAT:
- Products from cultivation and husbandry, aquatic products (that have not yet been processed into other products) when sold directly by the producing organizations or when imported;
- Other regulated products that relate to agriculture;
- Transfer of rights to use land;
- Certain insurance services;
- Certain financial or banking services or securities trading (stock/share);
- Healthcare services for human and animals;
- Public transportation by bus and tramcar;
- Specific specialized types of imported machinery, equipment, materials or facilities that cannot yet be produced or manufactured in Vietnam;
- Goods that are transited in Vietnam; goods temporarily imported for later re-export or vice versa; raw materials imported for the production or processing of later-exported goods under contracts signed with foreign parties; goods and services traded between foreign countries and non-tariff areas or between non-tariff areas;
- Transfer of technology under the law of technology transfer; transfer of rights to own intellectual property under the law of intellectual property; computer software;
- Gold under the forms of bar and ingot;
- Goods and services of business households/individuals whose yearly revenue is no more than 100 million VND;
- Other regulated types of products.
2. Vietnam VAT Rates
Currently, there are 3 VAT rates for different specific kinds of goods or services. Particularly:
0% VAT Rate
This rate applies to exported goods and services, international transportation, and non-taxable products upon exportation except for:
- Overseas transfer of technology or rights to own intellectual property;
- Overseas reinsurance service;
- Credit provision service;
- Transfer of capital;
- Derivative financial service;
- Telecommunication service;
- Unprocessed mined resources and minerals or any product in which the market value sum of mined resources, minerals and energy cost accounts for 51% or more.
5% VAT Rate
The following goods and services are subject to the VAT rate of 5%:
- Clean water for production process or domestic use;
- Medical equipment and tools; medical cotton and bandage; preventive and curative medicines; pharmaco-chemistry products and pharmaceuticals used for the production of curative and preventive medicines;
- Teaching and learning aids;
- Exhibition, cultural, physical and sports activities; art performances; film production; import, distribution and screening films;
- Toys for children and certain kinds of books;
- Scientific and technological services under the law of science and technology;
- Sales and lease of social housing;
- Various goods and services that relate to agriculture, aquaculture, cultivation and forestry.
10% VAT Rate
Other than products that are subject to the VAT rates of 0% and 5%, all other types of goods and services are imposed on a 10% rate.
3. Two Methods to Calculate VAT in Vietnam
There are two methods for Vietnam VAT calculation. They are credit method and direct method.
3.1 Credit Method
This method applies to business entities that fully comply with regulations on accounting, invoices and documents. Particularly, they include:
- Business entities that have yearly revenue reaching 1 billion VND or above from trading goods or providing services, excluding business households or individuals;
- Business entities that voluntarily register for the credit method, excluding business households or individuals.
Once selected, this VAT method must be maintained for 2 consecutive years.
According to the credit method, the payable VAT amount is calculated as follows:
[Payable VAT amount = Output VAT – Creditable Input VAT]
Output VAT is the total amount of value-added tax on sold goods and services indicated in the added-value invoice (or red invoice in Vietnam).
Creditable Input VAT, meanwhile, is the total amount of value-added tax on purchased goods and services indicated in the added-value invoice or the total amount of value-added tax on imported goods indicated in the added-value document.
Some notes on the issue of crediting input VAT:
- An amount of input VAT on purchased goods and services which are used to produce or trade products that are subject to Vietnam VAT (taxable products) can be wholly credited.
- If an amount of input VAT is imposed on purchased goods and services which are used to produce or trade both taxable products and non-taxable products, only the proportion of purchased goods and services which are used for taxable products is creditable. Business entities are responsible for the task of calculating this proportion.
- An amount of input VAT on goods and services sold for humanitarian aid purposes or used for petroleum exploration can be wholly credited.
In order to credit input VAT, business entities must:
- Have added-value tax invoices of purchased goods and services or add-value tax payment documents of imported goods;
- Have a non-cash payment document of purchased goods or service which values at 20 million VND or more;
- Have contracts signed with foreign parties, invoices, non-cash payment documents and customs declarations for exported goods and services.
Some notes on invoices in Vietnam:
- Added-value invoice is normally called red invoice in Vietnam.
- According to the Circular 68/2019/TT-BTC, all businesses must issue electronic invoices (with or without tax verification) when selling goods or services to buyers. With that being said, businesses need to register e-invoicing with the General Department of Taxation and electronic invoicing will become mandatory from the beginning of November 2020.
3.2 Direct Method
The direct method applies to the following entities:
- Enterprises and co-operatives that have yearly revenue less than 1 billion VND or do not voluntarily register for credit method;
- Business households and individuals;
- Foreign organizations and individuals that do not have any permanent establishment in Vietnam but have income arising within this nation and have not fully complied with regulations on accounting, invoice and document (except those engaging in exploring and exploiting oil or gas);
- Enterprises engaging in trading in gold, silver and precious stones;
- Other economic organizations.
According to the direct method, the payable VAT amount is calculated as follows:
[Payable VAT amount = Revenue x Regulated rate (%)]
The regulated rate (%) varies according to different sectors. To be specific:
|Distribution and provision of goods||1%|
|Services and construction without material provision||5%|
|Manufacture, transportation, services with attached goods, construction with material provision||3%|
Please do note that the above formula does not apply to trading or producing golds, slivers and precious stones. For these kinds of products, [the payable amount = Bid-ask Spread x Regulated VAT rate for these products].
4. Vietnam VAT Declaration
All organizations and individuals producing or trading taxable products in Vietnam must register for VAT and declare VAT on a monthly basis or quarterly basis.
For a monthly basis, taxpayers need to file VAT returns within 20 days after a month ends.
Meanwhile, for a quarterly basis, taxpayers need to file VAT returns within 30 days after a quarter end. Essentially, according to Section 15 of Resolution No.151/2014/TT-BTC on tax amendment, all taxpayers that have revenue from the previous year no more than 50 billion VND must adopt a quarterly declaration.
As for taxpayers that newly start their businesses (first year), they must declare VAT quarterly. After the first year, they can change to a monthly declaration or continue with the quarterly declaration, depending on the revenue earned in that first year.
Notwithstanding what has been stated above, there are some types of products that need not be declared, for example, certain kinds of compensation, certain services rendered by foreign organizations that do not have permanent establishments in Vietnam, or others regulated by law.
5. Vietnam VAT Refund
Below are the most common circumstances in which a business entity can get a refund of VAT:
- A business entity adopting the credit method can be entitled to VAT refund when:
- It has a new investment project and the project is in investment phrase;
- There is still a remaining amount of input VAT (imposed on purchased goods and services used for the investment) that has not been fully credited; and
- The remaining amount is 300 million VND or more.
- Furthermore, in case a business entity that exports goods or services in a month or quarter has remaining input VAT amount that has not yet been fully credited and the remaining amount equals 300 million VND or more, it is entitled to VAT refund for that month or quarter, except for the following circumstances:
- The imported goods are for re-export purpose;
- The goods do not go through an exporting process within customs-controlled areas under the Customs Law.
- A business entity that applies the credit method is entitled to VAT refund if upon ownership transformation, enterprise transformation, merger, consolidation, separation, split, dissolution, bankruptcy or operation termination, it has overpaid VAT or has some input VAT amount not yet be fully credited.
- A business entity can get VAT refund if it is in charge of certain ODA projects.
- A business entity can get VAT refund if it receives exemptions from certain government agencies according to related laws.
For other cases, when business entities that apply the credit method have remaining input VAT amount that has not yet been fully credited in a month or quarter (input > output), that amount can be carried forward to offset against output VAT in the following month or quarter.
6. Key Takeaways
- All types of goods and services used for production, trading and consumption in Vietnam are subject to value-added tax, except for those that are defined as non-taxable products.
- There are three VAT rates in Vietnam: 0%, 5% and 10% (10% is the standard rate).
- There are two methods to calculate Vietnam VAT: credit method and direct method.
- Taxpayers must declare VAT on a monthly/quarterly basis. The deadline is within 20/30 days after the end of a month/quarter.
- For most cases, when input VAT is larger than output VAT, a business entity can carry forward the remaining input VAT amount that has not yet been credited to offset against future output VAT.
- VAT refund is available for some circumstances.
If you still have any questions that relate to Vietnam VAT, please message BBCIncorp for answers! We are always willing to help!