Value-added tax (VAT) is one of the most important tax categories that impacted companies doing business in Vietnam. This tax is imposed at each stage of production where goods and services are added value. Considering the scope of Vietnam VAT, your company is likely to be affected.
To gain a better understanding of VAT, let’s go over some key points, including how to calculate your VAT and what other obligations you need to meet.
Introduction to Vietnam VAT
Vietnam VAT (Value Added Tax) is a consumption tax imposed on the value added to goods and services at each stage of the production and distribution chain. In Vietnam, VAT is a crucial component of the country’s taxation system, and it applies to both domestic and imported goods and services.
The ultimate subject subject to VAT in Vietnam is the final consumer. While businesses along the supply chain collect and remit VAT, it is the end consumer who bears the final burden of the tax.
Generally, all types of goods and services used for production, trading, and consumption in Vietnam are subject to VAT, except for those that are defined as non-taxable products.
Specifically, the following products are exempt from value-added tax in Vietnam:
- Products from cultivation and husbandry, aquatic products (not yet been processed) when sold directly by the producing organizations or when imported;
- Other products that relate to agriculture;
- Transfer of rights to use the land;
- Insurance services;
- Financial or banking services or securities trading (stock/share);
- Healthcare services for humans and animals;
- Public transportation by bus and tramcar;
- Specific types of imported machinery, equipment, materials, or facilities that cannot yet be produced or manufactured in Vietnam;
- Transited goods 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 types of products.
For a full, concise, and detailed breakdown of the Vietnam Tax System, make sure to check out our article!
What are VAT rates in Vietnam?
In general, there are three VAT rates for different kinds of goods or services in Vietnam.
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.
The following goods and services are subject to the VAT rate of 5%:
- Clean water for the 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.
Other than products that are subject to VAT rates of 0% and 5%, all other types of goods and services are imposed on a 10% rate. For the period from 1 February to 31 December 2022, Decree 15/2022 grants a 2% VAT deduction for goods and services that are currently imposed by 10% VAT (with some exceptions).
Apart from the VAT tax rate, you might also want to consider the corporate tax rate for your business in Vietnam. Take a look at our Guide to Corporate Tax in Vietnam for more actionable insight!
Two Methods to Calculate VAT in Vietnam
There are two methods for VAT calculation in Vietnam, which are the credit method and the direct method.
This method applies to business entities that fully comply with regulations on accounting, invoices, and documents.
Particularly, you can use this method if your business entities:
- Have yearly revenue reaching 1 billion VND or above from trading goods or providing services, excluding business households or individuals;
- Register voluntarily for the credit method, excluding business households or individuals.
Once you select this method, you must maintain it for 2 consecutive years.
In brief, you can calculate your payable VAT amount 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 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 include:
- The amount of input VAT on purchased goods and services can be wholly credited.
- If the input VAT is imposed on goods and services used for the production of both taxable and non-taxable products, only the proportion 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.
To credit input VAT, your business entities must have:
- VAT invoices of purchased goods and services or VAT payment documents of imported goods.
- A non-cash payment document of purchased goods or services valued at 20 million VND or more.
- Contracts signed with foreign parties, invoices, non-cash payment documents, and customs declarations for exported goods and services.
Below are some notes on invoices in Vietnam:
- VAT invoice is called red invoice in Vietnam.
- According to Circular 68/2019/TT-BTC, all businesses must issue electronic invoices (with or without tax verification) when selling goods or services to buyers. Businesses register e-invoicing with the General Department of Taxation. Electronic invoicing will become mandatory from the beginning of November 2020.
Overall, you need to apply the direct method if you fall under a specific category.
In summary, these categories include:
- 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 a 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.
Following the direct method, you can calculate your payable VAT amount as follows:
[Payable VAT amount = Revenue x Regulated rate (%)]
The regulated rate (%) varies in different sectors, which specifically include:
- Distribution and provision of goods: 1%
- Services and construction without material provision: 5%
- Manufacture, transportation, services with attached goods, construction with the material provision: 3%
- Others: 2%
Please note that the above formula does not apply to trading or producing gold, silvers, and precious stones.
Instead, you can use the following formula:
[Payable amount = Bid-ask Spread x Regulated VAT rate for these products]
If you’re running a company in a foreign jurisdiction but provide goods and services in Vietnam, your company might be subject to Vietnam Foreign Contractor Tax. Read our full guidelines on Vietnam Foreign Contractor Tax: What Is It and How to Pay? to find out!
Vietnam VAT Declaration
Generally, if your business produces or trades taxable products in Vietnam, you must register for VAT and declare VAT monthly or quarterly basis.
To begin with, you’ll need to file VAT returns every month, within 20 days after the month ends. Meanwhile, quarterly, you 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, if you have revenue from the previous year of no more than 50 billion VND, you must adopt a quarterly declaration.
Most importantly, if you’ve just started your business (e.g. first-year business), you must declare VAT quarterly. After that, you can change to a monthly declaration or continue with the quarterly declaration, depending on the revenue earned in that first year.
On the other hand, some types of products do not need a declaration.
For example, certain kinds of compensation, services rendered by foreign organizations that do not have permanent establishments in Vietnam, or others regulated by law.
As a foreigner working in Vietnam, you likely have to declare your income tax. If you’re still new to this term, make sure to check our guidelines on Personal Income Tax declaration and payment in Vietnam.
VAT Refund in Vietnam
There are some circumstances in which a business entity can get a refund of the VAT.
Summarily, you can get a refund of VAT if you fall into the following scope:
Your business entity adopting the credit method with:
- A new investment project and the project is in the investment phase;
- The remaining amount of input VAT that has not been fully credited, valued at 300 million VND or more.
Furthermore, if your business entity exports goods or services in a month or quarter and has a remaining input VAT amount that has not yet been fully credited valued at 300 million VND or more, your business entity is entitled to a VAT refund for that month or quarter, except for the following circumstances:
- Your imported goods are for re-export purposes;
- The goods do not go through an exporting process within customs-controlled areas under the Customs Law.
Lastly, your business entity:
- applies the credit method, and 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 fully credited.
- is in charge of certain ODA projects.
- receives exemptions from certain government agencies according to related laws.
If your business entity applies the credit method and has a remaining input VAT amount larger than the output VAT, you can carry forward the remaining input amount to offset against output VAT in the following month or quarter.
Now that you’ve grasped the fundamentals of VAT in Vietnam and have insights into calculating VAT for your business, here are a few key points for you to remember.
This summary will help you consistently monitor your tax payments and ensure smooth compliance with regulations.
- Generally, most types of goods and services used for production, trading, and consumption in Vietnam are VAT taxable, except for those that are defined as non-taxable products.
- There are three value-added tax rates in Vietnam: 0%, 5%, and 10% (10% is the standard rate. Note that the 8% rate is applying as updated by Decree 15/2022 to December 2022)
- You can calculate your payable VAT with 2 methods: credit method and direct method.
- As a taxpayer, you must declare VAT on a monthly/quarterly basis. Specifically, the deadline is within 20/30 days after the end of a month/quarter.
- In most cases, when your input VAT is larger than the output VAT, your 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 or doing business in general, don’t hesitate to drop us a message, or get in touch with our team via firstname.lastname@example.org for practical advice!
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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