Value Added Tax in Vietnam

Transcription

1 Value Added Tax in Vietnam June 2016 WTS Tax Vietnam Co., Ltd Tel.: Grünkorn & Partner Law Co., Ltd. Tel.: Both: 12 th floor TMS Building, 172 Hai Ba Trung Street, District 1, Ho Chi Minh City, Vietnam

2 II In our Newsletter, we regularly inform on updates. You are invited to register. Please click on the link below to add your address to our mailing list: Subscribe Newsletter Table of Contents List of tables... IV List of abbreviations... IV 1 Executive Summary Introduction Taxpayer Taxable Goods and Services General Information Tax exempt Goods and Services Cases not required to declare, calculate and pay tax Taxable Goods Taxable Services Assessment of Output VAT Taxable Price Point of Time for Fixing VAT Tax Rates % % % Payment of VAT/Creditability of Input VAT... 12

3 III 4.1 Direct Method Credit Method Tax Refund Tax Administration Tax Registration Tax Declaration and Submission Invoices Tax Checks and Inspections Penalties and Fines Disclaimer Appendix Appendix 1: Tax exempt Goods and Services... 22

4 IV List of tables Table 1: Taxability of Goods... 6 Table 2: Taxability of Services... 7 Table 3: Preconditions for the application of the credit and direct method List of abbreviations CIT FCWT ODA PIT SST VAT VND Corporate Income Tax Foreign Contractors Withholding Tax Official Development Assistance Personal Income Tax Special Sales Tax Value Added Tax Vietnamese Dong

5 1 1 Executive Summary Value Added Tax (VAT) is the indirect tax which applies to goods and services used for production, trade and consumption in Vietnam. Goods and services purchased from overseas are also subject to VAT. The general tax rate is 10%. In respect of goods purchased from overseas, VAT must be paid at import stage. Services purchased from overseas are subject to VAT under the withholding regime of the Foreign Contractors Withholding Tax (FCWT). 2 Introduction Value Added Tax is regulated by the Law on VAT issued in 2008, amended for the first time in January 2013, second time in November 2014 and the last time in April Vietnam operates a non-cumulative all-stages VAT-system. Taxes are levied in all stages from manufacture and circulation to consumption. 2 Input tax may be credited against the VAT-payable by the paying entity. The common VAT-rate is 10%. Please note that foreign business entities (regardless of whether they have constituted a permanent establishment in Vietnam or not) are subject to the FCWT. The FCWT is not a special tax but reflects a specific scheme of withholding VAT, Corporate Income Tax (CIT) and Personal Income Tax (PIT). It needs to be applied on value added taxable goods and services sold by a foreign entities. For further information on the FCWT please check our Brochure on FCWT. 2.1 Taxpayer Value added taxpayers include all organizations and individuals which are: 3 i. manufacturing and/or trading VAT taxable goods and services in Vietnam; 1 The amendment is caused by Law 106/2016/QH13, which shall take effect from 1 July Law on VAT (2008), Article 2. 3 According to Circular 219/2013/TT-BTC, Article 3, the term taxpayer literally comprises: i. Organizations established pursuant to the law on enterprises or the law on co-operatives ii. Economic organizations of political and socio-political, social and socio-professional and other organizations iii. Enterprises established pursuant to the law on investment and foreign organizations and individuals conducting business in Vietnam without being resident iv. Individuals and family households and other business entities conducting business in VAT taxable objects v. Organizations and individuals purchasing service (including cases of purchase of service associated with goods) from foreign organizations without a resident establishment in Vietnam or from individuals overseas who are non-residents of Vietnam except for some circumstances in which it is not required to declare, assess and pay VAT vi. Branches of an export processing enterprise which are established for sale and purchase of goods and activities directly related to sale and purchase of goods in Vietnam in accordance with the laws on industrial zones, export processing zones and economic zones.

6 2 ii. iii. importing VAT taxable goods from overseas or purchasing VAT taxable services from overseas. Exporting goods and performing services overseas generally is applicable to a 0% tax rate (except for some cases stated at 3.3.1) and therefore not taxable in matters of VAT. 1 However, there are some exceptions. Assets sold by private individuals are not taxable. 2.2 Taxable Goods and Services General Information The sale/provision of Goods and Services for manufacturing, business and consumption in Vietnam 2, not mentioned to be tax exempt is subject to VAT. However, the term tax exempt (or not subject to VAT ) is used by the Vietnamese legislation in a quite mistakable way: Input VAT on tax exempt goods/services may not be credited in general. 3 On the other hand, input VAT on goods and services subject to a VAT rate of 0% shall be credited Tax exempt Goods and Services The following goods and services are mentioned to be tax exempt. Business establishments shall not be entitled to a credit and refund of input VAT in respect of goods and services used in manufacturing and business of goods and services which are exempt from VAT. 4 i. Certain Agriculture and aquaculture (related) products which are un-processed or primary processed. The law makes an exception for a VAT credit here: Companies and cooperatives, which purchase un-processed or primary processed products of cultivation, husbandry, aquaculture, fisheries and then sell to other companies and cooperatives, are entitled to credit the input VAT from 1 July ii. Fertilizers; feed for cattle, poultry and other livestock. 1 Circular 219/2013/TT-BTC, Article 9. 2 Law on VAT (2008), Article 3. 3 Law on VAT (2008), Article 5. 4 Law on VAT (2008), Article 5 as well as Circular 219/2013/TT-BTC, Article 4 and Amendments on the Law on VAT (2013), Article 1, No Law on VAT amended by Law No. 106/2016/QH13, Article 5, No. 1.

7 3 iii. iv. Offshore fishing boats; specialized machinery and equipment serving exploitation and preservation of products for fishing boats 1. Specialized machinery and equipment serving agricultural production. v. Certain infrastructure constructions. vi. vii. viii. ix. Certain insurance services. Transfer of land use rights/houses under certain conditions. Certain financial banking and securities services. Medical health and veterinary services; caring services for the elderly and disabled people. x. Certain cultural and educational services. xi. xii. xiii. xiv. xv. xvi. xvii. xviii. Certain postal, radio and television services and publications. Mass Transit Services. Certain imported machinery and equipment that cannot be produced in Vietnam. Exploited natural resources and minerals not yet processed into other products. Donations, gifts, hand luggage and private assets under specific conditions. Gold bars. Technology transfers under specific conditions. Goods and services provided by business households or business individuals with the yearly turnover of under 100 million VND. Please note: The above mentioned reflects a shortened list of exemptions, an entire listing of all goods and services exempt from VAT is attached in appendix 1 of this document Cases not required to declare, calculate and pay tax The following goods and services do not need to be declared and therefore are not taxable: 2 1 Offshore fishing boats means boat with the main engine capacity of 90CV or over which are engaged in marine product exploitation or provision of logistics services for marine product exploitation. 2 Circular 219/2013/TT-BTC, Article 5.

8 4 i. Income comprising compensation, bonuses or allowances receivable; proceeds from the assignment of emission rights and other financial income 1. ii. iii. The following services if purchased from abroad (seller has no permanent establishment in Vietnam) and consumed outside Vietnam: a. Repair of transport vehicles. b. Repair of machinery and equipment. c. Advertising and marketing d. Investment and commercial promotion. e. Brokerage for the sale of goods/services. f. Training. g. Sharing fees and charges for international post and telecom services between Vietnam and the foreign party where such services are provided outside Vietnam. h. Services for lease a line or satellite frequency band. Organizations and Individuals not conducting business or being VAT-payer when selling assets. iv. Fixed assets transferred within one group of companies 2. v. Capital contributions in the form of assets. vi. vii. viii. ix. Transfer of investment projects for production of and trading in goods or services subject to value-added tax to enterprises or cooperatives 3. Transfer of assets upon division, merger, consolidation or conversion of business. Turnover from goods and services sold as an agent, which sell goods and services at a fixed price to enjoy commission. Amounts of money collected not related to the sale of goods and services x. Receipts collected from third parties applicable to insurance operation 1 Nevertheless, business establishments are obliged to issue vouchers when receiving such income. Example: An enterprise purchases goods and pays in advance. For this advanced payment, it receives interest. The interest received is not required to be declared and paid VAT on. However, a collection voucher needs to be made. Circular 219/2013/TT-BTC, Article 5, No Either the transferor or the recipient must own 100% of the share capital of the other party or both parties must be owned by a third one at a ratio not less than 100%. Compare Circular 219/2013/TT-BTC, Article 5, No Decree 209/2013/ND-CP, Article 2, No 3 (d).

9 5 xi. xii. Enterprises and co-operatives paying VAT by the tax credit method and selling products from cultivation or breeding and aquatic products which have not yet been processed to become other products or which have only been subject to conventional semi-processed to enterprises and co-operatives engaged in the phrase of commercial business. Re-imported goods, which were exported but returned by the foreign purchasers. 1 However, when these re-imported goods are sold domestically, VAT must be declared and pay. Business establishments are not entitled to a credit and refund of input VAT in respect of those non-taxable goods and services Taxable Goods Goods used for business, manufacturing or consumption in Vietnam are taxable in matters of VAT. Goods transferred by private individuals are not taxable. Exported goods generally are taxed at a rate of 0%. 3 The following table reviews the taxability of some exemplary transactions: Transaction A Vietnamese individual sells a private asset to another Vietnamese individual or corporation A Vietnamese retailing company sells a product to a Vietnamese individual A Vietnamese retailing company sells a product to a foreign individual Tax Liability in Vietnam No Yes Yes, but the foreign resident may apply for a tax refund when bringing the product across the border Explanation Individuals are not due to declare and pay VAT on private assets Consumption in Vietnam Consumption outside Vietnam 1 Circular 219/2013/TT-BTC amended by Circular 119/2014/TT-BTC, Article 5, No. 7 (g). 2 Law on VAT (2008), Article 5. 3 Circular 219/2013/TT-BTC, Article 9, No. 1.

10 6 A Vietnamese resident purchases a product from abroad. A Vietnamese company sells machinery to another Vietnamese company A Vietnamese company sells machinery to a foreign company A Vietnamese company purchases machinery from abroad Yes Yes Yes but the tax rate is 0% Yes Consumption in Vietnam Further use inside Vietnam The tax rate of 0% shall apply to exported goods Further use inside Vietnam Table 1: Taxability of Goods However, as the Vietnamese laws are amended frequently and sometimes are not detailed, the above mentioned may only be regarded as a guideline providing a general overview. For specific situations, tax authorities may decide divergently. Therefore, the tax liability of every transaction needs to be assessed on a case by case basis Taxable Services Services are taxable in Vietnam, if they are consumed in Vietnam. Services provided directly to overseas organizations or individuals and being consumed outside Vietnam are commonly regarded as exported services and taxed at 0%. 1 The definition of overseas requests that the recipient is an organization neither having a permanent establishment nor being a value added tax payer in Vietnam or if the recipient is an individual not being resident in Vietnam at the time of purchasing a service. 2 The following table reviews the taxability of some exemplary transactions: Transaction A Vietnamese company provides services in Vietnam to an individual residing in Vietnam Tax Liability in Vietnam Yes Explanation Provision and consumption in Vietnam 1 Circular 219/2013/TT-BTC, Article 9, No. 1 (b) as well as Decree 209/2013/ND-CP, Article 6, No PwC, Pocket Tax Book Vietnam 2013, p. 16 and 18 as well as Bloomberg detailed analysis on VAT 2013.

11 7 A Vietnamese company provides a service to an individual residing abroad. The service is performed within Vietnam. A Vietnamese company provides services abroad to an individual residing abroad A Vietnamese company provides services to a foreign entity not having a permanent establishment in Vietnam A Vietnamese company provides services to a foreign entity having a permanent establishment in Vietnam A Vietnamese company provides services to another Vietnamese company within Vietnam A Vietnamese company provides services to another Vietnamese company outside Vietnam. A Vietnamese company purchases services from a company residing abroad Yes No Maybe Yes Yes Yes but the tax rate is 0% Yes The service is (regarded as being) consumed in Vietnam. Provision and consumption outside Vietnam Provision can be deemed to be abroad, but if the service actually is consumed in Vietnam it may be taxable in Vietnam. 1 Provision and consumption are deemed to be located at the permanent establishment in Vietnam if not proved differently. Provision and consumption in Vietnam The service is regarded as export service provided and consumed outside Vietnam. 2 Evidence for provision and consumption outside Vietnam is needed. 3 Provision and consumption in Vietnam 1 Example: The repair of a foreign entities business car will be taxable in Vietnam irrespective of the constitution of a PE. 2 Circular 219/2013/TT-BTC, Article 9, Example Decree 209/2013/ND-CP, Article 6, No. 1 (b).

12 8 Table 2: Taxability of Services However, as the Vietnamese laws are amended frequently and sometimes are not detailed, the above mentioned may only be regarded as a guideline providing a general overview. For specific situations, tax authorities may decide divergently. Therefore, the tax liability of every transaction needs to be assessed on a case by case basis. 3 Assessment of Output VAT Output VAT is assessed by multiplying the applicable tax rate with the taxable price of the respective goods and services. 3.1 Taxable Price Value added taxable prices are generally defined as the sale price excluding VAT. The VAT taxable price of: 1 i. Goods and services sold or supplied by production or business establishments is the sale price excluding VAT. Special sales taxes (SST) 2 imposed on goods or services is included in the taxable price. ii. iii. Imported goods is prices at the border checkpoint including import tax and SST 3. Goods and services used for exchange, gift or donation is the taxable price of goods and services of the same or equivalent category at the time of such use 4. VAT shall not be calculated or payable on goods and services used for internal consumption. 5 iv. Asset leasing is the rent, excluding VAT 6. v. Goods sold by instalments is the lump sum price on one occasion excluding any interest payable. vi. Processing goods is the processing fee, excluding VAT. 1 Law on VAT (2008), Article 7 as well as Circular 219/2013/TT-BTC, Article 7 and Amendments on the Law on VAT (2013), Article 1, No The following Special Sales Taxes are imposed in Vietnam: Special Consumption Tax, Petroleum Tax, Natural Resources Tax and Environmental Tax. 3 Import prices at the border checkpoint shall be determined in accordance with the regulations on taxable prices of imported goods. 4 Example: A manufacturer donates 50 fans. The current price of one fan is VND. The taxable price of the donation is 20 million VND. VAT is not applied on products circulating internally, such as goods produced for transfer into an internal warehouse, etc. 5 Circular 219/2013/TT-BTC amended by Circular 119/2014/TT-BTC, Article 7, No In case of leasing machinery and equipment from overseas which cannot be produced in Vietnam, the taxable price of the lease is zero. Compare Law on VAT (2008), Article 7, No. 1 (d).

13 9 vii. viii. ix. Construction and Installation is the value of the works, item of works or part of works completed and delivered, excluding VAT. Real estate business activities is the selling price of the real estate, excluding VAT and excluding the price of the transfer of the land use right or leas rent payable to the State. Agency and broking activities is the wage or commission receivable, excluding VAT. x. Services provided both, inside and outside Vietnam is the value of the services provided inside Vietnam as stipulated by the contract 1. Any other additional charges or fees accompanied to one of the above listed goods or services are included in the taxable price. Reductions or discounts reduce/discount the taxable price. 2 Taxable prices must be calculated in VND. Any turnover in foreign currency must be converted into VND at the actual exchange rate at the time for fixing a turnover 3. Related changes in prices (e.g. because goods are returned or because of refunds for deficits) must be recorded by minutes/amended invoices. 3.2 Point of Time for Fixing VAT The point of time for fixing VAT, shall be as follows: 4 i. In matters of goods sold, the transfer of ownership, irrespective of the actual receipt of money. ii. In matters of services, the completion of service or the time of billing, irrespective of the actual receipt of money. In matter of telecommunications services, the time of completion of the check of data on charges for telecommunications connections services. iii. In matters of construction and installation, including shipbuilding, the time of acceptance and handover of the completed works, items of work or partly completed works irrespective of the actual receipt of money. 1 If the contract does not stipulate separately the value of the service arising inside Vietnam, then the taxable price is determined by the ratio of expenses related to the service and arising in Vietnam. Compare Circular 219/2013/TT-BTC, Example No Decree 209/2013/ND-CP, Article 4, No 6. 3 Circular 156/2013/TT-BTC amended by Circular 26/2015/TT-BTC, Article Circular 219/2013/TT-BTC, Article 8.

14 10 iv. In matters of real estate business or construction of infrastructure facilities or housing for sale and lease, the date of collection of money pursuant to the contract. v. In matters of import, the date of custom registration. vi. In matter of potable water or electricity supply activities, the date on which the reading of consumed electricity or water is recorded for billing. 3.3 Tax Rates % The tax rate of 0% applies to exported goods and services; construction and installation operations overseas and in non-tariff zones; international transportation 1 ; goods and services that are tax exempt as mentioned in chapter when exported. The following goods and services, are not subject to a 0% tax rate 2 when exported but are taxed with the tax rate applied to the corresponding goods and services sold domestically (most of goods and services in this list are VAT exempt when sold domestically). 3 i. Technology transfers, transfer of intellectual property abroad. ii. Imported tobacco, alcohol and beer then exported 4. iii. Reinsurance abroad. iv. Credit services abroad 5. v. Capital transfer abroad 6. vi. Securities Investment abroad. vii. Derivative financial services 7. viii. Telecommunications and postal services. 1 International transportation covers transportation of passengers, luggage and cargo along international routes from Vietnam abroad or vice versa or both destination and departure are in foreign countries. Domestic routes covered by international transportation are also regarded as part of international transportation. Compare Decree 209/2013/ND-CP, Article 6, No. 1 (c). 2 Law on VAT (2008), Article 8, No. 1 and Amendments on the Law on VAT (2013), Article 1, No Circular 219/2013/TT-BTC, Article 9, No In these cases, output VAT is not applied but input VAT is not credited. 5 Including: loaning, discounting or rediscounting negotiable instruments and other valuable papers; guarantee; finance lease; domestic factoring; international factoring and other credit services according to law. 6 Including: transferring parts of or the whole invested capital; selling an enterprise to another enterprise and other forms of capital transfers according to law. 7 Including: swapping interest rates; forward contracts, futures contracts, foreign-exchange options and other derivative financial services according to law.

15 11 ix. Products being resources or minerals that are no processed into other products; products, which are processed from resources and minerals, in which the total value of resources, minerals and energy cost account for 51% or more of such products.. x. Goods and services provided to individuals who do not have business registration in non-tariff zones. xi. xii. xiii. Cars sold to organizations or individuals in non-tariff zones. Petrol and oil sold to automobiles of business establishments in non-tariff zones which are purchased domestically. Services provided by business establishments for organizations or individuals in non-tariff zones % The 5% rate generally applies to businesses providing essential goods and services. Particularly, it applies to: i. The supply of clean water for manufacturing and living except for bottled water and other types of beverages. ii. iii. iv. Ore used for production of fertilizers; pesticides and growth stimulants for livestock and crops; Services of digging and ploughing, dredging canals/ditches/ponds for agriculture. Planting, raising, pest control of corps; semi-processing/preserving agricultural products. v. Products of cultivation, husbandry and aquaculture not yet processed and not meeting the conditions of tax exemption. vi. Semi-processed latex and resin; netting, cord and fibre used for fishing nets. vii. Fresh food products 1. viii. ix. Forest products 2 not yet processed, except for wood, bamboo and tax exempt products. Sugar and by products obtained by the manufacturing of sugar. 1 Fresh food means all types of food which have not been cooked or processed into another product. Compare Circular 219/2013/TT-BTC, Article 10, No Forestry products include mushroom, roots, leaves, flowers, plants and others.

16 12 x. Products made from jute, sedge, bamboo, rattan, thatch, coconut fibre/shell, water hyacinth and other handmade products made out of agricultural raw materials. xi. xii. xiii. xiv. xv. xvi. Medical equipment/instruments; medical sanitary cotton/bandages; preventive/curative medicines; pharmaceutical products/materials being raw materials for medicine. Aids used for teaching/studying, including chalk, drawings, blackboards, rulers, compasses, and others. Cultural activities: exhibitions; physical training and sports activities; artistic performances; film production, importation/distribution/screening of films 1. Children s games; all types of books not being tax exempt. Scientific and technological services as stipulated in the law on science and technology. Sale, lease and purchase of social housing according to the Law on Housing % The tax rate of 10% applies to all goods and services not being subject to the tax rate of 0% or 5% and not being tax exempt. 2 Where a business establishment deals with items of goods and services subject to different rates of VAT, it has to declare VAT separately. 3 4 Payment of VAT/Creditability of Input VAT There are two methods for calculating the VAT payable, the credit method and the direct method. Credit Method Applicable to all business establishments having fully implemented the Vietnamese regime on accounting, invoices and source vouchers and being registered to pay VAT by the credit method. Direct Method Applicable to business establishments and foreign organizations and individuals conducting business in Vietnam without fully complying with the Vietnamese accounting regime and to the trading of 1 Except for revenue from the sale of goods or the lease of parking areas. Compare Circular 219/2013/TT- BTC, Article 10, No Law on VAT (2008), Article 8, No. 3 and Circular 219/2013/TT-BTC, Article Circular 219/2013/TT-BTC, Article 11.

17 13 gold, silver and precious stones. Enterprises having an annual turnover, which is below 1 billion VND and newly established enterprises are subject to the direct method. However, if fulfilling the re- Table 3: Preconditions for the application of the credit and direct method spective conditions they are allowed to voluntarily apply the credit method Direct Method Businesses must apply the direct method to calculate their VAT payable directly related to the added value to activities of trading in the purchase and sale of gold, silver or precious stones and activities of creating products containing gold, silver or precious stones, by using the following formula: VAT-payable = (payment price of goods and services sold payment price of relevant goods and services purchased) x applicable tax rate The trading of gold, silver and precious stones must be accounted separately. 2 The added value will be calculated by subtracting the purchasing price from the selling price. 3 Where a business does not implement or fully implement the regime on accounting, invoices and source documents stipulated by law must apply direct method. The amount of VAT payable by the direct method equals a percentage (%) multiplied by the turnover: VAT-payable = turnover x deemed tax rate (percentage) Turnover for assessing VAT is the total sales of goods or services actually recorded in the invoice for sale of taxable goods or services, including sub-charges or extra charge to which the business is entitled. 4 1 Law on VAT (2013), Article 10 amended in Decree 209/2013/ND-CP, Article 7, No. 4(c). 3 Negative amounts of value added caused by gold, silver and precious stones can only be offset against positive amounts of value added caused by gold, silver and precious stones. 4 Circular 219/2013/TT-BTC, Article 13, No. 2 (c).

18 14 Deemed tax rate (Percentage) (%) for calculation of VAT levied on turnover is stipulated for each activity as follows: 1 i. Commerce (distribution/supply of goods): 1%. ii. iii. Services or construction works (excluding construction works in which the supply of raw-material is included): 5%. Production, transportation, services attached to goods and construction works including the supply of raw-material: 3%. iv. Other business activities: 2%. Please note that foreign business entities might be subject to FCWT. Depending on the constitution of a permanent establishment and the application of the Vietnamese Accounting Regime, VAT on goods/services purchased from such organizations may need to be withheld by the Vietnamese entity purchasing such goods/services. For further information on the FCWT please check our Brochure on FCWT. 4.2 Credit Method Businesses using the credit method (sometimes also: deduction method) calculate their VAT payable pursuant to the following formula: VAT-payable = Output VAT Creditable Input VAT Whereas the output VAT equals the total VAT on goods and services sold as stated by invoice. Such invoices must disclose the pre-tax price and the amount of VAT payable. Where an invoice lacks to do so the output VAT must be calculated separately. 2 Where an invoice states a wrong VAT-rate which is higher than the rate stipulated by law, the taxpayer must pay VAT according to this wrong rate. Where an invoice discloses a wrong VAT-rate being lower than the one stipulated by law, the taxpayer must pay VAT according to the rate as stipulated by law. Input VAT is creditable as follows: 3 i. Input VAT levied on goods and services used for manufacturing and business in value added taxable goods is fully creditable 4. 1 Circular 219/2013/TT-BTC, Article 13, No. 2 (b). 2 The applicable formula is: Output VAT = After-Tax Price (After Tax Price / 1 + VAT Rate). Compare Decree 209/2013/ND-CP, Article 7, No Law on VAT (2008), Article Including input-vat in case of damaged goods/services, that are not compensated. Compare Amendments on the Law on VAT (2013), Article 1, No. 6.

19 15 ii. iii. iv. Input VAT levied on goods and services used for business in both taxable and non-taxable goods and services is only creditable to that amount used for taxable goods and services 1. Input VAT on fixed assets used to produce both, taxable and non-taxable goods is only creditable to that amount used for taxable goods and services 2. Input VAT levied on goods and services sold to organizations/individuals for the use of humanitarian aid is fully creditable. v. Input VAT levied on goods and services used for petroleum exploration is fully creditable. Input VAT levied on goods and services used for the production or trading of goods and services not subject to VAT is not creditable but can be included in the original costs of these products for matters of CIT. 3 The amount of input-vat creditable is limited to the aggregated amount of value added invoices used for production and business. Where an invoice solely discloses the after-tax price, the pre-tax price shall be calculated. 4 Where an invoice states a wrong VAT-rate that is lower than the rate stipulated by law, the taxpayer must pay VAT according to this wrong rate. Where an invoice discloses a wrong VAT-rate being higher than the one stipulated by law, the taxpayer must pay VAT according to the rate as stipulated by law 5. Furthermore, the following conditions must be satisfied in order to deduct input VAT: 6 1 Deductible input VAT must be separated from non-deductible VAT. If they are not separated, the deductible input VAT is calculated by the percentage of revenue from goods and services subject to VAT to the total revenue from goods and services sold. Compare Amendments on the Law on VAT (2013), Article 1, No Where separate accounting cannot be conducted, the creditable amount shall be calculated based on the ratio between the turnover being subject to VAT and the total turnover. Compare Decree 209/2013/ND- CP, Article 9, No. 1 (b). In the case of fixed assets being automobiles seating nine or less people and exceeding a value of 1.6 billion VND (exclusive VAT), the amount of input VAT corresponding to the excess of 1.6 billion VND is not creditable. Compare Circular 219/2013/TT-BTC, Article 14, No. 3. The input VAT levied on some particular assets used for weapons, in credit institutions, for reinsurance business, for security trading, in hospitals or aircrafts and yachts not used for commercial transportation are only allowed to be included in the historical costs or deductible costs but cannot be levied as input VAT. Compare Decree 209/2013/ND-CP, Article 9, No. 1 (c). 3 Decree 209/2013/ND-CP, Article 9, No. 1 (i). 4 Example: A good was bought for the after-tax price of 110 million VND. The applicable VAT-rate is 10%. The input-vat will be calculated as follows: (110/1.1) x 10% = 10 million VND. Compare Circular 219/2013/TT-BTC, Article 12, No. 5 (b). 5 Circular 219/2013/TT-BTC, Article 12, No. 5 (b). 6 Law on VAT (2008), Article 12.

20 16 i. There must be a valid added value invoice, providing the name, address and tax code of the seller and the purchaser and reflecting the actual value of the good/service transferred 1. In case input VAT was paid on behalf of a foreign party (FCWT VAT), the receipt for payment is required instead of invoice. ii. iii. Evidence of payment via bank is available (except for transactions having a value below 20 million VND or when imports goods being gifts or presents from overseas organizations or overseas individuals) 2. In case of exported goods or services applicable to a tax rate of 0%, supplementary to the invoice and the proof of non-cash payment, 3 a contract signed by the foreign party must be available. Example for calculating the VAT-payable according to the credit-method: A wholesaler pays 500 million VND (exclusive VAT) to purchase a good. The input- VAT paid by the wholesaler is 50 million VND. The wholesaler sells the product to a retailer for a pre-tax price of 650 million VND (exclusive VAT). In his invoice, the wholesaler will add 65 million VND VAT. The VAT-payable by the wholesaler pursuant to this transaction is 15 million VND. When businesses change from using the direct method to using the credit method, they will be credited input VAT for their purchased goods from the first period of applying the credit method Tax Refund A tax refund is granted in the following situations: 5 1 Circular 219/2013/TT-BTC, Article 14, No Goods and services purchased in cash at a VAT-inclusive price of 20 million VND or more are not entitled to a credit of input VAT. The purchasing price is determined by contract. Payment in installments are accumulated when determining the purchasing price. Where several goods and services are bought from one supplier within one day, the purchasing price is determined by accumulating all services/goods purchased on that day. Businesses may credit input VAT without a receipt for payment via bank if not available yet. But where there is no receipt for payment via bank account upon the due date the input VAT is not creditable. Example: Company purchases goods in March for 100 million VND plus 10% VAT. The agreed due date for the payment is June. Company A is entitled to declare input VAT in March. If it fails to provide evidence for payment via bank account in June, it must declare and reduce the creditable amount of input VAT accordingly. Compare Circular 219/2013/TT-BTC, Article 15, No. 3 (c). 3 Payment in the form of clearing between imported and exported goods and services or debt payment on behalf of the State is regarded to be non-cash payment. Compare Decree 209/2013/ND-CP, Article 9, No. 2 (c). 4 Decree 209/2013/ND-CP, Article 9, No. 1 (k). 5 Law on VAT (2013), Article 13 amended by Law No. 106/2016/QH13: Law No 106 are not allowed the tax refund for the case Where the input VAT of a business arising within one month (quarter) cannot completely be credited against the arising output VAT during the following twelve months (four quarters)

21 17 i. Where a new business has been established but didn t commence operating business yet and having a remaining amount of input VAT being 300 million VND or more it is entitled to a tax refund on a monthly/quarterly basis 1 ii. iii. iv. Where the input VAT not credited on exported goods and services of a business exceeds 300 million VND in a month/quarter, input VAT is refundable for that period 2. Where the ownership of an asset is transferred (either separately or in matters of mergers, acquisitions, bankruptcy or the division of business) refunds are available for excess amounts of input VAT. Foreigners and Vietnamese people residing abroad receive refunds of tax on goods purchased in Vietnam and taken abroad. v. Where goods and services are used for ODA, charity or humanitarian aid. vi. vii. Where subjects eligible for diplomatic immunity purchase goods or services in Vietnam. Pursuant to a decision of the competent authority and cases entitled to a refund of VAT as stipulated in any international treaty signed by Vietnam. All business organizations applying for a tax refund in accordance with the above mentioned must pay tax by the credit method, must have been issued with a business registration certificate, business license or establishment decision of a competent authority in Vietnam and must maintain accounting books and source documents in accordance with the law. 3 1 Remaining amounts of input VAT caused by a newly established investment project must be set-off against remaining amounts of output VAT caused by ongoing businesses first, if existent. However, the following projects shall not be entitled to VAT refund, but carry forward the input VAT amount: Projects which the charter capital is not fully contributed as registered; Projects which does not have sufficient conditions or cannot maintain conditions to conduct such business line; Projects on resources and minerals exploitation licensed from 1 July 2016; Projects on manufacture of products having the total value of resources, minerals and energy cost account for 51% or more of such products. 2 Remaining amounts of input VAT caused by the export of goods/services must be set-off against remaining amounts of output VAT caused domestically first, if existent. Detailed explanations and examples about refunds related to exported goods and services are given in Circular 219/2013/TT-BTC, Article Circular 219/2013/TT-BTC, Article 19.

22 18 5 Tax Administration 5.1 Tax Registration Before 1 July 2015, all organizations and individuals producing and trading taxable goods and services in Vietnam and importing taxable goods or purchasing taxable services from overseas are due to conduct tax registration within a time-limit of ten business days from the date on which a business registration certificate, investment certificate or license for establishment is issued. 1 The tax body will issue a tax registration certificate to the taxpayer within ten business days from the day of receipt. 2 However, from 1 July 2015, the procedures on investment registration change in which, an enterprise registration certificate is issued with an enterprise code concurrently with the tax code. That removes the tax registration in most cases. Changes in items in a lodged tax registration file must be notified to the tax body by the taxpayer within a time limit of ten business days too. 5.2 Tax Declaration and Submission Generally, VAT declaration and settlement of payment needs to be made on a monthly basis by the 20 th day of the following month. For tax payers, whose revenue of the preceding year is less than 50 billion VND, VAT declarations may be filed on a quarterly basis by the 30 th day of the following quarter unless the tax payers elects to report on a monthly basis. 3 Tax refunds or additional payments caused in the past may be offset against the tax payable of a current month. In case a business detects an error in the declared or credited input VAT, adjustments may be made as longs as the tax authority did not issue a decision to conduct a tax audit or investigation. 4 Taxes shall be declared and paid to the tax authority where the business carries out production and business activities. Where a business carries out production and business in several localities VAT must be paid to all of them proportionately. 5 1 Law on Tax Management (2012), Article 22. In order to register, an enterprise must submit a declaration form for the tax registration and a copy of the business/investment certificate to the tax authority where its headquarter is located. 2 Law on Tax Management (2012), Article Circular 156/2013/TT-BTC, Article 11, No. 2 (b) 4 Decree 209/2013/ND-CP, Article 9, No. 1 (g). 5 Decree 209/2013/ND-CP, Article 11.

23 19 Taxes need to be determined and paid in VND. When a turnover, an expense or an assessable price arise in a foreign currency, such amount must be converted to VND at the actual transaction exchange rate Invoices Invoice must be prepared when selling goods or services, including goods and services used for donation, exchange, promotion, advertising or used as samples (except goods for internal circulation or internal consumption). VAT invoices can either be purchased from the local authority or be printed by the enterprise itself if the enterprise has the registered capital of VND 15 billion based on paid up capital. Before using invoices (except invoices distributed by the tax authorities), enterprises must send the notification on invoice issuance to the tax authorities. 2 The tax authorities shall provide a written opinion within 5 business days from the receipt of notification on invoice, if not, the enterprise is entitled to use invoices. Invoices must disclose: i. Invoice type; ii. iii. iv. Serial number of invoice; Name of the duplicate of the invoice; Name, address and tax identification number of the seller; v. Name, address and tax identification number of the buyer; vi. vii. viii. Name, unit of calculation, quantity and unit price of goods or service; total amount in figures and words; Signatures and full names of the buyer and the seller and the date of issuing the invoice; Name of the invoice printing organization (applicable for invoices printed on order); Invoices shall be made in Vietnamese. Where it is necessary to add words in a foreign language, these words must be put in brackets or under Vietnamese words and in a smaller font size. 1 The buying rate of the commercial bank where the taxpayer opens an account shall be used for recording turnover and the selling rate of the commercial bank where the taxpayer opens an account shall be used for recording expenses. 2 Circular 39/2014/TT-BTC.

24 Tax Checks and Inspections The Vietnamese tax authority will conduct checks and inspections on the basis of analyzes of information and data relating to the taxpayer in order to assess the observance of law or to collect or verify proof to identify any breach of the law. Tax checks will be conducted at the headquarters of the tax management body on a regular basis in order to assess the completeness and accuracy of information and source documents in tax files. 1 When conducting a tax check, the tax management body will announce the decision on tax check to the taxpayer. 2 Afterwards, it will conduct the tax check within five business days and provide a record about results of the tax check to the taxpayer within five business days from completing the tax check. Enterprises with diversified lines of business and a wide scope of business will be subject to tax inspections regularly. Whenever the tax management body decides to inspect an enterprise, it will send a decision about the inspection to the enterprise within three days and inspect the enterprise within 30 days from the date of such an announcement. 3 After inspecting, it will provide a report of inspection to the tax payer. 5.5 Penalties and Fines Taxpayers being late on any payment of tax are liable to pay the full amount of tax payable plus a fine of 0.03% of the amount of tax payable for each day of late payment. This rate of fine is also applied for the insufficient amount of tax arising before 1 July Taxpayers conducting a false declaration resulting in a reduction of the amount payable but paying in full the amount of tax payable before the competent body detects the breach are regarded to be late with that amount of tax payable they firstly didn t pay because of the false declaration. 5 Taxpayers correctly reflecting economic activities but making false declarations resulting in a tax reduction have to pay in fully the shortfall as well as a fine of 20% of the shortfall of tax or excess amount of tax refund. 6 In respect of export or import goods, this violence shall be subject to a fine of 10% if the taxpayer itself discovers 1 Law on Tax Management (2012), Article The taxpayer has the right to refuse the tax check if there is no decision about such check. 3 Law on Tax Management (2012), Article Before 1 January 2015, 0.07% of tax amount was applied for each day of late payment where the number of late payment exceeded 90 days. From 1 January 2015, the fine is decreased to 0.05% of tax amount and the fine after 1 July 2016 is 0.03%. 5 Law on Tax Management (2012), Article Law on Tax Management (2012), Article 107.

25 21 the mistake and make an amendment to the declaration within 60 days from the declaration date. Any taxpayer committing acts of tax evasion or tax fraud has to pay in fully the amount of tax payable pursuant to the regulations and will be fined an amount of up to three times the amount of the tax evaded. 1 The statute of limitation for applying penalties on breaches of the law in matters of tax procedures is two years from the date on which the breach was committed. The statute of limitation for applying penalties on breaches of the law in matters of tax evasion or tax fraud, late tax payment or declaration or incomplete tax obligation is five years from the date on which the breach was committed. Limitation for applying penalties for tax evasion or tax fraud which is serious enough to warrant prosecution for criminal liability is ten years from the date on which the crime is committed. Upon the expiration of a limited period for applying penalties on a breach of the law as mentioned before, the taxpayer is not penalized but must still pay the shortfall of tax as caused by the breach of law. 2 6 Disclaimer All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date, it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of the particular situation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information, which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent. 1 Law on Tax Management (2012), Article Law on Tax Management (2012), Article 110.

26 22 Appendix Appendix 1: Tax exempt Goods and Services The following goods and services are exempt from VAT: 1 i. Products of cultivation, husbandry, aquaculture, seafood and fishery which have not been processed or which only have been semi-processed 2 by organizations and individuals catching, producing and selling products at the import stage. ii. iii. iv. Products being animal breeding stock and plant varieties including breeding eggs, young animals, seedlings, seeds, sperm, embryos and genetic materials. Water supply and drainage; ploughing and harrowing land; dredging canals and ditches inside fields for agricultural production, services being harvesting agricultural products. Fertilizers; feed for cattle, poultry and other livestock. v. Offshore fishing boats 3 with the main engine capacity of 90CV or over; specialized machinery and equipment serving exploitation and preservation of products for fishing boats. Specialized machinery and equipment serving agricultural production. vi. vii. viii. ix. Salt products made of seawater, natural rock salt, refined salt, iodized salt of which the primary constituent is sodium chloride (NaCl). State owned residential houses sold to existing tenants. Transfer of land use rights. Life insurance, health insurance, insurance for students, other insurances related to humans, insurance for animals, insurance for plants, other agricultural insurances; insurance for boats, ships, and other equipment necessary for fisheries; reinsurance. 1 Law on VAT (2008), Article 5 as well as Circular 219/2013/TT-BTC, Article 4, Amendments on the Law on VAT (2013), Article 1, No. 1 and Law No. 106/2016/QH13, Article 1, No Products which have been semi processed are products which only have been cleaned, sun-dried, shelled, stoned, cut, salted or frozen. 3 Offshore fishing boats are boat engaged in marine product exploitation or provision of logistics services for marine product exploitation.

27 23 x. The following financial, banking, and securities services: credit services 1, loaning services provided by taxpayers; securities services, 2 capital transfers, 3 selling debts; trading of foreign currencies; derivative financial services 4 and the selling of collateral for loans taken by organizations of which 100% of charter capital is possessed by the State and which are established by the Government to settle bad debts of Vietnamese credit institutions 5. xi. xii. xiii. xiv. xv. xvi. Medical health and veterinary services; caring services for the elderly and disabled people 6. Public postal and telecommunications services: internet services if universalized pursuant to the program of the government: incoming postal and telecommunication services. Maintenance of zoos, public gardens, parks, urban trees, public lighting; funeral services. Maintenance, repair and construction of cultural, artistic and public buildings and of infrastructure and welfare housing, founded by public contributions and humanitarian aid 7. Educational and vocational training as stipulated by law, including training in foreign language, informatics, dancing, singing, painting, music, drama, circus, sports, child care and other vocational training aimed at improving academic, professional or occupational knowledge. Radio and television broadcasting funded by the State Budget. 1 Including: loaning, discounting or rediscounting negotiable instruments and other valuable papers; guarantee; finance lease; domestic factoring; international factoring and other credit services according to law. 2 Including: securities brokerage; proprietary trading of securities; guaranteeing securities issuance; securities investment consultancy; securities depository; management of securities investment fund; management of securities investment portfolio; market organization services of Stock Exchanges or Securities trading centers and other securities services according to the laws on securities. 3 Including: transferring parts of or the whole invested capital; selling an enterprise to another enterprise and other forms of capital transfers according to law. 4 Including: swapping interest rates; forward contracts, futures contracts, foreign-exchange options and other derivative financial services according to law. 5 Sale of assets being security for a loan conducted by a credit institution or by the body for judgement execution in accordance with the laws on sale of assets being security for loan, Compare Circular 219/2013/TT-BTC, Article 4, No 8. 6 Including: examination and treatment services, disease prevention for people and domestic animals, family planning services, convalescence and rehabilitation services. 7 Where a source of capital other than public contribution or humanitarian aid is used, but does not exceed 50% of the total capital expended for the work, the whole value of work is not taxable, if it exceeds 50%, the whole value of work is taxable.