Indirect tax - Vietnam

Value Added Tax (VAT) is an indirect tax which applies to products and services used for production, business and consumption in Vietnam; as well as on the duty paid value of imported goods; in which the importer must pay VAT to Customs Authority at the time of importing goods.

There are four applicable VAT rates in Vietnam, comprising of goods not subject to VAT, 0%, 5% and the standard rate of 10%, particularly:

• standard rate of 10% for most goods and services
• reduced rate of 5% generally applies to the provision of essential goods and services, including clean water; teaching aids; books; medicine and medical equipment,; scientific and technical services; unprocessed foodstuffs; sugar and its by-products; various agricultural products and services; and social housing
• zero-rated applies to exported goods and services, including goods and services sold to overseas/non-tariff areas and consumed outside Vietnam/in the tariff areas, goods processed for export or in-country export (subject to conditions); construction and installation in overseas and in non-tariff areas; marine and international transportation services
• indirect tax exemption applies to certain agricultural products; fertilizer, feed for livestock, poultry, seafood and other animals; machinery and equipment specifically used for agriculture; goods/services provided by individuals having annual revenue of VND100 million or below; transfer of land use rights; certain insurance services; financial and credit services; certain securities activities; medical services; the disabled and elderly care services; teaching and training services; printing and publishing newspapers and certain types of books; public transport; transfer of technology, software and software services; imports of machinery; equipment and material which cannot be produced in Vietnam for direct use in science research and technology development activities OR for prospecting, exploration and development of oil and gas fields; goods imported for international non-refundable aid, including from official development aid, foreign donations to government bodies and to individuals; exported natural resources processed or unprocessed where the total value of natural resources or minerals plus energy costs accounts for at least 51% of the cost of goods; exported goods which are directly and mainly processed from natural resources or minerals where the total value of natural resources or minerals plus energy costs accounts for at least 51% of the cost of goods.

Under this treatment, no output VAT shall be charged and the input VAT is not creditable, but considered as deductible expenses for CIT purposes.

The current Vietnamese regulations provide two VAT calculation methods, as below:

VAT direct method:

The VAT direct method applies to business entities trading/ crafting gold, silver and gems; business entities with an annual revenue subject to VAT less than VND1 billion (except the volunteer cases); business entities that do not maintain proper books of account and foreign organizations or individuals carrying out business activities in forms not regulated in the Law on Investment; and newly established business entities that do not voluntarily apply the VAT credit method.

The VAT payable under VAT direct method is equivalent to revenue multiply (x) by specific rate, depending on the business activities, including:

• 1% is for the business of ‘distribution, supply of goods’
• 3% is for ‘the production, transportation, service associated with goods , construction including of the material’
• 5% is for ‘service, construction exclusive of material’
• 2% is for other business activities.

VAT credit method:

The VAT credit method applies to business entities maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including (i) business entities with annual revenue subject to VAT of VND1 billion or more; and (ii) cases voluntarily apply this method.

Under the VAT credit method, VAT payable is equivalent to output VAT minus (-) creditable input VAT.

The input VAT is creditable if it meets the following requirements:

• relevant to business activities
• having sufficient legitimate invoice and vouchers
• settlement via forms of non-cash payment for transaction more than VND20 million.

Of note, the VAT credit method can be more beneficial for the business entity that incurs input VAT frequently during its operations given that the business entity is allowed to claim a VAT refund in certain cases.

The non-established businesses (e.g. foreign business individuals and foreign organizations) earning Vietnam-sourced income shall subject to FCT, consist of VAT and CIT/PIT. There are three methods of FCT declaration applicable to the non-established businesses as bellow:

Deduction method:

This method allows the non-established businesses to declare:

• VAT under the approach of crediting the input VAT against the output VAT
• CIT at the declaration of revenue and income similar to the local enterprises’ Of note, only non-established businesses that meet some criteria, including FC’s adoption of Vietnamese Accounting System, are allowed to apply this deduction method.

Direct method:

Under this method, the non-established business’s VAT and CIT will be withheld by the Vietnamese customers at prescribed rates from the payments made to the non-established business. Various FCT rates are regulated under the nature of activities performed, including:

Hybrid method:

This method is a combination of deduction method and direct method, i.e. allows the non-established business to declare VAT using creditable approach and CIT using direct method.

No.

Only a non-established business with the selection of FCT deduction method and hybrid method is required to appoint a fiscal representative in order to register; given that under the direct method, the Vietnamese customers shall declare FCT return and withhold the relevant FCT payable from the payment paid to the non-established business for remittance to the state treasury.

The business entity with an annual revenue more than VND50 billion is required to file VAT return and pay VAT payable on a monthly basis by the 20th day of the following month. Otherwise, the quarterly basis with the deadline by the last day  of the following quarter shall be applied (inclusive of the newly established enterprise).

A default surcharge penalty may be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date, namely interest on late payment currently amounting to 0.03% per day.

No.

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules, including:

• a penalty on incorrect tax declaration leading to the under-declared VAT liabilities of 20% on the under-declared VAT liabilities
• a penalty on tax evasion from one to three times on the evaded tax liabilities.

No. VAT incurred by overseas businesses cannot be claimed if they are not registered in Vietnam.

The business entities may use pre-printed invoices, self-printed invoices or electronic invoices under Decree 119/2018/ND-CP till 30 June 2022 to declare their VAT liability. From 01 July 2022, the business entities are required to use the electronic invoices under Decree 123/2020/ND-CP and its related guidance documents – Circular 78/2021/ND-CP.

There are stipulated items that must be included and strictly reflected onto the invoice:

• an invoice number which is unique and sequential. The business entities are required to register/notify the invoice issuance to the tax authority
• the seller’s name, address and tax code
• the invoice date
• the customer’s name, address and tax code
• a description sufficient to identify the goods or services supplied to the customer
• the unit price or rate, excluding VAT
• the quantity of goods or the extent of the services
• the rate of VAT that applies to what’s being sold
• the rate of any cash discount
• the total amount payable in VND, only certain business activities are allowed to issue invoice in foreign currency
• the signature and seal of the seller as well as the signature of the buyer.

Vietnam – There is no SAF-T requirement in Vietnam. As from 01 July 2022 onwards, the enterprises are required to compulsorily use e-invoice, which includes the authenticated e-invoice by the Tax Authority or unauthenticated under Decree 123/2020/ND-CP and its related guidance documents – Circular 78/2021/ND-CP. Before using e-invoices, enterprises have to register with the tax authority via their electronic gateway. In case the enterprises are not requested to use e-invoice being authenticated by the Tax Authority, then the enterprises need to transfer the data to the tax authority in form of electronic data transfer of each invoice incurred in the month together with the relevant VAT return periodically.