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VAT, GST, and Sales Tax

A. At a glance Name of the tax

Value­added tax (VAT)

Date introduced

1 January 1999

Trading bloc membership

Association of Southeast Asian Nations (ASEAN)

Administered by

Ministry of Finance (http://www.mof.gov.vn)

VAT rates

  Standard

10%

  Reduced

5%

  Other

Zero­rated and exempt

VAT number format

9999999 (7 digits)

VAT return periods

Monthly or quarterly

Thresholds

  Registration

None (see Section C)

Recovery of VAT by  non­established businesses

No (except under certain circumstances)

B. Scope of the tax

VAT applies to goods and services used for production, business and consumption in Vietnam, including goods and services purchased from foreign suppliers, except for those specifically identified as not subject to VAT.

VAT on imported goods is payable by the importer within the same time limit for declaring and paying import duty.

C. Who is liable

Organizations and individuals that produce and trade in taxable goods and services in Vietnam or who import taxable goods and services from overseas (referred to in this chapter as “businesses”) are liable to pay VAT. Businesses for these purposes include the following:

  • Business organizations with business registrations issued under Vietnamese laws.
  • Economic organizations of political, social, and professional organizations and units of the peo­ple’s armed forces.
  • Enterprises with foreign­owned capital incorporated under Vietnamese laws and foreign corporations and individuals conducting business in Vietnam that have not established a legal entity in Vietnam.
  • Individuals, family households, partnerships and other forms of businesses conducting production, trading or import activities in Vietnam.
  • Organizations and individuals conducting production and business in Vietnam and purchasing services (including services attached to goods) from foreign organizations without a permanent establishment in Vietnam or foreign individuals who are nonresidents of Vietnam.
  • An Export Processing Enterprise (EPE) and its branches (if any) that are established to trade in goods and do the tasks related to goods trading in Vietnam in accordance with the laws of Vietnam.

—  An EPE imports goods for manufacturing and then re­exports the goods. An EPE is generally not subject to the requirement of VAT filing in Vietnam. However, under current regulations an EPE is also allowed to do some trading activities that are indicated in an EPE’s business license. To perform trading activities, an EPE is required to separately account and declare relevant expenses/revenues from its manufacturing operations. Accordingly, an EPE is liable to register, declare and make payment of VAT for its trading activities. This means that trading activities conducted by an EPE and its branches (if any) shall be treated similarly to transactions of local entities.

Group registration. Not applicable.

Non-established businesses (foreign contractors). Foreign contractors that have a permanent establishment in Vietnam, that conduct business in Vietnam for more than 183 days and that adopt the Vietnamese Accounting Standards/Hybrid Method (VAS/Hybrid Method) pay VAT in accordance with the tax credit method and pay their tax liabilities directly to the tax office. Otherwise, they must pay VAT on a withholding basis.

If services are supplied by nonresidents, VAT is payable only through the withholding mechanism.

The tax authority will issue a tax number for each foreign contractor (FC) when they register directly with the tax authority. Otherwise, the Vietnamese contracting party will be responsible for registering and declaring the tax liability for the FCs on their behalf.

Tax representatives. Not applicable.

Reverse charge. Not applicable.

Digital economy. For business­to­business (B2B) transactions, the supply of a lease/rent/license for the right to use intellectual property (IP) may be subject to VAT, since it is not considered as a transfer of ownership right in accordance with the Vietnam law on intellectual ownership rights. If the supplier is a nonresident business, the customer should withhold, declare and pay VAT via the withholding tax regime. The applicable VAT rate for the payment of such activities is 5%.

For business­to­consumer (B2C) transactions, the individual customer makes payment directly to the nonresident business (e.g., by way of credit card). By regulations, there should be a WHT of 5% VAT on the payment, but in practice, there is no mechanism to enforce the withholding and payment of tax by the individual.

Registration procedures. For newly established businesses that have completed incorporation procedures and received an incorporation license, the incorporation number shown on the license serves as the tax registration number. No separate registration procedures are required. The local business registration office/authority shall — internally — inform the local tax office where a newly established business is located.

When a newly established business has an office, factory, branch or outlet engaging in direct sales in another province, different from the locality of the headquarter, such office, factory, branch or outlet must separately pay VAT to the local tax office where it is located, except for certain cases in which the head office can declare and pay VAT. However, there is no need to register with the local tax office of such office, factory, branch or outlet. When the headquarter sets up an office, factory, branch or outlet in another province, it shall need to update its tax registration information with a local business registration office/authority in the locality where its office, factory, branch or outlet is located. This registration office/authority shall internally inform the local tax office the number of this newly licensed office, factory, branch or outlet, which is also the tax number.

Other businesses (e.g., foreign contractors having a permanent establishment in Vietnam) must register for tax purposes within 10 working days from the date on which contract award agreements are signed. This registration requires the regulated form (i.e., Form 04­DK­TCT), a copy of contractor license (or the equivalent issued by competent authority) and a copy of the acknowledgment/confirmation of the registration of the project office establishment (or the equivalent issued by the competent authority). Within three working days of receiving the sufficient dossier, the tax authority will issue the tax code for the taxpayer.

Currently, there is no process for registering for a tax code online.

No VAT registration threshold applies, and no exemption from registration is provided.

Late-registration penalties. Failure to comply with registration requirements (if applicable) may result in a fine. The penalty for late registration ranges from VND400,000 to VND2 million, depending on the length of the delay.

Deregistration. When the organization/individuals end their business in Vietnam, they need to proceed with the closure of the tax code after clearance of current tax liabilities (Article 16, Section 3, Circular 95/2016/TT­BTC).

Exemption from registration. The VAT Act in Vietnam does not contain any provision for exemption from registration. Notwithstanding, EPEs and suppliers of non­VAT­able supplies are exempted from VAT filings (see detail above in respect of EPEs).

Voluntary registration

  • Ongoing enterprises and business cooperatives that (1) adopt full Vietnamese Accounting Standards as well as accounting books (together with invoices) under Vietnamese regulations and (2) generate revenue less than VND1 billion per year from the supply of goods and services subject to VAT, may apply to register voluntarily to deduct VAT.
  • A foreign individual or corporation doing business in Vietnam may also register if it satisfies the following conditions:
  • I t has a contract with a Vietnamese entity for more than 183 days.
  • It has a permanent establishment in Vietnam.
  • I t adopts full Vietnamese Accounting Standards or keeps accounting books in accordance with Vietnamese accounting laws.

D. VAT rates

The following are the VAT rates in Vietnam:

  • Standard rate: 10%
  • Reduced rate: 5%
  • Zero rate (0%)

The standard rate of 10% applies to goods and services that are not specifically included in the list of goods and services subject to the 0% or 5% rates or the list of goods exempt from VAT.

The 5% rate applies to the supply of essential goods and services.

Examples of items taxable at 5% rate

  • Water (except for bottled water)
  • Medicine and medical equipment (except for medicine included in medical service package)
  • Teaching tools
  • Agricultural products
  • Residential housing for sale or lease

The zero rate applies to exported goods and services; construction, and installation carried out overseas or within export processing zones; as well as international transportation. Exported goods and services include goods and services sold to overseas organizations or individuals and consumed outside Vietnam, as well as goods and services supplied to organizations or individuals in non­tariff areas.

In certain cases, tax declaration and payment are not required.

Examples of cases where tax declaration  and payment are not required

  • Organizations and individuals that receive revenues from compensation (including compensa­tion for land and land­attached assets upon land recovery under decisions of competent state agencies), bonus, support, transfer of emission rights, and other financial revenues (except for compensation/cash supports received for the purpose of performing service of repair, warranty, sales promotion or advertising to supporters, in which case VAT declaration and payment are required)
  • Services provided by foreign organizations that do not have a permanent establishment in Vietnam, limited to the following: repair of vehicles, machinery and equipment (including supplies and spare parts); advertising and marketing; investment and trade promotion; goods sale and service provision brokerage; training; and sharing of charges for international post or telecommunications services provided outside Vietnam between Vietnamese and foreign partners, and lease of communication and transmission lines and foreign satellite frequency bands in accordance with law
  • Assets sold by nonbusiness individuals or organizations (which do not have to pay VAT when selling their assets)
  • Organizations and individuals that transfer investment projects on production or trading of goods or services liable to VAT to enterprises and cooperatives
  • Assets used for capital contributions

Some goods and services are exempt from VAT, which generally means the supplier has no right to fully deduct input tax.

Examples of exempt supplies of goods and services

  • Raw agricultural products
  • Livestock
  • Aircraft, oil rigs and ships that are not yet locally produced and that are leased from overseas
  • Land­use rights
  • Credit activities, credit guarantees, financial leases and financial derivative services• Capital transfers
  • Securities transfers
  • Life insurance services
  • Health services, veterinary medicine services, including medical examination and treatment services for humans and animals
  • Care services for elderly people and disabled people
  • Education and vocational training
  • Publication of newspapers, magazines and certain kinds of books
  • Public transportation by bus and electric car
  • Reinsurance services
  • Technology transfers
  • Public sewage services
  • Foreign­currency trading
  • Debt transfers
  • Credit card issuance• Factoring
  • Exported natural resources that are not processed or cover 51% into other products inclusive of energy cost

Option to tax for exempt supplies. Not applicable.

Foreign contractors. Foreign contractors that supply goods and services to Vietnam are subject to the following deemed VAT rates:

  • Trading goods (separate value from service in the contract): exempt
  • Services: 5%
  • Construction and installation with supply of materials and equipment: 3%
  • Construction and installation without supply of materials and equipment, or if supply of materials and equipment is subcontracted: 5%
  • Supply of machinery and equipment with installation, training, operation and trial operation services, if the value of each activity is not calculated separately in the contract: 3%
  • Transport and production: 3%
  • Other business: 2%

VAT is withheld at source by the Vietnamese party to the contract, unless the foreign contractor has registered for tax.

E. Time of supply

For goods, the time of supply for VAT purposes (the tax point) is when the ownership or use rights of the goods are transferred, regardless of whether the payment is made. For services, the tax point is when the service is completely performed or when the invoice for the service is issued, regardless in both cases of whether the purchaser makes payment.

Installment sales. For installment sales, VAT becomes due when the purchaser possesses the right to use the goods.

Imported goods. For imported goods, VAT becomes due at the time of registration of the customs declarations.

Deposits and prepayments. For services, the tax point is when the prepayment is made, requiring an invoice to be issued.

Goods sent on approval for sale or return. If goods are returned to the seller because the buyer finds that the goods are not in line with a previous agreement between the parties in respect of their quality, quantity and characteristics, etc., the following applies. If the invoice has already been issued, an adjustment invoice should be issued by the buyer that clearly states the reason for the return and the amount of VAT. If the buyer is not eligible to issue the invoice, an adjustment minute should be prepared between the two parties as the evidence to make a VAT adjustment declaration.

Reverse-charge services. Reverse­charge services relate to foreign contractors who apply the Foreign Contractor Tax (FCT) declaration under the deemed method. Upon making the payment, the Vietnamese purchasers must self­assess and withhold the FCT amount (including VAT and corporate income tax).

Continuous supplies. Vietnam does not have a time of supply rule for continuous supplies of services.

F. Recovery of VAT by registered persons

Businesses may claim input VAT paid on goods or services used for the production or trading of goods or services that are subject to VAT. Businesses recover input tax by offsetting it against output tax (VAT on sales).

To be entitled to VAT credit, a document evidencing payment made through a bank is required except for the case where the purchase value is less than VND20 million. Bank payments must be made from the bank account of the buyer(s) to the bank account of the supplier(s).

In general, a valid tax invoice must be retained to support claims for input tax credits. The tax invoice must state the pretax price, the VAT and the total amount payable.

The basis for determining the amount of deductible input VAT is the amount of VAT stated on the following:

  • Valid tax invoice for the goods or services
  • Documentation evidencing VAT payment at the stage of importation
  • Documentation evidencing VAT payment on behalf of a foreign party

If a business establishment discovers that it has not deducted an amount of VAT in its declaration because the tax invoice or receipt of the tax payment was omitted, it may make an additional declaration requesting the credit. However, any additional VAT credit declaration must be made before the tax authority issues a decision about any tax inspections carried out at the premises.

Nondeductible input tax. Businesses may not claim input VAT paid on goods or services used for producing or trading nontaxable goods or services. They also cannot claim the input VAT of the unrelated expenses or incorrect payment method as regulations.

Examples of items for which input tax is nondeductible

  • Food and beverage expenses for employees (snack, soft drink, moon cake).
  • House rental fees for employees who have signed labor contracts with the company. In cases in which these expatriates are assigned to work in Vietnam by the foreign parent company but remain employees of the foreign parent company during their secondment period in Vietnam (i.e., they receive salaries and other benefits from the foreign parent company), and the Vietnamese entity and the foreign parent company enter into a written agreement that states that the Vietnamese entity shall bear all accommodation fees for these expatriates during their secondment period in Vietnam, input VAT of these accommodation fees is creditable.
  • Expenses paid in cash with the value of more than VND20 million.

Examples of items for which input tax is deductible

(if related to a taxable business use) • Expenses paid for raw materials, offices supplies, transportation, etc.

Partial exemption. Businesses that produce or trade taxable and nontaxable goods or services must maintain separate accounts for input tax paid on goods or services used for taxable and nontaxable goods or services. If no separate accounts are maintained, the deductible input VAT is calculated using a ratio based on the proportion of taxable turnover compared with total turnover.

Refunds. Businesses that pay VAT using the tax credit method are eligible for a refund of VAT in the following circumstances:

  • The business exports goods and services (including goods imported) to export) during a month or quarter and has a credit balance of input VAT of at least VND300 million at the end of that month. The refund is granted monthly or quarterly.
  • An incorporated establishment is entitled to a refund if it is in the investment stage of a new project (except investment projects that construct houses for sale or rent but without constituting any fixed assets) and if it has accumulated input VAT of at least VND300 million that has not been credited against output VAT of its operating businesses. In the following events, a business shall not be eligible for a refund but can carry forward remaining deductible VAT on its investment project to the subsequent period:

—  T he charter capital of the investment project of the business has not been fully contributed as registered as per the laws

—  A n investment project is carried out by a business that undertakes conditional trade(s) but is not satisfying business conditions as per the Investment Law; in other words, such investment project is run by a business that engages conditional trade(s) but is not licensed thereto; by a business that engages in conditional trade(s) but is not qualified for this; by a business that engages in conditional trade(s) but is not permitted to perform this trade; or by a business that engages in but does not meet conditions to perform conditional trade(s) though not required by the laws on investment to be permitted or certified in writing.

—  A n investment project is carried out by a business that undertakes conditional trade(s) but fails to sustain business conditions during its operations; in other words, such investm ent projects are run by a business that engages in conditional trade(s) but has its relevant license(s) revoked during its operations; by a business whose certificate(s) of eligibility for conditional trade(s) is (are) revoked; by a business that has the written permission revoked by a competent authority for conditional trade(s); or by a business that fails conditions to undertake conditional trade(s) as per the laws on investment. In this event, the business shall be ineligible for the refund of VAT upon the revocation of one of the said documents or upon being exposed by competent government authorities as having failed to meet the conditions for conditional trades.

—   The value of natural resources and/or minerals plus the energy cost of an investment project for extraction of natural resources and minerals that has been licensed since 1 July 2016 or an investment project for production of goods makes up 51% of its prime cost or above.

  • The business establishment that uses the deduction method shall receive a refund of the surplus VAT or the VAT that is not completely deducted when there is a change of ownership, or when the enterprise is converted, merged, amalgamated, divided, dissolved, and bankrupt or shut down.
  • Foreigners and Vietnamese people residing abroad who have passports or entry papers issued by foreign competent authorities shall receive refunds of VAT paid on goods purchased in Vietnam and taken abroad.
  • VAT will be refunded when paid by programs/projects using nonrefundable ODA, nonrefundable aid or humanitarian aid.
  • A taxpayer eligible for diplomatic immunity who purchases goods and services in Vietnam shall receive a refund of the VAT stated on the VAT invoice or the receipt that indicates the VAT­inclusive price.
  • Refunds will be paid when a business establishment receives a decision on VAT refunds from the competent authorities and when VAT refunds are due according to international agreements to which the Socialist Republic of Vietnam is a signatory.

An application for a refund must be submitted to the tax authority (that is, to the tax department or to the general tax department in some special cases). Taxpayers may file an electronic claim online or file a physical claim directly or by post to the supervisory tax authority.

The notice detailing the outcome of the tax refund application shall be sent to the applicant within 6 working days (in the case of refund before examination) or within 40 days (in the case of examination before refund).

Preregistration costs. Not applicable.

G. Recovery of VAT by non-established businesses

A VAT refund is allowed only for businesses using the tax credit method. A foreign contractor that has no legal presence in Vietnam but conducts business or derives income from activities in Vietnam may recover VAT if it adopts the VAS/Hybrid Method and it satisfies certain bookkeeping and tax registration requirements. To be eligible for VAT recovery, a foreign contractor must meet all of the following conditions:

  • It has a permanent establishment in Vietnam or is a resident of Vietnam
  • It conducts business in Vietnam under the contractor’s or subcontractor’s contract for 183 days or more beginning on the date on which the contract takes effect
  • It adopts the VAS/Hybrid Method

Foreign contractors that do not apply the VAS/Hybrid Method may not recover input VAT unless a specific international agreement entered into by Vietnam provides otherwise.

H. Invoicing

Invoices and credit notes. A taxable person must provide an invoice for all taxable supplies made, including exports. There are four categories of invoices:

  • Invoices of exports for exporting transactions (i.e., the commercial invoice is required instead of VAT invoice)
  • VAT invoices for domestic transactions of taxpayers applying the tax credit method
  • Sales invoices for domestic transactions of taxpayers applying the direct method
  • Others, including receipts, tickets and other vouchers

The invoices can be presented in the following three forms:

  • Self­printed invoice: wholly printed by the taxpayer’s printers
  • Invoice printed by order: produced by a printing house by order of taxpayer or tax authorities for provision or sale to taxpayer
  • Electronic invoice: must be created, issued and processed on computers of issuer under the law on e­transactions

From 1 November 2020, the use of electronic invoices shall be compulsory for all taxpayers. During the period from 1 January 2018 to 31 October 2020, all taxpayers must well prepare to meet the information technology infrastructure requirements for electronic invoicing.

Business entities can use different forms of invoices. However, the use of electronic invoices is encouraged.

The tax authorities may sell only blank invoices to a few specified persons such as non­business organizations, individuals and households that generate sale revenue.

A valid invoice is necessary to support a claim for input tax deduction.

Export documentation. Exports of goods and services are zero­rated. Proof of export is required. The required documents to claim a refund of input VAT include contracts for the sale of goods, legitimate invoices, customs declarations and proof of payment through a bank by foreign parties.

Foreign-currency invoices. If an invoice is issued in a foreign currency, all values that are required on the invoice must be converted into Vietnamese dong, using an acceptable exchange rate.

Electronic invoices. An electronic invoice is legally valid when it satisfies the following conditions:

  • Includes all the compulsory information as prescribed and includes the date of issuance
  • Data included on the invoice is under the format prescribed by the Ministry of Finance
  • The information contained on an electronic invoice can be accessed and used in complete form when necessary

The electronic invoices can be presented in the following two forms:

  • Electronic invoice with a certified code from the tax authority: an electronic invoice that is assigned an identification code by the tax authority before an organization or individual selling goods or providing services sends it to buyer
  • Electronic invoice without a certified code from the tax authority: an electronic invoice that an organization selling goods or providing services sends to the buyer in the absence of a tax authority’s identification code. Subject to the approval of local tax authority, business entity shall register to use such kind of electronic invoice via the portal of General Department of Vietnam Taxation

From 1 November 2020, the use of electronic invoices shall be compulsory for all taxpayers. During the period from 1 January 2018 to 31 October 2020, all taxpayers must well prepare to meet the information technology infrastructure requirements for electronic invoicing.

B2C. For the payment of purchases of goods and services valued at less than VND200, the supplier is not required to issue a VAT invoice unless the purchasers requires one; however, at the end of the day, the supplier has to issue VAT invoice for the total of those such purchases.

I. VAT returns and payment

Returns and payment. Businesses are generally required to file a monthly tax return and remit the monthly VAT payable to the tax office by the 20th day of the following month. Exceptions are taxpayers that make quarterly declarations (permitted for businesses whose revenue in the previous year is VND50 billion or lower). Newly established entities must file VAT on a quarterly basis. After 12 months of operation as of the following calendar year, if eligible for quarterly VAT declarations for satisfaction of the condition on revenue of goods/services of the prior full calendar year, the entity can request permission of the local tax authority to continue declaring VAT quarterly. If the entity is eligible for paying VAT on a quarterly basis but would like to change to the monthly VAT declaration, it is required to notify the local tax office under statutory Form No. 07/GTGT within the deadline of the first month of the year it commences the monthly VAT declarations at the latest. The method of VAT declaration must be fixed for three years.

Any excess input VAT paid may be credited in the following period or refunded if the business is eligible for a refund (see Section F).

A business that imports goods subject to VAT must file a customs declaration and remit VAT payable on each occasion when goods are imported. The time limit for notices and payments of VAT with respect to imported goods is the same as the time limit applicable to notices and payments of import duties.

VAT liabilities must be paid in Vietnamese dong.

Special schemes. Not applicable.

Electronic filing and archiving. A taxpayer doing business in a locality with online access shall make declaration, pay tax and make transactions with the tax authority as prescribed by the laws on electronic transactions. Different online systems (i.e., both online and offline software such as Tax Online, iHTKK) have been deployed across Vietnam to facilitate electronic filing.

Annual returns. Not applicable.

J. Penalties

Interest is imposed for late payment of VAT at the progressive rate of 0.03% per day from 1 July 2016.

Penalties may also apply to a range of other offenses, including late tax registration and filing, making false statements and obstructing a VAT officer. In some cases, penalties may include imprisonment for offenses committed knowingly or recklessly.