Vietnam: Navigating The Complexity: A Short Primer On VAT In Vietnam

Last Updated: 28 September 2017
Article by Diem Nguyen Ngoc

Vietnam's no. 5 ranking in TMF Group's Financial Complexity Index 2017 is driven largely by the burden of reporting, and a 'confusing' VAT system.

Vietnam is the most complex country in Asia Pacific for Accounting and Tax compliance – just beating its giant and complex neighbour, China - according to TMF Group's inaugural Financial Complexity Index 2017.

The ranking of 94 jurisdictions across Europe, the Middle East, Africa, Asia Pacific and the Americas - with 1 being most complex - saw Vietnam take the no. 5 spot, driven largely by the burden of reporting and a 'confusing' VAT system.

Tax is a real issue for businesses operating in Vietnam. The VAT system requires expertise to understand its exemptions, deductions, refunds, the various VAT rates and proper filing of VAT. Businesses must correctly determine which VAT calculation method best suits the business, noting that VAT applies to all business transactions in every part of the chain - and ensure tax processes are followed correctly.

Yet, Vietnam remains one of the most dynamic economies in ASEAN, growing quickly and looking to claim a place as the world's manufacturing hub, despite many foreign nationals finding its regulations on business unnecessary and overly burdensome. While the government is making moves to decrease the complexity by adopting global standards, some businesses don't want to wait to make their move into Vietnam. If you're one of them, we provide here some tips for navigating the complexity of tax in Vietnam.

What is covered by VAT?

Vietnam's Law on VAT applies anywhere in territory where Vietnam is sovereign. Unless otherwise specified, transactions related to goods and services used for production, trading or consumption in Vietnam are subject to VAT.

VAT rates in Vietnam

  • 10% standard rate
  • 5% rate for basic foodstuffs, transport, medical equipment, agricultural production and services for trading
  • 0% rate on exported goods and services; construction and installation in overseas and in free trade zones; international transport.

VAT is not applicable for agricultural products/ goods equipment, fertilisers and animal feed.

All VAT must be paid in Vietnam dong.

Registering for VAT

Following a law change on 19 September 2017, from 5 November, registering for a VAT deduction method will no longer be required. Until now,  each newly-established company in Vietnam needed to register for a VAT deduction method or the direct method would be applied automatically.

Foreign contractors and VAT

A non-established business – that is, foreign contractors – that have a permanent establishment in Vietnam or conduct business in Vietnam for more than 183 days in the year, and that adopt the Vietnamese Accounting Standards or Hybrid methods to pay VAT, pay tax liabilities direct to the tax office using the tax credit method.

However, if you use services supplied by non-residents, the VAT paid must use the withholding mechanism.

VAT invoices

Any enterprise that applies a VAT deduction method should provide VAT invoices, unless providing exported goods and services.

There are three forms of VAT invoice:

  • VAT invoice printed by the company
  • Electronic invoice
  • VAT invoice ordered to third party to print

There are conditions for each invoice form, and they must be approved by tax authority before being applied.

The VAT invoice must have contain the following compulsory information:

  • Name of invoice type
  • Symbol of invoice number pattern and symbol of invoice
  • Name of copies of an invoice
  • Ordinal number of invoice
  • Name, address and tax identification number of the seller and buyer
  • Name, unit of calculation, quantity and unit price of goods or services; total amount in figures and words
  • Signatures and full names of the buyer and seller, seal of the seller (if any), and date of making out the invoice
  • Name of the invoice printing organisation, billing software supplier or intermediary organisation providing e-invoicing solutions
  • Invoice must be issued in the Vietnamese language, it can be bilingual.

VAT returns

Businesses must declare VAT monthly (if revenue is from 50 billion VND and above) and submit a tax declaration in the first 20 days of the following month; or quarterly (if revenue is less than 50 billion VND) and submit a tax declaration in the first 30 days of the following quarter - even if there was no VAT incurred. For those businesses who trade goods and services with various VAT rates, the VAT must be declared at the rate prescribed for each type of good or service.

Returns must be filed electronically on a monthly, quarterly basis.

VAT refunds

  • The new establishment that is derived from a registered project of investment and pays VAT using deduction method, VAT on goods and services used as investment can be refunded yearly if the investment period is 12 months or longer; or can be refunded if the accumulated VAT deductible is from 300 million VND and above.
  • When an existing enterprise using VAT deduction method has a new project (except for housing for sale or for rent) in the same province/ city, if the remaining input VAT of the new project after deduction of VAT of the enterprise is from 300 million VND and above, it can be refunded.
  • If input VAT on exported goods and services that remains after deduction is from 300 million VND or above, it can be refunded.

Conditions for VAT deductible

All businesses operating in Vietnam may claim any VAT paid on items used for the production or trading of goods or services that are subject to VAT; the input tax is recovered by offsetting it against the output tax, or the VAT on sales.

The amount of deductible input VAT is determined using the amount of VAT stated on a valid VAT invoice, or evidence of non-cash payments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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