CHAPTER 4

VALUE ADDED TAX

Lecturer: M.S. Nguyen Thuy Trang
 CHAPTER LEARNING
OBJECTIVES
- Define value added tax (VAT) its characteristics.

- Define who is liable to pay VAT in Vietnam.

- Define characteristics of non-taxable goods and services

- Distinguish taxable, non-taxable and exemption from declaring

and paying VAT

- Determine base price in Vietnam.

 CHAPTER LEARNING
OBJECTIVES
- Know VAT rates in Vietnam.

- Calculate the amount of VAT payable by a taxpayer.

- Complete a VAT return.

- Identify when to file VAT returns and to pay VAT.

- Define who and in what case is entitled to tax refund as well as the
responsibilities of parties involved in VAT refund performance.
 MAIN CONTENTS
4.1. Overview of VAT

4.2. The scope of VAT

4.3. Tax base

4.4. VAT methods

4.5. Invoicing

4.6. Tax declaration and payment

4.7. Tax refund

 4.1. OVERVIEW OF VAT

• Definitions of VAT

• The characteristics of VAT

 VAT definition

VAT is a form of sales tax, charged as a percentage of the

added value of a commodity as it changes hands from
manufacturer to wholesaler, from wholesaler to retailer and
from retailer to consumer.
 Formulas for identifying added value
of goods and services

• Added value = Remunerations + Profits

• Added value = Revenue of sold goods and services –

Revenue of purchased goods and services
 Methods of calculating VAT

• Direct method:

VAT = (Revenue of sold goods and services – Revenue of

purchased goods and services) x VAT rate

(2) Credit method:

VAT = Revenue of sold goods and services x VAT rate –

Revenue of purchased goods and services x VAT rate

= Output VAT – Input VAT

 Example

Output
Selling price
Purchased VAT (VAT Total Input VAT
excluding
price rate of price VAT liability
VAT
(VND) 10%) (VND) (VND) (VND)
(VND)
(VND)
Manufacturer - 100,000 10,000 110,000 0 10,000
Wholesaler 165,00
110,000 150,000 15,000 10,000 5,000
0
Retailer 220,00
165,000 200,000 20,000 15,000 5,000
0
↓
Consumer 220,000 - - - 20,000
 The characteristics of VAT
Multi-phasedconsumption tax:thu
tiending giai doan
-

in

Neutral tax:thus
trung tap (danh tat cacac
doitongkpbiet)
-

vai

Indirect tax
relation to
Regressive in income
-

↑income -> tax

burdensome
 4.2. THE SCOPE OF VAT

4.2.1. Taxpayer
4.2.2. Taxable goods and services
4.2.3. Non-taxable goods and services
4.2.4. Cases exempt from declaring and paying
VAT
 4.2.1. Taxpayer

Payers of VAT are the organizations and individuals that

manufacture, trade in taxable goods and services in Vietnam
regardless of their lines and forms of business (hereinafter
referred to as business establishments), the organizations
and individuals that import goods or purchase services from
abroad (hereinafter referred to as importers),

- >
Tax office

Customs office
 4.2.2. Taxable goods and
services
Goods and services subject to VAT (hereinafter referred to as
taxable goods and services) are those used for production,
trading, and consumption in Vietnam (including those
purchased from overseas organizations and individuals),
except for the non-taxable goods and services.
No
-

Non-taxable - output
-Input VAT:not recoverable
-

Exempt from declaring and paying VAT: No output

7

Input:recoverable
Taxable (Exported)
7500
-

I
OutputVA
Input VAT
recoverable
 4.2.3. Non-taxable goods and
services
Characteristics:

- Necessities such as education and health service.

- Goods and services for social and charity objectives

- Imported goods, but not really used for production, distribution and
consumption in Vietnam (transitted goods)
hangqual cant

- Products and services considered to be used for non-profit aim such

as public transportation by bus, some cultural services etc.

- Goods and services paid for by the government such as imported

weapons, state broadcast and telecast.
 Non-taxable goods and
services
(1) Products from farming (including agro-forestry
products), breeding, and aquaculture that unprocessed or
have only been preprocessed which are sold by producers or
imported.

Enterprises and cooperatives that purchase products from

farming (including agro-forestry products), breeding, and
aquaculture that are unprocessed or have only been
preprocessed and sold to other enterprises or cooperatives
are not required to declare, calculate and pay VAT but
receive input VAT deduction.
fatmer Entity
 Non-taxable goods and
services
(2) Breeds of livestock, plant varieties, including eggs,
breeds, seeds, stems, tubers, semen, embryos, genetic
materials that are raised, imported, and traded. giong vatnni, caytrong

(3) Salt derived from seawater, rock salt, pure salt, refined
salt, iodized salt composed primarily of sodium chloride
(NaCl). Mu
thisy
(4) Medical services, veterinary services; Teaching and
vocational training; Publishing, importing newspapers,
magazines, specialized bulletins, political books, textbooks,
etc.
 (5) Imported goods and goods and services sold to
Imported goods and services sold to
15)
organizations and individuals for
humanitarian and non-refundable and
whan dao
Example

• Fresh grapes at import stage Non

• Peeled green beans are sold by farm Non

• Chicken eggs sold in supermarkets for consumers Subject

• Iodized salt sold in supermarkets Nor

Which case is not subject to VAT?

Non (VAT) Exempt (UK)

=
4.2.4. Cases exempt from declaring
and paying VAT

(1) Company or cooperative that pays VAT using credit

method and sells unprocessed or preprocessed farming,
breeding, aquaculture products to another company or
cooperative.
 Cases exempt from declaring
and paying VAT
(2) Organizations and individuals receive monetary
compensation, bonuses, support money, transfer of emission
rights and other financial revenues.

Compensation in goods and services: the compensation

establishment must issue an invoice and declare, calculate
and pay VAT as for the sale of goods and services;
compensation-receiving establishments declare and deduct
according to regulations Inhu mua-ban bthg)
 Cases exempt from declaring
and paying VAT
(3) Revenue from selling goods/providing services and
commission revenue of agent selling at the right price of:

- Postal, telecommunications, lottery tickets, air tickets, cars,

trains, ships tickets, insurance sales;
hang o

- International transportation, aviation and maritime service

industries that are eligible for VAT rate of 0%,

- Goods and services are not subject to VAT.

 Example

(1) Company A is an agent selling at the right price of Sharp

(electronics and refrigeration) NO exempt

(2) Supermarket A pays VAT according to the credit method

and sells fresh chicken to the company B Exempt

(3) Supermarket A pays VAT according to the credit method

and sells fresh chicken to consumers Notexempt

(4) Enterprise B acts as an agent to sell salt at the right price Exempt

(5) XYZ is an agent selling at the right price of Vietnam Exempt

Airlines
Which cases are exempt from declaring and paying VAT?

4.3. TAX BASE

• Base price

• Tax rate
 Base price

Principle: The base price for sale of goods or provision of services is

the total revenue (turnover) received or receivable by a supplier from
the sale of goods or the provision of service exclusive of VAT.
 Base price
tith Ab
• For goods and services subject to excise duty, the base
price is the price inclusive of excise duty but exclusive of
VAT. Cruon, Langhoaxa xi, tenan)
• For goods subject to environmental protection tax, the base
price is the price inclusive of environmental protection tax
but exclusive of VAT. /Xang)
• For goods subject to environmental protection tax and
excise duty, the base price is the price inclusive of
environmental protection tax and excise duty but exclusive
of VAT.
phan pho
tai
 Base price
Importduty:Base price x Tax rate
• For imported goods Excise
duty (Base price ID) xrate
= +

Base price = Base price for import duty + Import duty + Excise
duty + Environmental protection tax

Example: An enterprise imports a 5-seat car, the base price for

import duty is 30,000 USD, the import duty rate is 70%, the
excise duty rate is 50%, the VAT rate is 10%, the exchange rate
is 1 USD = 23,000 VND. Determine the VAT base price at the
import stage? Importduty base price=
 Base price

• For goods and services used for barter or as presents, gifts

or salary payments:
Base price = Base price of goods or services of the same or
equivalent types at the time such activities are carried out.
-

• For goods and services used for sales promotion in

accordance with trade laws, the base price is zero (0). In
-

case they are not conformable with trade laws, tax shall be
declared and paid as if they are used as presents, gifts or
salary payments.
 Base price

• For goods or services for internal consumption not for

production => Base price is determined as equal to the base
price of goods or services of the same or equivalent types at
the time such activities are carried out.

If internal consumption for production => Exempt from

declaring Choi nghi kH)
 Example

Determination of VAT base price.

Food manufacturing enterprise paying VAT according to the

credit method in the tax period has:

- Domestic sale of 1000 barrels of mineral water with VAT-

exclusive price: 200,000 VND/barrel x 1000

- Paying instead of salary for employees: 200 barrels x 200,000

- Using for customer conference: 50 barrels O

=

- Using in promotion according to regulations: 300 barrels 8

=

(coke khai)
 Base price
tra' go'p
• For goods sold in installments or deferred payment, the base price is
the lump-sum price exclusive of VAT (excluding interests on
installment or deferred payments), regardless of the amount of each
installment or deferred payment. Cnhitra 1 tan)
• For goods for processing, the base price is the total expenses for
processing those goods including employees’ expense, costs of fuel,
power, materials and other processing expenses incurred by the
processing parties exclusive of VAT.
morgios
• For ocean shipping agency services, brokerage services, export and
import entrustment as well as other services entitled to remuneration
or commissions, the base price is the earned remuneration or
commission exclusive of VAT.
 Base price
ching to dac thi
• For goods and services tav
of specific nature for which
ve' x&
documents such as freight tickets, lottery tickets etc. are
used and recorded with the payment price inclusive of
output tax, the base price is determined as follows:

The payment price (Proceeds

from the sale of tickets,
stamps…)
The base price =
-
1 + the tax rate (%) applicable
to such goods or service
 Base price

• In case the seller of goods and services pays VAT by the

credit method, when issuing a VAT invoice, only the total
payment price is recorded, the VAT base price is the total
payment price.
 Example

Determine the VAT base price in the following cases:

(1) Electronics company S sells to company W 100 vacuum

cleaners with the VAT-exclusive price of VND3.5
million/machine. X 100

(3) Importing 100 TVs with import duty base price of

1000USD/piece, import duty of VND200 million. Exchange
rate 1USD = 21,000 VND (1000 x 21,0007 200 mill
X 100

(4) Company A uses 1000 bottles of chili sauce to pay 1000 15,000
x

wages for workers. This type of chili sauce, the company

sells for VND15,000/ bottle (price does not include VAT).
(5) 0
=

(Exempt

Example

(6) Lock & Lock Company uses 1000 sets of plastic food
containers to give to customers who purchase from VND2
million or more. The VAT-exclusive price of this set of
boxes is VND400,000 / set. Know that the company has not
registered to perform this promotion with the competent
authority for approval. 400,000 x1000

(7) SEA company sells 100 swimwear to SAND company

with the VAT-exclusive price of VND500,000/set, but the
VAT invoice only shows the payment price as VND55
million.
-
 Tax rate

- Tax rate of 0%: exported goods and services;

- Tax rate of 5%: essential goods and services or goods and

services should be encouraged

- Tax rate of 10%: normal goods and services

 Tax rate of 0%

- Exported goods include:

+ Goods exported to foreign countries, including export entrustment

+ Goods sold in non-tariff zones, goods sold in duty-free shops

+ Goods considered as exports: processed goods for export on the

spot, processed goods for export in transit, and goods for sale at
foreign trade fairs and exhibitions.
 Tax rate of 0%

- Exported service:

+ Services provided directly to organizations and individuals

abroad and consumed outside Vietnam; provided directly to
organizations and individuals in non-tariff zones and
consumed in non-tariff zones;

+ International transport includes transportation of

passengers, luggage and goods.

+ Services of the aviation and maritime industry provided

directly to overseas organizations or through agents.
 Tax rate of 0%

- Other cases:

+ Construction and installation of works which anre abroad

or in non-tariff zones;

+ Goods and services are not subject to VAT when they are
exported, except for cases where the tax rate of 0% is not
applicable.

+ Aircraft and ship repair services provided to foreign

organizations and individuals.
 Tax rate of 0%

- Exceptions where 0% of VAT is not applicable to an exported item

or an item sold to non-tariff zone. These include:
+ Exported credit and derivatives, financial investment and
securities investment services;
+ Overseas reinsurance;
+ Royalty and copyright transfer overseas;
+ Sale of out coming telecommunication and post service overseas;
+ Exploited mineral resources not yet processed into other
products;
 Tax rate 0% of VAT is not
applicable
- Goods and services sold to non-business households in
non-tariff zones;
- Tobacco and alcoholic beverages imported then re-export
shall not incur VAT output upon re - exportation though
on which VAT input must not be deducted.
- Automobile sold to entities or individuals in non-tariff
zones;
- Gasoline sold in domestic market to automobile of
entities in non-tariff zones;
- Services provided for the entities in non-tariff zones
include: leases on houses, meeting halls, offices, hotels,
warehouses; employee transport; food and drink services
(except for catering, food and drink services provided in
non-tariff zones).
 Tax rate of 0%

Conditions to apply VAT rate of 0%:

a) For exported goods:
- Contracts for the sale and processing of exported goods;
entrusted export contract;
- Documents of payment for export goods via banks and
other documents as prescribed by law;
- Customs declaration. *
b) For export services:
- Service supply contracts with organizations and
individuals abroad or in non-tariff zones;
- Documents of payment for export services via banks and
other documents as prescribed by law.
 Tax rate of 0%

• The exported goods has a customs declaration, but the

other documents are incomplete: no output VAT, input
-

VAT is non-creditable .

• Processing goods for transitional export, processing goods

for export on the spot does not meet one of the prescribed
documents: treated as domestic consumption goods
 Example

Which activities are subject to VAT rate of 0%?

(1) Tran Anh Computer Company sells computers to a

company in an export processing zone. v

(2) Ford company sells to a company in the export

processing zone 5 16-seat cars. No, foaitrio to

(3) Company Z exports clothes to foreign countries, there is

a lack of bank payment documents and other procedures are
complete. no output, input non-creditable
 Tax rate

• The rate of 5%: applicable to essential goods and

services;

• Tax rate of 10%: normal goods and services

 4.4 VAT METHODS

- Credit method

- Direct method
 Credit method

Subjects of application: business establishments that fully

implement the accounting, invoice and voucher regime in
accordance with the law on the invoice and voucher regime,
including:

- Operating business establishments with annual revenue

from selling goods and providing services of VND 1 billion
or more I Kokd, chita'srangbac da' quy)

- Business establishments voluntarily register to pay VAT by

credit method
 4.4.1. Credit method

VAT payable = Output VAT – Creditable input VAT

 Output VAT

Output VAT = Base price of sold goods and services x VAT

rate

+ When selling goods and services, a VAT invoice must be

used (except for the case where a special invoice is used)
with all the following elements;

+ VAT invoices only record the payment price: output VAT

must be calculated on the payment price

+ VAT invoices with incorrect tax rates detected by tax

authorities:
rate
on invoice
--- specified
tax rate Example

Determining output VAT in the following cases:

(1) ASC company provides passenger transport service from

Hanoi to Ho Chi Minh City with the price stated on the
ticket is VND 880,000/way, with the VAT rate of 10%.
10
x 80
=

110
(2) Company S sells to company A 100 fans with VAT-
exclusive price of VND 350,000/piece, 10% VAT rate
350,000 x100 x1090 3,500,000
=

(3) Enterprise X sells 10 Toshiba TVs to company B with

the payment price of 110 million VND (VAT invoice only
shows the payment price), the VAT rate is 10% x110 mil
=11 mi
 Credit method – Creditable
input VAT
Vouchers:
Input
creditableeditable
- VAT invoice*Inodia)

- VAT amount stated on vouchers on import tax payment

for imported goods

- VAT payment made on behalf of foreign parties

- Special-type invoices
 Creditable input VAT

• Purchases invoices with incorrect tax rates detected by tax

authorities: be'hon

- Tax rate on invoice < Specified tax rate: according to the

tax rate on invoice

Tax rate on invoice > Specified tax rate: according to the

specified tax rate
-> ko dc Ktri
Nei
ghisai
 Creditable input VAT

Principle 1: Only input VAT of goods and services used for the
production of and trading in goods and services subject to VAT is
deductible. =creditable
 Creditable input VAT-
Principle 1
- Input VAT of goods and services used for production and
business of goods and services which are subject to VAT is
fully creditable, including uncompensated input VAT on lost
taxable goods.
compensated noncreditathe
-

- Input VAT of goods and services (including input VAT of

fixed assets) used simultaneously for production and
business of goods and services subject to VAT and not
subject to VAT:

+ Separately accounting: only input VAT of goods and

services used for production and business of taxable goods
and services is creditable.
 + Noseparately accounting: credited as a percentage between total
sales
goods subject to VATand sales of which are exempt from
of

declaring
paying
and VAT
Special cases

+ For purchased goods or fixed assets which are lost, damaged due to
natural disasters, fires or unexpected incidents, or stolen, and if
organizations and individuals responsible for paying compensations
therefore are identified and/or the loss value has been compensated by
insurance companies, the input tax of these goods is not deductible.

+ For fixed assets being passenger of 9 seater car or less (Except cars
for commercial transportation of cargo or passengers, or for tourist or
hotel business; cars used for trial driving for business) which are
valued at over VND 1.6 billion (VAT-exclusive price), the input VAT
amount corresponding to the amount in excess of VND 1.6 billion will
not be credited.
(during chord -> fully credited)
 Special cases

• Input VAT on goods and services forming fixed assets such as

canteen, recreation room, locker room, parking lot, restroom, water
tank serving workers at the workplace, housing and medical
facility for workers in industrial parks shall be fully deducted.

• VAT on purchased goods and services serving the provision of

goods and services for the foreign entities that use them as Gettrong
-

ne
↓
humanitarian aid or non-refundable aid shall be deducted in full. tax)
non
-

• Input VAT of goods and services serving provision of goods and

services that are exempt from declaring and paying VAT shall be
fully deducted.
 Example
Coffee growing and processing enterprise paying VAT by the credit
method in the tax period have the following activities:
- VAT-exclusive revenue of canned coffee sold domestically: VND
1,500 million x 1090
- VAT-exclusive revenue of preprocessed coffee: 3,500 million VND, of
which export revenue: 1,000 million VND -0
- Value of goods and services purchased (excluding VAT) for
processing canned coffee: 300 million VND; For export of
preprocessed coffee: 60 million VND; For preprocessed coffee sold
domestically: 150 million VND
- VAT on machinery and equipment invested in the tax period for
business: VND 50 million; VAT of other purchased goods and services
on the VAT invoice: 140 million VND (50miL 140 mil)
+
Tax office

1, OutputVAT:

-Selling canned coffee:1,500 mit 10%

x
⑳trano taxation

-selling preprocessedcoffee domestically:Non-taxable

preprocessedcoffee:1,000
Exporting x0% 0
-

Total output VAT:150 mil

=>

2. Creditable Input:
-For canned coffee:300 x 18% 30 mil
=

-
For
exporting preprocessed coffee:60 6 mit 10
x
=

-
For domestical- Non creditable

-Machinery, equipmentand other:

(50 + 140)x(1,500 1,000)/21,500 3,500)
+
+
=
- Purchase invoice in accordance with regulations, pay via bank

Creditable input VAT

Principle 2: The deductible input VAT arising in the period is

declared for credit immediately when the VAT amount payable
in that period is determined, regardless of whether these goods
or services have been delivered for use or still remain in stock.
 Creditable input VAT

Conditions:

- VAT invoices of purchased goods and services or receipts

of VAT payment at the stage of importation or receipts of
VAT payment on behalf of foreign parties under the
guidance of the Ministry of Finance;

- Non-cash payment vouchers for purchased goods and

services (including imported goods) of VND 20 million or
more.

- For exported goods or cases considered to be exports, other

documents are required such as sales contracts, goods processing
 processing contract, service provision contract for foreign
service provision contractfor
contract,
foreign organization
4.6. Invoices and vouchers

(1) Receive importing consignment

- When deliverying goods:

If VAT on imported goods has been paid => Write a VAT

invoice, in which:

+ Selling price: Import price + Import tax + Excise duty (if

any)

+ VAT: VAT paid at the import stage

+ Payment price: Selling price + VAT

(Entrusting establishments are entitled to deduct VAT at the

4.6. Invoices and vouchers

(2) Direct export

- When transporting goods: Use the delivery note cum

internal shipping + Internal dispatch order

When completing export procedures: Write an export

invoice (or VAT invoice) (0% tax rate)

(3) Export entrustment

- When delivering goods to the consignee: Use the delivery

note cum internal transportation + Internal dispatch order

- When there is a document confirming the exported goods:

write a VAT invoice and deliver it to the consignee (0% tax

4.6. Invoices and vouchers

(4) Transfer the goods to the sales agent at the right price:
choose 1 of 2 ways:
- Use the agent delivery note + internal dispatch order
- Use VAT invoice
(5) The main establishment delivers the goods to the
dependent accounting establishment:
- Dependent establishments that do not hold accounting
records:
When delivering goods, the main establishment uses the
warehouse release cum internal transportation note +
Internal dispatch order
- Dependent establishments having an accounting
organization:
4.7. TAX DECLARATION
AND PAYMENT
- Taxpayers submit tax declaration dossiers to tax authorities
directly managing them;

- Business establishments must make monthly (quarterly)

VAT declarations and send them to the tax authorities;

- If in the tax period, taxpayers do not have tax obligations

or are eligible for tax incentives, exemptions and reductions:
taxpayers still have to submit tax declaration dossiers within
the prescribed deadlines, unless the taxpayer has terminated
activities that generate tax obligations.
 4.7. TAX DECLARATION
AND PAYMENT
• Tax declaration in case of selling goods through agents

- Enterprises selling goods through agents: Declare and pay

tax on goods sold through agents;

- Agents: Declare and pay tax on goods sold through agents

and collected commissions;

- Agents selling at the right price: Not having to declare VAT

on goods and services sold by agents, but having to declare
and pay VAT on commissions.