Are credit extension services subject to value-added tax in Vietnam?
What is credit extension?
Based on Clause 4, Article 4 of the Law on Credit Institutions 2024, the regulations are as follows:
Explanation of Terms
In this Law, the following terms are understood as follows:
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- Early intervention is the act of the State Bank of Vietnam (hereinafter referred to as the State Bank) applying requirements and restrictive measures to credit institutions, foreign bank branches, and requesting the concerned credit institution or foreign bank branch to implement a remediation plan under the supervision of the State Bank to rectify the situation as prescribed in Clause 1, Article 156 of this Law.
4. Credit extension is an agreement for an organization or individual to use a sum of money or a commitment allowing the use of a sum of money on the principle of repayment through loans, discounting, financial leasing, factoring, bank guarantees, letters of credit, and other credit extension operations.
- A foreign bank branch is an economic organization without legal status and is a dependent unit of a foreign bank, guaranteed by the foreign bank to assume responsibility for all obligations and commitments of the branch in Vietnam.
- Discounting is a form of credit extension through the purchase with a term or purchase with recourse of negotiable instruments and other valuable papers of the beneficiary before the due date of payment.
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Thus, credit extension is an agreement for an organization or individual to use a sum of money or a commitment allowing the use of a sum of money on the principle of repayment through loans, discounting, financial leasing, factoring, bank guarantees, letters of credit, and other credit extension operations.
Are credit extension services subject to value-added tax in Vietnam? (Image from the Internet)
Are credit extension services subject to value-added tax in Vietnam?
Based on Point a, Clause 8, Article 5 of the Law on Value-Added Tax 2008 amended by Clause 1, Article 1 of the Amended Law on Value-Added Tax 2013, the regulations are as follows:
Non-taxable Objects
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- The following financial, banking, and securities services:
a) credit extension services including: lending; discounting, rediscounting of negotiable instruments and other valuable papers; guarantees; financial leasing; issuance of credit cards; domestic factoring; international factoring; other forms of credit extension as prescribed by law;
b) Lending services by taxpayers who are not credit institutions;
c) Securities trading includes: securities brokerage; securities trading; underwriting of securities issuance; securities investment advisory; securities depository; management of securities investment funds; portfolio management services; market organizing by stock exchanges or stock trading centers; other securities business activities as prescribed by the securities law;
d) Capital transfer includes: transferring a part or the entire invested capital, including cases of selling enterprises to other enterprises for production, business, and securities transfer; other forms of capital transfer as prescribed by law;
đ) Debt selling;
e) Foreign exchange trading;
g) Derivative financial services include: interest rate swaps; forward contracts; futures contracts; options to buy or sell foreign currencies; other derivative financial services as prescribed by law;
h) Sale of secured assets of a debt of an organization wholly owned by the State and established by the Government of Vietnam to handle bad debts from Vietnamese credit institutions.
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According to the above regulations, credit extension services including lending; discounting, rediscounting of negotiable instruments and other valuable papers; guarantees; financial leasing; issuance of credit cards; domestic factoring; international factoring; other forms of credit extension as prescribed by law are not subject to VAT.
What are cases where value-added tax declaration and payment are not required in Vietnam?
Based on Clause 3, Article 2 of Decree 209/2013/ND-CP, the regulations on cases not required to declare and pay value-added tax include:
- Organizations and individuals receiving compensation, bonuses, support money, transfer of emission rights, and other financial collections.
- Organizations and individuals producing and doing business in Vietnam purchasing services from foreign organizations without a permanent establishment in Vietnam, or individuals abroad who are not residents in Vietnam, including cases such as: Repair of transportation means, machinery, equipment (including materials, spare parts); advertising, marketing; investment and trade promotion; sales brokerage, providing services; training; sharing of international postal and telecommunications service charges between Vietnam and abroad if these services are performed outside Vietnam.
- Organizations and individuals not engaged in business, not subject to value-added tax when selling assets.
- Organizations and individuals transferring investment projects for production and business of goods and services subject to value-added tax to enterprises and cooperatives.
- Products from cultivation, husbandry, aquaculture that have not been processed into other products or have only been through normal preliminary processing sold to enterprises and cooperatives, except in cases stipulated in Clause 1, Article 5 of the Law on Value-Added Tax 2008.
