Are enterprises required to declare VAT on interest from buying bonds in Vietnam?
Are enterprises required to declare VAT on interest from buying bonds in Vietnam?
Pursuant to Clause 1, Article 5 of Circular 219/2013/TT-BTC, specific regulations are provided regarding cases that do not require VAT declaration or payment as follows:
Cases Not Required to Declare or Pay VAT
- Organizations and individuals receiving monetary compensation (including compensation for land and assets on land when land is revoked per state authority decisions), bonuses, support funds, transfer of emission rights, and other financial revenues.
Business entities receiving compensation, bonuses, support funds, emission rights transfer, or other financial revenues must issue receipts according to regulations. For businesses disbursing funds, the purpose of the disbursement is used to issue the payment receipt.
In cases of compensation by goods or services, the compensating entity must issue invoices and declare, calculate, and pay VAT as if selling goods or services; the compensated entity declares and deducts as per regulations.
In cases where a business entity receives funds from an organization or individual to perform services such as repair, warranty, promotions, or advertising, it must declare and pay taxes as prescribed.
Example 10: P&C LLC receives interest from buying bonds and dividends from shareholding in other companies. P&C LLC is not required to declare or pay VAT on the interest from buying bonds and the received dividends.
Example 11: Company A receives a compensation of 50 million VND for damages due to a contract cancellation from Company B, and issues a receipt without declaring or paying VAT for this amount.
Example 12: Company X, having advanced funds to Company Y for purchasing goods, receives interest on the advance from Company Y, and Company X is not required to declare or pay VAT on the interest received.
Example 13: Company X sells to Company Z with a total contract amount of 440 million VND. According to the contract, Company Z pays within 3 months with a late payment interest rate of 1% per month based on the total contract price. After 3 months, Company X receives a total payment from Company Z, including the late payment interest of 13.2 million VND (440 million VND x 1% x 3 months), and does not need to declare or pay VAT on the 13.2 million VND interest.
Example 14: Insurance Company A and Company B enter an insurance agreement in which compensation is settled in cash. When an insured risk occurs, Insurer A compensates Company B with cash as per insurance law. Company B is not required to declare or pay VAT on the insurance compensation received.
Example 15: ABC Dairy Joint Stock Company disburses funds to distributors (organizations or individual businesses) for promotional, marketing, and product display programs (according to trade promotion law), resulting in the distributor being liable for VAT. If the distributor pays VAT via the deduction method, they issue VAT invoices and calculate VAT at 10%; if by the direct method, they use sales invoices and determine VAT based on revenue percentage according to regulations.
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Thus, according to the above regulations, income from bond interest earned by a business falls into the category that does not require VAT declaration.
Are enterprises required to declare VAT on interest from buying bonds in Vietnam? (Image from the Internet)
When is the time for VAT determination in Vietnam?
According to Article 8 of Circular 219/2013/TT-BTC, the specific timing for VAT determination is as follows:
[1] For the sale of goods, it is the time of transfer of ownership or use rights to the buyer, irrespective of whether payment has been received.
[2] For service provision, it is the time of completion of service delivery or the time of issue of the service invoice, irrespective of whether payment has been received.
For telecommunications services, it is the time of reconciliation for telecommunication connection service fees per the economic contract between telecommunication service providers, but no later than 2 months from the month of the service fee occurrence.
[3] For electricity and clean water supply, it is the day of recording the consumption meter reading to be billed.
[4] For real estate business activities, infrastructure construction, house construction for sale, transfer, or lease, it is the time of receiving funds per the project's progress or as stated in the contract. Based on the collected amount, the business entity calculates VAT on the arising revenue in the period.
[5] For construction and installation, including shipbuilding, it is the time of acceptance, handover of completed works, project items, construction volumes, irrespective of whether payment has been received.
[6] For imported goods, it is the time of customs declaration registration.
Which entity is the VAT payer in Vietnam?
According to Article 3 of Circular 219/2013/TT-BTC, the VAT taxpayers are specified as follows:
VAT taxpayers are organizations and individuals producing or trading VAT-taxable goods and services in Vietnam, regardless of industry, business form (hereafter referred to as business entities), and organizations or individuals importing goods, buying services from overseas subject to VAT (hereafter referred to as importers), including:
[1] Business entities formed and registered under the Law on Enterprises 2020, Law on Cooperatives 2023, and other specialized business laws;
[2] Economic organizations of political organizations, socio-political organizations, socio-professional organizations, people's armed units, public service organizations, and other organizations;
[3] Foreign-invested enterprises and foreign parties involved in business collaboration under Investment Law 2020, and foreign organizations or individuals doing business in Vietnam without establishing legal entities in Vietnam;
[4] Individuals, households, independent business groups, and other subjects with production, business, or import activities;
[5] Organizations or individuals conducting business in Vietnam buying services (including services attached to goods) from foreign organizations without a permanent establishment in Vietnam, or from non-resident foreigners, in which case the purchaser is liable for VAT payment, except for cases where VAT declaration and payment are not required as guided in Clause 2, Article 5 of Circular 219/2013/TT-BTC.
The regulations regarding permanent establishments and non-resident status are implemented according to the laws on corporate income tax and personal income tax.
[6] Branches of export processing enterprises established to conduct sale and purchase of goods and direct activities related to the sale and purchase of goods in Vietnam per the law on industrial zones, export processing zones, and economic zones.
Example 1: Sanko LLC is an export processing enterprise. Beyond manufacturing for export, Sanko LLC is licensed to import goods for domestic sale or re-export. Sanko LLC must establish a branch for this activity as per legal regulation. The branch separately accounts for and declares, paying VAT for this activity, separate from the manufacturing for export activities.
When Sanko LLC's branch imports goods for distribution (sale), it declares and pays import-stage VAT, and when selling (including exporting), Sanko LLC uses invoices and declares, paying VAT according to regulations.
