How should a business handle deductions upon discovering an error in the input value-added tax?

How should a business handle the deduction if they discover an error in the input value-added tax?

Based on Article 14 of Circular 219/2013/TT-BTC, supplemented by point b, clause 9, Article 1 of Circular 26/2015/TT-BTC, the principles for deducting input value-added tax are prescribed as follows:

Principles of deducting input value-added tax

1. Input VAT for goods and services used for the production and business of VAT-liable goods and services is fully deductible, including input VAT not compensated for on VAT-liable goods that are lost.

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8. Input VAT that arises in any period is declared and deducted when determining the tax payable for that period, regardless of whether it has been used or is still in inventory.

In cases where a business discovers an error in the input VAT when declaring and deducting, they may declare and deduct additionally before the tax authority, or other competent authority, announces a decision to inspect or audit the tax at the taxpayer’s office.

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Accordingly, it is stipulated that when a business discovers an error in the input VAT, they are allowed to declare and deduct additionally before the tax authority or competent authority announces a decision to inspect or audit the tax at the taxpayer’s office.

How should a business handle the deduction if they discover an error in the input value-added tax? (Image from the Internet)

How is input value-added tax on goods and services deducted?

According to the provisions in clause 1, Article 12 of Law on Value-Added Tax 2008, amended and supplemented by clause 6, Article 1 of Law No. 31/2013/QH13, businesses paying VAT by deduction method are allowed to deduct input VAT as follows:

- Input VAT for goods and services used for the production and business of VAT-liable goods and services is fully deductible, including input VAT not compensated for goods and services subject to VAT that are damaged.

- Input VAT for goods and services used simultaneously for the production and business of both taxable and non-taxable goods and services is only deductible for the portion relating to production and business of VAT-liable goods and services.

Businesses must separately account for deductible and non-deductible input VAT; if separate accounting is not possible, deductible input VAT is calculated based on the percentage of revenue from VAT-liable goods and services over total revenue.

- Input VAT for goods and services sold to organizations or individuals using humanitarian aid or non-refundable aid sources is fully deductible.

- Input VAT for goods and services used for oil and gas exploration and development activity is fully deductible.

- Input VAT that arises in any month is declared and deducted when determining the tax payable for that month. If a business discovers an error in the input VAT when declaring and deducting, they can declare and deduct additionally before the tax authority announces inspection or audit decisions at the taxpayer’s office.

Regulations on cases eligible for VAT refund?

According to Article 13 of Law on Value-Added Tax 2008, amended by clause 7, Article 1 of Amended Law on VAT 2013, further amended by clause 3, Article 1 of Amended Laws on VAT, Special Consumption, and Tax Management 2016, the following cases are eligible for VAT refund:

- Businesses paying VAT by deduction method, if they have remaining input VAT not yet deducted in a month or quarter, may carry it forward to the next period.

If such businesses have registered projects in the investment phase with remaining input VAT for purchased goods and services amounting to VND 300 million or more, they may receive a VAT refund.

Businesses are not eligible for VAT refund for investment projects that fail to meet capital contribution as registered, or for operating in conditional business lines without meeting the required conditions of Investment Law 2020 or maintaining the conditions during operation.

+ Investment projects for resource extraction and mining licensed from July 1, 2016, or investment projects for products with resources, minerals, and energy costs constituting 51% or more of product costs, are exempted from VAT refund.

- Businesses with exported goods and services in a month or quarter with remaining input VAT of VND 300 million or more may receive VAT refunds on a monthly or quarterly basis, excluding goods imported for export and goods not exported within customs operations as per the Customs Law 2014.

Pre-refund audits apply to taxpayers producing export goods who have not violated tax or customs laws for two consecutive years, and taxpayers not categorized under high-risk as per Tax Administration Law 2019.

- Businesses paying VAT by deduction method receiving a VAT refund upon ownership transition, enterprise conversion, merger, consolidation, demerger, dissolution, bankruptcy, or termination of operations with excess paid or uncredited input VAT.

- Foreigners or overseas Vietnamese with passports or entry documents issued by foreign authorities are eligible for VAT refund for goods purchased in Vietnam and carried upon exit.

- VAT refunds for programs and projects utilizing non-refundable official development assistance (ODA) or humanitarian aid comply as follows:

+ The program manager, main contractor, or organization appointed by the foreign donor using non-refundable ODA may receive refunds for VAT paid on goods and services bought domestically for the program or project.

+ An organization in Vietnam using humanitarian aid funds from foreign organizations or individuals to purchase goods and services for non-refundable aid or humanitarian projects may receive VAT refunds for the applied VAT.

- Entities under diplomatic immunity as per the diplomatic privileges law in Vietnam may receive VAT refunds from invoices or receipts indicating VAT-paid prices.

- Businesses with VAT refund decisions from competent authorities under the law and cases specified for VAT refunds per international treaties involving the Socialist Republic of Vietnam.