How to calculate for commercial discounts provided to household businesses paying fixed tax in Vietnam?

Which entities shall pay taxes in the case where an organization pays commercial discounts on behalf of another household business paying fixed tax in Vietnam?

Based on Article 8 of Circular 40/2021/TT-BTC, amended by Section 2, Article 1 of Circular 100/2021/TT-BTC, which stipulates the method of tax calculation for cases where organizations or individuals declare and pay taxes on behalf of individuals, the following is provided:

Method of Tax Calculation for Cases Where Organizations or Individuals Declare and Pay Taxes on Behalf of Individuals

1. Organizations or individuals declare and pay taxes on behalf of individuals in the following cases:

a) Organizations renting property from individuals, where the lease agreement specifies that the tenant is responsible for paying the tax;

b) Organizations conducting business collaborations with individuals;

c) Organizations paying bonuses, support for achieving sales targets, promotions, commercial discounts, payment discounts, cash or non-cash support, compensation for contract violations, and other compensations to household businesses paying fixed tax;

d) Organizations in Vietnam partnering with foreign digital platform providers (without a permanent establishment in Vietnam) for paying income from digital content products and services to individuals as per the agreement with the foreign digital platform provider;

đ) Organizations, including e-commerce platform owners, declaring and paying taxes on behalf of individuals based on authorization according to civil law regulations;

e) Individuals declaring and paying taxes on behalf of individuals who are taxpayers, based on authorization according to civil law regulations.

...

Thus, when an organization provides commercial discounts to household businesses paying fixed tax, the organization is responsible for declaring and paying taxes on their behalf.

How to calculate for commercial discounts provided to household businesses paying fixed tax in Vietnam?

According to Article 10 of Circular 40/2021/TT-BTC, the basis for tax calculation is stipulated as follows:

Basis for Tax Calculation

The tax basis for business households and individual businesses is the taxable revenue and the tax rate applied to the revenue.

1. Taxable Revenue

Taxable revenue for VAT and personal income tax for business households and individual businesses includes the revenue (if within the taxable scope) from the total sales, processing fees, commissions, and service provision generated during the tax period from production and business activities, including bonuses, sales support, promotions, commercial discounts, payment discounts, cash or non-cash support; pricing supports, surcharges, additional fees received according to regulations; compensation for contract violations, and other compensations (only calculated for personal income taxable revenue); and other revenue enjoyed by business households and individual businesses, regardless of whether collected or not.

2. Tax Rate on Revenue

a) The tax rate on revenue includes the VAT rate and the personal income tax rate applied specifically to each field and profession as guided in Appendix I issued together with this Circular.

b) In case business households and individual businesses operate in various fields and professions, they shall declare and calculate tax based on the tax rate applicable to each field and profession. If unable to determine the taxable revenue for each field and profession or determine it incorrectly according to actual business activities, the tax authority shall determine the taxable revenue for each field and profession according to tax management regulations.

3. Determining the Tax Payable

VAT payable = VAT taxable revenue x VAT rate

Personal income tax payable = Personal income tax taxable revenue x Personal income tax rate

Where:

- VAT taxable revenue and personal income tax taxable revenue are guided in Section 1 of this Article.

- VAT rate and personal income tax rate are guided in Appendix I issued with this Circular.

Additionally, based on Appendix 1 - the list of industries for calculating VAT and personal income tax on revenue for business households and individual businesses issued together with Circular 40/2021/TT-BTC, trade discount activities are identified with a personal income tax rate of 0.5% and a VAT rate of 1%.

Thus, the amount of tax payable from commercial discounts provided to household businesses paying fixed tax, which the organization pays on their behalf, is determined by the following formula:

How to calculate for commercial discounts provided to household businesses paying fixed tax in Vietnam? (Image from Internet)

Vietnam: What does the tax return for organizations declaring taxes on behalf of household businesses paying fixed tax include?

Based on Section 1, Article 16 of Circular 40/2021/TT-BTC, the tax return for organizations declaring taxes on behalf of household businesses paying fixed tax is stipulated as follows:

The monthly or quarterly tax return for organizations declaring taxes on behalf of household businesses paying fixed tax in cases of business collaboration with organizations; organizations paying individuals for achieving sales targets; organizations owning e-commerce platforms; organizations in Vietnam as partners of foreign digital platform providers (without a permanent establishment in Vietnam) paying income to individuals:

- Tax declaration for business households and individual businesses using form number 01/CNKD issued with Circular 40/2021/TT-BTC;

- Appendix of Detailed Business Household and Individual Business Listing (applicable to organizations, individuals declaring and paying taxes on behalf of individuals; individuals collaborating in business with organizations; organizations paying individuals for sales achievements; organizations owning e-commerce platforms; organizations in Vietnam partnering with foreign digital platform providers) using form number 01-1/BK-CNKD issued with Circular 40/2021/TT-BTC;

- Copy of the business collaboration contract (if it's the first tax declaration of the contract). The tax authority has the right to request the original for comparison and to verify the accuracy of the copy against the original.