How to calculate value-added tax in Vietnam?

How to calculate value-added tax in Vietnam?

According to Article 9 of the Law on Value Added Tax 2008, there are two methods for calculating Value Added Tax (VAT) including:

- The deduction method for calculating VAT;

- The direct method based on added value.

In principle, the formula for calculating VAT is as follows:

VAT = Taxable Price x VAT Rate

However, to suit different subjects applying VAT, the VAT calculation will differ when applying the two methods.

How to calculate value-added tax in Vietnam? (Image from the Internet)

What are the current VAT rates in Vietnam?

Based on Article 8 of the Law on Value Added Tax 2008 (amended by Clause 3 Article 1 of the Amended Law on VAT 2013, Article 1 of the Law on Amendments to the Law on VAT, Law on Excise Tax, and Law on Tax Administration 2016, Article 3 of the 2014 Law on Amendments to Laws on Tax), and Decree 72/2024/ND-CP, the VAT rates are specified as follows:

(1) The 0% tax rate applies to exported goods and services, international transportation, and goods and services not subject to VAT as specified in Article 5 of the Law on Value Added Tax 2008 when exported, except in the following cases:

- Technology transfer, transfer of intellectual property rights abroad.- Reinsurance services abroad;- Credit provision services;- Capital transfer;- Derivative financial services;- Postal and telecommunications services;- Export products specified in Clause 23 Article 5 of the Law on Value Added Tax 2008.

Exported goods and services are those consumed outside of Vietnam, within tax-free zones; goods and services provided to foreign customers as per the Government of Vietnam's regulations.

(2) The 5% tax rate applies to the following goods and services:

- Clean water for production and daily life;

- Ores for fertilizer production; pesticides, and growth stimulants for animals and plants;

- Dredging services for channels, canals, ponds, and lakes for agricultural production; cultivating, caring for, and preventing pests for plants; preliminary processing and preservation of agricultural products;

- Unprocessed plant, livestock, and aquatic products, except those specified in Clause 1 Article 5 of this Law;

- Semi-processed rubber latex; semi-processed rosin; nets, ropes, and yarn for making fishing nets;

- Fresh food; unprocessed forest products, except wood, bamboo shoots, and products specified in Clause 1 Article 5 of the Law on Value Added Tax 2008;

- Sugar; by-products of sugar production, including molasses, bagasse, and mud residue;

- Products made from jute, rush, bamboo, palm leaves, straw, coconut shells, coconut fibers, water hyacinths, and other handicraft products made from agricultural materials; semi-processed cotton; newsprint;

- Medical equipment, medical hygiene cotton, and bandages; preventive and curative medicines; medicinal products and materials for medicine production;

- Teaching and learning tools, including models, drawings, boards, chalk, rulers, compasses, and specialized teaching, research, and scientific equipment;

- Cultural, exhibition, sports activities; art performances, film production; import, distribution, and screening of films;

- Children's toys; books of all kinds, except those specified in Clause 15 Article 5 of the Law on Value Added Tax 2008;

- Scientific and technological services as per the Science and Technology Law;

- Sale, lease, and hire purchase of social housing as per the Housing Law.

(3) The 8% tax rate applies to certain goods and services that are subject to VAT reductions (from 10% to 8%) as per Decree 72/2024/ND-CP.

(4) The 10% tax rate applies to goods and services not subjected to 0%, 5%, or 8% VAT rates.

Thus, depending on the taxable subject, the VAT rate from July 1, 2024, will be 0%, 5%, 8%, or 10%.

Which entities are VAT payers in Vietnam?

Based on the provisions of Clauses 1 and 2, Article 2 of Decree 209/2013/ND-CP, the following subjects are required to pay Value Added Tax:

- Entities liable for VAT are organizations and individuals producing and trading goods and services subject to VAT (hereinafter referred to as business establishments) and organizations and individuals importing goods subject to VAT (hereinafter referred to as importers).

- Organizations and individuals producing and trading in Vietnam that purchase services (including cases of service purchases associated with goods) from foreign organizations without permanent establishments in Vietnam, and non-resident foreign individuals, are the tax liable entities, except in cases where VAT declaration and payment are not required as specified in Point b Clause 3 Article 2 of Decree 209/2013/ND-CP.

Note: Provisions regarding permanent establishments and non-resident foreign individuals follow the regulations under the Corporate Income Tax Law and the Personal Income Tax Law.