How to calculate VAT using the direct calculation method based on added value in Vietnam?
Value-added tax calculation methods in Vietnam
According to Article 9 of the Law on Value Added Tax 2008, there are 2 methods for calculating value-added tax:
- Deduction method of value-added tax;
- Direct calculation method based on the added value.
How to calculate VAT using the direct calculation method based on added value in Vietnam? (Image from the Internet)
Which entities apply the direct calculation method based on added value in Vietnam?
Based on Clause 2, Article 11 of the Law on Value Added Tax 2008 as amended by Clause 5, Article 1 of the Amended Law on Value Added Tax 2013, the entities applying the direct calculation method based on added value include:
- Enterprises and cooperatives with annual revenue below the one-billion-dong threshold, except where voluntarily registering to apply the deduction method stated in Clause 2, Article 10 of the Law on Value Added Tax 2008;
- Household businesses and individual businesses;
- Overseas organizations and individuals doing business in Vietnam without a permanent establishment but earning income in Vietnam and not fully complying with accounting, invoice, and document policies, except for overseas organizations and individuals supplying goods and services for oil and gas exploration, development, and exploitation activities paying tax by the deduction method, with the Vietnamese side deducting and paying on their behalf;
- Other economic organizations, except where voluntarily registering to pay tax by the deduction method stated in Clause 2, Article 10 of the Law on Value Added Tax 2008.
How to calculate VAT using the direct calculation method based on added value?
Based on Clause 2, Article 13 of Circular 219/2013/TT-BTC guiding the calculation of VAT using the direct calculation method based on added value.
The formula to calculate VAT using the direct calculation method based on added value:
VAT payable = Percentage rate x Revenue
Where:
- The percentage rate to calculate VAT on revenue is prescribed for each activity as follows:
| Group | Activity | Percentage rate |
| 1 | Distribution, supply of goods: - Wholesale and retail sales of various goods (excluding the value of goods sold on consignment at fixed prices). |
1% |
| 2 | Services, construction without supply of raw materials: - Accommodation services, hotel, guest house, and boarding house business; - Leasing services for houses, land, shops, factories, other property, and personal items; - Warehousing, machinery, transport vehicle rental services; Cargo handling and other support services related to transport such as parking lot business, ticket sales, vehicle watching; - Postal, letter and parcel delivery services; - Brokerage, auction, and agency commission services; - Legal, financial, accounting, auditing consultancy services; services handling administrative procedures for tax and customs; - Data processing services, portal and IT equipment rental, telecommunications services; - Office support services and other business support services; - Sauna, massage, karaoke, nightclub, billiards, internet, game services; - Tailoring, laundry services; Haircutting, hairstyling, shampooing; - Other repair services including computer and household goods repair; - Consultancy, design, basic construction supervision services; - Other services; - Construction, installation without supply of raw materials (including installation of machinery and industrial equipment). |
5% |
| 3 | Production, transportation, services connected with goods, construction with supply of raw materials: - Production, processing, and manufacturing of goods; - Mining and processing of minerals; - Freight and passenger transportation; - Accompanying services selling goods such as training, maintenance, and technology transfer services accompanying product sales; - Catering services; - Repair and maintenance services for machinery, equipment, vehicles, cars, motorcycles, and other motor vehicles; - Construction, installation with supply of raw materials (including installation of machinery and industrial equipment). |
3% |
| 4 | Other business activities: - Production activities subject to VAT calculation by the deduction method with a VAT rate of 5%; - Service provision activities subject to VAT calculation by the deduction method with a VAT rate of 5%; - Other activities not specified in groups 1, 2, 3 above. |
2% |
- Revenue for VAT calculation is the total actual sales recorded on the sales invoice for goods and services subject to VAT, including surcharges and additional fees enjoyed by the business entity.
In cases where a business entity has revenue from the sale of goods and services not subject to VAT and export revenue, the percentage (%) on revenue is not applied to such revenue.
Note:
(1) Business entities engaging in multiple industries with different percentage rates must declare VAT according to the corresponding industry rates as prescribed. If the taxpayer cannot determine the revenue by industry or in a lump-sum business contract covering various activities at different percentage rates without separation, the highest rate of the industries engaged by the business entity will be applied.
(2) Calculating VAT for activities of buying, selling, and crafting gold, silver, and gemstones is performed according to Clause 1, Article 13 of Circular 219/2013/TT-BTC (as amended by Article 3 of Circular 119/2014/TT-BTC), specifically:
VAT payable = Added Value x VAT rate
Where:
Added Value = Selling payment price - Purchasing payment price
- The selling payment price is the actual selling price recorded on the sales invoice of gold, silver, and gems, including crafting fees (if any), VAT, and surcharges and additional fees enjoyed by the seller.
- The purchasing payment price is determined by the value of gold, silver, and gems purchased or imported, including VAT used for re-sale or crafting, corresponding to the sold gold, silver, and gems.
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