Is the transfer of entire outward investment capital subject to VAT in Vietnam?

Vietnam: What does the outward investment capital include?

Pursuant to the provisions in Clause 1, Clause 2, Article 69 of Decree 31/2021/ND-CP, outward investment capital includes money and other legal assets of the investor, comprising equity capital, loans obtained in Vietnam transferred abroad, and profits gained from overseas investment projects retained for carrying out investment activities abroad.

According to the above provisions, legal money and other assets include:

- Foreign currency in accounts at licensed credit institutions or purchased at licensed credit institutions in accordance with the law;

- Vietnamese Dong in compliance with the regulations on foreign exchange management of Vietnam;

- Machinery, equipment, materials, raw materials, fuel, finished goods, semi-finished goods;

- The value of intellectual property rights, technology, brand, rights to assets;

- Shares, equity contributions, investor's projects swapped at economic organizations in Vietnam and overseas economic organizations as stipulated in Clause 4, Article 69 of Decree 31/2021/ND-CP;

- Other legal assets as prescribed by civil law.

Is the transfer of entire outward investment capital subject to VAT in Vietnam? (Image from the Internet)

Is the transfer of entire outward investment capital subject to VAT in Vietnam?

The subjects not subject to VAT are stipulated in Point d, Clause 8, Article 4 of Circular 219/2013/TT-BTC as follows:

Subjects Not Subject to VAT

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8. The following financial, banking, and securities services:

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d) Transfer of capital, including the transfer of partial or entire capital already invested in other economic organizations (regardless of whether a new legal entity is formed), transfer of securities, transfer of capital contribution rights and other forms of capital transfer in accordance with the law, including selling an enterprise to another enterprise for production or business purposes, where the buying enterprise inherits all rights and obligations of the selling enterprise as per legal regulations.

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However, pursuant to Clause 3, Article 9 of Circular 219/2013/TT-BTC (amended by Clause 5, Article 1 of Circular 26/2015/TT-BTC, amended by Clause 2, Article 1 of Circular 130/2016/TT-BTC) which stipulates cases not subject to the 0% tax rate as follows:

0% Tax Rate

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3. Cases not subject to 0% tax rate include:

- Reinsurance abroad; technology transfer, transfer of intellectual property rights abroad; transfer of capital, granting credit, investing securities abroad; derivative financial services; postal and telecommunications services going abroad (including postal and telecommunications services provided to organizations and individuals in non-tariff areas; provision of pre-paid mobile phone cards with codes, and values for export or for non-tariff areas); export products being resources, minerals guided in Clause 23, Article 4 of this Circular; tobacco, alcohol, beer imported and then exported; goods and services provided to individuals not registered for business in non-tariff areas, except for cases prescribed by the Prime Minister of the Government of Vietnam.

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Furthermore, Article 11 of Circular 219/2013/TT-BTC provides for a 10% tax rate as follows:

10% Tax Rate

A 10% tax rate applies to goods and services not prescribed in Articles 4, 9, and 10 of this Circular.

The VAT rates specified in Article 10 and Article 11 apply uniformly to each type of goods and services at stages of importation, production, processing, or commercial business.

Example 50: Garments are subject to a VAT rate of 10%, so this rate applies to the importation, production, processing, and commercial business of these items.

Waste and scrap recovered for recycling and reuse when sold are subject to the VAT rate applicable to the scrap and waste sold.

Business premises dealing in different types of goods and services with different VAT rates must declare VAT according to each tax rate specified for each type of goods, services; if the business premises cannot determine according to each tax rate, it must calculate and pay tax according to the highest tax rate of the goods, services produced and traded by the business.

During implementation, if there are VAT rate discrepancies in the VAT rate Schedule according to the Import Tariff Schedule that are inconsistent with this Circular's guidance, follow this Circular's guidance. In cases where VAT rates are inconsistently applied to the same type of imported and domestically produced goods, the local tax authorities and customs authorities shall report to the Ministry of Finance for promptly guidance for unified implementation.

Therefore, as for the activity of transferring the entire outward investment capital, the VAT must be paid at 10%.

What are regulations on time for VAT calculation for entire outward investment capital transfer?

According to the provision in Clause 2, Article 8 of Circular 219/2013/TT-BTC, the point in time for calculating VAT for entire outward investment capital is the time of completion of service provision or the time of issuing the service provision invoice, irrespective of whether payment has been received or not.