Shall non-deductible VAT be included in costs to determine CIT in Vietnam?

What are the conditions for input VAT deduction in Vietnam?

Based on Article 15 of Circular 219/2013/TT-BTC, amended by Clause 10 Article 1 of Circular 26/2015/TT-BTC, and Article 1 of Circular 173/2016/TT-BTC, the conditions for input VAT deduction are stipulated as follows:

- There must be a legal value-added tax invoice for goods or services purchased, or a document proving payment of VAT at the import stage, or documentation proving payment of VAT on behalf of foreign entities according to the Ministry of Finance's guidance applicable to foreign organizations without legal person status in Vietnam and foreign individuals doing business or earning income in Vietnam.

- There must be a non-cash payment document for the purchased goods or services (including imported goods) valued at twenty million VND or more, except for cases where the value of imported goods or services for each transaction is less than twenty million VND, goods or services purchased per invoice valued below twenty million VND, including VAT. Also, cases where the business imports goods as gifts from foreign organizations or individuals.

Furthermore, non-cash payment documents include bank payment documents and other non-cash payment documents guided as follows:

- Bank payment documents are understood as those proving the transfer of funds from the buyer's account to the seller's account opened at payment service providers in accordance with current regulations, such as checks, money orders or payment orders, collections, bank cards, credit cards, phone sims (e-wallets), and other forms of payment as regulated.

- Other non-cash payment cases for input VAT deduction include:

+ Cases where the purchased goods or services are paid for by offsetting between the purchased goods or services with the sold goods or services or borrowed goods, provided this offsetting method is specifically mentioned in the contract, must have a report on data reconciliation and confirmation between both parties regarding offsetting between purchased and sold goods or services, or borrowed goods. In the case of offsetting through a third party, there must be a tripartite compensation agreement for tax deduction.

+ Cases where the purchased goods or services are paid off by offsetting debts, such as borrowing or lending money, offsetting liabilities through a third party, which is specifically mentioned in the contract, must include a money lending or borrowing contract in written form and proof of money transfer from the lender's account to the borrower's account for cash loans. This also includes cases where the purchased goods or services are offset against money that the seller supports the buyer, or the buyer pays on behalf.

+ Cases where purchased goods or services are paid through an authorized third party via bank as specified in the contract in written form, and the third party is a legal entity or individual operating according to the law.

+ Cases where, after conducting the aforementioned payment methods, the remaining value is paid in cash amounting to twenty million VND or more, tax is only deductible in cases with bank payment documents.

+ Cases where purchased goods or services are paid through a bank into a third party's account at the State Treasury to enforce payment by withholding money or assets held by other organizations or individuals (as per a decision by a competent state authority) shall also be eligible for input VAT deduction.

- In cases of purchasing goods and services from a supplier with a value of less than twenty million VND but purchased multiple times within the same day with a total value of twenty million VND or more, tax is deductible only for cases with bank payment documents.

Shall non-deductible VAT be included in costs to determine CIT in Vietnam?

Based on Clause 9, Article 14 of Circular 219/2013/TT-BTC regarding the principle of input VAT deduction as follows:

Principle of input VAT deduction

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9. Non-deductible input VAT can be accounted into expenses to determine corporate income tax or added into the cost of fixed assets, except for the VAT on goods or services purchased per transaction valued at twenty million VND or more without non-cash payment documents.

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Thus, for non-deductible VAT, businesses are allowed to include it in cost for determining CIT, except in cases where the VAT of goods or services purchased in transactions valued at twenty million VND or more lacks non-cash payment documents.

Shall non-deductible VAT be included in costs to determine CIT in Vietnam? (Image from the Internet)

What are cases where input VAT is non-deductible?

Based on Clause 15, Article 14 of Circular 219/2013/TT-BTC governing non-deductible input VAT in the following cases:

- VAT invoices not conforming to the law, such as VAT invoices not listing VAT (except for special cases permitted to use VAT invoices that include VAT in the payment price);

- Invoices not listing or incorrectly listing criteria like name, address, or tax code of the seller, making it impossible to identify the seller;

- Invoices not listing or incorrectly listing criteria like name, address, or tax code of the buyer, making it impossible to identify the buyer (except cases instructed in Clause 12, Article 14 of Circular 219/2013/TT-BTC);

- Fake tax invoices, erased invoices, empty invoices (without accompanying goods or services);

- Invoices listing values not matching the true value of purchased, sold, or exchanged goods or services.