Shall VAT be refunded when a regular enterprise is converted into an export processing enterprise in Vietnam?
Shall VAT be refunded when a regular enterprise is converted into an export processing enterprise in Vietnam?
Firstly, the reorganization of enterprises is defined in Clause 31, Article 4 of the Law on Enterprise 2020 as follows:
31. Reorganization of an enterprise is the division, separation, consolidation, merger, or conversion of the type of enterprise.
Additionally, according to the provisions in Clause 2, Article 37 of the Law on Enterprise 2020 as follows:
Enterprise Name
1. The Vietnamese name of an enterprise includes two elements in the following order:
a) Type of enterprise;
b) Proper name.
2. The type of enterprise is written as “limited liability company” or “LLC” for limited liability companies; written as “joint stock company” or “JSC” for joint-stock companies; written as “partnership” or “partnership company” for partnerships; written as “private enterprise”, “PTE” or “PE” for private enterprises.
3. The proper name is written using Vietnamese alphabet letters, the letters F, J, Z, W, numerals, and symbols.
4. The enterprise's name must be displayed at the head office, branches, representative offices, and business locations of the enterprise. The enterprise's name must be printed or written on transaction papers, dossiers, documents, and publications issued by the enterprise.
5. Based on the provisions of this Article and Articles 38, 39, and 41 of this Law, the business registration agency has the right to refuse the proposed registered name of the enterprise.
Additionally, under the following articles:
“Article 202 of the Law on Enterprise 2020. Conversion of a limited liability company into a joint-stock company”;
“Article 203 of the Law on Enterprise 2020. Conversion of a joint-stock company into a one-member limited liability company;”
“Article 204 of the Law on Enterprise 2020. Conversion of a joint-stock company into a multi-member limited liability company”;
“Article 205 of the Law on Enterprise 2020. Conversion of a private enterprise into a limited liability company, joint-stock company, or partnership”.
Furthermore, based on Clause 5, Article 18 of Circular 219/2013/TT-BTC, as amended by Clause 3, Article 1 of Circular 130/2016/TT-BTC, as follows:
Subjects and cases entitled to VAT refund
...
5. Business establishments paying VAT by the deduction method are entitled to VAT refunds when changing ownership, converting enterprises, merging, consolidating, dividing, separating, dissolving, or going bankrupt with excess VAT paid or input VAT not yet fully deducted.
Business establishments in the investment stage not yet entering production and business activities but must dissolve, go bankrupt, or cease activities with no output VAT from the main business activities according to the investment project are not required to adjust the declared, deducted, or refunded VAT. Business establishments must notify the directly managing tax agency about the dissolution, bankruptcy, or termination of activities according to regulations.
In cases where the business establishment, after completing all procedures according to the law on dissolution or bankruptcy, must handle the refunded VAT according to the law on dissolution, bankruptcy, and tax management; for unrefunded VAT not being refunded.
In cases where the business establishment ceases operations and does not incur output VAT from the main business activities, the refunded tax must be paid back to the state budget. If there is a sale of taxable assets, there is no need to adjust the corresponding input VAT of the sold assets.
...
According to the above regulations, in the case of a company transitioning from a regular enterprise to an Export Processing Enterprise, it is not classified under the cases of converting the type of enterprise, and therefore is not eligible for VAT refunds as per regulations.
Therefore, VAT will not be refunded when a regular enterprise convert into an export processing enterprise.
Shall VAT be refunded when a regular enterprise is converted into an export processing enterprise in Vietnam? (Image from the Internet)
What are the 3 levels of risk when tax authorities inspect and audit after tax refund in Vietnam?
Based on Article 18 of Circular 31/2021/TT-BTC regulating the application of risk management in tax refund as follows:
The tax authority classifies tax refund dossiers according to the provisions of the Tax Management Law, relevant legal documents, or current regulations. For classifying tax refund dossiers by risk, based on the risk classification results of the tax refund dossier in Article 13 of this Circular, the tax authority applies suitable measures in resolving, handling tax refund dossiers as follows:
- Classifying tax refund dossier resolution
+ Tax refund dossiers with high tax risks: Conduct inspection before refunding
Within 12 consecutive months from the start of the fiscal year, if the taxpayer’s tax refund dossier continuously assessed as high risk:
++ If the current risk assessment differs from the immediately previous assessment in total risk scores or scores on each criterion, index: the tax refund dossier falls under the category of pre-refund inspection.
++ If the current risk assessment is the same as the immediately previous assessment in total scores and scores for each criterion, index; or the current tax refund dossier compared to the immediately previous assessment has lower risk scores on each index leading to a correspondingly lower total risk:
- The result of checking the immediately preceding tax refund dossier or post-refund inspection, audit does not find any wrong declarations leading to insufficient tax payments or increased refund amounts, the next tax refund dossier does not fall under pre-refund inspection.
- If checking the immediately preceding tax refund dossier or post-refund inspection, audit discovers wrong declarations leading to insufficient tax payments or increased refund amounts, the next tax refund dossier falls under pre-refund inspection.
+ Tax refund dossiers with medium and low tax risks: Refund first, inspect later.
+ In case, after applying the tax refund dossier classification, during the dossier resolution process, the tax authority discovers the taxpayer shows signs of violating tax laws, customs laws, or if the taxpayer does not explain, supplement the tax refund dossier or explains, supplements but cannot prove the declared tax is correct, the tax authority changes the application of the classification form of the taxpayer’s tax refund dossier that is in the category of refund first, check later to the category of check before refund; approval for classification changes must be updated into the business information system.
- Post-refund inspection, audit
+ The order of post-refund inspection, audit is arranged by the tax authority based on the total risk scores from high to low within five (5) years from the date of the tax refund decision:
++ High risk (for tax refund dossiers not under the pre-refund inspection category specified at point a clause 1 of this Article): Conduct inspection, audit within one (1) year from the tax refund decision date;
++ Medium risk: Conduct inspection, audit within three (3) years from the tax refund decision date;
+ Low risk: Conduct inspection, audit within five (5) years from the tax refund decision date;
+ Based on the actual situation, the tax authority may conduct post-refund inspections, audits earlier than the stated timeframe.
+ The General Department of Taxation specifies post-refund inspection, audit; combined with tax law compliance inspection, audit as prescribed.
Thus, the 3 levels of risk when tax authorities inspect, audit after tax refund include:
- High risk
- Medium risk
- Low risk
What are the 4 contents of tax administration when tax authorities inspect and audit after tax refund in Vietnam?
Based on Article 23 of Circular 31/2021/TT-BTC regulated as follows:
Inspection, evaluation of risk management application in tax administration
1. Conduct inspection, evaluation of the following contents:
a) Quality of organizing the implementation of risk management measures and technical operations;
b) Effectiveness, efficiency of applying risk management in tax administration operations;
c) Organization and results of implementing inspection, audit decisions, or other measures based on risk management application;
d) Evaluate the effectiveness of criteria, compliance evaluation indicators with tax laws and classification of taxpayers’ risk levels.
2. Inspection, evaluation measures
a) Summarize information, reports from tax authorities at all levels, departments, units under the General Department of Taxation in implementing, applying risk management;
b) Collect, analyze, summarize information on the results of applying risk management in tax administration operations;
c) Organize work groups to inspect implementation and risk management application at tax authorities at all levels.
3. The Director General of the General Department of Taxation decentralizes responsibility to risk management units to inspect, evaluate the implementation, application of risk management in tax administration as prescribed in Clause 2 of this Article. Evaluation is conducted regularly; periodic reports (semi-annually and annually) and according to specific operational requirements.
Thus, the 4 contents when tax authorities inspect and evaluate risk management in tax administration include:
[1] Quality of organizing the implementation of risk management measures and technical operations;
[2] Effectiveness, efficiency of applying risk management in tax administration operations;
[3] Organization and results of implementing inspection, audit decisions, or other measures based on risk management application;
[4] Evaluate the effectiveness of criteria, compliance evaluation indicators with tax laws and classification of taxpayers’ risk levels.
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