What are the 04 cases of VAT reduction to 8% in Vietnam?

What are the 04 cases of VAT reduction to 8% in Vietnam?

[1] The First Time VAT was reduced from 10% to 8% (From February 1, 2022, to December 31, 2022) was on January 28, 2022, when the Government of Vietnam issued Resolution 43/2022/QH15, officially reducing VAT from 10% to 8% for certain categories of goods and services applying the 10% VAT rate.

According to Decree 15/2022/ND-CP guiding the reduction of VAT to 8% and the list of goods and services not entitled to tax reduction includes:

- Telecommunications, financial, banking, securities, insurance activities, real estate business, metal and prefabricated metal products, mineral products (excluding coal mining), coke, refined petroleum, chemical products. Details in Appendix I issued with this Decree.

- Goods and services subject to special consumption tax. Details in Appendix II issued with this Decree.

- Information technology according to the law on information technology. Details in Appendix III issued with this Decree.

In which, the VAT reduction is determined as follows:

- A 2% reduction for goods applying the 10% VAT rate, excluding the above goods and services if it is a business establishment calculating VAT by the deduction method.

- A 20% reduction in the percentage rate to calculate VAT when issuing invoices for goods and services with VAT reduction for business establishments (including business households and individuals) calculating VAT by the percentage method on revenue.

[2] The Second Time VAT was reduced from 10% to 8% (From July 1, 2023 - December 31, 2023)

The continuation of the VAT reduction from 10% to 8% until the end of 2023, from July 1, 2023, to December 31, 2023, is stipulated in Decree 44/2023/ND-CP issued by the Government of Vietnam, regulating the policy of VAT reduction under Resolution 101/2023/QH15 dated June 24, 2023, of the National Assembly.

- VAT reduction applies to categories of goods and services using the 10% tax rate, except for the following goods and services:

+ Telecommunications, financial operations, banking, securities, insurance, real estate business, metals and fabricated metal products, mineral exploitation products (excluding coal mining), coke, refined petroleum products, and chemicals. Details in Appendix I issued with this Decree.

+ Goods and services subject to special consumption tax. Details in Appendix II issued with this Decree.

+ Information technology in accordance with information technology law. Details in Appendix III issued with this Decree.

+ The VAT reduction policy for each type of goods and services specified in clause 1 of this Article is uniformly applied across all stages of import, production, processing, and commercial business. For coal sold after exploitation (including coal sold after being screened and graded through a closed process) is subject to VAT reduction. Coal, as stated in Appendix I issued with this Decree, is not subject to VAT reduction in other processes outside of sale extraction.

Large corporations and economic groups implementing the new closed process sale are also subject to VAT reduction for coal sold after extraction.

For goods and services listed in Appendices I, II, and III attached to this Decree, which are subject to VAT exemption or 5% VAT under the VAT Law, they must comply with the VAT Law and are not eligible for a VAT reduction.

[3] The Third Time VAT was reduced from 10% to 8% (From January 1, 2024 - June 30, 2024)

Continuing the previous VAT reduction policy, on December 28, 2023, the Government of Vietnam issued Decree 94/2023/ND-CP regulating the VAT reduction policy as follows:

- A reduction in VAT for categories of goods and services applying the 10% tax rate, except for the following goods and services:

+ Telecommunications, financial services, banking, securities, insurance, real estate business, metals and prefabricated metal products, mineral mining products (excluding coal mining), coke, refined petroleum products, chemicals. Details in Appendix I issued with this Decree.

+ Goods and services subject to special consumption taxes. Details in Appendix II issued with this Decree.

+ Information technology under the information technology law. Details in Appendix III issued with this Decree.

+ The VAT reduction policy for each goods and service type defined in clause 1 of this Article is consistently applied across all stages of import, production, processing, and commercial business. For coal that is extracted and sold (including when coal is extracted and later undergoes screening and classification through a closed process before being sold), it is subject to VAT reduction. Items subject to VAT reduction as listed in Appendix I issued with this Decree won't have reduced VAT in other stages beyond extraction sales.

Large enterprises and economic groups conducting new closed process sales are also subject to VAT reduction on extracted coal.

Goods and services listed under Appendices I, II, and III borne with VAT exemption or subject to 5% VAT under the VAT Law shall comply with the VAT Law and are not eligible for VAT reduction.

[4] The Fourth Time VAT reduction from 10% to 8% (from July 1, 2024 - December 31, 2024)

This is the current reduction being applied till the end of the year, according to Decree 72/2024/ND-CP, concerning the VAT reduction between July 1, 2024, and December 31, 2024.

- Reduction of VAT for groups of goods and services currently applying the 10% tax rate, excluding the following groups:

+ Telecommunications, financial operations, banking, securities, insurance, real estate business, metals and prefabricated metal products, mining (excluding coal mining), coke, refined petroleum products, chemical products. Details in Appendix I accompanying this Decree.

+ Goods and services subject to special consumption tax. Details in Appendix II accompanying this Decree.

+ Information technology per information technology law. Details in Appendix III accompanying this Decree.

+ VAT reduction application for specific goods, services stipulated in section 1 of this Article is uniformly applied at all different stages of import, production, processing, and trade. Coal sold after extraction (including when extracted coal is then screened or classified in a closed-loop process before sale) falls under VAT reduction subjects. Coal specified under Appendix I accompanying this Decree does not receive VAT reductions in stages other than extraction and sale.

Large corporations and economic groups executing new closed process sales are eligible for VAT exemption when selling extracted coal.

Goods and services touched upon in Appendices I, II, and III tethered to VAT exemption or 5% VAT under the VAT Law follow Law guidelines and do not receive VAT reductions.

Hence, abiding by these regulations, there have been four occurrences of VAT reduction from 10% to 8% to support the national economic status.

What are the 04 cases of VAT reduction to 8% in Vietnam? (Image from Internet)

What is the VAT reduction rate for business establishments that pay VAT using the direct method in Vietnam?

Pursuant to clause 2 Article 1 Decree 72/2024/ND-CP, it is stipulated as follows:

- Businesses calculating VAT by the deduction method are applied an 8% VAT rate for goods and services as specified in clause 1 of this Article.

- Businesses (including both business households and individuals) calculating VAT by percentage on revenue method receive a 20% reduction in the percentage rate for VAT calculation when issuing invoices for goods and services receiving VAT reduction as specified in clause 1 of this Article.

Thus, following the regulations, VAT for business establishments that pay VAT using the direct method is reduced by 20% of the percentage rate for VAT calculation upon invoicing.

What are procedures for VAT reduction for business establishments that pay VAT using the direct method in Vietnam?

Based on clause 3 Article 1 Decree 72/2024/ND-CP, it is stipulated as follows:

VAT Reduction

...

3. Procedures

a) For business establishments mentioned in point a clause 2 of this Article, when issuing VAT invoices for goods and services subject to VAT reduction, the VAT rate line must state “8%”; VAT amount; total payment amount the buyer must pay. Based on the VAT invoice, the selling business declares output VAT, and the buying business declares input VAT according to the reduced tax amount recorded on the VAT invoice.

b) For business establishments mentioned in point b clause 2 of this Article, when issuing sales invoices for goods and services subject to VAT reduction, in the “Amount” column, the full value of goods and services before reduction must be recorded; the “Total goods and services” line must reflect the amount reduced by 20% of the percentage rate on revenue, with a note: “reduced by...(amount) corresponding to 20% of the percentage rate to calculate VAT under Resolution No. 142/2024/QH15”.

4. In the event a business follows the regulation in point a clause 2 of this Article when selling goods, providing services at various tax rates, each goods or service tax rate must be clearly recorded on the VAT invoice as stipulated in clause 3 of this Article.

In case a business follows the regulation in point b clause 2 of this Article when selling goods, providing services, the sales invoice must clearly indicate the reduced amount as stated in clause 3 of this Article.

5. Should a business already issue an invoice and has declared at the tax rate or percentage to calculate VAT not yet reduced according to this Decree, the seller and buyer will handle the issued invoice per legal stipulations on invoices and documents. Based on the handled invoice, the seller adjusts output tax declarations, while the buyer adjusts input tax declarations (if any).

6. Businesses as defined in this Article perform declarations of reduced VAT goods and services as per Form No. 01 in Appendix IV accompanying this Decree along with the VAT declaration form.

Hence, following these provisions, the procedure for VAT reduction for business establishments calculating VAT by the percentage method will proceed as follows:

When issuing sales invoices for goods and services subject to VAT reduction, the “Amount” column must list the full price of goods and services.

Before reduction, on the “Total goods and services” line, the amount reflecting a 20% reduction of the percentage rate on revenue must be recorded along with a note: “reduced by... (amount) corresponding to 20% of the percentage rate for VAT calculation under Resolution No. 142/2024/QH15”.