What is FOB? What is CIF? How to calculate import and export tax based on FOB price in Vietnam?

What is FOB? What is CIF?

FOB (Free On Board) and CIF (Cost, Insurance, and Freight) are two common terms in international trade, used to delineate the responsibilities and costs between the seller and the buyer during the transportation of goods.

- FOB (Free On Board) means that the seller has fulfilled their responsibility once the goods are loaded onto the vessel at the port of shipment. From that point, the buyer is responsible for all risks and costs associated with the transportation of goods from the port of shipment to the destination.

- CIF (Cost, Insurance, and Freight) means that the seller is responsible for the transportation costs and insurance of the goods up to the destination port. However, the risk transfers from the seller to the buyer once the goods are loaded onto the vessel at the port of shipment. This means the seller must pay for transportation and insurance costs, but the buyer assumes the risk once the goods are on the ship.

What is FOB? What is CIF? How to calculate import and export tax based on FOB price in Vietnam?​ (Image from the Internet)

How to calculate import and export tax based on FOB price in Vietnam?

The calculation of import-export tax based on FOB price is grounded in Article 5 of the Law on Export and Import Duties 2016. Specifically, import-export tax is determined based on the taxable value and the tax rate percentage (%) for each item at the time of taxation.

The taxable value (customs value) is determined for exported and imported goods as follows:

- Imported goods: the actual price paid up to the first port of entry (CIF price).

- Exported goods: the actual price paid up to the port of exit (FOB price).

What are cases in which exported goods are subject to taxation in Vietnam?

According to Clause 1, Article 52 of the Law on Tax Administration 2019, exported goods are subject to taxation in the following cases:

- The taxpayer relies on illegal documents to declare taxes, calculate taxes; does not declare taxes or declares taxes inaccurately, incompletely regarding contents related to tax obligations;

- Past the stipulated deadline, the taxpayer does not provide, refuses, or delays, prolongs the provision of documents, accounting books, documents, vouchers, data, figures related to the accurate determination of the payable tax amount as prescribed;

- The taxpayer does not explain or cannot provide explanations within the stipulated time on matters related to the determination of tax obligations as prescribed by law; does not comply with inspection, audit decisions from customs authorities;

- The taxpayer does not reflect or does not fully, truthfully, accurately reflect data in the accounting books to determine tax obligations;

- The customs authority has sufficient evidence, basis to determine that the declared value is not consistent with the actual transaction value;

- The transaction is carried out without complying with the economic nature or the actual occurrence, affecting the payable tax amount;

- The taxpayer cannot self-calculate the payable tax amount;

- Other cases discovered by customs or other authorities indicating non-compliance in declaration or tax calculation according to the law.

What is the foundation for determination of tax in Vietnam?

According to Article 15 of Decree 126/2020/ND-CP, the foundation for determination of tax in Vietnam is as follows:

(1) Taxpayers are determined based on various factors related to determining the payable tax amount.

- Organizations and individuals are determined based on various factors when falling into one of the following cases:

+ Through checking tax declaration documents, the tax authority has grounds to believe that the taxpayer has insufficiently or inaccurately declared elements that form the basis for determining the payable tax amount, has requested the taxpayer to supplement the declaration, but the taxpayer does not supplement the declaration or supplements it inaccurately, truthfully according to the request of the tax authority.

+ Through checking accounting books, invoices, documents related to determining the payable tax amount of the taxpayer or through checking, cross-referencing, verification, accounting books, invoices, documents of related organizations, individuals, the tax authority has grounds to prove that the taxpayer accounts for inaccurately, untruthfully the elements related to determining the payable tax amount.

+ Accounts for the selling price of goods, services not in line with the actual payment price reducing taxable revenue, or accounts for the purchase price of goods, materials for production, business not according to the actual payment price in line with the market increasing costs, increasing deductible value-added tax, reducing payable tax obligations.

+ The taxpayer submits tax declaration documents but cannot determine the factors forming the basis for calculating tax or can determine the factors but cannot self-calculate the payable tax amount.

+ Falling into one of the cases specified in Clauses 10, 11, 12, Article 14 of Decree 126/2020/ND-CP.

- Grounds for determining tax

+ For organizational taxpayers:

Based on the tax administration agency's database and commercial database; effective inspection, audit documents and results; verification results; the minimum average payable tax amount of 03 similar business establishments in terms of items, trades, scale in the locality; in case in the locality, business establishments do not have or do not have enough information on items, trades, scale of business establishments, take information from business establishments in other localities to determine each element.

+ For individuals transferring, inheriting, receiving gifts of real estate:

The tax authority determines the taxable price if it is found that the individual declares and pays tax at a taxable price lower than the usual market transaction price. The taxable price determined by the tax authority must be in line with the usual market transaction price but not lower than the price set by the provincial, city People's Committee at the time of determining the taxable price.

- Based on each determined element, the tax authority determines the payable tax amount according to current tax laws.

(2) Taxpayers are determined based on the revenue rate as per the law, as follows:

- Organizations paying value-added tax by direct method, individual businesses paying tax by declaration method are determined based on the revenue rate when falling into one of the cases specified in Clauses 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, and 11 Article 14 of Decree 126/2020/ND-CP.

- Grounds for determining tax

Based on the tax administration agency's database and commercial database; effective inspection, audit documents and results; verification results; the minimum revenue of 03 similar business establishments in terms of items, trades, scale in the locality; in case in the locality, business establishments do not have or do not have enough information on items, trades, scale of business establishments, take information from business establishments in other localities with similar natural and economic development conditions to determine taxable revenue.

- Based on the determined revenue, the tax authority determines the payable tax amount according to current tax laws.