How many VAT calculation methods are there? What is the VAT calculation formula in Vietnam?
Vietnam: How many VAT calculation methods are there? What is the VAT calculation formula?
According to the provisions of the Law on value-added tax 2008 and current documents, VAT calculation methods include:
- Credit-invoice method
- Direct method.
Accordingly, in principle, the general formula to calculate VAT is as follows:
VAT = Taxable price x VAT rate
However, depend on subjects applying VAT, the VAT calculation methods to be applied will be different.
Vietnam: How many VAT calculation methods are there? What is the VAT calculation formula?
How to calculate value added tax using the credit-invoice method in Vietnam?
Pursuant to the provisions of Article 12 of Circular 219/2013/TT-BTC guiding the calculation of value added tax using the credit-invoice method as follows:
VAT payable | = | Output VAT | - | Deductible output VAT |
Where:
- Output VAT = Total VAT on sold goods and services written on the VAT invoices.
The VAT written on a VAT invoice equals (=) taxable prices of goods and services multiplied by (x) corresponding tax rates.
If the selling price is VAT-inclusive, output VAT equals (=) selling price minus (-) taxable price.
For taxable prices of the goods and services using special receipts on which the selling prices are VAT-inclusive, such as stamps, bus tickets, lottery tickets, etc.:
VAT-exclusive price = Selling price (price of the ticket, stamp, etc.)/(1 + tax rate (%))
- Input VAT equals (=) total VAT on invoice VAT for purchase of goods and services (including fixed assets) serving the manufacture or sale of taxable goods and services, VAT on receipts for payment of tax on imported goods or payment of VAT on behalf of a foreign organization, which does not have a legal status in Vietnam, or a foreigner doing business in Vietnam or earning income in Vietnam.
For example: Enterprise A imports goods worth 300 million VND, this item is subject to a tax rate of 10%. => The amount of input VAT that business A needs to bear is: 10% x 300 million = 30 million VND. When selling this order to the buyer for 350 million VND, the buyer is subject to a 10% VAT rate on this item. => Output VAT amount is: 10% x 350 million = 35 million VND. Thus, the VAT amount that business A needs to pay into the State budget is: 35 million - 30 million = 5 million VND. |
How to calculate value added tax using the direct method in Vietnam?
Pursuant to Clause 2, Article 13 of Circular 219/2013/TT-BTC guiding the calculation of VAT using the direct method.
This method may be applied by the following entities:
- The operational companies and cooperatives that earn less than 1 billion VND in annual revenues, except for those that voluntarily apply credit-invoice method
- The new companies and cooperatives, except for those that voluntarily apply credit-invoice method
- Business households and businesspeople;
- The foreign entities doing business in Vietnam without following the Law on Investment; the organizations that fail to adhere to accounting and invoicing practice, except for those that provide goods and services serving petroleum exploration and extraction.
- The business organizations other than companies and cooperatives, except for those that voluntarily apply credit-invoice method.
VAT calculation formula using the direct method:
VAT payable = rate (%) x Revenue
Where:
- Direct VAT rates applied to various business lines:
Group | Business lines | Rate % |
1 | Goods supply and distribution: - Wholesaling and retailing goods (except for goods sold by agents that earn commissions). | 1% |
2 | Services, construction exclusive of building materials: - Accommodation, hotel, motel services; - Leases on houses, land, stores, workshops, assets, and other personal chattels; - Leases on yards, machinery, vehicles; material handling, and other services related to transport such as parking, ticket selling; - Postal services and mailing; - Commissions for running agents, auction and brokerage services; - Legal counseling, audit, accounting, and financial counseling; tax brokerage and customs brokerage; - Data processing services, lease on information portals, IT and telecommunications equipment; - Office assistance services and other business assistance services; - Steambath, massage, karaoke, nightclub, billards, Internet, and video game services; - Tailoring, laundry services; hairdressing services; - Other repair services including: computer repairs and domestic appliance repairs; - Infrastructural development consultancy, design, and supervision services; - Other services; - Construction and installation exclusive of building materials (including installation of industrial machinery and equipment). | 5% |
3 | Manufacturing, transport, services attached to goods, construction inclusive of building materials: - Manufacturing, processing goods; - Mineral extraction and processing; - Cargo and passenger transport; - Services attached to goods such as training, maintenance, technology transfers attached to goods sale; - Food and drink services; - Repairs and maintenance of machinery, equipment, means of transport, other motor vehicles; - Construction and installation inclusive of building materials (including installation of industrial machinery and equipment). | 3% |
4 | Other lines of business: - Production of products subject to 5% VAT under credit-invoice method; - Provision of services subject to 5% VAT under credit-invoice method; - Other lines of business not mentioned above. | 2% |
- The taxable revenue is the total revenue from selling goods and services, which is written on the sale invoice for taxable goods and services, inclusive of the surcharges to which the seller is entitled.
The rates above are not applied to the revenue from selling the goods and services that are not subject to VAT and revenue from exported goods and services.
For example: Company B has a catering business and declares quarterly, total revenue is 200 million VND. Accordingly, the amount of VAT payable = 200 million VND x 3% = 6 million VND (Food service 3%) |
Note:
(1) If the taxpayer engages in various lines of business to which different rates are applied, they must be sorted by VAT rate. Otherwise, the highest rate among which shall apply.
(2) Calculating VAT on activities of jewelry trading shall comply with Clause 1, Article 13 of Circular 219/2013/TT-BTC (amended by Article 3 of Circular 119/2014/TT-BTC), specifically:
VAT payable equals (=) value added multiplied by (x) VAT rate on jewelry trading.
Where:
Value added of jewelry equals (=) its selling price minus its buying price.
- The selling price of jewelry is the price written on the invoice, inclusive of crafting cost, VAT, and surcharges to which the seller is entitled.
- Buying price of jewelry is the VAT-inclusive value of jewelry purchased or imported for crafting or trading the jewelry sold.
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