Guidance on application of value added tax rates in Vietnam to companies providing services to foreign-based enterprises?
In what cases does a company providing services to a foreign-based enterprise apply the 0% value added tax in Vietnam?
According to point b, clause 2, Article 9 of Circular No. 219/2013/TT-BTC stipulating the tax rate of 0% as follows:
Tax rate of 0%
1. 0% VAT is applied to exported goods and services; construction and installation overseas and in free trade zones; international transport; exported goods and services that are not subject to VAT, except for the cases in Clause 3 of this Article, in which 0% VAT is not applied.
Exported goods and services are those that are sold to overseas organizations and individuals and are consumed outside Vietnam, sold to the entities in free trade zones, or sold to foreign customers as prescribed by law.
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b) Exported services include the services directly provided for overseas organizations and individuals and are consumed overseas; the services provided for the entities in free trade zones and consumed within the free trade zones.
Overseas individuals are the foreigners that do not reside in Vietnam, the Vietnamese people that reside overseas and are not present in Vietnam when the services are provided. The entities in free trade zones are the entities that have registered their business and other cases prescribed by the Prime Minister.
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2. Condition for application of 0% tax:
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b) The documents below are compulsory for exported services:
- A contract to provide services for an organization or individual in another country or in a free trade zone;
- Bank receipts for payment for exported services and other documents prescribed by law;
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Official Dispatch No. 7579/CTTPHCM-TTHT in 2022 guides as follows:
Pursuant to the above provisions, in case the Company signs contracts with foreign-based enterprises to provide the service of "searching, introducing, brokering, connecting customers, suppliers, caring and tracking orders”, if these services are provided directly to overseas organizations and are consumed outside of Vietnam, and at the same time satisfy the conditions specified at Point b, Clause 2, Article 9 of Circular No. 219/2013/TT-BTC and not in the cases specified in Clause 2, Article 1 of Circular No. 130/2016/TT-BTC of the Ministry of Finance, are subject to the VAT rate of 0%.
Guidance on application of value added tax rates in Vietnam to companies providing services to foreign-based enterprises? (Image from the Internet)
In what cases does a company providing services to a foreign-based enterprise apply the 10% value added tax in Vietnam?
According to the provisions of Article 11 of Circular No. 219/2013/TT-BTC on the tax rate of 10% as follows:
Tax rate of 10%
10% tax shall be levied on the goods and services that are not mentioned in Article 4, Article 9 and Article 10 of this Circular.
The rates of VAT mentioned in Article 10 and Article 11 shall be uniformly applied to the each type of goods and services, whether they are imported, manufactured, processed, or traded.
Example 50: 10% tax is levied on apparel. That means the tax rate is always 10% whether such apparel is imported manufactured, processed, or traded.
VAT on the products made of recycled wastes and scrap is the same as VAT on the wastes and scrap when they are sold.
If a taxpayer sells various goods and services that are subject to various rates of VAT, they must be sorted by VAT rates. Otherwise, the highest rate of VAT among which shall apply.
If the rate of VAT in the preferential import tariff schedule is found not conformable with this Circular, this Circular shall apply. If different rates of VAT are applied to the same kind of goods that are imported or manufactured in Vietnam, the local tax authority and customs authority must send a report to the Ministry of Finance for guidance.
Official Dispatch No. 7579/CTTPHCM-TTHT in 2022, issued by the Tax Department of Ho Chi Minh City, guides as follows:
In case the services provided by the Company directly to overseas organizations are associated with the sale, distribution and consumption of products and goods in Vietnam, when providing services to foreign organizations, the Company shall issue invoices, declare and pay tax at the 10% value-added tax rate. VAT paid by foreign organizations related to services provided by the Company to foreign organizations but consumed in Vietnam are not subject to VAT refund.
What are the cases where the 0% tax rate is not applicable?
According to the provisions of Clause 3, Article 9 of Circular No. 219/2013/TT-BTC (amended by Clause 2, Article 1 of Circular No. 130/2016/TT-BTC) on cases where the 0% tax rate is not applicable, including:
Tax rate of 0%
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The tax rate of 0% is not applicable to:
- Overseas reinsurance; technology transfer, overseas transfer of intellectual property; capital transfer, granting of credit, outward securities investment; financial derivatives services; outbound postal and telecommunications services (including those provided for the entities in free trade zones; provision of sale of prepaid phone cards abroad or in free trade zones); exports that are or originate from natural resources and minerals as per Section 23, Article 4 of the Circular; tobacco and alcoholic beverages imported then re-exported; goods and services provided for individuals who have not registered any business in free trade zones, except circumstances that the Prime Minister defines;
Tobacco and alcoholic beverages imported then re-exported shall not incur the output VAT upon re-exportation though on which input VAT must not be deducted.
- Petroleum supplied domestically to motor vehicles of the enterprises that operate in free trade zones;
- Motor vehicles sold to the entities that operate in free trade zones;
- Services provided by business organizations provide for organizations and individuals in free trade zones, such as: leasing of houses, conference rooms, offices, hotels, warehouses; transportation of workers; food and beverage (except the industrial catering service and food and beverage service rendered in free trade zones);
- The tax rate of 0% is not applicable to the following services provided in Vietnam for overseas organizations and individuals:
+ Sports competition, art performances, cultural events, entertainment, conference, hotel, education, advertisement and tourism;
+ Online payment services;
+ Services in connection with the sale, distribution and consumption of goods in Vietnam.
Thus, the cases where the tax rate of 0% is not applicable are mentioned above.
For more details, please visit: Official Dispatch No. 7579/CTTPHCM-TTHT in 2022.
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