Ministry of Finance proposes specific regulations on VAT taxable price for real estate business activities
How is the taxable price determined for real estate business activities according to current regulations?
According to point h, clause 1, Article 7 of the Law on Value-Added Tax 2008, the taxable price for real estate business activities is determined as follows:
Taxable Price
1. The taxable price is regulated as follows:
...
h) For real estate business activities, it is the selling price of real estate excluding value-added tax, minus the land use right transfer price or land rent payable to the state budget;
Thus, according to current regulations, the value-added tax taxable price for real estate business activities is the selling price of real estate excluding value-added tax, minus the land use right transfer price or land rent payable to the state budget.
Ministry of Finance proposes specific regulations on determining VAT taxable price for real estate business activities?
Proposals for specific regulations on determining VAT taxable price for real estate business activities?
The Ministry of Finance has just completed a dossier for the submission requesting the construction of the revised project for the Law on Value-Added Tax 2008 (VAT). This law project will propose amendments to many regulations to suit practical needs, while also reforming procedures and easing burdens for business production.
One of the notable contents in the Draft Amendments to the Law on Value-Added Tax is the revision of regulations determining the VAT taxable price for real estate business activities. The Ministry of Finance has the following assessments:
The current Law on Value-Added Tax 2008 stipulates that the VAT taxable price for real estate business is “the selling price of real estate excluding value-added tax, minus the land use right transfer price or land rent payable to the state budget”.
However, this regulation is subject to various interpretations. Many real estate businesses do not declare or pay VAT on the difference between the selling price and the actual land levy paid to the State Budget (NSNN) because they believe that land use right transfer activities are not subject to VAT.
Nevertheless, according to the regulations of the Law on Real Estate Business and the current Law on VAT, enterprises are only allowed to deduct the land use right transfer price or land rent payable to the NSNN.
To ensure clear and transparent policies and avoid implementation obstacles, the Ministry of Finance proposes the need to research and issue specific regulations on determining the VAT taxable price for real estate business activities to align with practical needs.
How does the Ministry of Finance propose to adjust VAT rates?
In the Draft Submission to Amend the Law on Value-Added Tax, the Ministry of Finance presents an evaluation of the practical application of VAT rates and proposes additional amendments. Specifically:
(1) The current VAT Law stipulates: “The 0% VAT rate applies to exported goods and services...”. Goods sold in isolated zones cater to Vietnamese nationals, foreigners exiting or transiting through Vietnam and are considered exported goods, with customs authorities strictly controlling the quantity of goods entering and leaving the isolated zone (the business registers a customs declaration for exported goods).
To encourage the export of goods and promote tourism, it is necessary to research and supplement regulations so that goods sold in isolated zones are subject to a 0% VAT rate and provide guidance on the conditions and procedures for applying the 0% VAT rate accordingly.
(2) The current VAT Law stipulates: “The 0% VAT rate applies to exported goods and services... Exported goods and services are those consumed outside Vietnam, in non-tariff zones; goods and services provided to foreign customers as prescribed by the Government of Vietnam”.
Before September 1, 2016, duty-free shops were considered non-tariff zones, so the VAT policy for duty-free shops was applied according to the non-tariff zone mechanism.
Since September 1, 2016, according to the regulations on export and import taxes, duty-free shops no longer meet the conditions of non-tariff zones, leading to implementation difficulties.
According to Decree 100/2020/ND-CP on duty-free business, goods sold at duty-free shops primarily serve tourists and are consumed outside Vietnam or sold to diplomatic exemptions (entities eligible to purchase duty-free goods) or arriving passengers (only within the authorized limits).
Therefore, to encourage duty-free sales and attract tourists, it is also necessary to research and supplement regulations so that goods sold in duty-free shops are subject to a 0% VAT rate and provide guidance on the conditions for applying the 0% VAT rate, and the conditions for input VAT deduction in certain specific cases accordingly.
(3) The current VAT Law stipulates that medical devices, teaching and research tools, and scientific experiment equipment are subject to a 5% VAT rate.
However, some types of medical devices and tools used for teaching, research, or scientific experiments can also be used for office or other civilian purposes, such as tables, chairs, projectors, screens, etc. Applying a 5% tax rate to multi-purpose goods leads to inconsistent implementation, policy exploitation, and unfair competition.
To align with the principles of VAT (an indirect tax levied on goods and services regardless of usage), ensure transparency, and facilitate implementation, it is necessary to research and amend or supplement the regulation on the list of machinery, equipment, and educational aids for teaching and learning purposes.
(4) The current VAT Law stipulates that “fresh food” is subject to a 5% VAT rate. However, during implementation, issues arise regarding the VAT rate for certain items like ground meat, chopped fish, etc. These are livestock, aquaculture, and seafood products that have not been processed into other products, only through ordinary processing (which are not subject to VAT) and also constitute fresh food (subject to a 5% VAT rate).
The Ministry of Finance emphasizes the need to study and amend the regulations on the VAT rate for fresh food to ensure uniform application. Additionally, it is necessary to supplement principles for determining tax rates to ensure transparent policies, facilitating implementation.
View the full Draft Submission on the Amendment to the Law on Value-Added Tax here: download.
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