Vietnam: What are some legal risks of paying invoices exceeding 20 million in cash according to current regulations?
Vietnam: What are some legal risks of paying invoices exceeding 20 million in cash according to current regulations?
(i) Deductible and non-deductible expenses when calculating taxable income:
Pursuant to Clause 1, Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC on deductible and non-deductible expenses when calculating taxable income:
Deductible and non-deductible expenses when calculating taxable income
1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, every expense is deductible if all of these following conditions are satisfied:
a) The actual expense incurred is related to the enterprise’s business operation.
b) There are sufficient and valid invoices and proof for the expense under the regulations of the law.
c) There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).
The proof of cashless payment must comply with regulations of law on VAT.
In case of a purchase of goods and services that are worth VND 20 million or over according to the invoice which is yet to be paid for by the enterprise when the expense is accounted for, such expense will be deductible when calculating taxable income. If the enterprise does not have proof of cashless payment, the enterprise must remove the value of goods/services without proof of cashless payment from expenses in the tax period in which cash payment is made (even when the tax authority and other authorities have issued a decision on tax inspection of the tax period in which such expense is incurred).
The invoices for goods and services paid in cash before the effective date of Circular No. 78/2014/TT-BTC shall not be adjusted under the regulations of this Point.
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Thus, one of the conditions for an expense to be determined as a deductible expense is:
There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).
Note: In case of a purchase of goods and services that are worth VND 20 million or over according to the invoice which is yet to be paid for by the enterprise when the expense is accounted for, such expense will be deductible when calculating taxable income.
If the enterprise does not have proof of cashless payment, the enterprise must remove the value of goods/services without proof of cashless payment from expenses in the tax period in which cash payment is made (even when the tax authority and other authorities have issued a decision on tax inspection of the tax period in which such expense is incurred).
A purchase of goods and services that are worth VND 20 million or over in cash shall not meet the condition for an expense to be determined as a deductible expense.
(ii) Conditions for input VAT deduction
Pursuant to Article 15 of Circular 219/2013/TT-BTC amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC on conditions for input VAT deduction:
Conditions for input VAT deduction
1. Legitimate VAT invoices for purchases or receipts for payment of VAT on imported goods, or receipts for payment of VAT on behalf of foreign organizations that do not have Vietnamese legal status and the organizations and individuals, and the foreigners that do business or earn income in Vietnam.
2. Proofs non-cash payments for the purchases (including imported goods) that cost VND 20 million or more, except for the imports that cost below VND 20 million each, purchases that cost below VND 20 million inclusive of VAT, and imports being gifts, donations from overseas entities.
Receipts for non-cash payments include bank transfer receipts and other receipts for non-cash payments prescribed in Clause 3 and Clause 4 of this Article.
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If a business pays a invoice exceeding 20 million in cash, it will not meet the conditions for input VAT deduction, except for the imports that cost below VND 20 million each, purchases that cost below VND 20 million inclusive of VAT, and imports being gifts, donations from overseas entities.
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What are some legal risks of paying invoices exceeding 20 million in cash according to current regulations? (Image from the Internet)
For the purpose of input VAT deduction in Vietnam, what types of payment documents are considered as non-cash payments?
Pursuant to the provisions of Clause 2, Article 15 of Circular 219/2013/TT-BTC amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC on conditions for input VAT deduction:
Receipts for non-cash payments include bank transfer receipts and other receipts for non-cash payments prescribed in Clause 3 and Clause 4 of this Article.
Where:
(i) Pursuant to the provisions of Clause 3, Article 15 of Circular 219/2013/TT-BTC amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC amended by Article 1 of Circular 173/2016/TT-BTC
Bank transfer confirmations are documentary evidence proving the transfer of money from the buyer’s account to the seller’s account opened at providers of payment services under legitimate payment methods such as checks, payment orders, cash collection orders, bank cards, credit cards, SIM cards (digital wallets) and other means of payment as prescribed (including the cases in which the buyer transfer money from the buyer’s account to the seller’s account carrying the name of the owner of a private enterprise or from the buyer's account carrying the name of the owner of the enterprise to the seller's account).
- Proofs of the buyer's payment to the seller's account or proofs of payments in the manners that are not conformable with applicable regulations of law are not eligible for deduction and refund of VAN on purposes that cost VND 20 million or more.
- Any purchase that cost VND 20 million or more (VAT-inclusive) shall not be deducted if there is no bank transfer receipt.
- With regard to goods purchased under a deferred payment plan or instalment plan that cost VND 20 million or more, the taxpayer shall declare and deduct input VAT according to the sale contracts, VAT invoices, and bank transfer receipt, If the bank transfer receipt is not available before the payment deadline according to the contract, the taxpayer may still deduct input VAT.
Where the taxpayer does not have bank transfer receipts when making payments, the taxpayer shall declare a reduction of deducted input VAT on the value of goods/services without bank transfer receipts in the tax period during which the cash payment is made (even if the tax authority and competent authorities have decided an inspection of the tax period in which VAT is declared and deducted.
(ii) Pursuant to the provisions of Clause 4, Article 15 of Circular 219/2013/TT-BTC amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC
Other cases in which non-cash payments are used for deducting input VAT:
- If goods and services are purchased by offsetting their value against the value of sold goods and services, or by lending goods under contracts, a certification of this kind of transaction and data comparison record made by both parties is compulsory. If the payment is offset against third party’s debt, a debt offsetting record made by all three parties is compulsory.
- If the contract allows goods and services to be purchased on credit in the forms of loans or debt offsetting via a third party, it is required to have the loan contract and the receipts for transfer of money from the creditor’s account to the debtor’s account, even when the value of purchased goods and services is offset against the amount paid by the buyer on behalf of the seller or the amount provided for the buyer by the seller.
- If a third party is authorized to receive the payment for purchases by bank transfer (including the case in which the seller requests the buyer to wire the payment to a third party appointed by the seller), this authorization must be agreed in the contract, and the third party must be a lawful legal person or natural person.
After the payment is made this way, if the remaining value that is paid in cash is VND 20 million or more, tax shall only be deducted if bank transfer receipts are presented.
- If payment for purchases is wired to a third party’s account at a State Treasury, which is opened to enforce money collection, input VAT may be deducted.
What is an invoice? What is a legal invoice in Vietnam?
Pursuant to the provisions of Clauses 1 and 7, Article 3 of Decree 123/2020/ND-CP:
“invoice” means an accounting record which is created by a goods seller or service provider to record information about the sale of goods or service provision. Invoices are represented in the electronic form or are printed according to orders placed by tax authorities.
“legal invoice” means an invoice whose format and contents are correct and adequate as prescribed in Decree 123/2020/ND-CP.
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