When is paying value-added tax on a letter of credit (L/C) exempt from administrative penalties in Vietnam?
When is paying value-added tax on a letter of credit (L/C) exempt from administrative penalties in Vietnam?
Recently, the General Department of Taxation issued Official Dispatch 5366/TCT-DNL 2023 concluding the Deputy Prime Minister's conclusion on value added tax for letter of credit (L/C) activities. Accordingly, the dispatch has instructions:
In document No. 324/VPCP-KTTH dated August 12, 2023 of the Government Office, Deputy Prime Minister Le Minh Khai concluded: "Assign the Ministry of Finance to direct the General Department of Taxation based on the provisions of the Law on value added tax, the 2010 Law on Credit Institutions and related laws collect value added tax on letter of credit (L/C) activities in accordance with regulations. Previously, on April 22, 2020, the General Department of Taxation issued Official Dispatch No. 1606/TCT-DNL requesting the Tax Departments of provinces and cities to instruct credit institutions in the area under their management, which provide letter of credit (L/C) services, to declare and pay VAT in accordance with regulations.
Pursuant to the above regulations and the Conclusion of the Deputy Prime Minister in document No. 324/VPCP-KTTH dated August 12, 2023 of the Government Office, the General Department of Taxation requests the Tax Departments of provinces and centrally run cities to review the implementation of Official Dispatch No. 1606/TCT-DNL within their management areas, Continue to urge commercial banks and foreign bank branches in Vietnam to declare and pay taxes on letter of credit activities in accordance with the law and the Conclusion of the Deputy Prime Minister at Document No. 324/VPCP-KTTH. In case the taxpayer declares additional tax declaration documents and pays the full amount of tax payable and late payment interest before the tax authority announces the decision on tax audit or tax inspection at the taxpayer's headquarters or before the tax authority discovers that there has been no tax inspection or audit at the taxpayer's headquarters or before other competent authorities detect it, they will not sanction tax-related administrative violations.
Thus, based on the guidance in Official Dispatch 5366/TCT-DNL 2023 of the General Department of Taxation, there are 03 cases where taxpayers are not sanctioned for tax administrative violations regarding payment of value-added tax on letters of credit (L/C) as follows:
(1) In case the taxpayer declares additional tax declaration documents and pays the full amount of tax payable and late payment interest before the tax authority announces the decision on tax audit or tax inspection at the taxpayer's headquarters
(2) In case the taxpayer declares additional tax declaration documents and pays the full amount of tax payable and late payment interest before the tax authority discovers that there has been no tax inspection
(3) In case the taxpayer declares additional tax declaration documents and pays the full amount of tax payable and late payment interest before other competent authorities detect it
When is paying value-added tax on a letter of credit (L/C) exempt from administrative penalties in Vietnam?
Vietnam: When is the late payment interest charged?
Pursuant to the provisions of Clause 1, Article 59 of the Law on Tax Administration 2019, late payment interest shall be charged in the following cases:
- The taxpayer pays tax behind deadline, the extended deadline, the deadline written in the tax authority’s notice, tax liability imposition decision or handling decision;
- If the supplementation of the tax declaration dossier leads to an increase in the amount of tax payable, or the tax authority or inspecting authority finds that tax is understated, late payment interest shall be charged on the increase in tax over the period from the day succeeding the initial deadline or the deadline for tax payment of the initial customs declaration;
- If the supplementation of the tax declaration dossier leads to a decrease in the amount of refundable tax, or the tax authority or inspecting authority finds that refundable tax is smaller than the refunded tax, late payment interest shall be charged on the excessively refunded tax, which has to be paid back to state budget, over the period from the day on which tax is refunded;
- The cases in which outstanding debt may be paid by installments as prescribed in Clause 5 Article 124 of the Law on Tax Administration 2019;
- The cases in which administrative penalties are not imposed due to expiration of the time limit for penalty imposition but outstanding tax has to be collected as prescribed in Clause 3 Article 137 of the Law on Tax Administration 2019;
- The cases in which administrative penalties are not imposed specified in Clause 3 and Clause 4 Article 142 of the Law on Tax Administration 2019;
- The organization that is authorized by the tax authority to collect tax but fails to transfer the tax, late payment interest and fines paid by taxpayers to state budget in a timely manner shall pay an interest on such amount.
Is letter of credit a service of commercial banks in Vietnam?
Pursuant to the provisions of Clause 6, Article 98 of the Law on Credit Institutions 2010, there is the following content:
Banking operations of commercial banks
....
6. Providing the following payment services:
a/ Domestic payment services, including check, payment order, authorized payment, collection, authorized collection, letter of credit and bank card, and collection and payment services.
b/ Providing international payment services and other payment services after obtaining the State Bank's approval.
Thus, letter of credit (L/C) activities are payment services of commercial banks.
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