Which Business Entities Are Subject to the Direct Method of Calculation Based on Added Value?
Which enterprises are subject to the direct calculation method on added value?
Pursuant to Clause 2, Article 13 of Circular 219/2013/TT-BTC stipulating subjects for the application of the direct tax calculation method on added value as follows:
Direct calculation method on added value
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2. Value-added tax to be paid under the direct calculation method on added value is calculated by the percentage rate multiplied by revenue as follows:
a) Applicable subjects:
- Enterprises and cooperatives currently operating with annual revenue below the threshold of one billion VND, except for cases of voluntary registration for the deduction method stipulated in Clause 3, Article 12 of this Circular;
- Newly established enterprises and cooperatives, except for cases of voluntary registration as guided in Clause 3, Article 12 of this Circular;
- Households and individual businesses;
- Foreign organizations and individuals doing business in Vietnam not under the Investment Law and other organizations not implementing or not fully implementing accounting, invoices, and document policies as per the law, except for foreign organizations and individuals supplying goods and services to conduct oil and gas exploration, development, and exploitation activities.
- Other economic organizations that are not enterprises or cooperatives, except for cases of voluntary registration for the deduction method.
Revenue for value-added tax calculation is the total actual sales amount for goods and services recorded on the sales invoice for taxable goods and services, including additional charges and fees that the business establishment is entitled to. The percentage rate for calculating value-added tax on revenue is specified according to the following activities:
- Distribution and supply of goods: 1%;
- Services, construction without materials supply: 5%;
- Production, transportation, services associated with goods, construction with materials supply: 3%;
- Other business activities: 2%.
Additionally, business establishments with multiple professions involving various percentage rates must declare value-added tax by each group of sectors corresponding to the defined rates. If taxpayers cannot determine the revenue by each sector group or for a lump sum business contract covering various activities at different rates without segregation, the highest rate among the sector groups where the production or business establishment operates will apply.
Therefore, enterprises calculating value-added tax by the percentage rate on revenue use the formula:
Value-added tax to be paid = Revenue x Percentage rate
Which enterprises can apply the direct calculation method on added value? (Image from Internet)
Are the tax collection activities for foreign transport companies subject to direct value-added tax on revenue eligible for value-added tax reduction?
Pursuant to the provisions at Article 11 of Circular 219/2013/ND-CP, tax collection activities for foreign transport companies fall under the category of applying the 10% value-added tax rate.
Pursuant to the provisions at Clause 1, Article 1 of Decree 15/2022/ND-CP on subjects eligible for value-added tax reduction as follows:
Value-added tax reduction
1. Value-added tax reduction for groups of goods and services currently applying the 10% tax rate, excluding the following goods and services:
a) Telecommunications, financial activities, banking, securities, insurance, real estate business, metals and fabricated metal products, mining products (excluding coal mining), coke, refined petroleum products, chemical products. Details in Appendix I issued with this Decree.
b) Products and services subject to special consumption tax. Details in Appendix II issued with this Decree.
c) Information technology as per the IT law. Details in Appendix III issued with this Decree.
d) Value-added tax reduction for each type of goods and services specified in Clause 1 of this Article is uniformly applied at import, production, processing, and commercial trade stages. For mined coal sold out (including cases where coal is extracted then screened, classified by a closed process before selling), the value-added tax reduction applies. Coal products listed in Appendix I of this Decree at stages other than mining do not qualify for value-added tax reduction.
Thus, tax collection activities for foreign transport companies are subjects eligible for value-added tax reduction as stipulated above.
Value-added tax reduction rate for tax collection activities for foreign transport companies?
Pursuant to the provisions at Clause 2, Article 1 of Decree 15/2022/ND-CP on the reduced value-added tax rate as follows:
Value-added tax reduction
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2. Value-added tax reduction rate
a) Business establishments calculating value-added tax by the deduction method are subject to an 8% tax rate on goods and services specified in Clause 1 of this Article.
b) Business establishments (including households and individual businesses) calculating value-added tax by the percentage rate on revenue are eligible for a 20% reduction of the percentage rate for calculating value-added tax when issuing invoices for goods and services eligible for value-added tax reduction as prescribed in Clause 1 of this Article.
At the same time, Official Dispatch 3522/TCT-CS in 2022 issued by the General Department of Taxation also specifies as follows:
Regarding value-added tax reduction for tax collection activities for foreign transport companies:
Business establishments (including households and individual businesses) calculating value-added tax by the percentage rate on revenue are eligible for a 20% reduction of the percentage rate for calculating value-added tax when issuing invoices for goods and services eligible for value-added tax reduction.
Thus, business establishments engaged in tax collection activities for foreign transport companies calculating value-added tax by the percentage rate on revenue are eligible for a 20% reduction on the percentage rate used for tax calculation.
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