Vietnam: What is VAT? Conditions for deduction of input VAT

What is VAT? Conditions for deduction of input VAT

1. What is VAT?

According to Clause 1, Article 2 of Vietnam's Law on Value-Added 2008, Value-added tax (VAT) on the added value of goods or services arising in the process from production, circulation to consumption.

2. Regulations on Tax deduction method

* According to Clause 1, Article 10 of Vietnam's Law on Value Added 2008 (amended 2013), the Tax deduction method is as follows:

- The amount of VAT payable by deduction method is equal to the amount of output VAT minus the deductible input VAT;

- The amount of output VAT is equal to the total VAT on sold goods and services, which is written on the VAT invoice.

VAT on sold goods and services written on the VAT invoice is equal to the taxable prices of goods and services multiplied by the rate of VAT on such goods and services.

If the paid price written on the invoice is inclusive of VAT, the output VAT shall equal the paid price minus VAT 

- The amount of deductible input VAT is equal to the total amount of VAT written on the VAT invoice, the VAT bill of imported goods, and must satisfy the conditions

* The deduction method is applicable to the business establishments that comply with the regime for accounting and invoicing according to the laws on accounting and invoicing, including:

- Business establishments that earn annual revenue of at least 1 billion VND from goods sale, except for business households and individuals;

- Business establishments that voluntarily employ the deduction method, except for business households and individuals.

3. Conditions for deduction of input VAT

Conditions for deduction of input VAT are specified in Clause 2, Article 12 of Vietnam's Law on Value Added 2008 (amended 2013) as follows:

(1) Sale invoices or receipts of tax payment at the importation stage;

(2) There are receipts of non-cash payments for purchased goods and services, except for the purchases below 20 million VND;

(3) For exported goods and services, in addition to the conditions specified in (1) and (2) of this section, the following documents are also required:

- A contract sign with a foreign partner to sell, process goods or provide services;

- Sale invoices; receipts of non-cash payments; customs declarations of exported goods.

The payment for exported goods and services by offsetting the exported goods and services against the imported goods and services and repayment of debts on behalf of the State is considered non-cash payments.

4. Input VAT deduction method

The method of deduction of input VAT is specified in Clause 1, Article 12 of Vietnam's Law on Value Added 2008 (amended 2013) as follows:

- Input VAT on goods and services used for the production and sale of goods and services subject to VAT is completely deductible, including input VAT that is not compensated of damaged goods and services subject to VAT;

- For goods and services used for the production and sale of both taxable and non taxable goods and services, only input VAT on the goods and services used for the production and sale of taxable goods and services is deductible. Deductible input VAT must be separated from non-deductible VAT; if they are not separated, the deductible input VAT shall be calculated by the percentage of revenue from goods and services subject to VAT to the total revenue from sold goods and services;

- Input VAT on goods and services sold to organizations and individuals that use humanitarian aid or non-refundable aid is completely deductible;

- Input VAT on goods and services used for petroleum exploration and extraction is completely deductible;

- Input VAT that arises in a month shall be declared and deducted when calculating the tax payable in that month.

When business finds that the input VAT is declared or deducted incorrectly, it may be rectified before the tax authority issues a decision on tax inspection at the premises.

Quoc Dat

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