Are services provided to export processing companies eligible for 0% VAT in Vietnam?

Are services provided to export processing companies eligible for 0% VAT in Vietnam?

Pursuant to the provisions of Article 9 of Circular 219/2013/TT-BTC stipulating tax rate of 0% as follows:

Tax rate of 0%

1. 0% VAT is applied to exported goods and services; construction and installation overseas and in free trade zones; international transport; exported goods and services that are not subject to VAT, except for the cases in Clause 3 of this Article, in which 0% VAT is not applied.

Exported goods and services are those that are sold to overseas organizations and individuals and are consumed outside Vietnam, sold to the entities in free trade zones, or sold to foreign customers as prescribed by law.

a) Exported goods include:

- The goods exported to other countries, including those under entrustment contracts;

- The goods sold to free trade zones as prescribed by the Prime Minister; the goods sold to duty-free shops;

- The goods that are delivered to the recipients outside Vietnam;

- Parts and supplies for repairing, maintaining vehicles, machinery, and equipment of foreign entities, and those that are used outside Vietnam;

- Cases of deemed exportation:

+ Forwarded processed goods under trade laws on international goods trade and export processing.

+ Exported goods delivered to a domestic recipient appointed by the importer (hereinafter referred to as domestic exports).

+ The goods exported to be sold at overseas fairs or exhibitions.

b) Exported services include the services directly provided for overseas organizations and individuals and are consumed overseas; the services provided for the entities in free trade zones and consumed within the free trade zones.

Overseas individuals are the foreigners that do not reside in Vietnam, the Vietnamese people that reside overseas and are not present in Vietnam when the services are provided. The entities in free trade zones are the entities that have registered their business and other cases prescribed by the Prime Minister.

If services are provided both in Vietnam and overseas, but the service contract is signed between two taxpayers in Vietnam or two taxpayer that have permanent establishments in Vietnam, 0% tax is only applied to the services provided overseas, except for the case of insurance for imported goods, in which 0% tax is applied to the whole contract value. If the contract does not separate the services provided in Vietnam, taxable price shall be determined according to the ratio of expense incurred in Vietnam to the total expense.

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In addition, according to the provisions of Clause 20, Article 4 of Circular 219/2013/TT-BTC supplemented by Clause 2, Article 1 of Circular 26/2015/TT-BTC, regulations on goods and services that are not subject to VAT are as follows:

Goods and services that are not subject to VAT

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20. The goods forwarded through Vietnam’s territory; goods temporarily imported or temporarily exported, raw materials imported for manufacturing or export processing under contracts with foreign partners

The goods and services traded between a foreign party and a free trade zone, or among free trade zones.

Free trade zones include: export-processing zones, export processing companies, tax-suspension warehouses, bonded warehouses, special economic zones, commercial - industrial zones, and other economic zones established and provided with similar tax incentives as free trade zones according to Decisions of the Prime Minister. The transactions between a free trade zone and an external party are considered export/import.

The procedures and documents for considering VAT exemption must comply with instructions of the Ministry of Finance on customs procedure, customs supervision and inspection, export tax, and import tax.

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Through the above bases, 0% VAT applies to exported services. In particular, services provided to businesses in tariff zones are considered export services. On the other hand, export processing enterprises are organizations in the free trade zone.

Therefore, services provided to export processing enterprises are still subject to 0% VAT if the service does not fall into the cases where the 0% tax rate is not applied as detailed in Clause 3, Article 9 of Circular 219/2013/TT-BTC amended by Clause 2, Article 1 of Circular 130/2016/TT-BTC; Clause 5, Article 1 of Circular 26/2015/TT-BTC.

Are services provided to export processing companies eligible for 0% VAT in Vietnam? (Image from the Internet)

What goods and services does 0% VAT apply to in Vietnam?

Pursuant to Clause 1, Article 8 of the 2008 Value Added Tax Law as amended by Clause 3, Article 1 of the 2013 Value Added Tax Law; Clause 2, Article 1 of the Law Amending and Supplementing a Number of Articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Administration 2016:

1. The tax rate of 0% is applicable to exported goods and services, international transport, goods and services that are not subject to VAT according to Article 5 of this Law when they are exported, except for the cases below:

a) Transferring technologies, transferring intellectual property rights abroad;

b) Reinsurance abroad;

c) Credit services;

d) Capital transfer;

dd) Derivative financial services;

e) Telecommunications and postal services;

g) The exports specified in Clause 23 Article 5 of this Law.

Exported goods/services that are consumed outside Vietnam, within free trade zones; goods/services provided for foreign customers as prescribed by the Government.

Note: Exported goods and services are goods and services consumed outside Vietnam, in the free trade zone; goods and services provided to foreign customers according to Government regulations

What conditions must be met to deduct input VAT on goods and services in Vietnam?

According to the provisions of Article 12 of the 2008 Value Added Tax Law, amended by Clause 6, Article 1 of the 2013 Value Added Tax Law, in order to deduct input VAT on goods, services, and business establishments, paying VAT using the tax deduction method must meet the following conditions:

1. Business establishments that employ the deduction method shall deduct the input VAT as follows:

a) 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;

b) 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;

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

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

dd) 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.

2. Required papers for input VAT deduction:

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

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

c) Required papers for exported goods and services apart from the papers in Point a and Point b of this Clause: 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.

Best regards!