Conditions for input VAT deduction in Vietnam

Conditions for input VAT deduction in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. Conditions for input VAT deduction in Vietnam

According to Article 15 of Circular 219/2013/TT-BTC (amended in Circular 26/2015/TT-BTC), conditions for input VAT deduction in Vietnam are specified as follows:

(i) 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.

(ii) 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 (iii) and (iv)

(iii) Bank transfer receipts are documentary evidence proving the transfer of money from the buyer's account to the seller's account (both accounts are already registered or notified to tax authority). 

The buyer is not required to register or notify the tax authority of its loan accounts at credit institutions used for paying suppliers 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 case in which the buyer transfers money from the buyer's account to the seller's account in the name of a private company's owner or from the buyer's account in the name of a private company's owner to the seller's account if such accounts have been registered for with tax authorities).

- 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.

(iv) 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.

2. What are the cases of VAT deduction in Vietnam?

Some cases of VAT deduction include:

- If the taxpayer has a closed production line where the products not subject to VAT are used for producing goods subject to VAT, input VAT shall be deducted in full.

- If the taxpayer has a project of investment that is divided into multiple stages, has a closed production line, and uses non-taxable products to manufacture taxable goods, but non-taxable goods and services are provided during infrastructural development stage, the input VAT incurred during the infrastructural development stage in fixed assets may be deducted in full. The taxpayer must separate the VAT on the assets other than those serving manufacture and trading of non-taxable goods and services to deduct tax according to the ratio of taxable revenue to total revenue from selling goods and services.

If the taxpayer makes a commitment to keep producing taxable products, VAT may be deducted during infrastructural development stage. If the input VAT incurred during the infrastructural development stage has been declared, deducted, and refund, but then found to be not eligible for deduction or refund, the taxpayer must make an adjustment and pay tax that has been deducted or refunded. If the taxpayer fails to make the adjustment, tax authority shall collect the tax arrears and impose penalties. The taxpayer is totally responsible for the report and explanation for the tax deduction and tax refund, which are submitted to tax authority.

If the taxpayer sells unprocessed or preprocessed agricultural, forestry, and aquaculture products that are not subject to VAT, the VAT on purchases may also be deducted according to the ratio of revenue from selling taxable goods and services to the total revenue.

- The taxpayers (including the new business establishments) that provide both goods and services subject to VAT and goods and services that are not subject to VAT may provisionally deduct input VAT on fixed assets incurred during infrastructural development stage according to the ratio of revenue from selling goods and services subject to VAT to the total revenue. The provisionally deducted VAT shall be adjusted to the ratio of revenue from selling goods and services subject to VAT to the total revenue over three years from the first year in which revenue is earned.

(Clause 4, Article 14, Circular 219/2013/TT-BTC)

Nguyen Ngoc Que Anh

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