Vietnam VAT (Value-Added Tax) – Complete Guide

Vietnam VAT  (value-added tax) is levied on products and services at every point in the manufacturing process where value is added, from the beginning to distribution and consumption.

Vietnam’s VAT has a significant tax base, and the business will probably have to pay for it. VAT is imposed in Vietnam on all businesses and people who manufacture trade, or offer goods and services. Moreover, VAT must be paid by any business or individual who imports goods or acquires services from abroad.

Instead of being levied at various levels, such as state, provincial, or local taxes, the VAT is an indirect tax on domestic consumption imposed on all countries. It is a multi-stage tax gathered at each link in the production and distribution process and then charged to the end consumer.

Businesses that sell goods or services subject to VAT must register for a VAT number with the Vietnamese tax authorities (General Department Of Taxation).

Taxable products in Vietnam

The majority of goods and services used in Vietnam for manufacturing, trading, and consumption are subject to VAT, with the exception of those that are categorised as non-taxable commodities.

Non-taxable Products in Vietnam

• Marine products that have not yet been processed, which are sold directly by the producing organisations or imported; products from agriculture and animal husbandry;
• The transfer of land use rights;
• Services for insurance;
• Financial, banking, or stock or share trading services;
• Healthcare for both people and animals;
• Using buses and tramcars for public transit;
• Certain imported machinery, equipment, supplies, or infrastructure that Vietnam is still unable to make or create;
• Goods temporarily imported for later reexport or vice versa; raw materials imported under contracts made with foreign parties for the manufacturing or processing of later-exported goods; 
• Goods and services exchanged between foreign nations and non-tariff regions or between non-tariff areas;
• Computer software; gold in the form of bars and ingots;
• Goods and services of business households/individuals whose yearly revenue is no more than 100 million VND;
• Transfer of technology under the law of technology transfer; transfer of ownership rights to intellectual property under the law of intellectual property; and computer software.

WHAT ARE VAT RATES IN VIETNAM?

0% Rate

With the following exceptions, this rate is applicable to exported goods and services, overseas travel, and non-taxable products after exportation:

• Transfer of technology or ownership rights to intellectual property abroad;
• Services for international reinsurance, credit provision, capital transfers, and derivative financial services;
• Service for communications;
• Mined materials that have not been processed, or any product whose market worth is at least 51% made up of mined materials, minerals, and energy costs.

5% Rate

The following goods and services are subject to the VAT rate of 5%:

• Clean water for residential or production purposes;
• Preventive and curative medications, pharmaco-chemistry products, medical cotton and bandages, pharmaceuticals used in the creation of curative and preventative medications;
• Tools for education and learning;
• Exhibitions, cultural, athletic, and performance events; artistic productions; import, distribution, and cinema screenings;
• Children’s toys and specific types of books;
• Services provided in the field of science and technology under the legislation;
• Social housing leases and sales;
• Various products and services related to forestry, agriculture, aquaculture, and other forms of production.

10% Rate

All other categories of goods and services are taxed at a 10% rate, with the exception of those that are subject to VAT rates of 0% and 5%. Decree 15/2022 offers a 2% VAT deduction for products and services that are now subject to a 10% VAT  (with some exceptions).

TWO METHODS TO CALCULATE VAT IN VIETNAM

Credit Method

Businesses that comply with all accounting, billing, and document requirements may use this strategy.

Businesses can utilise this technique, in particular, if your business entities:

• Possess annual revenue from the sale of goods or the provision of services of at least 1 billion VND, excluding business homes or individuals;
• Willingly sign up for the credit system, excluding businesses or people.

After choosing this approach, one must stick with it for two years in a row.

Businesses can use this formula below to determine the payable VAT amount:

[Payable VAT amount = Output VAT – Creditable Input VAT]

Some considerations on the issue of crediting input VAT are as follows:

• One can fully credit the input VAT he has paid on the purchases of goods and services.
• Just the portion of goods and services used to produce taxable items is creditable if input VAT is levied on both taxable and non-taxable products. Calculating this proportion is the responsibility of business entities.
• It is possible to fully credit input VAT on products and services used for petroleum exploration or sold for humanitarian aid.

The business entities must have the following to credit input VAT:

• Invoices for VAT on goods and services acquired, or documents for VAT on imported items.
• A non-cash payment record for products or services worth at least 20 million VND.
• Contracts entered into with foreign parties, bills, records of non-cash payments, and customs declarations for products and services exported.

There are two types of invoices:

E-invoices with a verification number are required for usage for a period of 12 months by “high risk tax enterprises,” which are defined as companies with equity of less than US$635458.50 (VND 15 billion) and certain other characteristics. 

The government tax authorities will reevaluate after a year to determine whether to grant permission to use electronic invoices without a verification code.

E-invoices without a code for verification E-invoices don’t need a verification number to be used by businesses that the tax authorities have approved. The tax authorities must receive all e-invoice data.

Direct Method

If the business fit into a certain category, it must use the direct technique:

• businesses and cooperatives with annual revenues below 1 billion VND or that voluntarily choose not to register for the credit method;
• businesses, households, and people;
• foreign businesses and individuals (apart from those involved in oil and gas exploration and exploitation) who do not have a permanent presence in Vietnam but who get income from this country and who have not adhered fully with its accounting, invoice, and document laws;
• Businesses that deal in precious metals such as gold, silver, and diamonds.

One can determine the payable VAT amount by using the direct method as follows:

[Payable VAT amount = Revenue x Regulated rate (%)]

The regulated rate (%) varies per industry, notably in the following ones:

• 1 percent of commodities are distributed and provided.
• Without the provision of materials, services and construction: 5%
• Manufacturing, transportation, attached-goods services, and construction with material supply: 3%.
• 2% others

Please be aware that trading or producing gold, silver, and precious stones are not covered by the aforementioned formula. You can use this formula instead:

[Payable amount = Bid-ask Spread x Regulated VAT rate for these products]

VIETNAM VAT DECLARATION

The business must register for VAT and submit monthly or quarterly VAT declarations if the business manufactures or trades taxable goods in Vietnam.

To begin with, one must submit VAT returns each month, within 20 days after the end of the month. In the meanwhile, businesses must submit their quarterly VAT returns within 30 days after the end of each quarter.

In short, businesses must adopt a quarterly disclosure in accordance with Section 15 of Resolution No. 151/2014/TT-BTC on tax revision if their revenue from the previous year was no higher than 50 billion VND.

Most importantly, if the business is brand new (i.e., in its first year), it must file VAT quarterly. 

Then, based on the revenue generated during the first year, it can either switch to a monthly declaration or keep using the quarterly declaration.

Some items do not require a disclosure. For instance, certain types of remuneration, services provided by foreign entities without a permanent presence in Vietnam, or other things that are governed by the legislation.

For more information, refer to our page Vietnam company registration. 

VAT REFUND IN VIETNAM

There are various situations where a business entity may be eligible for a VAT refund.

A company using the credit method with:

• A new investment project that is now in the investment stage; 
• Input VAT that has not yet been fully paid and is still owed, with a value of at least 300 million VND.

Also, the business entity is eligible to a VAT refund for that month or quarter if it exports products or services and has input VAT that has not yet been fully credited that is worth at least 300 million VND. Except for the following situations:

• The imported items are intended for re-export; 
• as per the Customs Law, the goods do not go through an exporting process inside of customs-controlled zones.

For more information, feel free to contact us at Relin Consultants.