Indirect tax - Vietnam

Value Added Tax (VAT) is an indirect tax which applies to products and services used for production, business and consumption in Vietnam; as well as on the duty paid value    of imported goods; in which, the importer must pay VAT to Customs Authority at the time of importing goods.

There are four applicable VAT rates in Vietnam, comprising of goods not subject to VAT, 0%, 5% and the standard rate of 10%, particularly:

• standard rate of 10% for most goods and services (currently reduced to 8% for certain goods and services until 31 December 2026);
• reduced rate of 5% generally applies to the provision of essential goods and services, including  clean water; fertilizers, ores for fertilizer production, plant protection chemicals and animal growth stimulators; various agricultural products and services; unprocessed foodstuffs; materials for making fishing nets; handicrafts made of agricultural raw materials; fishing vessels at sea; medicine and medical equipment; teaching aids; traditional and folk performing arts activities ; children toys, books; scientific and technical services; and social housing.
• zero-rated applies to exported goods and services including goods and services sold to overseas/ non-tariff areas, which is directly served the exported activities and consumed outside Vietnam/in the tariff areas, goods processed for export or    in-country export (subject to conditions); goods sold in the restricted area to individuals
  (foreigners or Vietnamese) who have completed exit procedures;  construction and installation in overseas and in non-tariff areas; marine and international transportation services.
• indirect tax exemption applies to certain agricultural products; feed for livestock, poultry, seafood and other animals; salt products; housing owned and sold by the Government to the current tenants; machinery, equipment and services specifically used for agriculture; transfer of land use rights; certain insurance services; financial and credit services; certain securities activities; medical services; animal health services;  funeral services; renovation, constructions for culture public works which are funded by the people’s contributions or humanitarian aid; teaching and training services; radio and television broadcasting by state budget; printing and publishing newspapers and certain types of books; public transport; imports of machinery; equipment and material which  cannot be produced in Vietnam for direct use in science research and technology development activities or for prospecting, exploration and development of oil and gas fields; defense and security products; goods imported for international non-refundable aid, including from Official Development Aid, foreign donations to government bodies and to individuals; goods/material transit through Viet Nam territory or temporarily imported for re-export; goods imported under a finance lease contract by the finance company (the lessor) and directly transported to a free trade zone; gold imported in the form of bars or ingots which have not yet been processed; artificial organs for humans; exported natural resources processed or unprocessed according to the list stipulated by the Government in line with the State’s orientation of not encouraging the export and restricting the export of raw natural resources and minerals;  goods/ services provided by individuals having annual revenue of VND200 million or below.

Under this treatment, no output VAT shall be charged, and the input VAT is not creditable but considered as deductible expenses for CIT purposes.

The current Vietnamese regulations provide two VAT calculation methods, as below:

VAT direct method:

The VAT direct method applies to business entities trading/ crafting gold, silver and gems; business entities with an annual revenue subject to VAT less than VND1 billion (except the volunteer cases); business entities that do not maintain proper books of account and foreign organizations or individuals carrying out business activities in forms not regulated in the Law on Investment; and newly established business entities that do not voluntarily apply the VAT credit method.

The VAT payable under VAT direct method is equivalent to revenue multiply (x) by specific rate, depending on the business activities, including:

• 1% is for the business of ‘distribution, supply of goods’;
• 3% is for ‘the production, transportation, service associated with goods, construction including of the material’;
• 5% is for ‘service, construction exclusive of material’;
• 2% is for other business activities.

VAT credit method:

The VAT credit method applies to business entities maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including (i) business entities with annual revenue subject to VAT of VND1 billion or more; and (ii) newly established entities that voluntarily apply this method.

Under the VAT credit method, VAT payable is equivalent to output VAT minus (-) creditable input VAT.

The input VAT is creditable if it meets the following requirements:

• relevant to business activities;
• having sufficient legitimate invoice and vouchers;
• settlement via forms of non-cash payment for transaction from VND50 million and above.

Of note, the VAT credit method can be more beneficial for the business entity that incurs input VAT frequently during its operations given that the business entity is allowed to claim a VAT refund in certain cases.

The non-established businesses (e.g. foreign business individuals and foreign organization) earning Vietnam-sourced income shall subject to FCT, consist of VAT and CIT. There are three methods FCT declaration applicable to the non-established businesses as below:

Deduction method:

This method allows the non-established businesses to declare:

•  VAT under the approach of crediting the input VAT against the output VAT;
• CIT at the declaration of revenue and income similar to the local enterprises’ application. Of note, only non-established businesses that meet some criteria, including FC’s adoption of Vietnamese Accounting System, are allowed to apply this deduction method.

Direct method:

Under this method, the non-established business’s VAT and CIT will be withheld by the Vietnamese customers at prescribed rates from the payments made to the non-established business. Various FCT rates are regulated under the nature of activities performed, including:

Vietnam Business Activities - VAT and CIT rates

• Trading: distribution, supply of goods, materials, machinery and equipment in Vietnam
  • VAT: Exempt
  • CIT: 1%
    
• Services
  • VAT: 5% [*]
  • CIT: 5%
    
• Services together with supply of machinery and equipment
  • VAT: 3%
  • CIT: 2% (if contact doesn’t separate the value of goods and services)
    
• Restaurant, hotel and casino management services
  • VAT: 5%
  • CIT: 10%
    
• Construction, installation without supply of materials or machinery, equipment 
  • VAT: 5%
  • CIT: 2%
    
• Construction, installation with supply of materials or machinery, equipment
  • VAT: 3%
  • CIT: 2%
    
• Leasing of machinery and equipment
  • VAT: 5%
  • CIT: 5%
    
• Leasing of aircraft, vessels (including components)
  • VAT: Not specified
  • CIT: 2%
    
• Transportation 
  • VAT: 3%
  • CIT: 2%
    
• Interest 
  • VAT: Exempt
  • CIT: 5%
    
• Royalties
  • VAT: Exempt/5% [**]
  • CIT: 10%
    
• Insurance
  • VAT: Exempt
  • CIT: 5%
    
• Re-insurance, commission for reinsurance
  • VAT: Exempt
  • CIT: 0.1%
    
• Transfer of securities
  • VAT: Exempt
  • CIT: 0.1%
    
• Financial derivatives
  • VAT: Exempt
  • CIT: 2%
    
• Manufacturing
  • VAT: 3%
  • CIT: 2%
    
• Other business activities
  • VAT: 2%
  • CIT: 2%
    

(*) The VAT rate of 10% applies to services provided by foreign suppliers without a permanent establishment in Vietnam to organizations and individuals in Vietnam through e-commerce channels and digital platforms.
(**) Computer software, transfer of technology, and transfer of intellectual property (IP) rights (including copyrights and industrial properties) are VAT exempt. Other royalties may attract VAT.

Hybrid method:

This method is a combination of deduction method and direct method, i.e. allows the non-established business to declare VAT using creditable approach and CIT using direct method.

Yes, Foreign enterprises without a permanent establishment in Vietnam those conducting business activities through e-commerce or digital platforms shall be subject to tax on taxable income derived in Vietnam.

Only a non-established business with the selection of FCT deduction method and hybrid method is required to appoint a fiscal representative in order to register; given that under the direct method, the Vietnamese customers shall declare FCT return and withhold the relevant FCT payable from the payment paid to the non-established business for remittance to the state treasury.

The business entity with an annual revenue more than VND50  billion is required to file VAT return and pay VAT payable on a monthly basis by the 20th day of the following month. Otherwise, the quarterly basis with the deadline by the 30th day of the following quarter shall be applied (inclusive of the newly established enterprise).

A default surcharge penalty may be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date, namely interest on late payment currently amounting to 0.03% per day.

No.

Yes. A range of penalties can be imposed where businesses do  not comply with the VAT rules, including:

• a penalty on incorrect tax declaration leading to the under- declared VAT liabilities of 20% on the under-declared VAT liabilities.
• a penalty on tax evasion from one to three times on the evaded tax liabilities.

No. VAT incurred by overseas businesses cannot be claimed if they are not registered in Vietnam.

The business entities are required to use electronic invoices to declare their VAT liability except for certain special cases.

There are stipulated items that must be included and strictly reflected onto the e-invoice:

• an invoice number which is unique and sequential. The business entities are required to register/notify the invoice issuance to the tax authority;
• the seller’s name, address and tax code;
• the invoice date;
• the customer’s name, address and tax code;
• a description sufficient to identify the goods or services supplied to the customer;
• the unit price or rate, excluding VAT;
• the quantity of goods or the extent of the services;
• the rate of VAT that applies to what’s being sold;
• the rate of any cash discount;
• the total amount payable in VND, only certain business activities are allowed to issue invoice in foreign currency;
• Electronic signature by the seller and buyer.

There is no SAF-T requirement in Vietnam.

E-invoices in Vietnam are categorized into two main types, including:

• Authenticated e-invoice: An e-invoice that is granted an authentication code by the tax authority before being sent to the buyer by the goods seller or service provider; and
• Unauthenticated e-invoice: An e-invoice that is sent to the buyer by the goods seller or service provider without the tax authority’s authentication code.
  Before using e-invoices, enterprises have to register with the tax authority via their electronic gateway.