VAT is a sale tax, charged as a percentage of the added value of an article or commodity

as it changes hands from manufacturer to wholesaler and to retailer and consumer. Added
value may be calculated by addition or substraction method. Under the addition method,
added value í accounted as profit plus wages. According to the substraction method,
added value is the difference between selling price minus purchase price of goods and
services respectively. Total added value of all phases is equal price on the last phase.
Therefore, total amount of VAT collected from all phases is equal to the amount of VAT
which is computed on sale price to the last consumer.
VAT has four characteristics. Firstly, VAT is multi-phased consumption tax. It is
imposed on all phases of production, distribution and born ultimatedly by the final
consumer. Secondly, VAT is neutral tax. It is paid the buyer, not the seller. Thirdly, VAT
is indirect tax, charging to final customers. Fourthly, VAT is regressive in relation with
income.The higher incomes of buyer, the less ratio of tax on income they pay.
Under Vietnam law, VAT is levied on goods and services used for production, business
and consumption in Vietnam, except for several exempt items: necessities, goods and
services for social and charity objectives, products of preferential fields, imported goods
not used for production, distribution and consuming in Vietnam, non-profit aimed
products, imported goods or services paid by the government.
The base of VAT is called base price. In principle, the base price is before VAT price.
VAT rates currently in Vietnam are 0%, 5% and 10%. The rate 0% is applicable to
exported goods and services. The standard rate is 10%.
There are two methods of calculation VAT payable: credit method and substraction
method. Under the credit method, in order to determine VAT payable, we need to
ascertain deductible input tax and output tax. The output tax is equal to the base price of
taxable goods sold or service provided multiplied by the rate applicable to these goods or
service. The deductible input tax amount is equal to the total VAT amount stated on the
added value invoices for purchased goods or services used for the production of and
trading in goods and services subject to VAT or the VAT amount stated on vouchers on
import tax payment for imported goods or VAT payment made on behalf of foreign
parties under the guidance of the Ministry of Finance for application to foreign
organizations and individuals doing business in Vietnam without establishing legal
entities in Vietnam. When determining input tax, business establishments have to comply
with four principles. The first one is that only VAT on goods or services used for
production of and trading in goods and services which are subject to VAT is deductible.
The second principle is that the deductible input tax amount of goods and services arising
in a month is declared for credit immediately when the tax amount payable in that month
is determined, regardless of whether these goods and services have been delivered for use
or still remain in stock. The third principle is that only legible input invoices, vouchers
are deductible. And the last one is the condition of via-bank payment. If a transaction
having value of VND20,000,000 and more, a via-bank payment for purchased goods and
services is required as one of the conditions for input tax credit. Under the substraction
method, in order to determine VAT payable, we need to define added value of goods and
services. In turn, added value can be determined by turnover of sold goods or provided
services and cost of sold goods or provided services. In some special cases, added value
is ascertained by an added value rate stipulated by the Ministry of Finance.
Business establishments applying credit method when selling goods or providing services
subject to VAT have to use added value invoices (except where they are permitted to use
special-type invoices and vouchers written with total payment prices). Business
establishments applying subtraction method when selling goods or services, have to use
normal invoices.
In principle, VAT declaration in Vietnam is a self-assessment system. The taxpayers
calculate themselves the tax amount payable, submit the tax return and pay tax at the due
time stated by law. Taxpayers pay taxes directly at the State Treasury office or at tax
authorities that receive tax declaration dossiers or through organizations authorized by tax
administration agencies or through commercial banks or other credit institutions and
service organizations defined by law. Taxpayers may pay taxes in cash or by account
transfer. And in a tax period, if business establishments have the overpaid tax amounts of
the previous period, these tax amounts may be cleared against the tax amounts payable of
the subsequent period. In Vietnam, currency for tax payment is Vietnam dong. Where a
tax payment is made in foreign currencies, only freely convertible foreign currencies
under the State Bank’s regulations are accepted.
There are eight cases of VAT refund. First, business establishments applying credit
method have input tax amounts not fully credited for three or more consecutive months
(regardless of the accounting year). Second, where business establishments applying
credit method export goods or services in a month and have the input tax amount thereon
not yet credited reaching VND200 million or more, they are considered for tax refund for
the month. Third, for newly invested business establishments which have made business
registration and registered to pay tax under credit method but are still at the investment
stage, have neither started operating nor seen any output tax yet, they are entitled to tax
refund. Fourth, for business establishments paying tax by the tax credit method, if they
have investment projects to build production establishments which are still at the
investment stage, have not yet been put into operation and have not yet made business
and tax payment registration, they are entitled to tax refund. Fifth, business
establishments finalizing tax (upon their merger, consolidation, division, splitting,
dissolution, bankruptcy, ownership transformation, or assignment, sale, contracting or
lease) having any overpaid tax amounts or input tax amounts not yet fully credited are
entitiled to tax refund. Sixth, business establishments enjoy tax refund under decisions of
competent bodies defined by law. Seventh, VAT amounts paid for goods and services
using for ODA-funded projects is considered to tax refund. Eighth, Vietnamese
organizations that use humanitarian aid or non-refundable aid money of foreign
organizations or individuals for the purchase of goods in Vietnam for use as aid will be
refunded the VAT. Where taxpayers are eligible for tax refund prior to auditing, the VAT
have to be refunded within 15 days (3 days for the tax refund for ODA-funded projects)
from the date of receipt of complete dossiers as prescribed. The deadline for tax refund is
60 days from the date of receipt of complete dossiers as prescribed applying for the
subjects liable to audit prior to tax refund.