Goods and services used for production, trading or consumption in Vietnam are subject to value added tax, except some exceptional cases.
- Goodsand services not subject to the VAT
The following goods and services are not subject to VAT: Article 5 of the Law on Value Added Tax
- The VAT rates
There are 03 types of VAT rates i.e. 0%, 5% and 10%.
- A VAT rate of 0% is applied to exported goods and services, international transport, goods and services that are not subject to VAT when they are exported, unless some service such as transferring technologies or transferring intellectual property rights abroad; reinsurance abroad; capital transfer; telecommunications and postal services;
- A VAT rate of 5% is applied generally to essential goods and services such as clean water, teaching aids, books, medicine and medical equipment, husbandry feed, agricultural products and services, rubber latex and sugar; and
- A VAT rate of 10% is applied to all other goods and services which are not subject to the above two types of VAT rates, VAT exemptions and non VAT objects.
There are 02 calculation methods of VAT – the deduction method and direct method.
- Deduction method
This calculation method shall be applied to the business establishments that comply with the regime for accounting and invoicing according to the laws on accounting and invoicing including business establishments having annual revenue of at least VND 01 billion from the goods sale, except for business households and individuals; and business establishments voluntarily registering an application of the deduction method, except for business households and individuals.
The amount of VAT payable by the deduction method is equal to the amount of output VAT minus the deductible input VAT.
This calculation method shall be applied to activities of trading and crafting gold, silver, and gems. Accordingly, the payable amount of VAT equals the value added multiplied by the VAT rates. VAT added to gold, silver and gems are equal to the sale prices of the gold, silver and gems minus the purchase prices of gold, silver and gems.
In addition, the direct method of calculation of the VAT shall be applied to the following subjects:
- The enterprises and cooperatives of which the annual revenue is less than VND 01 billion, except for the enterprises and cooperatives voluntarily registering an application of the deduction method;
- The business households and individuals;
- The Foreign Contractors who earn revenue in Vietnam and do not comply with the accounting regime, except for foreign organizations and individuals that provide goods and services for petroleum exploration and extraction and have their tax deducted and paid by their Vietnamese partner; and
- Other economic organizations, except for the organizations voluntarily registering the application of the deduction method.
The payable amount of VAT equals the revenue multiplied by the specific percentage. The specific percentage for calculating VAT is in a range of 1% up to 5% subject to the services listed in its business establishment or if they are Foreign Contractors.
The paid VAT amount shall be refunded in any of the following circumstances:
- When the input VAT of the business establishment applying the deduction method is not completely deducted in the month or in the quarter, it shall be deducted in the next period; if the input VAT is not completely deducted after at least 12 months or 4 quarters from the month or the quarter in which the un-deducted VAT arises, the business establishment shall receive a tax refund;
- In addition, when the business establishment applying the deduction method has a new project of investment, the VAT on goods and services purchased during the investment is not deducted, and the remaining tax is VND300 million or higher, the establishment shall receive a tax refund;
- When the un-deducted VAT on exported goods and services of a business establishment reaches 300 million VND in the month or the quarter, the establishment shall receive a VAT refund by the month or quarter;
- The business establishment applying the deduction method shall receive a
- refund of the surplus VAT or the VAT that is not completely deducted when the ownership is change, or when the enterprise is converted, merged, amalgamated, divided, dissolved, bankrupt, or shut down; and
Other circumstances relating to ODA projects, goods purchased in Vietnam and brought abroad by foreigners, goods and services purchased in Vietnam by the subject eligible for diplomatic immunity.