Circular No. 32/2007/TT-BTC dated April 9, 2007 of the Ministry of Finance guiding the implementation of the Government’s Decree No. 158/2003/ND-CP dated December 10, 2003, Decree No. 148/2004/ND-CP dated July 23, 2004, and Decree No. 156/2005/ND-CP dated December 15, 2005, detailing the implementation of the Value Added Tax Law and the Law amending and supplementing a number of articles of the Value Added Tax Law
THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
Hanoi, April 09, 2007
(as amended on 16 April 2008)
ON VALUE ADDED TAX PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREES OF THE GOVERNMENT 148-2004-ND-CP DATED 23 JULY 2004 AND 156-2005-ND-CP DATED 15 DECEMBER 2005 IMPLEMENTING THE LAW ON VALUE ADDED TAX AND THE LAW ON AMENDMENTS TO THE LAW ON VALUE ADDED TAX
Pursuant to the Law on Value Added Tax (VAT) 02-1997-QH9 dated 10 May 1997;
Pursuant to the Law on Amendments to the Law on VAT dated 17 June 2003;
Pursuant to Decree 158-2003-ND-CP of the Government dated 10 December 2003 making detailed provisions for implementation of the Law on VAT and the Law on Amendments to the Law on VAT;
Pursuant to Decree 148-2004-ND-CP of the Government dated 23 July 2004 amending article 7.1 of Decree 158-2003-ND-CP above;
Pursuant to Decree 156-2005-ND-CP of the Government dated 15 December 2005 amending Decree 158-2003-ND-CP above;
Pursuant to Decree 77-2003-ND-CP of the Government dated 1 July 2003 on functions, duties, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance provides the following implementing guidelines on value added tax (VAT):
A. SCOPE OF APPLICATION OF VAT
I. TAXABLE OBJECTS AND VAT PAYERS
1. Taxable objects:
Goods and services (including goods and services purchased from organizations and individuals
overseas) used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except as provided in Section II of Part A of this Circular.
2. VAT payers:
Organizations and individuals producing and trading VAT taxable goods and services in Vietnam, irrespective of the line, form or organization of business (hereinafter collectively referred to as business establishments) and other organizations and individuals importing VAT taxable goods or purchasing VAT taxable services from overseas (hereinafter collectively referred to as importers) shall be liable to pay VAT.
Organizations and individuals producing and trading goods and services comprise:
2.1 Business organizations established pursuant to and with business registration in accordance with the Law on Enterprises, the Law on State Owned Enterprises (now the Law on Enterprises) and the Law on Co-operatives.
2.2 Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, units of the people's armed forces, professional organizations and other organizations.
2.3 Enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam (now the Law on Investment); and foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.
2.4 Individuals, family households, independent groups of persons conducting business, and other business objects conducting production, trading or import activities.
II. OBJECTS NOT SUBJECT TO VAT
1. The following goods and services shall not be subject to VAT:
1.1 Products of cultivation (including forestry cultivation), husbandry, aquaculture or fishing which have not yet been processed into other products or which have only been semi-processed by organizations or individuals producing, catching and selling products at the import stage.
Products which have not been processed at a level higher than semi-processing as stipulated in this clause or products which have not yet been processed into other products shall be determined as follows:
(a) In the case of cultivated products, it means products which have only been sun-dried, dried, cleaned, preserved fresh by using chemicals, unshelled, classified and packed.
(b) In the case of products of husbandry, aquaculture or fishing, it means products which have only been sun-dried, dried, cleaned or frozen, classified and packed.
1.2 Products being domestic animal breeding stock and plant varieties such as breeding eggs, young animals, seedlings, seeds, sperm, embryos and genetic materials at the stages of rearing, importation and commercial trading. Products being domestic animal breeding stock and plant varieties which are not subject to VAT means products imported or commercially traded by establishments which possess a business registration certificate for domestic animal breeding stock and plant varieties issued by the State administrative body. With respect to products being domestic animal breeding stock and plant varieties which are subject to State regulations on standards, their quality must satisfy the conditions stipulated by the State.
1.3 Salt products, comprising salt produced from seawater or natural salt mines, table salt and iodine salt.
1.4. The following imported goods shall not be subject to VAT:
(a) Machinery, equipment or specialized means of transportation which form part of a technological line, and building materials which are not yet able to be produced domestically, and are required to be imported to form the fixed assets of enterprises.
(b) Machinery, equipment, supplies or means of transportation which are not yet able to be produced domestically and are imported for direct use in scientific research and technological development activities.
(c) Aircraft, drilling platforms and watercraft leased from foreign parties which are not yet able to be produced domestically, used for production or business.
(d) Machinery, equipment, accessories, specialized means of transportation and materials required to carry out prospecting, exploration and development of petroleum fields; aircraft parts and accessories, and specialized equipment for aircraft (in the category not yet able to be produced domestically). Services of repair of aircraft overseas including machinery, equipment and accessories replaced during the repair process.
In cases where a production or business establishment imports a complete production line of machinery and equipment which is not subject to VAT as stipulated in this clause 1.4, but in the complete production line there is machinery or equipment which is able to be produced domestically, the entire production line of machinery and equipment shall not be subject to VAT.
Enterprises in the cases stipulated in this clause 1.4 shall include enterprises established under the Law on State Owned Enterprises (now the Law on Enterprises), the Law on Enterprises and the Law on Co-operatives; enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam (now the Law on Investment); and foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.
Example 1: Where Textile Company A imports a number of textile machines in the category not yet able to be produced domestically and comprising a number of complete electrical motors in the category able to be produced domestically, the imported complete motors shall not be subject to VAT.
Importers must present the following file to the customs office in order to determine whether VAT is payable in respect of goods referred to in this clause at the stage of importation:
- Contract for importation. Where import is through an authorized agent, there must also be the contract authorizing the importation.
Where the establishment is the successful tenderer in a tender for supply of goods to entities to be used for the purposes referred to in this clause, there must also be the notice of successful tenderer and contract of sale to the enterprise in accordance with the tender results.
Where a financial leasing company imports for financial leasing, there must also be the financial leasing contract.
Where import is for scientific research and technological development, there must also be the document of the body authorized to assign organizations to perform programs, projects or subjects of scientific research and technological development or the scientific and technological contract between the party giving an order for performance of the scientific and technological contract and the party accepting such order.
- Certification of the director of the enterprise or the head of the scientific research body that the
goods are imported to form fixed assets; [or] for direct use in scientific research and technological development activities; [or] for use in petroleum exploration and development activities of petroleum fields; [or] to be specialized types for aircraft. In particular aircraft, drilling platforms and watercraft leased from foreign parties in the category not yet able to be produced domestically and used for production and business shall not be subject to VAT, and leasing establishments shall only be required to present to the customs office the lease signed with the foreign party.
Whether the above types of goods which are required to be imported are in the category not yet able to be produced domestically shall be determined on the basis of the list of machinery, equipment, specialized means of transportation, building materials, components and accessories which have been produced domestically as issued by the Ministry of Planning and Investment.
1.5 State owned residential houses sold by the State to existing tenants in accordance with the provisions of Decree 61-CP of the Government dated 5 July 1994 on purchase, sale and trading of residential houses.
1.6 Transfer of land use rights.
1.7 Credit services and investment fund services including lending activities; guarantees for loans; discounts of negotiable instruments and valuable papers such as money; sale of security property for loans for the purpose of debt recovery; finance leasing by financial and credit institutions in Vietnam; activities of assignment of capital in accordance with the Law on Enterprises, the Law on Cooperatives, and the Law on State Owned Enterprises (now the Law on Enterprises); and securities trading activities including broking, self-trading, managing investments, underwriting issues and securities investment consultancy.
1.8. Life insurance; student insurance and personal insurance services such as marine crew accident insurance and personal accident insurance (including accident insurance, life cover and combined cover of life insurance and hospitalization expenses), accident insurance covering customers, travellers, automobile drivers, driver assistants and passengers; insurance cover for hospitalization and surgical expenses; vasectomy insurance; other types of personal insurance; livestock insurance, crop insurance and other types of agricultural insurance; and non-profit insurance services such as social insurance, health insurance and workers' compensation insurance.
1.9 Medical examination and treatment services, disease prevention, family planning services, convalescence and rehabilitation services, and veterinary services.
1.10 Products and services in the sectors of culture and the arts, physical training and sports, as follows:
(a) Public cultural, exhibition, physical training and sporting activities; and training sessions and
competitions which are free-of-charge, or for which tickets are sold to audiences or participants but on a non-profit basis. Other items of revenue shall be subject to VAT, such as from the sale of goods, from the lease of parking areas, and from stalls at fairs, exhibitions and so forth.
(b) Artistic performances such as tuong opera, cheo opera, cai luong performances, singing, dancing, musical performances, dramas, and circuses; other types of artistic performance and services of organizing artistic performances by opera companies, performing groups and circuses and so forth which possess an operational licence issued by the State administrative body.
(c) Production of all types of films (with images pre-recorded), irrespective of their theme and type.
(d) Importation of films with images pre-recorded, publication and screening of cinematographic
and video documentary films: for cinematographic films, irrespective of their theme and type; and for video films and disks, only documentaries, news features and science videos. The theme and type of a film shall be determined in accordance with regulations of the Ministry of Culture and Information.
1.11 Education and vocational training including general education, foreign languages, informatics, training in dancing, singing, painting, music, drama, circus, sports and physical education, child care and other vocational training aimed at improving people's academic, professional and occupational knowledge.
1.12 Radio and television broadcasting according to programs funded by the State Budget.
1.13 Publication, importation and distribution:
(a) Dissemination of newspapers, magazines and specialized newsletters.
(b) Political books being propaganda books about the political orientation of the Party and the State, which by virtue of their special subject-matter and themes serve political tasks or which service anniversaries and traditional days of organizations and of all levels, branches and localities; all types of statistical books which disseminate information about good people and good deeds; and books which print the speeches and theoretical studies of the leaders of the Party and of the State.
(c) Textbooks (also in the form of disks, tapes and electronic databases) being books used by teachers and used for study in all schools from pre-primary to secondary (including reference books used for teachers and students in conformity with the contents of educational programs).
(d) Teaching materials being books used by teachers and used for study in all universities, colleges, vocational and specialist schools.
(dd) Books of legislation (laws, resolutions and other legal instruments) being books printing the laws of the State.
(e) Technical or scientific books being books to be used for introduction and guidance on scientific and technical knowledge relating directly to production and scientific or technical branches.
(g) Books printed in languages of ethnic minorities being bilingual books printed in commonly used languages as well as in languages of ethnic minorities.
(h) Pictures, photos, posters, leaflets and brochures for propaganda purposes; slogans and pictures of the leaders; the Party flag, the National flag, the flag of the Youth League and the flag of the Young Pioneers League.
(i) Printing of money and papers with monetary value (cheques, bonds, money orders, securities, and so forth); cash from overseas transmitted to Vietnam.
(k) Visual and audio videos, disks and tapes with the contents of any of the books stipulated in this clause 1.13.
1.14 Public hygiene services and water drainage; maintenance of zoos, public gardens, parks, trees in streets and public lighting services; funeral services, irrespective of the funding for payment of costs.
(a) Public hygiene services and water drainage in urban areas shall include collecting, cleaning and dealing with garbage and waste; drainage and waste water treatment for organizations and individuals. Where a business establishment uses such waste to make other products for sale, such products shall either not be subject to VAT in accordance with the guidelines in Section II of Part A of this Circular or subject to VAT in accordance with the guidelines in Section II of Part B of this Circular. Where a business establishment provides services such as cleaning offices of organizations or individuals, such services shall be subject to VAT at the rate of ten (10) per cent in accordance with the guidelines in clause 3.27 of Section II of Part B of this Circular.
(b) Maintenance of zoos, parks and trees in streets shall include the management, care and protection of birds and animals and the planting of trees in parks, zoos, public areas and national parks.
(c) Public lighting services shall include lighting in streets, side-streets and alleys in residential areas and in small parks in squares and in other parks.
(d) Funeral services shall include services relating to the renting of funeral homes and hearses offered by funeral service companies; cremation and burial.
1.15 Maintenance, repair, restoration and construction of cultural and artistic works, public works, infrastructure and welfare housing funded by public contribution and humanitarian aid, including cases in which the State funds thirty (30) per cent or less of the total capital actually expended.
1.16 Public passenger transportation by bus or electrical vehicle by bus or electrical vehicle companies established and operating under the regulations of the Ministry of Transport and Communications satisfying the transportation requirements of the people within cities, urban areas and industrial zones or between cities and neighbouring industrial zones and tourism zones on condition that the first and last stops do not run through more than two provinces or cities, or not more than three provinces or cities in the case of special urban zones as stipulated in article 3.2(b) and (c) of Decision 34-2006-QD-BGTVT dated 16 October 2006 of the Ministry of Transport and Communications, with the routes, stops, schedules and fares stipulated by the competent authority.
1.17 Basic surveys funded by the State (comprising geological surveys and exploration of minerals, water resources, hydrometeorology and the environment; surveys and formulation of maps).
1.18 Water supply and drainage serving agricultural production; clean water exploited by organizations and individuals for consumption in rural, mountainous and island areas and remote and distant regions.
1.19 Specialized arms and weaponry required for national defence and security:
(a) The list of specialized arms and weaponry required for national defence and security shall be as specified in Appendix 3 to this Circular. Such arms and weaponry not subject to VAT shall include complete products, synchronous items or sections, component parts, and specialized packaging for assembly and preservation of complete products. Repairs of specialized arms and weaponry required for national defence and security must be carried out by enterprises under the Ministry of Defence and the Ministry of Police in order to qualify as not subject to VAT.
(b) Specialized arms and weaponry (including materials, machinery, equipment and replacement accessories) required for national defence and security, whether imported as import duty exempt under the Law on Export and Import Duties or whether imported under the annual quota approved by the Prime Minister of the Government, shall not be subject to VAT.
Imports of specialized arms and weaponry required for national defence and security which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.
1.20 Imported goods in the following cases: humanitarian aid and non-refundable aid (including imported goods funded by non-refundable ODA); gifts to State bodies, political organizations, socio-political organizations, socio-professional organizations and units of the people's armed forces; gifts to individuals in Vietnam; personal effects of foreign organizations and individuals under diplomatic immunity regulations; hand-luggage within duty-free limits; and personal effects of Vietnamese residing overseas accompanying them upon returning to Vietnam.
The limits for imported goods not subject to VAT at the stage of importation shall follow the limits for import duty exemption stipulated in the Law on Export and Import Duties and the guidelines on its implementation.
Imported goods of organizations and individuals entitled to diplomatic immunity in accordance with the Ordinance on Diplomatic Immunity shall be exempt from VAT in accordance with the applicable regulations. In the case of purchase of VAT taxable goods or services in Vietnam, VAT shall be refunded in accordance with the guidelines in clause 8 of Section I of Part D of this Circular.
Taxpayers, goods, documents and procedures for VAT exemption referred to in this paragraph shall be subject to the guidelines provided in Circular 08-2003-TT-BTC of the Ministry of Finance dated 15 January 2003 providing guidelines for VAT refund with respect to diplomatic representative offices, consulates and representative offices of international organizations in Vietnam.
With respect to imported goods being humanitarian aid and non-refundable aid, there must be certification from the Ministry of Finance.
Imports which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.
1.21 Goods to be sold to international organizations and foreigners for humanitarian aid or non-refundable aid for Vietnam:
Procedures for international organizations and foreigners to purchase goods in Vietnam for humanitarian or non-refundable aid for Vietnam to be exempt from VAT: International organizations and foreigners must forward a letter to the seller stating clearly their name as purchaser of goods for humanitarian aid or non-refundable aid for Vietnam and the quantity or value of goods purchased; and include certification from the Ministry of Finance regarding such aid.
Upon sale, a selling establishment must prepare an invoice in accordance with clause 5.1 of Section IV of Part B of this Circular, specifying that the goods are being sold to a foreign organization or individual for humanitarian aid or non-refundable aid, must not include VAT, and must retain the letter from the international organization or Vietnamese representative office in order to provide the basis for tax declaration and finalization.
1.22 Goods in transit or trans-shipment or crossing Vietnamese borders; goods temporarily imported and re-exported and goods temporarily exported and re-imported; and raw materials and supplies imported for production or processing of goods for export in accordance with production or processing contracts for export signed with foreign parties.
The customs office shall resolve which goods are not subject to VAT in these circumstances. Goods which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.
1.23 Goods and services provided to the following:
(a) Services for registration of international transportation facilities owned by entities overseas (unless such facilities are chartered or leased by Vietnamese entities to operate as transport carriers in accordance with law).
(b) Reinsurance services with insurers overseas; insurance of goods transported by road, sea, river, rail or air being exports or crude oil for sale to overseas parties; insurance of goods transported by road, sea, river, rail or air being goods imported to Vietnamese airports, seaports or bordergates; insurance services for works and equipment of foreign contractors (including ships carrying oil and flying a foreign flag) which foreign petroleum contractors or sub-contractors use to carry out prospecting, exploration and development of petroleum in exclusive economic zones of Vietnam (including neighbouring countries with which Vietnam has an agreement to apply a common regime) and also including when such equipment is repaired or maintained for a limited period in Vietnam; and insurance services provided for transportation facilities owned by entities overseas.
(c) International transportation namely transportation of Vietnamese goods and passengers to foreign countries or from foreign countries into Vietnam, and the transportation of goods and passengers between foreign ports.
Where a transportation service establishment signs a contract for transportation of passengers or goods to foreign countries, the turnover from transport services which is not subject to VAT shall be the revenue actually collected from passengers. Where a domestic transport stage is included in the transport contract but it is not possible to calculate separately turnover from domestic transportation and international transportation, the turnover not subject to VAT shall include the turnover from domestic transportation.
(d) Goods and services provided directly to international transportation carriers means a business
establishment in Vietnam directly sells goods and services to the owner of an international transportation carrier for use during such transportation or for use on the facility, including:
(d1) Goods and services for use during transportation such as food and water, napkins and tissues, hygiene services, buoys and life-jackets, pilot services including for shipping and for planes at airports, wharfing services and parking services and a number of other goods and services provided directly to international transporters.
(d2) Goods and services provided to ensure the operation of international transportation carriers such as petrol and oil, repairs, paint, maintenance and so forth except for services for registration or services as mentioned above which are provided to facilities owned by Vietnamese entities, or chartered or leased by Vietnamese entities from foreign parties, which shall be subject to VAT as provided for in Part B of this Circular.
International transportation carriers referred to in clause 1.23 (d2) above include:
- Transportation carriers owned by organizations and individuals overseas conducting an international transportation operation;
- Transportation carriers owned by Vietnamese organizations and individuals or carriers chartered or leased by Vietnamese entities from foreign entities to conduct an international transportation operation.
(e) Duty-free goods sold at duty-free shops at international airports, seaports, international stations and bordergates.
(g) National reserves goods sold by the National Reserves Office.
(h) Goods and services exported overseas from non-tariff zones; goods and services exchanged or purchased and sold as between entities in non-tariff zones (including goods and services supplied to non-tariff zones by foreign organizations and individuals).
Non-tariff zones comprise export processing zones, export processing enterprises, import duty bonded stores, import duty bonded zones, bonded warehouses, special commercial economic zones, commercial-industrial zones and other economic zones established by Decisions of the Prime Minister of the Government. The relationship of exchanging or purchasing and selling goods as between these zones and outside parties is an import/export relationship.
(i) Goods and services sold overseas, except for export goods and services in the category subject to the VAT rate of 0%.
(k) Operations subject to collection of fees and charges in accordance with State regulations shall not be subject to VAT, unless they have been transferred to the regime on prices for services.
1.24 Technology transfers and computer software, except for exported computer software:
(a) Technology transfers shall be determined in accordance with the provisions of Part 6 of Chapter 36 "Transfer of Technology" of the Civil Code of the Socialist Republic of Vietnam and its implementing legislation. In the case of technology transfer contracts accompanied by machinery and equipment, only the value of the transferred technology shall not be subject to VAT.
(b) Computer software (except for exported computer software) shall include software products and software services as stipulated by law.
1.25 Postal and telecommunications services and Internet services universalized pursuant to the program of the Government.
1.26 Gold imported in bars and foils and gold which is not yet processed into fine art articles, jewellery or other products.
Gold in bars and foils and unprocessed gold shall be determined in accordance with international provisions.
1.27 Exported minerals which are not yet processed into other products, specifically as follows:
(a) Crude oil;
(b) Stone slabs, sand and rare earth;
(c) Precious stones;
(d) Manganese ores, tin ores, iron ores, chromic ores, emanate ores and apatite ores.
1.28 Products being prosthetics; and crutches, wheelchairs and other specialized apparatus used for disabled people.
1.29 Goods and services of business individuals being persons with average monthly income levels lower than the minimum wage applicable to State employees as stipulated by the State. Such income shall be determined as the revenue earned from business activities less (-) reasonable expenses of such business activities.
Business households with a low income which are not required to pay VAT shall be determined after inspection by the tax division in co-ordination with the Tax Consultancy Board, and a list shall be compiled thereof and written notice shall be provided to such business households.
Business households shall not be required to pay VAT during the duration of the above notice, but if their situation changes such that their income exceeds the stipulated limit, the tax division must notify them and place them within the category of VAT payers as from the month when their income exceeded the stipulated limit.
2. Business establishments shall not be entitled to a credit and refund of input VAT on goods and services used for production or business of non-VAT taxable goods or services stipulated in this section but must include such input VAT in the value of goods or services, the original cost of fixed assets or business expenses.
B. BASES FOR AND METHODS OF TAX CALCULATION
The bases for calculation of VAT are taxable prices and tax rates.
I. VAT TAXABLE PRICE
Prices used for calculation of VAT on goods and services shall be specifically determined as follows:
1. In respect of goods and services sold or supplied by production or business establishments, the sale price excluding VAT. In respect of goods and services subject to special sales tax (SST), the sale price including SST but excluding VAT.
Prices used for calculation of VAT on all types of goods and services shall also include additional levies and supplementary fees on top of the price of the goods and services which the business establishment is entitled to, except for additional levies and supplementary fees the latter must pay to the State Budget. Where a business establishment applies a form of discount to the sale price, the VAT taxable price shall be the discounted sale price recorded in the invoice.
2. In respect of imported goods, the imported price at the bordergate plus (+) import duties (if any) plus (+) SST (if any). The imported price at the bordergate used to calculate VAT shall be determined in accordance with the provisions on dutiable prices of imported goods.
Where imported goods are entitled to exemption from or reduction of import duties, the VAT taxable price shall be the price of the imported goods plus (+) import duties calculated at the rate of duty payable after the exemption or reduction.
3. In respect of products, goods and services used for the purposes of exchange, gift or donation, or paid instead of wages, the VAT taxable price shall be the taxable price of products, goods and services of the same or equivalent category at the time of such use or activity as abovementioned.
Example 2: Establishment A manufactures electrical fans and exchanges 50 fans for steel from Establishment B, and the sale price (before VAT) is VND 400,000 per fan. The VAT payable in respect of the exchanged fans shall be VND 400,000/fan x 50 fans x 10% = VND2,000,000.
4. In respect of products, goods and services which a business establishment produces for its own use but not to serve production or trading, or uses for production and trading of goods and services which are not subject to VAT, VAT output must be calculated. The taxable price shall be the sale price of products, goods or services of the same or equivalent category at the time of such use.
In respect of goods circulated internally, such as goods produced for transfer into an internal warehouse or materials and semi-finished products produced in order to continue the process of production within the same production or business establishment, VAT shall not be calculated or payable.
5. In respect of services provided by foreign parties to consumers in Vietnam, the VAT taxable price shall be the service price payable to the foreign party.
Example 3: Company A in Vietnam engages a foreign company for repair of a sea-going vessel. If the contractual price payable to the foreign company is VND 100 million, the VAT calculated and paid by Company A shall be 10% of VND 100 million.
6. In respect of property leasing services such as houses, factories, warehouses, bus or landing stations, grounds, means of transportation, machinery and equipment and so forth:
The VAT taxable price shall be the rent excluding taxes. In the case of leases for which rent is received in instalments or received in advance for a period of the lease, VAT shall be calculated on the basis of the amount of rent received in each instalment or received in advance, including receipts in other forms such as receipts for renovation, repair or upgrading at the request of the lessee.
Rent for assets shall be as agreed between the parties in a contract. Where the framework of rents
is stipulated by law, the rent shall be determined within such framework.
7. In respect of goods sold by instalment payments, the taxable price shall be the lump sum price of the goods excluding VAT on one occasion (excluding interest on instalments), without taking into account the instalments paid each time.
Example 4: If a motor dealer supplies 100cc Honda motorcycles at the one-off price excluding VAT of VND 25.5 million per bike (including interest on instalments being VND 0.5 million), the VAT taxable price shall be VND 25 million per bike.
8. In respect of goods processing, the VAT taxable price shall be the processing price excluding VAT but including charges for labour, fuel, power, auxiliary materials and other expenses of processing incurred by the processor.
9. In respect of construction and installation:
9.1 In respect of construction and installation in which the supply of raw materials is included in the contract, the VAT taxable price shall include the VAT-exclusive value of such raw materials.
Example 5: Where Construction Company A is awarded a construction contract which includes the value of the construction materials, the total payment price without VAT being VND 1,500 million of which the value of construction materials is VND 1,100 million, the VAT taxable price shall be VND 1,500 million.
9.2 In respect of construction and installation in which the supply of raw materials is not included in the contract, the VAT taxable price shall be the value of the construction and installation not including the VAT-exclusive value of the raw materials.
Example 6: Where Construction Company X is awarded a construction contract for which the owner of the works supplies the materials, the value of the construction without construction materials being VND 600 million, the VAT taxable price shall be VND 600 million.
9.3 In respect of construction and installation for which payment is made on the basis of delivery of completed items or the value of a quantity of completed works of construction or installation, the VAT taxable price shall be based on the value of items completed and delivered or the value of the quantity of works completed and delivered without VAT.
Example 7: Textile Company X (Party A) engages Construction Company Y (Party B) to carry out expansion of a production workshop. The total cost of the project before VAT is VND 200 billion, comprising:
- Value of construction, 80 billion;
- Value of equipment provided and installed by Party B, 120 billion;
- In addition, Party B charges 10% VAT, 20 billion;
- Total payable by Party A is 220 billion.
- When the workshop is completed and delivered to Party A, Party A shall credit the value of fixed assets for depreciation purposes at 200 billion (value without VAT).
- The amount of VAT actually paid of 20 billion may be deducted from output VAT on goods sold, or else a request for a refund may be made in accordance with regulations.
If Party A agrees to pay Party B for each item of work completed (assuming that construction is completed first and paid for first), when Party A pays the construction costs of 80 billion, it must add 10% VAT to the payment to Party B; the payment to be made, inclusive of VAT, shall be 80 billion + 8 billion = 88 billion.
10. In respect of business establishments to which the State allocates land for the construction of technical infrastructure for transfer together with land use rights, the VAT taxable price [of the infrastructure transferred] shall be the actual sale price or the price of transfer without VAT, minus the land use fees at the land prices stipulated by the people's committee of the province or city under central authority as at the time of allocation of the land.
If the State auctions a land use right with infrastructure in accordance with the Law on Land, and thereafter the business establishment which purchased at auction constructs housing [and] infrastructure for sale and thereafter transfers them together with the land use right/s, the VAT taxable price shall be the actual price of transferring the housing [and] infrastructure with the land use right, minus the price paid at the auction of the land use right.
In respect of business establishments to which the State leases land for investment in leasing infrastructure facilities in an industrial zone, high-tech zone or other economic zone in accordance with Government regulations on sub-leasing, the VAT taxable price shall be the lease rent without VAT, less the land lease rent payable to the State Budget.
Example 8: The State allocates to Housing Investment and Development Company X 10,000m2 of land for the construction of housing for sale, of which 3,000m2 of land is to be used for internal roads under the zone planning and so land use fee is not paid for that 3,000m2 of land. The rate of land use fee payable to the State Budget is based on VND 200,000 per m2. When Company X sells one house with a land area of 50m2, the sale price of the house plus the price of land use right transfer without VAT shall be VND 800 million (in which the price of the house is 600 million and the price of land use right transfer is 200 million). The VAT taxable price of the above house shall be: VND 800 million - (50m2 x 200,000 per m2) = VND 700 million. Output VAT shall be: VND 700 million x 10% = VND 70 million.
Example 9: The State leases to Industrial Zone Infrastructure Business Investment Company Y 500,000m2 of land for 50 years to construct infrastructure facilities for lease. Land lease rent is VND 300,000 per m2 per year. After investing in the infrastructure, Company Y leases to Company Z 5,000m2 of land for 20 years to construct a production workshop, the land lease rent without VAT (without including the cost of public utilities) being VND 800,000 per m2 per year. Company Z pays rent for the infrastructure facilities once per year. The VAT taxable price on the income from leasing the infrastructure facilities per year shall be: (5,000 m2 x VND 800,000) - (5,000 m2 x VND 300,000) x 1 year = VND 2,500,000,000. VAT shall be: VND 2,500,000,000 x 10% = VND 250,000,000.
11. In respect of real estate business activities, the VAT taxable price in respect of real estate or infrastructure attached to the land shall exclude the value of the land at the price provided by the people's committee of a province or city under central authority as at the time of receipt of ownership of or the right to use such real estate.
12. In respect of shipping agency services, broking services, import-export agency and other services for which wages or commission are received, the VAT taxable price shall be the wages or commission received without VAT.
13. In respect of transportation, loading and unloading activities, the VAT taxable price shall be the transportation, loading and unloading charges before VAT, irrespective of whether the establishment directly carries out or sub-contracts out the transportation, loading and unloading.
14. In respect of goods or services of a special nature which use source documents, such as transportation tickets, lottery tickets and so forth, where the price is stated as VAT inclusive, the pre- VAT price shall be determined as follows:
Sale price (price of ticket or whatever)
Pre-VAT price = ---------------------------------------------------------------
1 + % of applicable VAT rate for such goods or services.
15. In respect of tourism services in the form of travel or tour package contracts (including accommodation, travel and meals) the tax-inclusive price shall be determined as the package contract price and turnover of the business establishment for the purpose of calculation of VAT.
Where the package contract price includes items such as airfares for tourists from other countries to Vietnam and from Vietnam to other countries, meals and accommodation costs and excursion costs in foreign countries (if there are legal source documents), such costs shall not be subject to VAT in Vietnam.
Example 10: Ho Chi Minh Tourism Company performs a package tour contract with Thailand for 50 tourists for 5 days in Vietnam with the total payment of USD 32,000. The Vietnamese company pays for all airfares, meals, accommodation and excursion tickets in accordance with the agreed program, and the cost of the return airfares between Thailand and Vietnam is USD 10,000. The output VAT under this contract shall be determined as follows:
- VAT taxable turnover shall be USD 32,000 - 10,000 = USD 22,000
- Output VAT shall be: USD 22,000 x 10% = USD 2,000
1 + 10%
- Turnover of the establishment determined for the purpose of calculating its business results shall be USD 32,000 - 2,000 = USD 30,000.
- Deductible input VAT shall be determined as stipulated to calculate the amount of VAT payable.
Example 11: Hanoi Tourism Company has a contract to take Vietnamese tourists to China at the package price of USD 400/per person for 5 days. If Hanoi Tourism Company pays the Chinese Tourism Company USD 300/per person, the taxable turnover of Hanoi Tourism Company shall be USD 100/per person (USD 400 - USD 300).
16. In respect of pawnbroking services, the taxable price shall be the amount receivable from this service, comprising the interest receivable from providing loans when pawning and the difference earned from selling pawned goods (if any). Turnover shall be determined as VAT-inclusive turnover.
Example 12: A pawnbroking Company has turnover from pawnbroking of VND 110 million in the tax period.
- Output VAT shall be: VND 110 million
--------------------- x 10% = VND 10 million
1 + 10%
- Turnover from pawnbroking by the company determined for the purpose of calculating its business results shall be: VND 110 million - VND 10 million = VND 100 million.
17. In respect of books, newspapers and magazines sold at the published price (cover price) in accordance with the Law on Publishing, the sale price shall be the VAT-inclusive price for the purpose of calculation of VAT and turnover of the establishment (in the case of types subject to VAT). Where not sold at the cover price, VAT shall be calculated on the basis of the sale price.
Publishing means the process of publishing publications which is carried out from the stage of manuscript to the distribution of the publications to readers.
Example 13: Literature Publishing House sells a literary work to a company which distributes the book. The cover price (VAT-inclusive price) is VND 6,300/book. The distribution fee (25%) is VND 1,575/book.
The VAT taxable price shall be determined as follows:
- In a case where the Publishing House issues the book through a distribution establishment, the VAT taxable price of the publication shall be determined as follows:
VAT taxable price at the publishing stage = (Cover price - Distribution costs) divided by (1 + tax rate).
VAT taxable price at the publishing stage (Literature Publishing House) shall be equivalent to:
VND 6,300 - VND 1,575
------------------------------- = VND 4,500/book.
1 + 5%
Output VAT at the publishing stage shall be: VND 4,500 per book x 5% = VND 225/book.
Total amount paid shall be: VND 4,500/book + VND 225/book = VND 4,725/book.
VAT taxable price at the distribution stage (at the company distributing the book) shall be:
--------------- = VND 6,000/book.
1 + 5%
Output VAT shall be: VND 6,000/book x 5% = VND 300/book.
VAT payable at the stage of distributing the book shall be: VND 300/book - VND 225/ book = VND 75/book (assuming that there is no other input VAT).
- In a case where the Publishing House provides the book direct to readers, the VAT taxable price on the publishing activity shall be determined as follows: VAT taxable price at the publishing stage = (Price printed on cover) divided by (1 + tax rate).
In a case where a publishing house consigns the sale of the publication at the correct price (agency), the use of invoices and receipts and the declaration and payment of tax by the publishing house and consignee shall be implemented the same as for the case of the sale of goods via an agency selling at the correct price and receiving commission.
The cover price less (-) the costs of distribution may not be less than the cost price of standard pages. If it is, and the publishing establishment generates input VAT in excess of output VAT, it shall not be entitled to a refund.
18. In respect of printing services, the VAT taxable price shall be the printing wages. Where the printing establishment performs printing contracts and the payment price includes the printing wages and the costs of the paper used for printing, the VAT taxable price shall include the costs of the paper.
19. In respect of services of assessment agency, agency of assessment for compensation and agency for third party claims with respect to insurance business services, the VAT taxable price shall be the wages or commission entitlement, including items of costs which the insurance business establishment receives.
The time for the determination of the VAT taxable price pursuant to Section I of Part B of this Circular shall be the time at which the business establishment becomes owner of or receives the right to use such goods or services (in the case of construction and installation on the basis of delivery of completed items or the value of a quantity of completed works of construction or installation, it shall be the time of testing and handing over the works, completed items or quantity of completed works of construction or installation), irrespective of whether money was received.
II. VAT RATES
VAT rates applicable to goods and services shall be applied as follows:
The rate of zero (0) per cent shall apply as follows:
1. The rate of zero (0) per cent shall apply to exported goods or services, including goods processed for export; construction and installation operations overseas and construction works of export processing enterprises; goods sold to duty-free shops; and goods and services which are not subject to VAT but which are exported (except for international transportation; goods and services provided directly to international transportation carriers; tour package services to foreign countries; postal and telecommunication services from foreign countries into Vietnam; credit, financial investments and securities services to foreign countries and the goods and services provided for in clause 1.7 of Section II of Part A of this Circular).
1.1 Export shall include export to foreign countries including via authorized agents, sale to export processing enterprises (except for goods used for individual consumption) and cases deemed to be export as stipulated by Government regulations, such as:
(a) Transitional processed goods in accordance with the commercial law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties.
(b) Processed goods for on-the-spot export in accordance with the commercial law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties.
(c) Export goods for sale at fairs and exhibitions overseas.
1.2 Goods exported to and services provided to export processing enterprises for use in production or business of such enterprises, except for services used for individual consumption.
Export services means services provided directly to organizations and individuals overseas and consumed outside Vietnam where all of the following conditions are satisfied: the establishment providing the services must sign a contract with the purchaser overseas in accordance with the Commercial Law; and the purchaser overseas makes payment for the services to the establishment providing services in Vietnam.
Goods and services used for individual consumption in an export processing enterprise means goods and services for which an individual pays with his or her own money and which service his or her own consumption requirements.
2. The rate of five per cent shall apply to the following goods and services:
2.1 Clean water used for production and living consumption, exploited by production-business establishments from natural water sources and sold to other users (except for clean water exploited by establishments in rural areas, mountainous areas, offshore islands and other remote and distant areas for local production or daily activities which is not subject to VAT, and except for other types of beverages in the ten (10) per cent VAT rate group).
2.2 Fertilizer, ore used for production of fertilizer; pesticides and growth stimulants for domestic animals and cultivated plants:
(a) Fertilizer, including organic and non-organic fertilizers such as potash fertilizer, nitrogenous fertilizer (urea), NPK fertilizer, phosphatized fertilizer and so forth.
(b) Ore used for production of fertilizer such as apatite ore used to produce phosphatized fertilizer, and muddy soil used for the production of bacterial fertilizer and so forth.
(c) All pesticides, vermicides, disinfectants, insecticides, anti-fungus chemicals, weed removers, growth stimulants for domestic animals and cultivated plants, and so forth.
2.3 Specialized medical equipment, apparatus and instruments, such as x-ray machines used for disease diagnosis and treatment, equipment and specialized apparatus for surgery and treatment of injuries; ambulances; equipment for measuring blood pressure, heart and pulse, and blood transfusion; injection syringes; contraceptive devices, and other specialized medical equipment and instruments; medical sanitary cotton and bandages, and medical sanitary tissue.
2.4 Preventive and curative medicine for humans and domestic animals (including vaccines, biological products, distilled water for the preparation of anaesthetic); pharmaceutical products and medical drugs which are the raw materials for producing preventive and curative medicine on the lists in Appendices 1 and 2 of this Circular.
2.5 Teaching and study aids such as models, drawings, blackboards, chalk, rulers, compasses used for teaching and study, and specialized equipment and tools for teaching, research and experiments.
2.6 Printing of products which are not subject to VAT as provided for in clause 1.13 of Section II of Part A of this Circular (except for printing of money and papers with monetary value).
2.7 Children's toys.
2.8 All types of books (except for books which are not subject to VAT as provided for in clause 1.13 of Section II of Part A of this Circular).
2.9 Tapes and disks, irrespective of whether they have programs recorded on them or are blank.
2.10 Products of cultivation and husbandry; products of aquaculture or fishing which have not yet been processed or which have only been semi-processed for cleaning, shelling, drying, freezing or salt preserving at the commercial trading stage (except for products provided for in clause 1.1 of Section II of Part A of this Circular).
2.11 Fresh foodstuffs and foods; forestry products (except wood and bamboo shoots) which have not yet been processed.
Foods shall include rice, unhusked rice, corn, potato and cassava; wheat, rice flour, corn meal, sweet-potato flour, cassava and wheat flour.
Fresh foodstuffs means all types of foodstuffs which have not yet been processed or which have only been semi-processed in the form of cleaning, shelling, cutting, slicing, freezing or drying but still remain fresh foodstuffs such as cattle and poultry meat, shrimp, crab and fish, and other aquaculture and marine products.
Unprocessed forestry products means products exploited from natural forests in the categories of bamboo, rattan, mushrooms, Job's ear mushrooms, roots, leaves, flowers and plants used for production of medicine and other forestry products.
2.12 Sugar; by-products obtained in manufacture of sugar, including sugar-cane dregs, bagasse and mud waste.
2.13 Products made from jute, sedge, bamboo, rattan and thatch, being assorted products produced or processed from main materials being jute, sedge, bamboo and thatch such as jute carpets, jute fibre, jute bags, jute strings, coconut fibre mats, jute or sedge mats, ropes made from bamboo or coconut fibre, conical hats, bamboo blinds and so forth.
2.14 Semi-processed cotton being cotton which has been peeled, seeded and classified.
2.15 Feed for cattle and poultry and other domestic animals, including unprocessed or semi-processed types of feed, such as bran, crushed and dried peanuts, fish powder, bone powder and so forth.
2.16 Scientific and technological services including application activities and guidance on science and technology, specifically as follows: data processing, calculation and analysis used directly for scientific research and technological development; preparation of feasibility studies and pre-feasibility studies and testing methods for new products and technology; intellectual property activities as guided in Circular 08-2006-TT-BKHCN dated 4 April 2006 of the Ministry of Science and Technology; and services regarding information and application of scientific and technological intellectual property rights and their testing.
2.17 Services directly serving agricultural production including ploughing and harrowing of agricultural land; digging, embanking, dredging of canals, ponds and lakes serving agricultural production; rearing, planting, cultivation, pest control, harvest, semi-processing and preservation of agricultural products.
2.18 Black coal and coal dust, coke, peat, coal lumps and coal bricks.
2.19 Soil, stone, sand and gravel (but excluding products made from soil, stone, sand and gravel such as sawn stone, facing stone, granite tiles).
2.20 Basic chemicals, comprising all types of chemicals listed in Appendix 1 attached to this Circular.
2.21 Mechanical engineering products (except for mechanical engineering consumer goods), comprising:
(a) Machinery and equipment such as: diesel engines, mills, lathes, planers, rollers, piercing mills, stamping mills; all types of complete and separate equipment; electricity meters, voltage stabilizers with a capacity of over 50 KVA, water meters; bridge girder structures; warehouse frame structures and products of metal structures; all types of automobiles (except for automobiles subject to special sales tax), all types of ships and boats and other means of transportation; all types of metal spare parts and semi-finished products for the above products (including spare parts and semi-finished products of automobiles subject to special sales tax).
(b) Production tools such as drills, small mechanical engineering machines for agriculture, all types of sawing machines, planers, harrows, water pumps with a capacity of over 10 m3/hour; machinery and tools for ploughing and harvesting.
(c) Products being small production tools such as pliers, hammers, saws, chisels, shovels, hoes and sickles, tool sets which are mechanical engineering products, and nails.
(d) Steel wire fencing from type B27 to B41, barbed wire, metal roofing, metal messenger cabling and metal conveyor belts.
(e) High voltage electrical equipment and transforming equipment, safety boxes, electricity measuring equipment, safety fuses (12KV, 24KV and 36KV from 6A or more) and so forth.
2.22 Cast moulds of all types including all types of moulds used as a tool for production of products or goods shaped by moulds, such as moulding casts for machine parts or for production of pipes.
2.23 Explosives including blasting agents, fuses, detonators and other types which have been manufactured into specialized explosive products without changing their character and effect as explosives.
2.26 Insecticide spraying packs.
2.27 Semi-processed latex in the form of crepe, sheets, rubber or nuggets.
2.28 Semi-processed turpentine.
2.29 Artificial hard boards made from raw materials such as bamboo, wood flour, wood chips, wood fibre, sawdust, sugar-cane refuse, rice husk and so forth, excluding plywood products.
2.30 Industrial concrete products including concrete bridge grinders, concrete beams and frame structures of houses, concrete piles, concrete power poles, concrete pipes used for sewers, concrete boxes of all types, panels and non-standard pre-cast reinforced concrete components (except for concrete bricks) and commercial concrete (concrete mortar).
2.31 Automobile tyres and rubber tubing of size 900-20 and above.
2.32 Neutral glass tubing (such as ampoules for the purpose of injecting medicines and test tubes).
2.33 Netting, cord and fibre used for weaving into all types of fishing nets; specialized fibre or cord used for weaving into fishing nets, irrespective of raw materials.
2.34 Products from metallurgy, rolling and drawing of ferrous, non-ferrous or precious metals, except for imported gold as provided for in clause 1.26 of Section II of Part A of this Circular.
Products from metallurgy, rolling and drawing of ferrous, non-ferrous or precious metals shall include metallurgical flat-rolled or drawn products used as raw materials or products, such as metal products in the form of bars, bullion, plates or wire.
Products which have been manufactured or processed from metallurgical flat-rolled or drawn products shall be subject to VAT rates applicable to their particular line of goods.
2.35 Automatic data processors and their parts and accessories (including computers of all types and parts of computers, specialized printers used for such computers), except for uninterruptible power supply (UPS).
2.36 Repair of machinery, equipment and means of transportation being mechanical engineering products.
2.37 Maintenance, repair and restoration of historical and cultural heritage sites and museums, except for the activities provided for in clause 1.15 of Section II of Part A of this Circular.
2.38 Transportation including transportation of goods, luggage or passengers irrespective of whether the establishment directly carries out the transportation or sub-contracts it out, except for broking and agency activities where only commission is earned. Loading and unloading of passengers and luggage.
2.39 Services for registration of facilities and equipment in the traffic and transportation sector.
2.40 Dredging for channelling rivulets, river ports or seaports; rescue and salvage activities.
2.41 Distribution and screening of video films.
3. The rate of ten (10) per cent shall apply to the following goods and services:
3.1 Petroleum, gas; ore and other minerals.
3.2 Commercial electricity sold by electricity generation and business establishments.
3.3 Electronic products.
3.4 Mechanical engineering consumer products.
3.6 Chemical products (excluding basic chemicals as provided for in clause 2.20 of Section II of Part B of this Circular) and cosmetics.
3.7 Electrical conductors, telephone lines and other types of conductors (except for wire being a new product of the rolling or drawing phase as provided for in clause 2.34 of Section II of Part B of this Circular).
3.8 Welding rods.
3.9 Fibre, cloth, garments and embroidery products; disposable nappies and sanitary napkins.
3.10 Paper and paper products (excluding newsprint as provided for in clause 2.25 of Section II of Part B of this Circular).
3.11 Leather and imitation leather products.
3.12 Milk, cakes, candy, beverages and other processed foodstuffs, except for types of foodstuffs subject to the five per cent VAT rate.
3.13 Porcelain and terracotta; glass, rubber, plastic, wood and wooden products; cement, bricks, tiles and other building materials (except for products in the five per cent VAT rate group).
3.14 Construction and installation.
3.15 Houses and infrastructure facilities of establishments to which the State allocates or leases land or which receive the land use right from other entities for investment in construction of houses and infrastructures for sale or transfer.
3.16 Leasing technical infrastructure facilities by establishments to which the State allocates or leases land or which receive the land use right from other entities for investment in technical infrastructure facilities in industrial zones, high-tech zones and other economic zones for lease in accordance with regulations of the Government.
3.17 Postal and telecommunication services and Internet services (except for postal and telecommunication services and Internet services universalized pursuant to the program of the Government as provided for in clause 1.25 of Section II of Part A of this Circular).
3.18 Leasing houses, offices, warehouses, yards, factory buildings, machinery, equipment and means of transportation.
3.19 Legal consultancy services and other consultancy services.
3.20 Auditing and accountancy services; survey and design services; insurance, including insurance broking (except for the types of insurance not subject to VAT as provided for in clause 1.8 of Section II of Part A of this Circular).
3.21 Taking, printing and enlarging photos; recording, duplicating and hiring out tapes; duplicating and recording videos.
3.22 Hotels, tourism and restaurant services.
3.23 Goods and services subject to special sales tax.
3.24 Gold, silver and precious stones (except for imported gold as provided for in clause 1.26 of Section II of Part A of this Circular).
3.25 Maritime shipping agency.
3.26 Brokerage services.
3.27 Repair and maintenance services (except for services regulated in clause 2.36 of Section II of Part B of this Circular).
3.28 Goods not regulated in Section II of Part A, [or in] clauses 1 and 2 of Section II of Part B of this Circular.
The above VAT rates shall apply uniformly to each type of goods and services in the stage of importation, manufacture, processing or commercial trading. If in the process of implementation there is an inconsistent VAT rate in the List of Preferential Import Rates, or if the VAT rate is not applied uniformly to the same type of imported goods and domestically produced goods, then the local tax office and customs office should continue to apply the rate stipulated in the tax [i.e. VAT] notice to the enterprise and at the same time notify the Ministry of Finance which shall resolve the matter in accordance with Decrees of the Government 158-2003-ND-CP dated 10 December 2003, 148-2004-ND-CP dated 23 July 2004 and 156-2005-ND-CP dated 15 December 2005 and their implementing guidelines.
Example 14: The VAT rate applicable to garments is 10%, such rate shall apply at all stages of import, production, processing or commercial trading.
4. Application of VAT rate in the following specific cases:
4.1 If a construction and installation business establishment signed a contract for construction and installation work before 1 January 2004 with a price including VAT at 5%, and by 31 December 2003 such work remained unfinished, then the VAT rate of 5% shall continue to apply to the remainder of such work performed under the contract.
4.2 If a business establishment with a project for construction of housing [and] infrastructure signed contracts for sale of such housing [and] infrastructure with a price including VAT at 5%, and collected at least 30% of the contract price from the purchasers before 1 January 2004, then the VAT rate of 5% shall continue to apply to such contracts.
4.3 When scraps and sub-standard products are recovered for re-cycling and re-use and are sold, the VAT rate applicable to the particular line of goods shall apply.
Example 15: The VAT rate applicable to steel and iron scrap recovered by establishments and sold is 5%; the VAT rate applicable to recycled plastic when sold shall be the VAT rate applicable to plastic products, namely 10%.
III. METHODS OF VAT CALCULATION
VAT payable by business establishments shall be calculated by the tax credit method or calculated directly on the basis of added value. Where a business establishment subject to VAT payment by the tax credit method deals in gold, silver, precious stones and foreign currencies, such establishment must maintain a separate account with respect to this activity for the purpose of calculation of VAT directly on the basis of added value.
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