Official Dispatch No. 4575 TC/TCT of April 29, 2004, providing guidance on value-added
THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
Providing guidance on value-added tax
Hanoi, April 29, 2004
To: Provincial/municipal Tax Departments
In furtherance of the Government's Decree No. 158/2003/ND-CP of December 10, 2003, detailing the implementation of the Value-Added Tax (VAT) Law and the Law Amending and Supplementing a Number of Articles of the VAT Law, the Finance Ministry issued on December 12, 2003 Circular No. 120/2003/TT-BTC, guiding the implementation thereof. However, some problems have arisen in the course of implementation. To solve these problems, the Finance Ministry hereby provides specific guidance on the following contents:
1. Regarding objects not liable to VAT:
According to the provisions of Point 23, Section II, Part A of Circular No. 120/2003/TT-BTC, insurance services provided for means of international transport, such as insurance for ship hulls or airplane fuselages, insurance for civil liability of ship owners or common civil liability for airplanes, are not liable to VAT.
Means of international transport are those which generate a turnover from international transport accounting for more than 50% of the total transport turnover of such means.
Establishments supplying goods and/or providing services for means of international transport must make invoices clearly stating names and identification numbers of such means. In cases where a means of international transport is operated and use by a Vietnamese transport business establishment, such establishment must register with its directly managing tax office the list of means of international transport to serve as basis for non-collection of VAT for goods and/or services directly provided for such means of international transport. When selling goods and/or services to means of international transport, business establishments must request their operators to produce registrations made with tax offices. Goods and service-providing establishments must keep copies of the above-said registrations together with invoices and vouchers of goods and/or services provided to means of international transport.
Where a means of transport fails to meet the above-said condition on international transport turnover but a transport business establishment in Vietnam still registers such means of international transport for purpose of purchasing VAT-free goods and services, such establishment shall be obliged to retrospectively pay VAT amounts for goods and services provided directly to such means of transport and must not make credit such VAT amounts from input VAT. Such VAT amounts shall be accounted into its expenditure.
2. Regarding VAT rates:
- For activities of construction and installation of overseas projects and for export processing enterprises:
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Based on the Prime Minister's opinions on VAT applicable to activities of construction and installation of overseas projects and for export processing enterprises in the Government's Official Letter No. 977/CP-KTTH of October 30, 1997; and Point 1, Section II, Part B of above-mentioned Circular No. 120/2003/TT-BTC, Vietnam-based business establishments engaged in activities of construction and installation of overseas projects and for export processing enterprises shall enjoy the VAT rate of 0%. Procedures and conditions for enjoyment of VAT rate of 0% in this case shall comply with the provisions of Point 1.2d1, 1.2d3 and 1.2d4, Section III, Part B of Circular No. 120/2003/TT-BTC.
- For activities of selling goods and/or services not liable to VAT at the set prices of commission agents:
Business establishments acting as sale agents of goods and/or services not liable to VAT shall not have to make VAT payment declarations for such goods and services as well as enjoyable commissions for goods and services sold.
3. VAT on commission agents' activities of selling services at the set prices:
Business establishments which act as agents providing postal, insurance, lottery or air ticket sale services at the prices stated in such invoices as insurance invoices, lottery tickets, air tickets, mobile phone prepaid cards, etc. to enjoy commissions shall not have to calculate and pay VAT on their turnovers calculated at the prices stated in such service invoices, tickets or cards and commissions enjoyed by agents.
Business establishments must declare and pay business income tax on agency commissions. Business individuals acting as agents who fail to fully observe the voucher accounting regime shall pay business income tax at the tax rate of 5% of commission turnover. Where individual agents earn a monthly income in a year lower than the minimum wage set by the State for state employees, they shall be exempt from income tax according to the guidance in the Finance Ministry's Circular No. 128/2003/TT-BTC of December 22, 2003, guiding the implementation of the Government's Decree No. 164/2003/ND-CP of December 22, 2003, detailing the implementation of the Business Income Tax Law. Business establishments shall have to make credit and pay into the state budget payable business income tax amounts of their agents which are liable to pay tax at the tax rate of 5% and be entitled to enjoy a remuneration equal to 0.8% of tax amounts actually collected from the agents for remittance into the state budget. Such remuneration shall be make credited from business income tax amounts collected from agents before they are remitted into the state budget.
4. VAT payment declaration for activities of construction and installation of projects in localities (provinces or centrally-run cities) other than localities where business establishments are headquartered.
Under the provisions of Point 2, Section II, Part C of Circular No. 120/2003/TT-BTC, where business establishments, since January 1, 2004, have been engaged in construction and installation of incomplete projects contracted before January 1, 2004 at VAT-inclusive payment prices at the tax rate of 5% specified in Part H of Circular No. 120/2003/TT-BTC, they shall make declarations for VAT payment in localities where projects or projects items are being constructed or installed at the rate of 2% of non-VAT payment prices for construction and installation volumes performed since January 1, 2004.
Business establishments engaged in activities of construction and installation of projects and having their affiliates located in localities other than those where they are headquartered, and liable to pay VAT on their turnovers at a certain rate, shall, upon making VAT payment declarations at their headquarters, have to additionally declare the numbers of VAT declaration forms, payable VAT amounts, numbers of VAT payment vouchers and VAT amounts paid in localities where their construction and installation projects exist or where they sell goods so that their managing tax offices can have bases for calculating VAT amounts already paid, to be paid or overpaid. Upon making annual VAT settlements, business establishments must have their payable VAT and already paid VAT amounts certified by tax offices in localities where their construction and installation projects exist or where they sell goods.
5. Regarding subjects eligible for VAT refund according to the provisions of Section I, Part D of Circular No. 120/2003/TT-BTC:
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According to the provisions of Section I, Part D of Circular No. 120/2003/TT-BTC, business establishments and organizations eligible for VAT refund must be those which have been granted business registration certificates (investment licenses), have their own seals, keep accounting books and documents according to the prescribed regime and have their deposit accounts at banks. Where subject eligible for VAT refund are owners of projects funded with non-refundable ODA capital, ODA loans or mixed ODA capital sources, and eligible for the state budget's wholly or partially non-refundable investments but not allocated by the state budget the reciprocal capital for paying for goods and services to contractors at VAT-inclusive prices, and if such project owners are not business establishments or have no business registration certificates, they must issue decisions on establishment of project management boards and authorize such project management boards to carry out procedures for tax refund. Procedures and dossiers for tax refund shall comply with the provisions of Section I, Part D of Circular No. 120/2003/TT-BTC.
6. Regarding procedures for VAT payment declaration:
The declaration of purchased goods and services defined at Point 1, Section II, Part B of Circular No. 120/2003/TT-BTC shall specifically apply to some given goods and services as follows:
Form No. 04/GTGT shall be used for both goods and services purchased from sellers without invoices, such as: products made of rattan, bamboo, rush, coconut fiber, palm leaves, etc., directly from their makers; handicraft and fine-art articles from non-business artisans; earth, stone, sand and gravel from exploiting individuals; discarded materials directly from collectors, and some services from non-business individuals. Business establishments shall make monthly declarations of purchased goods and services according to this form in replacement of Form No. 01/TNDN promulgated together with the Finance Ministry's Circular No. 128/2003/TT-BTC of December 22, 2003, guiding the implementation of the Government's Decree No. 164/2003/ND-CP of December 22, 2003, detailing the implementation of the Business Income Tax Law.
Any problems arising in the course of implementation should be reported by concerned units to the Finance Ministry (the General Department of Taxation) for study and solution.
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