Giáo trình Taxation - Chapter 5: Value - Added Tax (VAT)

Learning Objectives

• LO 5-1: Understand concept, origin, characteristics

and role of VAT.

• LO 5-2: Specify goods/services subject and not

subject to current VAT of Vietnam.

• LO 5-3: Recognize taxpayers of current VAT of

Vietnam.

• LO 5-4: Define VAT calculation method, tax base and

tax rate of current VAT of Vietnam.

• LO 5-5: Explain tax refund of current VAT of Vietnam.

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or international transportation services): e.g. contracts, evidence of non-cash payment and customs declarations (for exported goods). Time for VAT Calculation a1. For goods sale, the time when the ownership or the right to use goods is transferred to buyers, whether the payment is made or not. 2. For service provision, the time when service provision is completed or when the invoice for service provision is made, whether the payment is made or not. 3. For electricity and water supply, the time when the electricity or water consumption is recorded. 4. For real estate trading, construction of infrastructural works, houses for sale or for lease, the time when money is collected according to the project schedule or the contract. Taxpayers shall declare output VAT incurred in the tax period according to collected amount. 5. For construction and installation, the time when the construction or a work is completed and put into use, whether the payment is made or not. 6. For imported goods, the time when the customs declaration is registered. Calculation Methods ▪ There are two VAT calculation methods: ✓deduction (or credit) method and ✓direct calculation method. Deduction Method ▪ This method applies to enterprises maintaining full books of accounts, invoices and documents in accordance with the relevant regulations, including: ➢ Business establishments with annual revenue subject to VAT of VND 1 (one) billion or more; ➢ Certain cases voluntarily registering for VAT declaration under the deduction method. ➢Determination of VAT payable: ➢Using value-added invoices when sales of goods or provision of services. ➢ Illustration VAT payable = Output VAT − Deductible input VAT Deduction Method (cont.) ▪ Calculation of output VAT: ✓ Output VAT equals the total VAT on goods and services sold and written on the VAT invoices. Output VAT = Taxable price × Applicable VAT rate ✓ When issuing a value-added invoice, taxpayers must clearly write the VAT exclusive prices, VAT, and total amount payable by buyers. If invoices only have the selling price (except where special invoices are allowed) without specifying the VAT exclusive price and VAT, the VAT shall be levied on the selling price. Example 5-18: A company sells F6 steels at VAT exclusive price VND11M/ton; 10% VAT = VND1.1M/ton. However, the sale price written on some invoices is VND12.1M/ton. In this case, VAT will be VND1.21M/ton (VND12.1M/ton x 10%) instead of VND1.1M/ton. Deduction Method (cont.) ▪ Calculation of input VAT: ✓ Input VAT equals total VAT on VAT invoices for domestic purchases and VAT payment vouchers for imports. ✓ If special receipts, on which selling prices are VAT-inclusive, are permitted, taxpayers may calculate VAT-exclusive prices and input VAT according to the VAT-inclusive prices and the calculation method. VAT exclusive prices = Selling prices inclusive of VAT 1 + Applicable tax rate ✓ VAT invoices can be declared and claimed any time before the company receives notice of a tax audit by the tax authorities. ✓ Input VAT on goods and services valued at VND20 million or more can only be deducted where evidence of payment by bank is available. Deduction Method (cont.) ▪ Calculation of input VAT: ✓ Input VAT paid on behalf of foreign contractors (i.e. under the foreign contractor tax system) is also deductible when calculating tax. ✓ Enterprises that providing goods and services not subject to VAT shall not be entitled to input VAT deduction. ✓ Enterprises supplying goods and services subject to VAT rate of 0% or exempt VAT declaration and payment, shall be entitled to input VAT deduction. ✓ Where an enterprise has both value added taxable and non-taxable sales, it shall be entitled only to deduct input VAT for the portion of inputs used in the VAT-liable activity. Deduction Method (cont.) ▪ Calculation of input VAT: Example 5-19: Thanh Thai Company bought 200kg of nylon for packaging products. Sum of input VAT of 200kg nylon was VND5 million. The nylon was used to package two products including sugar and salt. Salt is not subject to VAT. Accountants of Thanh Thai separately recorded: 150kg used for Sugar and 50kg for Salt. Calculate deductible input VAT. 5M × (150kg/200kg) = VND3.75M Example 5-20: Thanh Thai Company had input VAT of telephone fees of VND10 million in the factory. These fees were used for manufacturing both sugar and salt. Salt is not subject to VAT. Accountants of Thanh Thai did not separately record deductible input VAT and non-deductible input VAT of telephone service. Sales of sugar was VND 1 billion exclusive of VAT and salt was VND 200 million. Calculate deductible input VAT. 10M × (1,000M / (1,000M+200M) = VND8.33M Example 5-21: Using data in ex 5-19. Sum of input VAT of 200kg nylon was VND5 million. The deductible input VAT is: VND3.75M. The non-deductible Input VAT is: 5M – 3.75M = VND1.25M. This input VAT of VND1.25M will be charged to the cost of the nylon. Direct Method ▪ This method applies to: ✓ Business establishments engaging in trading in gold, silver and precious stones; ✓ Business establishments with annual revenue subject to VAT of less than VND1 billion; ✓ Individuals and business households; ✓ Business establishments which 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. ✓ Using sales invoices when sales of goods or provision of services. Direct Method ▪ For enterprises engaging in trading in gold, silver and precious stones: Value added of gold, silver and gemstones = Selling prices of gold, silver, and gemstones - Cost prices of gold, silver, and gemstones ✓ Selling prices of gold, silver and gemstones are the actual selling prices written on the sale invoices, inclusive of VAT and other surcharges to which the seller is entitled. ✓ Cost prices of gold, silver and gemstones are their VAT-inclusive values when they are purchased or imported for trading or fashioning. ✓ Where there is a negative value added from the trading in gold, silver or precious stones in a period, it can be offset against any positive value added of those activities in the same period. Any remaining negative balance can be carried forward to a subsequent period in the same calendar year but cannot be carried over to the next year. 𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = Value added of gold, silver and gemstones × 10% Direct Method (cont.) ▪ For other cases: VAT payable = Revenues × Rates (%) ✓ Taxable revenue is total revenue from selling goods and services, which is written on the sale invoice for taxable goods and services, inclusive of the surcharges to which the seller is entitled. ✓ Rates (%) applied to calculate VAT on revenues: + From goods distribution or goods supply: 1%; + From services or construction exclusive of building materials: 5%; + Manufacturing, transport, services associated with goods, construction inclusive of building materials: 3%; + Other lines of business: 2%. Tax Declaration ▪ All organizations and individuals producing or trading value added taxable goods and services in Vietnam must register for VAT. In certain cases, branches of an enterprise must register separately and declare VAT on their own activities. ▪ Taxpayers must file VAT returns on a monthly basis by the 20th day of the subsequent month, or on a quarterly basis by the 30th day of the subsequent quarter (for companies with prior year annual revenue of VND50 billion or less). Quarterly declaration of VAT: ✓Taxpayers’ total revenue from sale of goods/services in the preceding period is equal or less than 20 billion VND; ✓Taxpayers that has just begun his business shall declare VAT monthly. In the next calendar year after 12 months of business, VAT declarations shall be declared whether monthly or quarterly depending on the revenue from the sale of goods and/or services in the preceding calendar year (12 months); ✓Taxpayers shall determine their eligibility to declare tax quarterly themselves. ✓Any taxpayer eligible to declare VAT quarterly that wishes to declare tax monthly shall send a notification to the supervisory tax authority not later than the submission of the VAT declaration of the first month of the tax year in which VAT are declared monthly. Tax Declaration (cont.) ▪ A declaration dossier consists of: * Declaring VAT using deduction method: ✓ VAT declaration (form 01/GTGT); * Declaring VAT on value added using direct method: ✓ Monthly/quarterly declaration of VAT on value added using direct method (form 03/GTGT). * Declaring VAT on revenue using direct method: ✓ Monthly/quarterly declaration of VAT (form 04/GTGT) and the manifest of sold goods and services (form 04-1/GTGT). ✓ Unscheduled declaration of VAT on revenue using direct method (form 04/GTGT). Tax Declaration (cont.) ▪ Declaring VAT on extra-provincial business including construction, installation, sales, real estate transfer: ✓ The taxpayer shall provisionally declare VAT at 2% if the goods/services incur 10% VAT, or at 1% if the goods/services incur 5% VAT and submit the provisional declaration to the tax authority in the locality where the business is located. ✓ Using form 05/GTGT. ✓ Submitted whenever revenue is earned. Taxpayers may request the tax authority to permit monthly submission of tax declarations if they have many tax declarations in one month. ✓ When declaring tax at the supervisory tax authority, the taxpayer must aggregate the revenues that are earned and the paid VAT on extra-provincial business in the tax declaration. The paid tax on extra-provincial business shall be deducted from the VAT payable according to the VAT declaration submitted in the locality where the head office is situated. Tax Refund 1. a ▪ From 01 July 2016, VAT refunds will no longer be allowed. Where the taxpayer’s input VAT for a period exceeds its output VAT, it will have to carry the excess forward for the subsequent period. ➢ In certain cases (e.g. exporters where excess input VAT credits exceed VND 300 million), a refund may be granted on a monthly/quarterly basis. ➢ Newly established entities in the pre-operation investment phase may claim VAT refunds on a yearly basis or where the accumulated VAT credits exceed VND300 million. ▪ Newly established entities and certain investment projects which are in the pre-operation stage may be entitled to refunds for VAT paid on imported fixed assets based on shorter timelines than normal, subject to certain conditions. LO 5-4: Explain tax refund of current VAT of Vietnam. Example 5-22: Company A applies VAT deduction method and quarterly VAT declaration. In Q1/2017, the VAT amount not yet fully credited is VND 100M, this amount will be deducted in Q2/2017. In cases where the input VAT in the tax periods of Q2/2017, Q3/2017, Q4/2017 still exceeds the output VAT, Company A will continue to deduct accumulated input VAT in the next tax periods in 2018.* A Big Example 1. a I. Purchase of goods/services in May: 1. Imported a fixed asset, CIF price of VND 200M. 2. Purchased 30,000kg of material B, buying price excluding VAT on the VAT invoice is VND40,000/kg. 3. Purchased services, the buying price excluding VAT on the VAT invoice is VND 120M inclusive of commission earned by the agent. 4. Purchased material C, the buying price on the sales invoice is VND 20M. II.Consumption of products in May: 5. Exported 10,000 products A, FOB price of VND 90,000/product. 6. Delivered the agent 20,000 product A, the agent sells at fixed prices under the contract, the selling price excluding VAT of VND 80,000/product, commission for agent is 5% of the selling price exclusive of VAT. 7. Sold in retail 30,000 product A, the selling price excluding VAT of VND 80,000/product. Company X produces only one product A. Data in May 2015 of the company are as follows: A Big Example (cont.) • Required: Calculate VAT amount Company X has to pay in May 2015. • Additional data: ✓ Company X applies deduction method and monthly VAT declaration. ✓ The fixed asset, product A, material B, material C and the service are subject to VAT, not subject to excise tax. ✓ VAT rate of the fixed asset, product A, material B, material C and the service is 10%. Particularly, VAT rate of product A when exported is 0%. ✓ Import duty rate of the fixed asset is 20%. Company X has already paid fully import duties. ✓ At the end of May, the agent sold 90% of the delivered product A and returned the remainder to Company X. The agent applies VAT deduction method. ✓ Goods/services purchased are paid via banks.

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