CIRCULAR

On guiding the implementation of
Government Decree No. 28/1998/ND-CP
******

Pursuant to the VAT Law, No. 02/1997/QH9 of May 10, 1997;

Pursuant to Decree No. 28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the VAT Law;

The Ministry of Finance hereby guides the implementation as follows:

A. SCOPE OF APPLICATION OF THE VAT LAW

I. TAXABLE OBJECTS AND TAX PAYERS

1. Taxable objects:

Under Article 2 of the VAT Law and Article 3 of Decree No. 28/1998/ND-CP of the Government, the objects to be imposed with value-added tax shall be commodities and services used for production, business and consumption in Vietnam, except for those not subject to such tax as prescribed in Section II, Part A of this Circular.

2. VAT payers:

Under Article 3 of the VAT Law and Article 3 of Decree No. 28/1998/ND-CP of the Government, all organizations and individuals that produce and/or trade in the taxable commodities and services in Vietnam, regardless of production and business lines, forms and business organizations (collectively referred to as business establishments), and other organizations and individuals that import taxable commodities (collectively referred to as the importers) shall all be VAT payers.

a/ Production, business and/or service organizations include:

State enterprises: economic organizations of political organizations, social-political organizations, social organizations, social-professional organizations, people's armed force units and other non-business organizations and units; cooperatives;

Private enterprises, limited liability companies, joint stock companies established and operating according to laws;

Foreign-invested enterprises and foreign parties to business cooperation contracts under the Law on Foreign Investment in Vietnam, foreign companies and organizations conducting business activities in Vietnam not under the Law on Foreign Investment in Vietnam;

b/ Individuals producing and/or trading in commodities and/or services include independent business people, households, and individuals joining together for production and business activities without forming themselves into legal entities for business.

II. NONTAXABLE OBJECTS:

Under Article 4 of the VAT Law and Article 4 of Decree No. 28/1998/ND-CP of the Government, the following commodities and services shall not be liable to VAT:

1. Products of cultivation (including planted forest products), husbandry and aquaculture, not yet processed into other products or only preliminarily processed, which have been produced and sold by organizations and/or individuals themselves.

The common preliminary processing is the preliminary processing linked to the process of turning out cultivation, husbandry and aquacultural products which, after being preliminarily processed, have not yet become other products and commodities.

Example: sun-drying, heat-drying, husking (peeling), threshing agricultural products; icing, salting and sun-drying fish, shrimps and other aquatic products.

2. Salt products, including salt made from sea water, salt from natural mines, crystallized salt, iodized salt.

3. Commodities and/or sciences subject to special consumption tax shall not be liable to value-added tax in the production, import and/or trading process, which have already been subject to special consumption tax.

Example I: Company A which produces cigarettes and is liable to special consumption tax shall not have to pay VAT for the cigarette in the production process for which the special consumption tax has already been paid; business establishments which buy and sell cigarettes shall have to pay VAT therefor.

Example 2: Business establishment B which imports liquor subject to the special consumption tax in the import process shall not have to pay VAT for the import thereof: but when such establishment sells liquor to other objects, it shall have to calculate and pay VAT for the sold liquor.

4. Equipment, machinery and specialized transport means, which have not yet been manufactured in the country, but imported by the establishment having the investment project to formulate its fixed assets under that project.

In cases where an establishment imports the equipment and/or machinery in complete technological chains which are not subject to VAT but contain equipment and/or machinery that can be manufactured in the country, VAT shall not be imposed on the whole equipment and/or machinery chains.

The dossiers for determining which kind of equipment, machinery and/or specialized transport means imported by an establishment shall not be subject to VAT include:

The investment project already approved by the competent level or licensed for investment (for investment projects).

The import contract or plan which determines the origin of the import, types of equipment, machinery and/or specialized transport means imported to formulate fixed assets under the investment project.

The certification by the managing ministry, specialized agency or provincial-level specialized management agency with regard to the equipment, machinery and/or specialized transport means imported by the establishment to formulate its fixed assets, which can not be manufactured in the country.

The importing establishment shall compile and submit the above dossiers to the customs office when declaring VAT on the import commodities, which shall serve as basis for determining the import items not subject to VAT. The customs office shall base it self on the goods actually imported and dossiers of the business establishment to determine concretely the import items not subject to VAT.

5. The transfer of land use right is subject to land use right transfer tax;

6. Houses under the State ownership, which are sold to the current tenants under Decree No. 61-CP of July 5, 1994 of the Government on the purchase, sale and trading in residential houses.

7. Credit services and investment funds which include the capital lending and financial leasing by banking, credit and/or financial organizations, investment funds and capital transfer activities according to law.

8. Life insurance, pupils insurance; domestic animal and plant insurance, and other types of noncommercial insurance such as the social insurance, medical insurance, labor insurance.

9. Medical services including medical examination and treatment, disease and epidemic prevention, health convalescence for people, and veterinary service (excluding the production, processing and selling curative and preventive medicines).

10. Cultural, exhibition and sport activities of mass movement character, organization of training and/or competition free of charge or with pecuniary collection through the sale of tickets but not for the commercial purposes: this collected amount shall be fully or partly used to cover the expenses for the operation of the unit, and the remainder shall be fully remitted into the State budget according to the financial regime set by the State.

Art performances: "cheo" (traditional opera), "tuong" (classical drama), "cai luong" (reformed drama), singings dancing, music, play, circus, puppet shows, monologues and other traditional arts and culture, other art performance activities and show organizing services, regardless of performance forms and of paid or free admission.

The production of films of different kinds: motion pictures, video films and others.

Film distribution and screenings: For motion pictures, regardless of their themes: for video films, they shall be only documentaries, reportage, sciences.

11. Teaching, vocational teaching, which include general education teaching, foreign language teaching, information teaching, dancing, singing and painting teaching, teaching of music, drama, circus, physical training, sports, child care and education, teaching of other occupations aimed to train and foster the educational and/or professional levels of each person.

12. Radio and television broadcastings financed by the State budget of all levels and/or other organizations, free of charge.

13. Printing, publication and distribution: newspapers (including paper page transmission). magazines, specialized bulletins, political books, textbooks, teaching stuffs, collections of legal documents (which are books with legal documents, resolutions ... reflecting the Party's and State's lines and policies), books published in ethnic minority languages; pictures, photos, posters; money printing.

14. Public-utility services regarding sanitation and water drainage along streets and population quarters: maintenance of zoos, flower gardens, street greenery, public lighting, funeral services.

Street sanitation and water drainage services include such activities as gathering, transporting and treating garbage and discarded things, dredging sewers, treating discharge water, handling water logging and flooding in streets and population quarters.

Maintenance of zoos in parks as well as national gardens includes such activities as the management, tending and protection of birds and animals in parks, zoos, national gardens, the planting of trees and flowers in parks and along streets.

For parks, zoos... where tickets are sold for admission from which the proceeds are considered the amount of fee to cover the expenses for the management of parks, zoos... according to the State's regulations, such revenue shall not be liable to VAT.

The funeral services include the leasing of funeral houses and cars by the Funeral Services Company: the burials, cremation.

15. The renovation, repair and construction of cultural and/or art projects, public utility projects, infrastructure and houses of gratitude with capital from the sources contributed by people and humanitarian aids, and even from the State budget allocation which, however, shall not exceed 30% of the total expenditure for the project.

16. Public passenger transportation by bus companies established and operating under the Communications and Transport Ministry's regulations to meet the people's requirements for communication within cities, towns and/or industrial parks or between urban center and adjacent industrial zones according to the routes, stops, time and fares prescribed by the competent level.

17. Surveys, geological explorations, measuring, mapping, which are categorized as the State's basic surveys and implemented with State budget funds; surveys and implemented with State budget funds; surveys and implemented with State budget funds;

18. Irrigation and drainage in service of agricultural production: clean water tapped by organizations and/or individuals in service of daily life in rural, mountainous, island, deep-lying and remote areas;

19. Weapons and military equipment in service of national defense and security, the lists of which shall be specified by the Ministry of Defense and the Ministry of Public Security after consulting the Ministry of Finance;

20. Commodities imported in the following cases shall not be subject to VAT in the import process;

a/ Humanitarian aid and non-refundable aid, including those from international organizations, foreign States, Governments, associations, non governmental organizations to the Vietnamese Government, mass organizations or associations, etc.

The humanitarian aid and non-refundable aid must be accompanied with the following papers;

The written certification of aid by the competent agency, clearly stating the agencies and/or organizations that have provided aid that they are humanitarian and/or non-refundable aid.

Other papers related to the reception of the goods consignment (according to the regulations applicable to import goods).

b/ Gifts presented to State bodies, political organizations, social-political organizations, social organizations, social-professional organizations, people's army units.

The agencies and/or organizations, when receiving import goods as gifts which are not liable to VAT, shall have to submit a written request for non collection of VAT (together with relevant papers certifying that the import goods are gifts) clearly stating the origins, quantity and types of the import commodities.

c/ Utensils of foreign organizations and individuals under the diplomatic immunity quotas: personal effects carried along within the tax-free baggage quotas; articles of overseas Vietnamese who carry along in their return home.

The quantity and type of the articles imported in the cases defined in Points b and c above shall be determined according to the State's regulations.

21. Goods transported across the border or in transit through Vietnam: goods temporarily imported for re-export, goods temporarily exported for re-import; raw materials and materials imported for production or processing of export goods under the production or processing contracts with foreign countries.

22. Goods and/or services provided to the following objects and in the following cases:

Goods and/or services provided directly to seagoing vessels, airplanes, trains or other transport means from Vietnam to foreign country(ies) or from foreign country(ies) to (through) Vietnam for further trip(s) to other countries, such as: provision of gasoline, oil, water and foods including food rations for passengers; the provision of repair and/or cleaning services for international transport means, the transport of commodities, passengers and/or baggage from Vietnam to foreign country(ies) and from foreign country(ies) to Vietnam.

Goods sold in duty-free shops at airports, sea ports, international terminals and border-gates.

23. Technology transfers determined according to provisions at Chapter III "Technology Transfer" of the Civil Code of the Socialist Republic of Vietnam and documents guiding the implementation thereof. With regard to contracts for technology transfer accompanied with machinery and equipment, the non collection of tax shall be applied to only the value of the transferred technology(ies).

24. Gold imported in the form of ingots and/or pieces and gold not yet fashioned into products, fine art articles, jewelry or other products.

Gold in ingots, pieces and unfashioned gold shall be determined in accordance with international stipulations.

25. Export products which are exploited mineral resources and not yet processed into other products. More concretely as follows:

• Crude oil;
• Coal;
• Slab stones, sand, rare earth;
• Precious stones;
• Manganese ore, tin ore, iron ore, chromate ore, emanate ore, apatite ore.

26. Goods and/or services of business individuals whose average income level is lower than the State officials' minimum wage set by the State. The income is determined with the business turnover minus (-) the reasonable cost of such business operation.

Organizations and/or individuals that produce, trade in and/or import goods or provide services. which are not subject to VAT, shall not be eligible for deduction or reimbursement of the input VAT on such goods and/or services in the process not liable to VAT.

B. TAX CALCULATION BASES AND METHODS

The bases for calculation of VAT are the tax calculation price and the tax rate.

I. THE VAT CALCULATION PRICE:

Under Article 7 of the VAT Law and Article 6 of Decree No. 28/1998/ND-CP, VAT calculation prices of commodities and services shall be determined specifically as follows:

1. For goods and/or services sold and/or provided by production and/or business establishments to other objects, it shall be the sale price without VAT,

2. For import goods, it shall be the import price at the border-gate plus (+) import tax: the import price at the border-gate serving as basis for VAT calculation shall be determined according to the regulations on the prices for calculation of tax on import goods.

Example: An establishment imports television sets in complete units, the price for the calculation of import tax is 2.000.000 dong/unit.

• The rates for import tax is 30% and for VAT is 10%.
• The payable import tax amount: 2,000,000 dong 30% = 600,000 dong.
• The VAT calculation price is: 2,000,000 dong+ 600.000 dong = 2,600,000 dong.
• The payable VAT amount is: 2,600,000 dong 10% = 260.(300 dong.

In cases where import goods are eligible for import tax exemption or reduction, the VAT calculation price shall be the import goods price plus (+) the import tax. determined according to the tax exemption or reduction amount.

With regard to the services provided by foreign party(ies) to consumers in Vietnam, the VAT-free price shall be determined according to contracts: in cases where the contract fails to prescribe in details the VAT amount, the VAT calculation price shall be the service prices to be paid to the foreign party(ies).

Example: Company A in Vietnam hires a foreign firm to design the construction at the contractual price of 100 million dong to be paid to the latter, Company A shall have to calculate and pay VAT at the rate of 10% of 100 million dong.

3. Goods and/or services used for exchange. internal use, donation or as gifts, the VAT calculation price shall be determined according to the tax calculation price(s) of goods and/or sciences of the same or equivalent types at the time when such activities arise.

Example: Unit A which produces electric fans has used 50 such products for exchange of steel and iron with establishment B (or given such products to its departments and sections for internal use), the sale price (without tax) is 400,000 dong /unit. So, the payable VAT on the number of fans mentioned above shall be:

400,000 dong/unit x 50 units x 10% = 2,0(N),(3(30 dong.

4. Property leasing activities include the leasing of houses, workshops. storehouses, ferries, yards, transport means, machinery, equipment, etc.

The VAT calculation price shall be the leasing price without tax. In cases where the leasing is made in the forms of periodical payment or advance payment of rent for a leasing term, the VAT shall be calculated on the amount of periodical payment or advance payment. including other forms of rent payment such as the house leasing with collection of rent for renovation, repair and/or upgrading of the leased houses at the tenants' request.

The property leasing prices agreed upon by parties shall be determined according to contracts. In cases where the price frame is prescribed by law, the leasing price shall be determined within the prescribed price frame.

5. For goods sold by mode of deferred payment, it shall be calculated according to the non-VAT lumpsum price of such goods (excluding interests on the deferred payment), not according to each periodical deferred payment.

Example: A company trades in Honda motorbikes of 100 cc type, the non-VAT lumpsum price is 25 million dong, and the 6 month-deferred payment price is 25 million dong plus the interest of 0,3 million dong thereon, so the VAT calculation price shall be 2 5 million dong/unit.

6. For goods processing, the tax calculation price shall be the processing price without tax, which includes: the remuneration, costs of fuel, motors, auxiliary materials and other expenses for the processing.

7. For construction and installation activities:

For the construction of projects (with or without the supply of materials and raw materials) and/or installation of equipment therein, the VAT calculation price shall be the construction and/or installation price without VAT.

In cases where the payment for the project construction and/or installation is made according to the unit price and the construction and/or installation tempo of project items and/or the volume of work already completed and handed over, the VAT shall be calculated on the value of the work volume completed and handed over.

Example 1: The Hanoi textile company (called Party A) hires the Song Hong construction company (called Party B) to carry out the construction and installation at a to-be-expanded workshop.

The total estimated cost of the project without VAT is 200 billion dong, including:

The value of construction and installation: 80 billion.

The value of the equipment supplied and installed by Party B: 120 billion.

• Party B will add 10% VAT, being: 20 billion.
• The total amount to be paid by Party A is: 220 billion.

In cases where Party A agrees to pay Party B according to each project item (supposing that the construction of the workshop is completed and paid first), Party A. when calculating and paying 80 billion dong for construction. shall have to add 10% VAT to the amount to be paid to Party B; the amount to be paid with VAT shall be 80 billion + 8 billion = 88 billion.

The equipment supplied and installed by Party B shall be paid subsequently and calculated in the same way mentioned above.

According to the above example, the declaration and payment of VAT by each Party shall be made as follows:

+ Party B:

• The output VAT is: 20 billion
• The input VAT already paid for the purchase of cement, steel and iron, equipment... presumably is; 14 billion.
• The remaining VAT amount to be paid: 6 billion.

+ Party A:

Accepting the workshop, accounting it as an increase of fixed assets for amortization shall be 200 billion (the value without VAT).

The already paid VAT is 20 billion, which shall be deducted into the output tax on the sold goods or requested for reimbursement according to regulations.

For the construction of a project or a project item, which is under taken by many units under contracts signed directly with the project owner or subcontracts from the contractors, VAT shall be calculated and paid for the contractual parts of the project.

Example 2: Also with figures in Example 1, but the construction of the project is under taken by many units which signed contracts with the project owner as follows:

There are two contractors signing contracts with Hanoi textile company. They are Company B which undertakes the construction of the workshop, with the value of 80 billion, and Company C which undertakes the supply and installation of equipment, valued at 120 billion. But Company C has signed a contract with Company D for the supply of equipment valued at 110 billion.

The VAT on turnover of each contracting company shall be calculated as follows:

But when the payable VAT amount is calculated, Companies B and C shall be entitled to the deduction of the VAT amount already paid by each company in the previous process. The price for payment by Company A to Company B and company C calculated on the whole value of this project remains to be 220 billion, including 20 billion of VAT as in Example l. Company C, when determining the payable VAT, shall be entitled to the deduction of input VAT on the equipment supplied by Company D.

8. For business service activities paid with remuneration or commissions such as goods sale and/ or purchase agents, shipping agents, brokerage service, import and/or export assignment for commission, the VAT calculation price shall be the remuneration or commission without subtracting any cost, which is earned by the establishment from carrying out such activities. Goods sold by agents are still subject to VAT calculated on the sale price.

9. For transport, loading and unloading activities, the VAT calculation price shall be the transport freight or loading and unloading charge without VAT.

The transport activities include: the passenger transport and the cargo transport by railways, land roads, waterways, air, tubes, etc.

For air, sea, railways... transport activities involving international transport, the turnover from the international transport (the turnover earned from transport activities overseas and from Vietnam to foreign countries) shall not be subject to VAT.

10. For goods and/or services of particular characters with the use of such vouchers as post stamps, transport freight tickets, lottery tickets... where the payment prices with VAT are written, the non-VAT price shall be determined as follows:

Non-VAT price = Payment prices (ticket prices, stamp prices...)/ 1 + (%) the tax rate for such goods or service

Example: A provincial post office in January 1999 sells 10,000 stamps at the price of 400 dong/each, the non-VAT price and VAT of such number of stamps shall be calculated as follows:

Prices written on tickets (sale price with tax) = 10,000 x 400 dong = 4,000.000 dong.

The non-VAT price = 4,000,000 dong / 1+ 10% = 3,636,363 dong.

VAT to be paid at the rate of 10% is: 3.636,363 dong x 10% = 363,636 dong

                                                         or 4,000,000 dong 3,636,363 dong = 363,636 dong.

The tax calculation price of goods and/or services according to the provisions of Article 6, Decree No. 28/1998/ND-CP includes the additional collections and surcharges besides the prices of goods and/or services, which the business establishments are entitled to enjoy.

The additional collections by business establishments according to the State's regimes not calculated into the business establishments' turnover shall not be subject to VAT.

II. THE VAT RATES:

Under Article 8 of the VAT Law and Article 7 of Decree No. 28/1998/ND-CP of the Government, the VAT rates shall be applied as follows:

1. The rate of 0% shall be applied to export goods.

The export goods include also the processed goods for export. The exportation includes the export to foreign countries and the export into the export processing zones.

For goods brought overseas for sale, display at exhibition-cum-fairs, if there are adequate grounds to determine that they are export goods, the tax rate of 0% shall also apply.

Goods exported by production and/or business establishments shall also enjoy the 0% tax rate provided that they are actually exported goods as evidenced through the following papers:

The sale contracts or the contracts for production and/or processing of export goods signed with foreign countries.

Invoices for sale or return of processed goods to foreign parties and/or export processing enterprises.

Customs declarations on export goods with the customs office's inspection and certification that the goods have been already exported.

2. The tax rate of 5% shall be applied to the following commodities and services;

a/ Clean water in service of production and daily life, which is exploited from natural sources by production and/or business establishments and supplied to water users (except for clean water which is exploited by establishments in rural, mountainous, island, deep-lying and remote areas in service of production and daily life there, which is not subject to tax; and water in the 10% tax rate group).

b/ Fertilizers including organic and inorganic fertilizers such as kalinite fertilizer, nitrogenous (urea) fertilizer, NPK, mixed nitrogenous fertilizer, phosphate fertilizer, potassium, microbiological fertilizer, etc.

• Ores used as raw materials for the production of fertilizers such as apatite for the production of phosphate fertilizers, mud for the manufacture of micro-biological fertilizers, etc.
• Assorted insecticides, cockroach, rat, termite and wood borer killers, fungicides, weed killers, growth restraints or stimulants, plant growth regulators, etc.

c/ Equipment, machinery and instruments for medical purposes such as roentgen apparatus, apparatus for radioscopy, skiagraphy, examination and/or treatment, equipment used for surgery and/or wound treatment, ambulance, the sphymomano-meters, cardiographers, pulse feelers, devices for injection, blood transfusion, etc.

• Medical cotton, bandages.

d/ Medicinal and prophylactic drugs, including those for human beings and domestic animals. .

e/ Teaching and learning, including visual aids (models, drawings), rulers, writing boards, chalk, compasses as well as specialized equipment and instruments for teaching, learning, laboratories.

f/ Children's toys, scientific and technical books, art and literary books, children's books, legal books except for collections of legal documents including Directives, Resolutions of the Party and State not subject to tax prescribed in Clause 13, Article 4 of the VAT Law.

g/ Trading in goods items being products of cultivation, husbandry and aquaculture.

If products of this group have not gone through preliminary processing, been produced and sold by organizations and/or individuals themselves, they shall not be liable to VAT (according to provisions in Clause 1, Article 4 of the VAT Law).

h/ Unprocessed forest products (except for timber, bamboo shoots), fresh and raw foodstuff and food.

• Unprocessed forest products include those exploited from natural forests such as bamboo of various species, rattan, cane, Jew's ear, fungus, medicinal roots, leaves, flowers and plants, resins and other kinds of forest products.
• Fresh and raw foodstuff include those which have not yet been processed or have just been preliminarily processed such as pork, beef, chicken, duck, goose, fresh or alive shrimps and fish, iced or dried shrimps and fish.
• Food includes paddy, rice, maize, potato, manioc, wheat, wheat flour (exc1uding processed products such as instant noodle, porridge...).

i/ Jute, rush, bamboo, leaf products are those manufactured or processed from jute, rush, bamboo, leaves as the main raw materials such as jute carpets, jute yarn and bags coconut fibre carpet, mats made of jute or rush; ropes and strings made of bamboo or coconut fibre, blinds made of assorted bamboo, bamboo brooms, conical palm hats, etc.

j/ Cotton preliminarily processed from homegrown cotton is the cotton with husk and seed removed, which is already classified (imported cotton which is preliminarily processed and classified is not included in this group).

k/ Feeds for cattle, poultry and other domestic animals include processed and unprocessed ones such as bran, groundnut residue, fish powder, bone powder, etc.

l/ Scientific and technical services include activities involving scientific and technical research, application and guidances. More concretely:

m/ Services requiring high techniques such as assembly, trial operation, restoration, repair or readjustment of machinery, equipment, lab instruments, measuring and control instruments, specialized equipment for scientific and technical research:

• Data processing and calculation under scientific programmes and/or projects;
• Elaboration of tech-economic reports, feasibility and pre-feasibility studies projects,
• Analyzing samples of experimental materials, examining products;
• Guiding and organizing the application of new techniques to production.

n/ Services directly serving agricultural production include such activities as ploughing and/or harrowing farm land; digging, embanking and/or dredging canals, ponds, lakes for agricultural production; husbandry, cultivation, disease prevention, harvesting and/or gathering agricultural products.

3. The tax rate of 10% shall be applied to the following commodities and services:

1. Mineral products: oil, gas, metal and non-metal ores, coal, sand, cobble, clay, kaolin and other mineral products;
2. Commercial electricity sold by electricity production and business establishments, regardless of whether it is hydro-electric or thermal-electric power, etc.
3. Electronic and mechanical products, electric appliances;
4. Chemical products, cosmetics,
5. Yarns, fabrics, textile and embroidery products;
6. Paper and paper products;
7. Sugar, milk, confectionery, beverages, and other processed foodstuffs;
8. Pottery, ceramic, glass, rubber and plastic products, wood and wood products: cement, bricks, tiles and other construction materials;
9. Construction and installation;
10. Transport, loading and unloading;
11. Postal mail, post and telecommunications;
12. Leasing of houses, offices, shops, storehouses, ports, storage yards, workshops, machinery, equipment, transport means;
13. Legal consultancy services;
14. Photo shooting, printing and developing: audio tape recording and dubbing; video tape recording, shooting and screening;
15. Hair dressing, tailoring, fabric dyeing, laundry;
16. Other commodities and services not specified in the 0%, 5% and 20% tax rate groups in Section II, Part A of this Circular and goods items subject to special consumption tax shall be subject to VAT in the trading process at the tax rate of 10%.

4. The tax rate of 20% shall be applied to the following commodities and services:

a/ Gold, silver and gems purchased and sold by establishments trading therein:

Gold, silver and gems establishments which process and/or fashion gold, silver and gems products without accounting separately the turnover and tax thereof, the tax rate 20% shall apply to the processing and fashioning activities.

b/ Hotel, tourism, food catering:

Hotels and tourism are determined according to standards set by specialized management agencies or according to business licenses.

Food catering, regardless of common or high grade food;

c/ Lotteries of all kinds: .

d/ Shipping agents:

e/ Brokerage service, regardless of forms and professional fields.

The above-specified VAT rates shall apply uniformly according to categories of commodities and services, for goods of the same category, there is no difference between import goods and home-made goods as well as between production and trading process.

III. VAT CALCULATION METHODS

VAT to be paid by business establishments can be calculated according to either of the following two methods: tax deduction method and the method of calculating tax directly on the added value. In cases where business establishments that pay tax by the tax deduction method conduct business activities in the purchase and sale of gold, silver and gems, they shall have to account these activities separately in order to calculate tax directly on the added values.

Objects of application and payable tax amount determined according to each method shall be as follows:

1. The tax deduction method:

a/ Objects of application shall be business units and organizations, including State enterprises, foreign-invested enterprises, private enterprises, joint stock companies, cooperatives and other business units and organizations, except for objects of the application of the method of calculating tax directly on the added values mentioned in Point 2 below.

b/ Determining the payable VAT amounts:

The payable VAT amount is equal to (=) output VAT minus (-) input VAT, in which

* The output VAT = tax calculation price of the taxable sold commodity or service multiplied (x) by the VAT rate for such commodity or service.

Business establishments being tax payers according to the tax deduction method, when selling goods and services, shall have to calculate and collect VAT on such goods and/or services. When making sale invoices, the business establishments clearly state the non-tax prices, VAT amounts and the total amounts to be paid by the buyers. In cases where an invoice only records the payment price without stating the non-tax price and the VAT amount, VAT on such sold goods and/or services shall be calculated on the payment prices recorded in the invoice.

Example: An enterprise selling construction steel and iron with the non-VAT price of p 6 steel rods being 4,500,000 dong/ton. the VAT at the rate of 10% being 450,000 dong/ton; but when selling such steel, the enterprise only wrote on some invoices the sale price of 4,800,000 dong/ton, so the VAT on the turnover shall be calculated as follows: 4,800,000 dong/ton x 10% = 480,000 dong/ton, instead of calculating on the non-tax price of 4,500,000 dong/ton; the enterprise buying the steel shall not also be entitled to deduct the input VAT for such non-VAT invoices.

Particularly for commodities and/or services of particular character, which are eligible for the use of vouchers with the payment price that has already included tax, the non-tax price and the output VAT shall be determined according to Point 10, Section I, Part B of this Circular.

* The input VAT is equal to (=) the total VAT amount written on the added value receipt of the goods or service purchase or the voucher on the payment of VAT on imported goods.

The input VAT which a business establishment is entitled to deduct is stipulated as follows:

+ The input tax on goods and/or services used for the production and/or trading of goods and/or services liable to VAT shall be deducted

+ The deductible input tax on goods or services arises in a month shall be declared and deducted from the payable tax amount of such month, regardless of whether such goods have been put to use or still left in stock.

Example: Enterprise A producing cement, in January 1999 sells 200 tons of cement at the price of 800,000 dong/ton (not yet included VAT), and the VAT rate is 10% (the price to be paid by the buyer is 880,000 dong/ton): also in the month, the enterprise buys materials and raw materials for cement production and business.

On the basis of the added value receipts of the raw material purchase, the input VAT amounts shall be determined as follows:

The purchased materials and raw materials are presumed to be used for the production of cement, the VAT amount to be paid by the enterprise in January 1999 is determined as follows:

• The output VAT amount calculated on the sold cement volume is: (800,000 dong/ton x 200 T) x 10% = 16,000,000 dong.
• The deductible input VAT amount is: 9,350,000 dong.
• The remaining VAT amount to be paid for January 1999 is: 16,000,000 dong 9,350,000 dong = 6,650,000 dong.

In cases where the establishment has bought materials and raw materials without invoices, receipts or with invoices or vouchers which are not the added value receipts or which are the added value receipts but failed to separate the VAT amount from the sale price, it shall not be entitled to the deduction of input tax, except for the following specific cases:

+ Where the purchased goods and/or services are of the categories eligible for the use of vouchers with the payment price being the price already added with VAT, the establishment shall base itself on the tax added price and the calculation method mentioned in Point 10, Section I, Part B of this Circular to determine the non-tax price and the deductible input VAT.

Example: Within the period, company A pays the deductible input service of particular category:

The total payment price is 110 million dong (the price added with VAT), this service is subject to the tax rate of 10%, the deductible input VAT shall be calculated as follows:

110 million /1+ 10% x10% = 10 million dong

The non-tax price is 100 million dong, the VAT is 10 million dong.

• Where the production/processing establishment buys raw materials which are unprocessed agricultural, forest and/or aquatic products sold by producers without invoices, the input tax shall be deducted according to the rate (%) calculated on the value of the purchased goods:
• 5% for cultivation products from resin, latex and oil yielding trees, sugar canes, green-tea buds, paddy, maize, potato, manioc: husbandry products including cattle, poultry, shrimps, fish and other aquatic products:
• 3% for products being agricultural and forest products not specified in the above 5% deduction group.

Example 1: Sugar manufacture enterprise A buys sugar canes directly from the cane growers (sugar cane is a cultivation product not subject to VAT). In the month, it buys 100 tons of sugar cane at the price of 200,000 dong/ton. When the payable VAT is calculated, the enterprise shall be entitled to the following deducted amount of input tax on sugar cane:

200,000 dong/ton x 100 tons x 5% = 1,000,000 dong.

The calculation of deducted amount of input tax on purchased raw materials being the above agricultural, forest and/or aquatic products shall not apply to establishments which buy them for the production of export goods, for trading and food catering service.

In cases where the purchased goods and/or services are used simultaneously for production of and trading in goods and/or services subject to VAT and for those not subject to VAT, only the input tax on goods and/or services used for the production of or trading in goods and/or services subject to VAT shall be deducted.

Business establishments shall have to account separately the amount of input tax to-be-deducted and that not to be deducted, if it is unable to account them separately, the deduction is made according to the rate (%) between the turnover liable to VAT and the total sale turnover.

Example 2: Like in Example 1, enterprise A has used electricity for cement production only with 4,000 kW and the remaining 1,000 kW for the workers' living quarters (the establishment can account separately the electricity used for the workers' living quarters), the establishment shall only be entitled to deduct the input VAT on electricity used for cement production, concretely as follows:

The amount of input electricity VAT to be deducted in the month is: 4,000 kW x 700 dong/kW x 10% = 280,000 dong, instead of 350,000 dong like in Example 1 (above).

In cases where the establishment manufactures and/or trades in commodities and/or services of both categories which are subject and not subject to VAT but cannot account separately the deductible input tax, the input tax shall be deducted according to the percentage (%) of the turnover of the commodities and/or services subject to VAT on the total turnover of the sold commodities and services.

Example 3: In the tax calculation period, an enterprise which manufactures both beer (subject to the special consumption tax) and soft drinks (subject to VAT) has purchased some kinds of materials for the production of both kinds of such products but cannot account separately the volume used for the production of each kind of such products. The input tax on those materials shall be as follows:

• The total value of the purchased materials is 1,500 million dong (non-VAT price).
• The general input VAT according to the added value receipt is 120 million dong.
• The sale turnover is 3,000 million dong (not yet included with VAT),

In which:

• The turnover of the commodities subject to VAT is 2,000 million dong.
• The turnover of the commodities not subject to VAT is 1,000 million (for commodities subject to special consumption tax, it is calculated according to the sale price set by the production establishment).
• The output tax calculated on the sale price of the commodities subject to VAT is 200 million dong.

The deductible input VAT on the above-mentioned materials shall be calculated as follows:

• Determining the percentage of the commodities subject to VAT on the total sale turnover: 2,000 million/3,000 million = 66.6%.
• The amount of input tax to be deducted according to this percentage (%) is: 120 million x 66.6% = 79.9 million dong.
• The VAT amount to be paid for the soft drinks is: 200 million 79.9 million = 120.1 million dong.

* The input tax on fixed assets shall be deducted as follows;

A business establishment which has deductible input tax on fixed assets shall declare the deduction of input tax on fixed assets as for materials and other commodities. In cases where the fixed assets input tax amount is large, the establishment shall be entitled to deduct it gradually. If after three months, the tax amount is not fully deducted, the enterprise shall fill the procedures requesting the tax agency to consider and refund the remaining tax amount not yet deducted.

Example 1: During the year, enterprise X expands its production, purchasing new machinery and equipment valued at 10 billion dong, the input VAT is 1 billion dong. After making the deduction from the payable tax amounts in three months, enterprise X still has 600 million of the input tax not yet deducted; so it can fill the procedures requesting the tax agency to refund the remaining tax amount of 600 million dong.

Particularly for business establishments which have registered the payment of VAT but are newly set up establishments having no sale turnover yet and having no output tax yet for the deduction of fixed asset input tax, and if their investment duration is 1 year or more, they shall be entitled to be considered for the input tax refund on the annual basis (according to the calendar year). In cases where the VAT amount is large, the establishments can propose the tax refund on the quarterly basis.

Example 2: Production establishment A has an investment project', the total construction and installation value is 40,000 million dong and the purchase of machinery and equipment is 15,000 million dong. The project has been built in three years. In the first year, machinery and equipment are imported at the value of 5,000 million dong, the VAT amount paid for the import is 500 million dong, and the establishment has paid to the construction contractor 1,000 million dong (the non-VAT price), for the completed construction and installation; the input VAT calculated on the value of the constructed houses and workshops already handed over is 100 million dong. So, the amount of input VAT on the imported supplies and fixed assets arising in the year is 600 million dong. The establishment shall be entitled to the refund of the VAT on investment assets under Article 15 of Decree No. 28/1998/ND-CP and the guidances in Part D of this Circular.

2. Method of calculating VAT directly on the added value

a/ Objects of the application of the method of calculating VAT directly on the added value shall include:

• Individuals conducting production and business, who are Vietnamese;
• Foreign organizations and individuals conducting business in Vietnam not under the Law