VAT is one of the key taxes that any business operating in Vietnam, especially foreign-invested enterprises, must pay attention to. Understanding VAT regulations ensures legal compliance and helps optimize costs and mitigate financial and legal risks. Below, DNP Viet Nam Law Firm will provide your business with a clear and concise overview of VAT regulations:
1. Definition
Value Added Tax (VAT) is a tax on the added value of goods and services during production, distribution, and consumption. Foreign-invested enterprises in Vietnam must pay VAT under Article 3 of the 2008 VAT Law and Article 2 of Circular 219/2013/TT-BTC.
2. VAT Rates
- 0% VAT rate: Applied to exported goods and services, and international transportation (Article 9 of Circular 219/2013/TT-BTC).
- 5% VAT rate: This applies to essential services like healthcare, education, culture, sports, and entertainment (Article 10 of Circular 219/2013/TT-BTC, amended by Circular 26/2015/TT-BTC).
- 10% VAT rate: Applied to most other goods and services not covered by the above categories (Article 11 of Circular 219/2013/TT-BTC).
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3. VAT Calculation Methods
Enterprises can choose one of the following VAT calculation methods:
- Credit method: VAT payable = Output VAT – Deductible input VAT.
- Direct method (as specified in Article 13 of Circular 219/2013/TT-BTC): VAT payable = Revenue × Prescribed rate (%).
4. VAT Declaration and Payment Obligations
- Enterprises must declare VAT every month or quarter, based on their size and business type.
- Tax payment: The deadline for VAT payment is typically the 20th or 30th of the following month after the tax liability arises.
5. Considerations for Foreign-Invested Enterprises
- VAT on exported goods: If an enterprise exports goods, the 0% VAT rate applies. The enterprise may also be eligible for VAT refunds on input costs if certain conditions are met.
- Electronic invoices are now required for easier VAT declaration and payment.
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