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VAT input on housing allowance for expats

Many expats working in Vietnam are entitled to a lot of allowance from their Company and Housing allowance is a kind of these benefits.

For some enterprises, the housing allowance are capped at a specific amount and paid along with the monthly salary to expats staff. For others, the Company shall settle rental charge directly to the lessor.

The question is that the VAT invoice issued by the lessor for such housing allowance is deductible or not?

In accordance with the Circular 219/2013/TT-BTC providing guidance on implementation of the Law on Value Added Tax, it is regulated at the Article 14: rules for VAT input deduction that:

  • In case a foreign expert is working under labour contract or holding managerial positions with Vietnam party and entitled to a housing allowance paid by Vietnam party, the Vietnam party is not allowed to claim the VAT input on housing allowance to such expats.
  • In case the foreign expert is still under labour contract with oversea company, receive wages and benefits from the overseas company during their Vietnam assignment and the overseas company and the taxpayer in Vietnam sign a contract specifying that the Vietnam party shall cover the accommodation cost for the foreign experts while they are working in Vietnam, the VAT on such accommodation cost paid by Vietnam party shall be deductible.

It is also regulated at Point 9 of the same Article that:

 Input VAT that is not deductible shall be aggregated with costs to calculate corporate income tax, or aggregated with costs of fixed assets, except for the VAT on any purchase that costs 20 million VND or more without receipts for non-cash payments

In light of the above, the VAT input on housing allowance for expats shall be specified in 2 cases:

  • In case that the expats are working under labour contract with Vietnam Company and/or holding a position in management board of Vietnam Company, the VAT amount for housing allowance to such expats is non-deductible but can be recorded as expense .
  • In case that the expats are working under secondment, receiving wages and salaries from oversea company while the housing allowance to such expats is paid by Vietnam party (for and with the terms which are clearly stated in the agreement between Vietnam and oversea company), the VAT amount on such housing allowance is deductible.

Above is the regulation related to case of input VAT on housing allowance.

To get into details for specific cases, please feel free to contact us as at:

Unit 602A, Tower A, Handi Resco Office Building

521 Kim Ma Street, Ba Dinh District, Hanoi

+ 84 24 3974 4181/ 4182

+ 84 24 3974 3090

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In case of arising Valued Added Tax on imported goods/services, is it such VAT liability deductible and is there any requirement implicated?

Let us share with you the related regulation for further information and reference.

In accordance with Clause 10, Article 1, Circular 26/2015/TT-BTC, the tax payer can claim for VAT deduction if can meet the below requirements:

1. Having legitimate VAT invoices for purchases or receipts for payment of VAT on imported goods, or receipts for payment of VAT on behalf of foreign organizations that do not have Vietnamese legal status and the organizations and individuals, and the foreigners that do business or earn income in Vietnam.

2. Proofs non-cash payments for the purchases (including imported goods) that cost VND 20 million or more, except for the imports that cost below VND 20 million each, purchases that cost below VND 20 million inclusive of VAT, and imports being gifts, donations from overseas entities.

3. Bank transfer receipts are documentary evidence proving the transfer of money from the buyer's account to the seller's account.

a) Proofs of the buyer's payment to the seller's account or proofs of payments in the manners that are not conformable with applicable regulations of law are not eligible for deduction and refund of VAN on purposes that cost VND 20 million or more.

b) Any purchase that cost VND 20 million or more (VAT-inclusive) shall not be deducted if there is no bank transfer receipt

c) With regard to goods purchased under a deferred payment plan or instalment plan that cost VND 20 million or more, the taxpayer shall declare and deduct input VAT according to the sale contracts, VAT invoices, and bank transfer receipt, If the bank transfer receipt is not available before the payment deadline according to the contract, the taxpayer may still deduct input VAT.

In light of the above, the VAT on imported goods/services which are used for business activities of the tax payer can be claimed for VAT deduction and the tax payer needs to maintain below documentation:

1. Payment evidence for VAT on imported goods/services or VAT liability payment;

A copy of the submitted customs declaration or declaration of foreign contractor withholding tax should be attached along with the claim package as supporting documents;

2. Proofs non-cash payments for the purchases

It means that the VAT on imported goods is only deductible and claimable when the payment for the foreign contractor is fully made.

Above is the general regulation for cases of Conditions for deducting input VAT on imported goods and services.

To get into details for specific cases, please feel free to contact us as at:

Unit 602A, Tower A, Handi Resco Office Building

521 Kim Ma Street, Ba Dinh District, Hanoi

+ 84 24 3974 4181/ 4182

+ 84 24 3974 3090

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Specific cases of Non-deductible VAT input

Under current regulations, for those tax payers who apply VAT credit method, the VAT credit method is specified as follows:

Payable VAT amount = Output VAT amount – Creditable input VAT amount

To be in detail, the creditable input VAT amount is the total VAT amount on goods or services purchased and on imported goods as indicated in VAT invoices and other relevant documents proving VAT payment.

However, in some cases, the VAT input amount is not qualified for deduction. Below are the specific cases of Non-deductible VAT input that are clearly stated in the Circulars on tax regulations, i.e. Circular 219/2013/TT-BTC, Circular 151/2014/TT-BTC, Circular 26/2015/TT-BTC by the Ministry of Finance.

1. Under Circular 219/2013/TT-BTC, it is regulated that:

As at Clause 7, Article 14:

7. Input VAT on goods and services serving the manufacture or sale of taxable goods and services mentioned in Article 4 of this Circular must not be deducted, except for the following cases:

a) VAT on purchased goods and services serving the provision of goods and services for the foreign entities that use them as humanitarian aid or non-refundable aid according to Clause 19 Article 4 of this Circular shall be deducted in full.

b) Input VAT on goods and services serving petroleum exploration shall be deducted in full until the first day of extraction.

As at Clause 15, Article 14

15. Input VAT must not be deducted in the following cases:

  • The VAT invoice is not legitimate, such as VAT is not written (except for special invoices on which selling prices are VAT-inclusive);
  • The invoice does not contain or does not contain the correct name, address or TIN of the seller, thus rendering the seller unidentifiable;
  • The name, address, or tax code of the buyer on the invoice is incorrect (except for the case in Clause 12 of this Article);
  • The VAT invoice or the receipt for VAT payment is fake; the invoice is changed or fictitious (made without actual sale);
  • The invoice does not reflect the actual value of goods and services

As at Clause 3, Article 15

b) VAT on any purchase that costs 20 million VND or more (VAT-inclusive) shall not be deducted if no bank transfer receipt is presented. The taxpayer shall classify these invoices as non-deductible in the list of invoices and receipts for purchases.

2. Article 9, Circular 151/2014/TT-BTC which came into effect since 15 November 2014 regulates that:

“3. The input VAT on fixed assets, machinery, and equipment, including the input VAT on the lease of these assets, machinery, and equipment, and other input VAT relating to assets, machinery, and equipment such as warranty or repair shall be not deducted and shall be included in costs of fixed assets or the deductible expense prescribed in Law on corporate income tax and other documents providing guidance on implementation in the following cases: specialized fixed assets used for the manufacture of weapons and military equipment for security and defense; fixed assets, machinery, equipment of credit institutions, reinsurers and life insurers, securities companies, medical facilities, training institutions; civil aircraft and yachts not used for commercial cargo transport, passenger transport, tourism, or hotel operation.

With regard to fixed assets being cars with fewer than 9 seats (except for cars used for cargo transport, passenger transport, tourism, or hotel operation; cars used for display and test drive by car dealers) whose value are over VND 1.6 billion (not including VAT), the input VAT amount in proportion to the amount in excess of VND 1.6 billion shall not be deducted.”

3. Related to the allocation of VAT input amount on goods/services subject/non-subject to VAT, the Clause 9, Article 1, Circular 26/2015/TT-BTC regulates that:

2. When goods and services (including fixed assets) are purchased to serve the manufacture or sale of both the goods/services that are subject to VAT and goods/services that are not subject to VAT, only VAT on the goods and services serving the manufacture or sale of the goods/services subject to VAT shall be deducted. The taxpayer must separate the deductible input VAT from non-deductible one. Otherwise, input VAT shall be deducted according to the ratio of revenue subject to VAT, revenue not subject to VAT to the total revenue from selling goods and services, including revenue not subject to VAT that cannot be separated.

The taxpayer that sells both goods/services that are subject to VAT and goods/services that are not subject to VAT may temporarily deduct all of the VAT on purchased goods, services, and fixed assets incurred in the month/quarter. At the end of the year, the taxpayer shall determine the actual deductible input VAT in the year and adjust the amount of input VAT deducted during the year.

Above is the general regulation for cases of non-deductible VAT input.

 

To get into details for specific cases, please feel free to contact us as at:

Unit 602A, Tower A, Handi Resco Office Building

521 Kim Ma Street, Ba Dinh District, Hanoi

+ 84 24 3974 4181/ 4182

+ 84 24 3974 3090

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

1. Invoice issuance for goods/services used for promotions and advertising, as sample goods, for gifts, as an exchange or for paying wages to employees.

Pursuant to Clause 7, Article 3, Circular 26/2015/TT-BTC, Point b, Clause 1, of Article 16, Circular 39/2014/TT-BTC on Sales invoices is amended as follows:

b) When selling goods and services, including those used for trade promotion, advertising, samples, goods and services used for donation, exchange, or paid as salaries (except for goods internally circulated or internally used to proceed with the production), the seller must issue invoices.

Accordingly, whenever using goods/services for promotions, advertising, gifts, exchange or paid as salaries, the seller is responsible for issuing invoice for those goods/services used.

2. The Value Added Tax (“VAT”) on goods/services used for promotions, advertising or gift

2.1 The input value added tax

According to clause 5, Article 14, Circular 219/2013/TT-BTC on Value Added Tax Law providing rules for deducting input VAT, it is regulated that:

5. Input VAT on the goods (whether purchased externally or produced by the taxpayer) used as gifts, used for sale promotions or advertising serving the manufacture of sale of taxable goods may be deducted.

It means that the input VAT on the goods/services used for promotions, advertising of gifts is deductible regarding that the tax payer needs to maintain the sufficient supporting documents for those expenses.  

2.2 Value added taxable prices

As regulated at clause 3 and clause 5, Article 7, Circular 219/2013/TT-BTC, the taxable prices of the goods/services used for promotions, advertising or gift are defined as:

3. Taxable prices of the goods and services (whether bought externally or not) used as gifts, donations, or substitute for wages are the taxable prices of the same kinds or equivalent goods and services at the same time.

5. Taxable prices of goods and services used for sales promotion in accordance with trade laws are zero (0). In case they are not conformable with trade laws, tax shall be declared and paid as if they are used internally, given, or donated.

In summary, the value added taxable prices of the goods/services used for promotions are as follows:

  • Good/services used for promotions campaign which is registered with the Provincial Department of Industry and Trade are non-taxable, i.e. the taxable price is zero;
  • Good/services used for promotions campaign which is NOT registered with the Provincial Department of Industry and Trade are taxable. The taxable prices are taxable prices of the same kinds or equivalent goods and services at the same time.

Above is the general regulation on VAT applied for goods/services used for promotions and advertising, as sample goods, for gifts, as an exchange or for paying wages to employees.

 

To get into details for specific cases, please feel free to contact us as at:

Unit 602A, Tower A, Handi Resco Office Building

521 Kim Ma Street, Ba Dinh District, Hanoi

+ 84 24 3974 4181/ 4182

+ 84 24 3974 3090

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

Legal Base

Foreign Contractor Withholding Tax (FCT) is tax liability withheld on payments to foreign contractors.

Circular No. 103/2014/TT-BTC dated August 6th, 2014 which is promulgated by the Ministry of Finance and took into effect since October 1st, 2014 has provided the detail Guidance for fulfillment of tax liabilities of foreign entities doing business in Vietnam or earning income in Vietnam (“Circular 103”).

 

Subjects of application

The foreign contractor as mentioned is described as:

  • Foreign business organizations having permanent establishments (“PE”) in Vietnam or not; foreign business individuals that are residents of Vietnam or not who do business in Vietnam or earn income in Vietnam under contracts, agreements, or commitments between the foreign contractor and a Vietnamese entity or between a foreign sub-contractor and a foreign sub-contractor to perform part of the main contract.
  • Foreign entities providing goods in Vietnam in the form of domestic export and earn income in Vietnam under contracts between them and Vietnamese companies (except for cases in which goods are processed and then returned to foreign entities) or distribute goods in Vietnam or provide goods under Incoterms rules that require the sellers to be responsible for goods that have been taken into Vietnam’s territory.

There are only few exceptions where FCWT is non-applicable as follows:

        i.            If the transaction is performed between a subsidiary and a Vietnamese counterpart.

      ii.            If the foreign vendor sells the goods based on EXW-, FCA-, FAS- or FOB. This shall not apply to cases, where the seller provides after sales services related to the product directly, i.e. under Incoterms as DAT, DAP or DDP. In this case, the FCWT is also applicable to the product itself.

    iii.            If the service is offered and rendered outside of Vietnam.

 

FCWT liability computation and declaration

FCWT is not a separate tax, and normally comprises a combination of Value Added Tax (“VAT”) and CIT, or Personal income tax (“PIT”) for income of foreign individuals.

Foreign contractors can apply to be deduction-method VAT payers if they adopt the Vietnamese accounting system. If accounting records are adequate, the foreign contractor will pay CIT on actual profits, but otherwise on a deemed-profit basis.

For direct (non-deduction-method) foreign contractors, VAT and CIT will be withheld by the contracting party at deemed rates. It means that the Vietnamese contracting party will withhold a percentage of the invoice to pay therefore to the Vietnamese Tax Authorities.

Various rates are specified according to the nature of the contract performed. For CIT, the FCWT rate varies from 0.1% to 10%. For VAT, the FCWT rate can also range from 2% to 5%. The VAT withheld by the contracting party is an allowable input credit in its VAT return.

The Vietnamese party is responsible for registration for FCWT code, preparation and submission of the FCWT declaration and making payment on behalf of the foreign contractor.

Above is the general information of FCWT implication in Vietnam. Where specific cases/transactions are being considered, definitive advice should be sought.

 

To get into details of FCWT compliance, please feel free to contact us as at:

Address: Unit 602A, Tower A, Handi Resco Office Building

521 Kim Ma Street, Ba Dinh District, Hanoi

Tel: + 84 24 3974 4181/ 4182

+ 84 24 3974 3090

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

The Decree No.119/2018/ND-CP (“Decree 119”) on the use of electronic invoices (e-invoices) for the sale of goods and services is effective since November 1, 2018 and the implementation shall be completed by enterprises, economic or other organizations, business households and individuals by November 1, 2020.

During the period from November 1, 2018 to October 31, 2020, the Decree No. 51/2010/ND-CP dated May 14, 2010 and the Decree No. 04/2014/ND-CP dated January 17, 2014 of the Government on sales and service invoices shall remain in effect and this is called the Transition Period.

Types of e-invoices

There are two (02) types of e-invoices: e-invoice and e-invoice with Tax Authorities’ verification codes.

Firms in the electricity, petroleum, telecommunication, credit financing, transportation, e-commerce, insurance, supermarkets, and trading sectors can use e-invoices without verification codes. In addition, enterprises that transact directly with the tax authorities electronically or have the technology infrastructure, accounting software, and e-invoice software as per regulations are not required using e-invoices with verification codes.

For individual and companies involved in the agriculture, forestry, fishery, industry, and construction sectors employing more than 10 labourers and having annual revenue over VND 3 billion in the preceding year must use e-invoices with verification codes. In the trade and services sector, if the individuals and companies have annual revenue of over VND 10 billion, they need to use e-invoices with verification codes.

Issuing e-invoices

Companies need to register before they use e-invoices (with or without tax verification codes) to get approval from the tax authorities through the General Department of Taxation’s website.

Business and individuals selling goods or providing services need to issue an e-invoice (with or without tax verification codes) to the buyer in a standardized format prescribed by the tax authorities. They are required to provide all the necessary information, regardless of the invoice value.

In case a POS system is used, the seller needs to register for the use of e-invoices sent by the POS system for online transfer of data with the tax department.

Conversion into paper invoices

The conversion of e-invoices into paper invoices is only for the purpose of recording and monitoring in accordance with the Law on Accounting and is not valid for executing transaction or payment.

For goods in transit, authorities or authorised persons can access the Web Portal of the GDT for detail information of the invoice.

The taxpayers who use the paper form of e-invoices as accounting voucher need to maintain the e-form of the invoice for tax and audit purposes under current regulation.

 

Transition period

During the transition period, i.e. from 1 November 2018 to 31 October 2020, taxpayers who have already self-printed their invoices or have received invoices issued by the tax authorities before November 1, 2018, can use them till the end of October 31, 2020.

During the transition period, in case a taxpayer uses up its stock of pre-printed invoices which have been notified for usage, and the taxpayer would like to continue using pre-printed invoices, the taxpayer is allowed to do so in accordance with the above decrees prior to converting to use of e-invoices pursuant to Decree 119/2018/ND-CP (under Official letter no. 4311/TCT-CS dated 5 November 2018).

In the case where the tax authorities have notified taxpayers to switch to e-invoices between November 1, 2018, and October 31, 2018, and the taxpayers fail to meet the information technology infrastructure requirements, they need to send their invoice data to the tax office. The tax office will use those invoices for their database and post them on the General Department of Taxation’s information portal.

Public organizations such as medical establishments and schools that use fee receipts are allowed to continue using the receipts but need to move to electronic receipts or e-invoices according to the roadmap of the Ministry of Finance.