The Draft Law on Value Added Tax (Draft VAT Law) is scheduled to be submitted to the National Assembly for approval at the 8th Session in October 2024, replacing Law No. 13/2008/QH12 amended, supplemented by Law No. 31/2013/QH13, Law No. 71/2014/QH13 and Law No. 106/2016/QH13. The draft is expected to introduce several notable new provisions such as non-taxable objects, tax rates, deduction and refund conditions, etc. The Ministry of Finance has released the Draft VAT Law for public comments in order to refine its provision.

Here are a few key points to consider in the Draft Law on Value Added Tax (VAT):

1. Adjustments to the Scope of VAT Exemption

Elimination of certain VAT-exempt items: This includes fertilizers; machinery and equipment specifically used for agricultural production; offshore fishing vessels; securities custody; market organization services of stock exchanges or securities trading centers; other securities trading activities; etc.

Addition of new VAT-exempt items: Imported goods donated or provided as support for disaster, pandemic, and war prevention as prescribed by the Government.

Specific provisions on VAT-exempt capital transfer transactions: "Capital transfer includes the transfer of all or part of the capital invested in another economic organization (regardless of whether a new legal entity is established or not), the transfer of securities, the transfer of capital contribution rights, and other forms of capital transfer as prescribed by law, including the sale of an enterprise to another enterprise for production and business activities, and the purchasing enterprise inherits all rights and obligations of the selling enterprise as prescribed by laws. Capital transfer as prescribed in this clause does not include investment project transfer or asset sale."

2. Adding a new definition of export services for the tax rate of 0%:

“Export services are services provided to foreign organizations and individuals, including Vehicle rental services used outside the territory of Vietnam; Services of the aviation and maritime industries are provided directly for international transport or through agents.

The Minister of Finance regulates documents, procedures, and conditions for applying the 0% value-added tax rate to exported goods and services specified in this Clause.”

The definition is not very clear! It explicitly lists two types of export services: vehicle rental used outside Vietnam and aviation/maritime services for international transport. However, the use of "gồm" in Vietnamese (“including” in English) leaves room for interpretation about whether the listed services are exhaustive or merely examples. This lack of clarity can lead to inconsistencies in tax applications.

Further, compared to the current regulations, this draft orders the Ministry of Finance to regulate documents, procedures, and conditions for applying the 0% VAT rate for export. It introduces additional bureaucratic hurdles. This could potentially complicate the tax compliance process for businesses, especially if the regulations are overly burdensome.

3. Amendments to the Regulations on Taxable Prices for Imported Goods

According to Point b of Clause 1 Article 7 of the Draft VAT Law, the taxable prices for imported goods are amended to be the import taxable value as prescribed by the laws on export and import duties, plus import duties, plus the responsibilities which are additional import duties as prescribed by laws (if any), plus excise tax (if any), plus environmental protection tax (if any).

4. Adjustments to the Regulations on Input VAT Deduction

Addition of the time for declaration and deduction of omitted input VAT: In Clause 1 of Article 13 of the Draft VAT Law, in case an enterprise discovers that its input VAT invoices, and tax payment documents have been omitted when declaring and deducting, it shall be declared and deducted in the tax period in which the omission is discovered before the tax authority issues a decision to inspect or audit taxes at the taxpayer's registered office.

Adjustment of the conditions for input VAT deduction:

(i) According to Clause 2 of Article 13 of the new Draft VAT Law, all purchased goods and services must have non-cash payment documents, except for a number of special cases as prescribed by the Government. Currently, goods and services purchased individually with a value of less than VND 20 million do not require non-cash payment documents to deduct input VAT as prescribed in Clause 2 of Article 12 of the current VAT Law.

(ii) In addition, according to Clause 2 of Article 13 of the Draft VAT Law, exported goods and services, packing slips, bills of lading, and cargo insurance certificates (if any) are eligible for input VAT deduction, except for a number of special cases as prescribed by the Government.

5. Amendments and Additions to VAT Refund Regulations

Addition of the following cases for VAT refund in Clause 1 of Article 14 of the Draft VAT Law: Businesses that only produce goods and provide services subject to a VAT rate of 5% are eligible for a VAT refund if they have unutilized input VAT of VND 300 million or more after 12 months or 4 quarters.

Elimination of certain VAT refund cases:

(i) For enterprises that have not contributed sufficiently with the registered charter capital as registered but have investment projects, according to the amended VAT Law 2013, enterprises will not be eligible for a VAT refund. Still, they will be allowed to carry forward the unutilized tax amount of the investment project to the following period according to the regulations on investment. The draft omits the phrase “not contributed sufficiently with the registered charter capital”, which could be interpreted that the status of charter capital contribution being irrelevant to VAT refund eligibility.

(ii) Enterprises that pay VAT using a tax deduction method with unutilized input VAT are no longer eligible for VAT refund when they have ownership conversion, enterprise conversion, merger, consolidation, division, and separation activities.

Disclaimer

This Newsletter contains only brief notes and includes legislation in force as of August 2024. The information herein is general and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one is entitled to rely on this information, and no one should act on such information without appropriate professional advice obtained after a thorough examination of the particular situation.