Thông tư 122/2000/TT-BTC

Circular No. 122/2000/TT-BTC of December 29th, 2000, on value added tax providing guidelines for implementation of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of Law on Value Added Tax (VAT).

Circular No. 122/2000/TT-BTC of December 29th, 2000, on value added tax providing guidelines for implementation of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of Law on Value Added Tax (VAT). đã được thay thế bởi Circular No. 120/2003/TT-BTC of December 12, 2003, guiding the implementation of the Government’s Decree No. 158/2003/ND-CP of December 10, 2003 detailing the implementation of the value added Tax Law and the Law amending and supplementing a number of articles of the value added Tax Law và được áp dụng kể từ ngày 01/01/2004.

Nội dung toàn văn Circular No. 122/2000/TT-BTC of December 29th, 2000, on value added tax providing guidelines for implementation of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of Law on Value Added Tax (VAT).


THE MINISTRY OF FINANCE

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SOCIALIST REPUBLIC OF VIET NAM
Independence – Freedom – Happiness

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No. 122/2000/TT-BTC

Hanoi, December 29th, 2000

 

CIRCULAR

ON VALUE ADDED TAX PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREE 79/2000/ND-CP OF THE GOVERNMENT DATED 29 DECEMBER 2000 MAKING DETAILED PROVISIONS FOR IMPLEMENTATION OF LAW ON VALUE ADDED TAX (VAT)

Pursuant to the Law on Value Added Tax 02/1997/QH9 dated 10 May 1997; Pursuant to Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of the Law on VAT; and Decree 73-CP of the Government dated 30 July 1994 making detailed provisions for implementation of the Ordinance on Privileges and Immunities of Diplomatic Representative Offices, Foreign Consulates and Representative Offices of International Organizations in Vietnam;

The Ministry of Finance provides the following implementing guidelines:

A. SCOPE OF APPLICATION OF VAT

I. TAXABLE OBJECTS AND VAT PAYERS

1. Taxable objects:

Pursuant to article 2 of the Law on VAT and article 2 of Decree 79/2000/ND-CP of the Government dated 29 December 2000, goods and services used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except as provided for in Section II of Part A of this Circular.

2. VAT payers:

Pursuant to article 3 of the Law on VAT and article 3 of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of the Law on VAT, all organizations and individuals producing and trading VAT taxable goods and services in Vietnam, irrespective of the business line, form or organization (hereinafter collectively referred to as business establishments), and other organizations and individuals importing VAT taxable goods (hereinafter collectively referred to as importers) shall be liable to pay VAT.

Organizations and individuals producing and trading goods and services shall comprise:

- Business organizations established under and with business registration in accordance with the Law on Enterprises, the Law on State Owned Enterprises and the Law on Co-operatives;

- Economic organizations of political organizations, socio -political organizations, social organizations, socio -professional organizations, units of the people's armed forces and other professional organizations and units;

- Enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam; and foreign companies and organizations conducting business in Vietnam beyond the scope of the Law on Foreign Investment in Vietnam;

- Individuals and family households carrying on production or trading, independent groups of people conducting business, and other business objects.

II. OBJECTS NOT SUBJECT TO VAT

Pursuant to article 4 of the Law on VAT and article 4 of Decree 79/2000/ND-CP of the Government, the following goods and services shall not be subject to VAT:

1. Products of cultivation (including products of forestation), husbandry or aquaculture which have not yet been processed into other products or which have only been semi -processed by organizations or individuals producing or selling such products.

Semi -processing means processing attached to the process of production of products of cultivation, husbandry or aquaculture during which such products are subject to preliminary treatment but are not thereby converted into other products or goods.

For example: air-drying, machine-drying, shelling, seeding of agricultural products; freezing, salt -preserving, air-drying of prawns, fish and other aquaculture products.

2. Salt products, including sea salt, salt exploited from natural salt mines, table salt and iodine salt.

3. Goods and services which are subject to special sales tax shall not be subject to VAT at the stage of production, importation or provision of services for which special sales tax has been paid, except for goods subject to special sales tax on export for which the applicable VAT rate shall be zero (0) per cent as stipulated in clause 1 of Section II of Part B of this Circular.

Example 1: Company A manufactures cigarettes which are subject to special sales tax. Company A does not have to pay VAT on cigarettes at the production stage for which special sales tax has been paid, but business establishments purchasing and selling cigarettes shall pay VAT on tobacco goods. If manufacturing Company A or a cigarette trading establishment exports, then the VAT rate of zero (0) per cent shall apply to export cigarettes and there shall be a deduction or refund of input VAT on the raw materials used in the production or trading of export cigarettes.

Example 2: Business establishment B imports alcoholic drinks which are subject to special sales tax upon importation, and therefore it is not required to pay VAT at the importation stage; but when this establishment sells alcoholic drinks to other entities, it shall calculate and pay VAT on the alcoholic drinks sold.

4. The following imported goods shall not be subject to VAT:

- Machinery, equipment or specialized means of transportation which form part of a technological line, and construction supplies which are not yet able to be produced domestically, and are required to be imported to form the fixed assets of enterprises;

- Aircraft, drilling platforms and watercraft leased from foreign parties irrespective of the form of lease and used for production or business (in the category not yet able to be produced domestically);

- Machinery, equipment, accessories, specialized means of transportation and materials required to carry out petroleum exploration and field development; aircraft parts and accessories, and specialized equipment for aircraft (in the category not yet able to be produced domestically).

In cases where a production or business establishment imports a complete production line of machinery and equipment which is not subject to VAT but in the complete production line there is machinery or equipment which is able to be produced domestically, the complete production line of machinery and equipment shall not be subject to VAT.

For example: Textile Company A imports a number of textile machines in the category not yet able to be produced domestically, which contain a number of complete electrical motors in the category able to be produced domestically, then these imported complete motors shall not be subject to VAT.

Importers must present the following file to the customs office in order to determine whether VAT is payable upon import of machinery, equipment, specia lized means of transportation and construction supplies imported to form the fixed assets of enterprises; accessories and materials required to carry out petroleum exploration and field development; aircraft parts and accessories and specialized equipment for aircraft in the category not yet able to be produced domestically:

- Contract for importation, and if import is through an authorized agent there must also be the contract authorizing the importation;

- Notice of successful tenderer and contract of sale to enterprise in accordance with the tender results (if the establishment is importing to supply to a project upon successful tender);

- Financial leasing contract (if a financial leasing company imports in order to lease to an enterprise);

- Certification that the machinery, equipment, specialized means of transportation or construction supplies are imported to form the fixed assets of an enterprise, from the director of the enterprise which will use the imported assets or construction supplies; or certification from the director of the enterprise (including cases of importation of accessories, components, specialized means of transportation and materials in order to carry out petroleum exploration and field development; and aircraft parts and accessories and specialized equipment for aircraft).

In particular, aircraft, drilling platforms and watercraft leased from foreign parties in the category not yet able to be produced domestically and used for production and business shall not be subject to VAT, and leasing establishments shall only be required to present to the customs office the lease signed with the foreign party.

Enterprises in these cases shall include legal entities being enterprises established under the Law on State Owned Enterprises, the Law on Enterprises and the Law on Co-operatives; enterprises with foreign owned capital and foreign parties to business co-operation contracts under the

Law on Foreign Investment in Vietnam; and foreign organizations and enterprises conducting business beyond the scope of the Law on Foreign Investment in Vietnam.

Whether the above types of import goods which are required to be imported are in the category not yet able to be produced domestically shall be determined on the basis of the list of machinery, equipment, specialized means of transportation, construction supplies, components and accessories which have been produced domestically as issued by the Ministry of Planning and Investment.

5. Transfer of land use rights subject to land use right transfer tax.

6. Sales of State owned residential houses by the State to existing tenants in accordance with the provisions of Decree 61-CP of the Government dated 05 July 1994 on Purchase, Sale and Trading of Residential Houses.

7. Credit services and investment fund services, including lending activities and financial leasing by banks, credit institutions, financial institutions and investment funds; assignment of capital in accordance with law; and securities trading activities.

Credit services not subject to VAT means lending activities on the principle that the whole of the loan is repayable in accordance with law.

In respect of bank guarantee services, if the guarantor discharges the obligation of loan repayment on behalf of its customer who failed to fulfil the committed obligation, and the customer is required to accept the debt and refund the credit institution the amount the latter paid out on behalf of the customer, then the revenue from guarantee services remains in the category subject to VAT but the revenue from the repayment by the customer to the credit institution shall not be subject to VAT.

Securities trading activities shall include activities such as broking, self- trading, managing investments, underwriting issues and securities investment consultancy.

8. Life insurance; student insurance; insurance services such as marine crew accident insurance; personal accident insurance (including accident insurance and combined cover of life insurance and hospitalization expenses), accident insurance covering customers, travellers, automobile drivers, driver assistants and passengers; insurance cover for emergency hospitalization and surgical expenses; vasectomy insurance; personal life insurance; electrical accident insurance and so forth; livestock insurance, industrial crop insurance and other types of agricultural insurance; and non-profit -making insurance services such as social insurance, health insurance and workers' compensation insurance.

9. Medical examination and treatment services, disease prevention, family planning services, convalescence and rehabilitation services, and veterinary services.

10. Products and services in the sectors of culture and the arts, physical training and sports, as follows:

- Public cultural, exhibition, physical training and sporting activities, and training sessions and competitions which are free of charge, or for which tickets are sold to audience or participants but on a non- profit -making basis. Other items of revenue shall be subject to VAT, such as from the sale of goods, from the lease of parking areas, and from stalls at fairs, exhibitions, and so forth.

- Artistic performances, such as tuong opera, cheo opera, cai luong performances, singing, dancing, musical performances, dramas, and circuses; other types of artistic performance and services of organizing artistic performances.

- Production of all types of films (other than film with images pre-recorded), irrespective of their theme and type.

- The publication and screening of imported films (other than blank film):

- For cinematographic films, irrespective of their theme and type;

- For video films and disks, only documentaries, news features and science videos.

Determinations on the theme and type of a film shall be made in accordance with the regulations of the Ministry of Culture and Information.

11. Education and vocational training, including general education, foreign languages, informatics, training in dancing, singing, painting, music, drama, circus, sports and physical education, child care and other vocational training aimed at improving people's academic, professional and occupational knowledge.

12. Radio and television broadcasting according to programs funded by the State budget.

13. Printing, publication, importation and dissemination of newspapers, magazines, specialized newsletters, political books, textbooks (including in the form of visual video or aural disk), teaching materials and books of legislation (books of legal instruments and legal documents, resolutions and other legal instruments); books printed in languages of ethnic minorities; propaganda pictures, photos and posters; printing of money and papers with monetary value (cheques, bonds, money orders, securities and so forth); cash from overseas transmitted to Vietnam.

- Printing newspapers includes activities of transmitting pages of newspapers, magazines and specialized newsletters;

- Political books means propaganda books about the political orientation of the Party and the State, which by virtue of their special subject-matter and themes serve political tasks, or which service anniversaries and traditional days of organizations and of all levels, branches and localities; all types of statistical books which disseminate information about good people and good deeds; and books which print the speeches and theoretical studies of the leaders of the Party and of the State;

- Textbooks means books used by teachers and used for study in all schools from pre -primary to secondary;

- Teaching materials means books used by teachers and used for study in all universities, colleges, vocational and specialist schools;

- Books of legislation means books printing the legal instruments of the State;

- Books printed in languages of ethnic minorities shall include bi- lingual books printed in commonly used languages as well as in languages of ethnic minorities;

- Pictures, photos, posters, leaflets and brochures for propaganda purposes; slogans and pictures of the leaders, the Party flag, the National flag, the flag of the Youth League and the flag of the Young Pioneers League;

- Visual and audio videos, disks and tapes with the contents of the above-mentioned books.

14. Public hygiene services and water drainage in urban areas and residential areas; maintenance of zoos, gardens, parks, urban trees and public lighting services; funeral services; and other public welfare goods and services.

- Public hygiene services and water drainage in urban areas shall include collecting, cleaning, transporting and dealing with garbage and waste; dredging sewerage, and dealing with waste water and flooding in urban areas and residential areas;

- Maintenance of zoos shall include the management, care and protection of birds and animals in parks, zoos and national parks; and planting of trees and flowers in parks and streets;

Where an admission fee is collected for any park, zoo, and so forth, in order to cover part of its administrative and operational expenses in accordance with State regulations, the amounts so collected shall not be subject to VAT.

- Funeral services shall include services relating to the renting of funeral homes and hearses offered by funeral service companies; cremation and burial.

Any items collected for activities for which fees are charged in accordance with State regulations shall not be subject to VAT.

15. Maintenance, repair, restoration and construction of cultural and artistic works, public works, infrastructure and welfare housing funded by public contribution and humanitarian aid, including cases in which the State funds thirty (30) per cent or less of the total capital actually expended.

16. Public passenger transportation by bus of bus companies established and operating under the regulations of the Ministry of Transport satisfying the transportation requirements of the people within cities, urban areas and industrial zones or between cities and neighbouring industrial zones, with the routes, stops, schedules and fares stipulated by the competent authority.

17. Geological surveys, exploration, measuring and formulation of maps, which can be characterized as basic surveys of the State funded by the State Budget.

18. Water supply and drainage serving agricultural production; clean water produced by organizations and individuals for consumption in rural, mountainous and island areas and remote and distant regions.

19. Specialized arms and weaponry required for national defence and security.

- The list of specialized arms and weaponry required for national defence and security is specified in Appendix 3 to this Circular.

Such arms and weaponry s hall include complete products, synchronous items or sections, component parts, and specialized packaging for assembly and preservation of complete products.

Repairs of specialized arms and weaponry required for national defence and security shall be carried out by enterprises under the Ministry of Defence and the Ministry of Police.

- Specialized arms and weaponry (including materials, machinery, equipment and replacement accessories) required for national defence and security, whether imported as import duty exempt under the Law on Export and Import Duties or whether imported under the annual quota approved by the Prime Minister of the Government, shall also be VAT exempt at the stage of importation.

Importers of specialized arms and weaponry required fo r national defence and security which are import duty exempt as mentioned above must forward to the customs office the following file:

- Certification from the Ministry of Defence or the Ministry of Police that the imported goods are required for national defence and security;

- List of imported goods on the import quota list approved by the Prime Minister of the Government (issued by the Ministry of Trade or by the General Department of Customs);

- Contract authorizing the importation (if import is via an authorized agent).

20. Imported goods in the following cases: humanitarian aid and non - refundable aid (including imported goods funded by non -refundable ODA aid); gifts to State bodies, socio -political organizations, socio -professional organizations and units of the people's armed forces; gifts to individuals in Vietnam; personal effects of foreign organizations and individuals under diplomatic immunity regulations; hand -luggage within duty-free limits; personal effects of Vietnamese residing overseas accompanying them upon returning to Vietnam.

The limits for imported goods not subject to VAT at the stage of importation shall follow the limits for import duty exemption stipulated in the Law on Export and Import Duties and the guidelines on its implementation.

The procedures for dealing with imported goods which are humanitarian aid or non-refundable aid and not subject to VAT at the stage of importation in these circumstances shall be carried out in accordance with the provisions in clause 3 of Section I and Section II of Part D of Circular 172/1998/TT-BTC of the Ministry of Finance dated 22 December 1998 on import duty exemption.

- Goods to be sold to international organizations and foreigners for humanitarian aid or non-refundable aid for Vietnam;

Procedures for international organizations and foreigners to purchase goods in Vietnam for humanitarian or non-refundable aid for Vietnam to be exempt from VAT: International organizations and foreigners must forward a letter to the seller stating clearly their name as purchaser of goods for humanitarian aid or non-refundable aid for Vietnam and the quantity or value and type of goods purchased; and include a certificate from the Department for Administration and Receipt of Humanitarian Aid (Ministry of Finance) regarding such item for humanitarian aid.

Upon sale, a selling establishment must prepare an invoice in the form stipulated in Section IV of Part B of this Circular, specifying that the goods are being sold to an organization or individual for humanitarian aid or non-refundable aid, must not include VAT, and must retain the letter from the international organization or Vietnamese representative office in order to provide the basis for tax declaration and finalization.

- Goods and services sold to those entitled to diplomatic immunity under the Ordinance on Diplomatic Immunity.

Those entitled to diplomatic immunity and exemption from VAT on goods and services shall comprise:

- Diplomatic representative offices, foreign consular offices and representative offices of international organizations of the United Nations opened in Vietnam (hereinafter referred to as representative offices) and the head of such representative offices shall be entitled to preferential exemption from VAT on goods and services imported or purchased in the Vietnamese market:

- Services for leasing the head office of the representative office and the residence of the head of the representative office;

- Power and water used for living conditions at the head office of the representative office and the residence of the head of the representative office;

- Telephone and facsimile, and services for their installation (including mobile phones);

- Petrol and diesel oil for the automobile of the representative office bearing the diplomatic number plate NG, up to 400 litres per month per one car;

- Goods and services used in the construction, upkeep, maintenance and repair of premises being the properties used as the head office of the representative office and the residence of the head of the representative office;

- Facilities and equipment for the head office of the representative office or the residence of the head of the representative office;

- Goods imported or purchased domestically in accordance with the provisions in Inter-ministerial Circular 04-TTLB dated 12 February 1996;

- A number of other essential goods purchased at shops permitted to sell duty-free goods.

- Diplomatic officials, consular officials, officials of international organizations and administrative and technical staff of representative offices shall be entitled to preferential exemption from VAT on goods and services imported or purchased in the Vietnamese market:

- Goods imported or purchased domestically in the quantities stipulated in Inter-ministerial Circular 04-TTLB of the Ministry of Trade, the Ministry of Foreign Affairs, the Ministry of Finance and the General Department of Customs dated 12 February 1996;

- Petrol and diesel oil for the automobile of the representative office bearing the diplo matic number plate NG, up to 300 litres per month per one car;

- A number of other essential goods purchased at shops permitted to sell duty-free goods.

- Representative offices of Governmental international organizations outside the United Nations system and members of such offices and their accompanying families shall be entitled to preferential exemption from VAT in accordance with international treaties which Vietnam has signed with such international organizations.

Representative offices of non-Governmental organizations and members of such offices and their accompanying families shall be entitled to preferential exemption from VAT in accordance with agreements which the Government of Vietnam has signed with such organizations.

- Where it is permissible for a diplomatic representative office or consular office to assign residential housing, automobiles or motorbikes to members of a diplomatic representative office or consular office entitled to diplomatic immunity, such assignment shall not be subject to VAT.

When goods are imported, the customs office shall guide the procedures for determining which objects are not subject to VAT at the stage of importation as well as which objects are exempt from import duty.

When organizations and individuals entitled to diplomatic immunity purchase goods or services, they must provide the seller with their certificate of entitlement to preferential exemption from VAT on such goods or services issued by the Department of Protocol of the Ministry of Foreign Affairs (original, or a copy sealed and signed by the authorized person of the office entitled to diplomatic immunity). Where goods or services are VAT exempt up to a stipulated quantity, then the organizations and individuals entitled to diplomatic immunity must present their register of goods purchased issued by the Ministry of Foreign Affairs.        A certificate of entitlement to preferential exemption from VAT shall contain the following:

- The holder's name and address in Vietnam;

- Name of the goods and services exempt from VAT;

- Name of the business organization or individual supplying the goods or services. If goods are imported this should be stated.

- Number and date of the contract for supply between the supplier and the organization or individual entitled to diplomatic immunity.

Upon sale of goods or services, a selling establishment must prepare an invoice strictly in accordance with the form stipulated in Section IV of Part B of this Circular, specifying the name of the purchasing organization or individual and stating that the goods or services are VAT exempt. The seller shall retain the certificate of preferential exemption from VAT from the international organization or Vietnamese representative office in order to provid e the basis for tax declaration and finalization.

21. Goods in transit or trans-shipment or crossing Vietnamese borders; goods temporarily imported and re -exported and goods temporarily exported and re-imported; raw materials and supplies imported for production or processing of goods for export in accordance with production or processing contracts for export signed with foreign parties.

The customs office shall resolve which goods are not subject to VAT in these circumstances. The procedures for the non -collection of VAT shall be carried out in the same manner as the procedures for import duty exemption or for dealing with duty on goods imported for the production of goods for export under contracts signed with foreign parties.

22. Goods and services provided to the following subjects and circumstances:

- Goods and services provided directly to international transportation carriers, such as fuel, raw materials, accessories, water and foodstuffs including pre -packed meals for passengers on international ships, aircraft and trains; goods loaded for export.

- International transportation carriers of goods and passengers.

International transportation shall include transportation by foreign carriers or by domestic transportation business establishments participating in the transportation of goods and passengers departing from Vietnam to foreign countries or vice versa, and the transportation of goods between foreign ports.

- Services supplying consumers outside Vietnam and export processing enterprises, except for the repair of machinery, equipment and means of transportation for foreign parties or services of labour export.

- Operations of the construction and installation of works or items of works overseas for export processing enterprises.

- Duty-free goods sold at duty-free shops at international airports, seaports, international stations and bordergates.

- National reserves goods sold by the National Reserves Office.

- Goods and services of export processing enterprises which are exported overseas; goods and services purchased and sold as between export processing enterprises; goods and services supplied by foreign organizations and individuals to export processing enterprises.

23. Technology transfers and computer software, except for exported computer software.

- Technology transfers shall be determined in accordance with the provisions of Chapter III - "Transfer of Technology" of the Civil Code of the Socialist Republic of Vietnam and implementing legislation. In the case of technology transfer contracts accompanied by machinery and equipment, only the value of the transferred technology shall not be subject to VAT.

- Computer software shall include software products and software services in accordance with the provisions of Decision 128/2000/QD-TTg of the Prime Minister of the Government dated 20 November 2000 on Policies and Measures for the Encouragement of Investment in and Development of the Software Industry.

24. Gold imported in bars and foils and gold which is not yet processed into fine art articles, jewellery or other products.

Gold in bars and foils and unprocessed gold shall be determined in accordance with international provisions.

25. Exported minerals which are not yet processed into other products shall be specified as follows:

- Crude oil;

- Stone slabs, sand and rare earth;

- Precious stones;

- Manganese ores, tin ores, iron ores, chromic ores, emanate ores and apatite ores.

26. Goods and services of business individuals being people with average monthly income levels lower than the minimum wage applicable to State employees as provided for by the State from time to time. Such income shall be determined by the revenue earned from business activities less (-) the reasonable expenditure of such business activities.

Business households with a low income which are not required to pay VAT shall be determined after inspection by the tax division in co- ordination with the Tax Consultancy Board, and a list shall be compiled thereof and written notice shall be provided to such business households.

Business households shall not be required to pay VAT during the duration of the above notice, but if their situation changes so that their income exceeds the stipulated limit, the tax division must notify them and place them within the category of VAT payers as from the month their in come exceeded the stipulated limit.

Any organization or individual producing, trading, importing or selling goods or supplying services which are not subject to VAT or which are VAT exempt as stated above shall not be entitled to a deduction or refund of input VAT on such goods and services at any stage not subject to VAT.

B. BASES FOR AND METHODS OF TAX CALCULATION

The bases for calculation of VAT are taxable prices and tax rates.

I. VAT TAXABLE PRICE

Prices used for calculation of VAT on goods and services shall be specifically determined in accordance with article 7 of the Law on VAT and article 6 of Decree 79/2000/ND-CP as follows:

1. In respect of goods and services sold or provided by production or business establishments to other subjects, the sale price excluding VAT.

Prices used for calculation of VAT on all types of goods and services shall also include additional levies and supplementary fees on top of the price of the goods and services which the business establishment is entitled to, e xcept for additional levies and supplementary fees the latter must pay to the State Budget.

2. In respect of imported goods, the imported price at the bordergate plus (+) import duties. The imported price at the bordergate used to calculate VAT shall be determined in accordance with the provisions on import dutiable prices.

For example: An establishment imports complete television sets, with the dutiable price of VND 2,000,000 per set.

- The rates of import duty and VAT are 30% and 10% respectively;

- Import duty payable: VND 2,000,000 x 30% = VND 600,000;

- VAT taxable price: VND 2,000,000 + 600,000 = VND 2,600,000;

- VAT payable: VND 2,600,000 x 10% = VND 260,000

Where imported goods are entitled to exemption from or reduction of import duties, the VAT taxable price shall be the price of the imported goods plus (+) the import duty determined at the level payable after the exemption or reduction.

3. In respect of products, goods and services used for the purposes of exchange, gift or donation, or paid instead of wages (except for products and goods used in promotions and advertisements in accordance with the provisions of Decree 32/1999/ND-CP dated 5 May 1999 on Commercial Promotions and Advertisements, Trade Fairs and Exhibitions not subject to VAT), the VAT taxable price shall be the taxable price of products, goods and services of the same or equivalent category at the time of such use.

For example: Establishment A manufactures electrical fans and exchanges 50 fans for steel from Establishment B, and the sale price before VAT is VND 400,000 per fan. The VAT payable in respect of the exchanged fans shall be:

VND 400,000/fan x 50 fans x 10% = VND 2,000,000

4. In respect of products, goods and services which a business establishment produces for its own use but not to service production or trading, or uses for production and trading of goods and services not subject to VAT, then VAT output must be calculated. The taxable price shall be the selling price of the equivalent products, goods or services.

In respect of goods circulated internally, such as goods produced for transfer into an internal warehouse or materials and semi-finished products produced in order to continue the process of production within the same production or business establishment, VAT shall not be calculated or payable.

5. In respect of services provided by foreign parties to consumers in Vietnam, the VAT taxable price shall be the service price payable to the foreign party.

For example: Company A in Vietnam engages a foreign company for construction design. If the price payable to the foreign company is VND 100 million, then the VAT taxable price calculated and paid by Company

A shall be 10% of VND 100 million.

6. In respect of property leasing services, including houses, factories , warehouses, bus or landing stations, grounds, means of transportation, machinery and equipment, and so forth, the VAT taxable price shall be the rent excluding taxes. In the case of leases for which rent is received in instalments or received in advance for a period of the lease, VAT shall be calculated on the basis of the amount of rent received in each instalment or received in advance, including receipts in other forms such as receipts for renovation, repair or upgrading at the request of the lessee.

Rent for assets shall be agreed between the parties in a contract. Where the schedule of rents is stipulated by law, the rent shall be determined in accordance with such schedule.

In the case of a lease from an overseas party of drilling platforms, machinery, equipment or means of transportation in the category of not yet able to be produced domestically, for the purpose of sub-leasing, the VAT taxable price shall exclude rent payable to the overseas party.

7. In respect of goods sold by instalment payments, the VAT taxable price shall be the lump sum price of the goods excluding taxes on one occasion (excluding interest on instalments), without taking into account the instalments paid each time.

For example: If a Honda dealer supplies 100cc Honda motorcycles at the one-off price of VND 25 million per bike, which can be paid in instalments over 6 months plus total interest of VND 0.3 million, the VAT taxable price shall be VND 25 million per bike.

8. In respect of goods processing, the VAT taxable price shall be the processing price excluding taxes, but including charges for labour, fuel, power, auxiliary materials and other expenses of processing.

9. In respect of construction and installation:

- In respect of construction and installation in which the supply of raw materials is included in the tender, the VAT taxable price shall include the value of such raw materials.

For example: Construction Company A is awarded a construction contract which includes the value of the construction materials, the total payment price without VAT being VND 1,500 million of which the value of construction materials is VND 1,100 million, then the VAT taxable price shall be VND 1,500 million.

- In respect of construction and installation in which the supply of raw materials is not included in the tender, the VAT taxable price shall be the value of the construction and installation not including the value of the raw materials.

For example: Construction Company X is awarded a construction contract for which the owner of the works supplies the materials, the value of the construction without materials being VND 600 million, then the VAT taxable price shall be VND 600 million.

- In the case of construction and installation projects for which payment is made on the basis of delivery of completed items or the value of a quantity of completed works, the VAT taxable price shall be based on the value of items completed and delivered or the value of the quantity of works completed and delivered.

For example: Textile Company X (Party A) engages Construction Company Y (Party B) to carry out expansion of a production workshop. The total cost of the project before VAT is VND 200 billion, comprising:

- Value of construction: 80 billion

- Value of equipment (category tax rate 5%) provided and installed by Party B 120 billion

- In addition Party B charges 5% VAT 10 billion

- Total payable by Party A: 210 billion Party A:

- When the workshop is completed and delivered to Party A, Party A shall credit the value of fixed as sets for depreciation purposes at 200 billion (value without VAT).

- The amount of VAT actually paid at 10 billion may be deducted from output VAT on goods sold, or else a request for a refund may be made in accordance with the regulations.

If Party A agrees to pay Party B for each item of work completed (assuming that construction is completed first and paid for first), when Party A pays the construction costs of 80 billion, it must add 5% VAT to the payment to Party B; the payment to be made, inclusive of VAT, shall be 80 billion + 4 billion = 84 billion.

10. In respect of business establishments to which the State allocates land for the construction of housing or infrastructure for sale or for transfer together with land use rights, the VAT taxable price of the housing or infrastructure sold or transferred shall be the sale price or the price of transfer without VAT, minus the land use rent at the land prices stipulated as at the time of allocation of the land.

For example: The State allocates to Housing Investment and Development Company X 10,000 m2 of land for the construction of housing for sale, of which 3,000 m2 of land is to be used for internal roads under the zone planning and so land use rent is not paid for that 3,000 m2 of land. The rate of land use rent payable to the State budget is based on VND 200,000 per m2. When Company X sells one house with a land area of 50 m2, the selling price of the house plus the price of land use right transfer without VAT shall be VND 300 million (in which the price of the house is 200 million and the price of land use right transfer is 100 million). The VAT taxable price of the above house shall be:

VND 300 million - (50 m2 x 200,000 per m2) = VND 290 million.

Output VAT shall be: VND 290 million x 5% = VND 14.5 million.

In respect of business establishments to which the State leases land for investment in leasing infrastructure facilities in an industrial zone, high- tech zone or other economic zone in accordance with Government regulations on sub-leasing, the VAT taxable price shall be the lease rent without VAT, less the land lease rent payable to the State Budget.

For example: The State leases to Industrial Zone Infrastructure Business Investment Company Y 500,000 m2 of land for 50 years to construct infrastructure facilities for lease. Land lease rent is VND 30,000 per m2 per year. After investing in the infrastructure, Company Y leases to Company Z 5,000 m2 of land for 20 years to construct a production workshop, the land lease rent without VAT (without including the cost of public utilities) being VND 100,000 per m2 per year. Company Z pays rent for the infrastructure facilities once per year. The VAT taxable price on the income from leasing the infrastructure facilities per year shall be:

(5,000 m2 x VND 100,000) - (5,000 m2 x VND 30,000) x 1 year = VND 350,000,000.

VAT shall be: VND 350,000,000 x 5% = VND 17,500,000.

11. In respect of real estate business activities, the VAT taxable price shall exclude the value of the land subject to land use right transfer tax.

12. In respect of shipping agency services, broking services, import -export agency and other services for which wages or commission are received, the VAT taxable price shall be the wages or commission received without VAT.

In respect of transportation or cargo agents, the VAT taxable price shall be the total revenue including items collected on behalf of clients. The revenue for calculating tax shall exclude any money received to pay international transportation charges or other charges imposed outside Vietnam.

13. In respect of transportation, loading and unloading activities, the VAT taxable price shall be the transportation, loading and unloading charges before VAT, irrespective of whether the establishment directly carries out or sub-lets the transportation, loading and unloading.

Transportation shall include: transportation of passengers or cargo by rail, road, waterway or pipeline.

With respect to transportation by aircraft, ships, trains, and so forth, which include international transportation activities, the revenue from international transportation (revenue from overseas transportation and transportation from Vietnam to other countries) shall not be subject to VAT.

14. In respect of goods or services of a special nature which use source documents, such as postal stamps, transportation tickets, lottery tickets, and so forth, where the price is stated as VAT inclusive, the pre -VAT price shall be determined as follows:

Pre-VAT price

=

Sale price (price of ticket, stamp and so forth)

1 + % of applicable VAT rate for such goods or services

For example: In January 1999 a provincial post office sold 10,000 stamps at VND 400 each. The VAT exclusive price and the VAT o n these stamps shall be calculated as follows:

- Sale price recorded on the stamp (tax inclusive): 10,000 x 400 = VND 4,000,000

Sale price before VAT

=

4,000,000

=   VND 3,636,363

1 + 10%

- VAT payable at 10% = VND 3,636,363 x 10% = VND 363,636

Equivalent to: VND 4,000,000 - 3,636,363 = VND 363,636

- In respect of tourism services in the form of travel or tour package contracts, the tax-inclusive price shall be determined as the package contract price for the purpose of calculation of VAT and turnover of the business establishment. Where the package contract price includes items not subject to VAT, such as airfares for tourists from other countries to Vietnam and from Vietnam to other countries, meals and accommodation costs and excursion costs in foreign countries (if there are legal source documents), such costs shall be deducted from the VAT taxable price (turnover).

Example 1: Ho Chi Minh Tourism Company performs a package tour contract with Thailand for 50 tourists for 5 days in Vietnam with the total payment of USD 32,000. The Vietnamese company pays for all airfares, meals, accommodation and excursion tickets in accordance with the agreed program, and the cost of the return airfares between Thailand and Vietnam is USD 10,000. The output VAT under this contract shall be determined as follows:

- VAT taxable turnover shall be USD 32,000 - 10,000 = 22,000

- Output VAT shall be:

USD 22,000

x 10%

=   USD 2,000

1 + 10%

- Turnover of the establishment determined for the purpose of calculating its business results shall be USD 32,000 - 2,000 = USD 30,000.

- Deductible input VAT shall be determined as stipulated to calculate the amount of VAT payable.

Example 2: Hanoi Tourism Company has a contract to take Vietnamese tourists to China at the package price of USD 400/per person for 5 days. If Hanoi Tourism Company pays the Chinese Tourism Company USD 300/per person, the taxable turnover of Hanoi Tourism Company shall be USD 100/per person (USD 400 - USD 300).

15. In respect of pawnbroking services, the taxable turnover shall be the amount receivable from this service, comprising the interest receivable from providing loans when pawning and the difference earned from selling pawned goods (turnover from the auction of realized goods less (-) the amount payable to customers (if any) less (-) amount loaned).

This turnover shall be determined as VAT-inclusive turnover for the purpose of calculation of the output VAT and turnover of the business establishment.

For example: A pawnbroking Company has turnover from pawnbroking of VND 110 million in the tax period.

- Output VAT shall be:

VND 110 million

x

10%

=

VND 10 million

1 + 10%

- Turnover from pawnbroking by the company determined for the purpose of calculating its business results shall be:

VND 110 million - VND 10 million = VND 100 million

16. In respect of books, newspapers and magazines sold at the published price (cover price) in accordance with the provisions of the Law on Publication , the sale price shall be considered to be the VAT-inclusive price for the purpose of calculation of VAT and turnover of the establishment (in the case of types subject to VAT). Where not sold at the cover price, VAT shall be calculated on the basis of the sale price.

Publishing means the process of publishing publications which is carried out from the stage of manuscript to the issue of the product to readers.

For example: Literature Publishing House sells a literary work to a comp any which distributes the book. The cover price (VAT-inclusive price) is VND 6,300/book. The distribution fee (25%) is VND 1,575/book. The VAT taxable price shall be determined as follows:

- In a case where the Publishing House issues the book through a distribution establishment, then the VAT taxable price of the publication shall be determined as follows:

VAT taxable price at the publishing stage = (Cover price - Distribution costs) divided by (1 + tax rate).

VAT taxable price at the publishing stage (Literature Publishing House) shall be equivalent to:

VND 6,300 - VND 1,575

=

VND 4,500/book

1 + 5%

Output VAT at the publishing stage shall be VND 4,500 per book x 5% = VND 225/book.

Total amount paid shall be: VND 4,500/book + VND 225/book = VND 4,725/book.

VAT taxable price at the distribution stage (at the company distributing the book) shall be:

VND 6,300

=

VND 6,000/book

1 + 5%

Output VAT shall be: VND 6,000/book x 5% = VND 300/book.

VAT payable at the stage of distributing the book shall be

VND 300/book - VND 225/ book = VND 75/book

(assuming that there is no other input VAT).

- In a case where the Publishing House provides the book direct to readers, the VAT taxable price on the publishing activity shall be determined as follows:

VAT taxable price at the publishing stage = (Price printed on cover) divided by (1 + tax rate).

In a case where the Publishing House consigns the sale of the publication at the correct price (agency), then the use of in voices and receipts and the declaration and payment of tax by the publishing house and consignee shall be implemented the same as for the case of the sale of goods via an agency selling at the correct price and receiving commission.

The cover price less (-) the costs of issuance may not be less than the price of producing standard pages. If it is and the publishing establishment generates input VAT higher than output VAT, it shall not be entitled to a refund.

17. In respect of printing services, the VA T taxable price shall be the printing wages but not including the costs of the paper used for printing.

If a printing establishment supplies paper to a customer, the printing establishment must account separately for the price of the paper and the printing wages in order to calculate tax on the separate services of printing and the revenue from the sale of paper at the respective tax rates for printing services and for paper products.

18. In respect of services of examination agency, agency of assessment for compensation, agency for third party claims with respect to insurance business services, the VAT taxable price shall be the wages or commission entitlement, including items of costs which the insurance business establishment receives.

II. VAT RATES

Pursuant to article 8 of the Law on VAT and article 7 of Decree 79/2000/ND-CP of the Government, VAT rates shall be applied as follows:

1. The rate of zero (0) per cent shall apply to:

1.1 Export goods, including goods processed for export, products subject to special sales tax on export, and exported computer software products.

Export shall include export to foreign countries, sale to export processing enterprises and other cases as stipulated by Government regulations.

Goods transported abroad for sale or product introduction at fairs and exhibitions shall, subject to sufficient evidence that they are exported goods, also be eligible for the zero (0) per cent rate.

For entitlement to the zero (0) per cent rate for export goods, there must be the following documents proving actual exportation:

- Contract for sale of goods or for processing or manufacturing goods for export signed with a foreign entity, and contract authorizing export in the case of authorized export;

- Added value invoice for the sale of goods or for export of processed goods to a foreign entity, to an export processing enterprise or to others deemed to be export in accordance with Government regulations;

- Payment slip or voucher certifying payment by the foreign client or by the e xport processing enterprise;

- Customs declaration with the certification by the customs office of actual export of the goods. If the goods are exported by an authorized dealer, there must be a customs declaration bearing the certification of the customs office of actual export of the goods provided to such dealer, and if it is a copy it must be signed and sealed by the dealer.

1.2 Repair of machinery, equipment, means of transportation; supply of software services to foreign parties or to export processing enterprises; labour export services.

For the above cases to be eligible for the VAT rate of zero (0) per cent, they must have the following file of documents:

- Contract signed with a foreign entity or with an export processing enterprise for the re pair of machinery, equipment or means of transportation, for the labour export services, or for the supply of software services;

- Added value invoice for payment of the services subject to VAT rate of zero (0) per cent;

- Payment slip or voucher certifying payment by the foreign client or by the export processing enterprise.

1.3. A number of goods deemed to be exported to which the VAT rate of zero (0) per cent shall apply:

 (a) Transitional processed goods for export in accordance with the provisions in article 17 of Decree 57/1998/ND-CP of the Government dated 31 July 1998 making detailed provisions for implementation of the Commercial Law with respect to importation, exportation, processing and sale and purchase agency involving foreign parties.

This shall apply to processed goods exported by an establishment (referred to as the deliverer) processing directly pursuant to a processing contract which the establishment has signed with a foreign party, but the processed goods are not exported overseas but are transferred to another domestic establishment (referred to as the receiver) on instructions from the foreign party for further processing into the finished product pursuant to a processing contract signed with the foreign party and where the foreign party will directly make payment for the processing.

When transitional processed goods are delivered to another establishment on the instructions of a foreign party, the deliverer shall provide a value added invoice recording the rate of zero (0) per cent. Processed goods for export must have the following documents and vouchers:

- Contract for processing for export together with attached appendices (if any) signed with the foreign party, specifying the receiver in Vietnam;

- Added value invoice spec ifying the processing fees and the quantity of processed goods returned overseas (in accordance with the fees recorded in the contract signed with the foreign party) and the name of the receiver in accordance with the instructions of the foreign party;

- Order form for delivery of transitional processed products (referred to as the delivery form) fully certified by the deliverer and the receiver in respect of transitional processed products, and certified by customs managing the processing contracts of the deliverer and of the receiver.

Procedures for the delivery and receipt of transitional processed products and delivery forms shall be implemented in accordance with the provisions of Circular 03/1998/TT-TCHQ of the General Department of Customs dated 29

August 1998 providing guidelines for the implementation of Chapter III of Decree 57/1998/ND-CP of the Government dated 31 July 1998.

For example: Company A signs a processing contract with a foreign party for 200,000 pairs of shoe soles for export, with processing fees at VND 800 million. The contract specifies the shoe soles are to be transferred to Company B to produce the finished shoe product. In this case, Company A falls within the category of a transitional processor of goods for export. When preparing the vouchers for transferring the shoe soles to Company B, Company A shall specify the quantity, type and specifications of the products for delivery, and the total revenue for processing the shoe soles at VND 800 million including VAT at 0%.

 (b) The VAT rate of zero (0) per cent shall apply to processed goods for export via the establishment directly signing the processing contract with the foreign party, and the conditions for such rate to apply shall be:

- The processing fees in the processing contract signed with the foreign party must be equal to the price stipulated in the contract between the establishment directly processing and the establishment directly signing the processing contract with the foreign party.

- The establishment directly signing the processing contract with the foreign party shall only be entitled to commission on the money paid for processing

- When exporting the processed goods to the establishment directly signing the processing contract with the foreign party, the establishment directly processing the export goods shall provide an added value invoice for the purpose of obtaining payment, and record the rate of zero (0) per cent.

In this case, the establishment processing the export goods must have all the following documents and vouchers as a basis for applying zero (0) per cent rate:

- Copy of the processing contract between the establishment directly signing the processing contract with the foreign party and the foreign party, signed and sealed by the former;

- Contract for processing goods for export signed with the establishment directly signing the processing contract with the foreign party;

- Copy of the declaration of export goods by the establishment directly signing the processing contract with the foreign party, with customs certification of the quantity and line of goods actually exported. Where customs certifies on the one document the exported goods of a number of processing establishments, the establishment directly signing the processing contract with the foreign party must forward a copy of its customs declaration together with a certified list detailing the quantity and type of processed goods for export as authorized dealer on behalf of the actual processor. The authorized dealer must sign and seal both its customs declaration and certified list, and shall be responsible for the data on the list.

- Minutes of liquidation of the contract authorizing processing for export (if the contract has expired); or periodical debt reconciliation statement specifying the quantity of processed products for export which were delivered, the quantity actually exported, and the processing fees to be paid or already paid.

If any document in the above file is a photocopy, it must be certified as a true copy, signed and sealed by the director of the enterprise which holds the original.

For example: Company X signs a processing contract with a foreign party to machine-make 100,000 shirts with processing fees of VND 200 million, but Company X signs this contract via Import -Export Company Y which will deliver the processed goods for export overseas and receive commission of 5% of the processing fees. In this case, Company X falls within the category of subjects processing goods for export. When it prepares the invoice to deliver the goods to Company Y, it shall record the VAT rate of 0%, and its total revenue for processing goods for export is VND 200 million received including VAT at 0%. Company Y's commission on export must include VAT in accordance with the regulations.

 (c) Goods sold by enterprises with foreign owned capital to foreigners but delivered in Vietnam.

This shall apply to those goods directly produced by joint venture enterprises, enterprises with one hundred (100) per cent foreign owned capital, and foreign parties to business co- operation contracts under the Law on Foreign Investment in Vietnam (hereinafter referred to as enterprises with foreign owned capital) for sale to foreign customers pursuant to a contract but the goods are not actually exported from Vietnam to overseas but are delivered to an establishment in Vietnam on the instructions of the overseas purchaser. In this case, all of the following conditions must be satisfied:

- In respect of an enterprise with foreign owned capital which sells its products (hereinafter referred to as an exporting enterprise):

- The goods produced by the exporting enterprise must comply with the provisions in its investment licence;

- The goods must be within the category subject to VAT;

- The exporting enterprise must have an export contract signed with a foreign business entity;

- Payment must be made via a bank in freely convertible foreign currency.

- In respect of a domestic enterprise being an establishment which purchases goods (hereinafter referred to as an importing enterprise):

- It must have signed an import contract with a foreign business entity;

- The imported goods must be raw materials for the purpose of continuing production by the enterprise in accordance with its approved annual import plan (for an enterprise with foreign owned capital); raw materials and semi -finished products for the purpose of continuing production and paying tax in accordance with the regulations on imported goods (for a Vietnamese enterprise).

Where a Vietnamese enterprise imports products to implement a processing contract for export to a foreign business entity, the processing must be implemented in accordance with the provisions of Decree 57/1998/ND-CP of the Government dated 31 July 1998 and Circular 18/1998/TT-BTM of the Ministry of Trade dated 28 August 1998.

When delivering the goods to a domestic enterprise upon the instructions of the foreign purchaser, the enterprise selling the goods must prepare an added value invoice and an export declaration in accordance with the guidelines in Official Letter 55/TCHQ-GSQL of the General Department of Customs dated 30 January 1999.

Goods in this category to which the VAT rate of 0% applies must have the documents and vouchers stipulated in clause 1.1 of this Section, including:

- Contract for export of goods and any appendices (if any) signed with the foreign purchaser, specifying the name of the recipient and the address for delivery of the goods;

- Added value invoice, specifying the names of the foreign purchaser and the recipient, and the address for receipt of the goods;

- Customs declaration of export goods with the certification of the customs office of actual export of the goods in accordance with customs regulations.

If an enterprise imports goods under an import contract signed with a foreign party but fails to satisfy the above conditions, it must pay VAT in accordance with regulations.

2. The rate of five per cent shall apply to the following goods and services:

2.1 Black coal and coal dust, coke, peat, coal lumps and coal bricks.

2.2 Mechanical engineering products (except for mechanical engineering consumer goods), comprising:

- Machinery and equipment such as: diesel engines, mills, lathes, planers, rollers, piercing mills, stamping mills; all types of complete and separate equipment; electricity and water meters; bridge girder structures; warehouse frame structures and products of metal construction; all types of automobiles and other means of transportation (including ships and all types of boats); all types of spare parts and supplies for the above products, such as pistons, cylinders and all types of replacement accessories;

- Production management tools, such as drills, small mechanical engineering machines for agriculture, all types of sawing machines, planers, harrows, water pumps; machinery and tools for ploughing and harvesting;

- Products being small production tools, such as pliers, hammers, saws, chisels, shovels, hoes and sickles, tool sets which are mechanical engineering products, and nails;

- Steel wire fencing from type B27 to B41, barbed wire, metal roofing, metal messenger cabling and metal conveyor belts.

2.3. Products from metallurgy, rolling and drawing of ferrous, non- ferrous or precious metals, except for imported gold as stipulated in clause 24 of Section II of Part A of this Circular.

Products from metallurgy, rolling and drawing of ferrous, non- ferrous or precious metals shall include metallurgical flat-rolled or drawn products used as raw materials or products, such as cast iron, steel or aluminium in the form of bars or bullion or flat-rolled or drawn into steel plate, steel bars, aluminium sheet or aluminium plate.

Products which have been manufactured or processed from metallurgical flat-rolled or drawn products shall be subject to tax rates applicable to their particular line of goods.

2.4. Cast moulds of all types, including all types of moulds used as a tool for production of products or goods shaped by moulds, such as moulding casts for machine parts or for production of pipes.

2.5. Basic chemicals, comprising all types of chemicals listed in Appendix 1 attached to this Circular.

2.6. Computers and their electronic parts.

2.7. Explosives, including blasting agents, fuses, detonators and other types which have been manufactured into specialized explosive products without changing their character and effect as explosives.

2.8. Welding rods.

2.9. Automobile tyres and rubber tubing of size 900-20 and above.

2.10. Goods which are subject to special sales tax at the trading stage for which VAT is paid by the tax credit method.

2.11. Grindstone.

2.12. Paper for printing newspapers.

2.13. Insecticide spraying packs.

2.14. Soil, stone, sand and gravel (but excluding products made from soil, stone, sand and gravel, such as sawn stone, facing stone, granite tiles).

2.15. Power cabling for voltage of 600V or more.

2.16. Netting, cord and fibre used for weaving into all types of fishing nets; specialized fibre or cord used for weaving into fishing nets, whether raw materials or not.

2.17. Clean water used for production and living consumption, exploited by production-business establishments from natural water sources and sold to other users (except for clean water exploited by establishments in rural areas, mountainous areas, offshore islands and other remote and distant areas for local production or daily activities which is not subject to VAT and other types of beverages in the ten (10) per cent tax rate group).

2.18. Fertilizers, ores used for production of fertilizers; pes ticides and growth stimulants for domestic animals and cultivated plants.

Fertilizers, including organic and non -organic fertilizers, such as potash fertilizer, nitrogenous fertilizer (urea), NPK fertilizer, phosphatized fertilizer, and so forth;

- Ores used for production of fertilizer, such as apatite ores used to produce phosphatized fertilizers, and muddy soil used for the production of bacterial fertilizer, and so forth;

- All pesticides, vermicides, disinfectants, insecticides, anti-fungus chemicals, weed removers, growth stimulants for domestic animals and cultivated plants, and so forth.

2.19. Specialized medical equipment, apparatus and instruments, such as X-ray machines used for disease diagnosis and treatment, equipment and specialized apparatus for surgery and treatment of injuries; ambulances; equipment for measuring blood pressure, heart and pulse, and blood transfusion; injection syringes; contraceptive devices, and other specialized medical equipment; medical sanitary cotton and bandages, and sanitary tissue for women.

2.20. Artificial limbs, crutches, wheelchairs and other specialized apparatus used for disabled people.

2.21. Preventive and curative medicines for people and domestic animals (including vaccines, biological products, distilled water for the preparation of anaesthetic); pharmaceutical products and medical drugs which are the raw materials for producing preventive and curative medicines on the lists in Appendices 1 and 2 of this Circular.

2.22. Glass tubing (such as ampoules for the purpose of injecting medicines and test tubes).

2.23. Teaching and study aids, such as models, drawings, blackboards, chalk, rulers, compasses used for teaching and study, and specialized equipment and tools for teaching, research and experiments

2.24. Children's toys.

2.25. All types of books, except for books which are not subject to VAT as provided for in clause 13 of Section II of Part A of this Circular.

2.26. Products of cultivation, husbandry and aquaculture which have not yet been processed or which have only been semi -processed for cleaning, freezing or drying, and all types of seeds for growing and seedling plants, except for products which organizations and individuals produce for direct sale which are not subject to VAT as provided for in clause 1 of Section II of Part A of this Circular.

2.27. Unprocessed forestry products (except wood and bamboo shoots), fresh foodstuffs and foods.

- Unprocessed forestry products means products exploited from natural forests, such as different species of bamboo, rattan, mushrooms, Job's ear mushrooms, roots, leaves, flowers and plants used for production of medicines, resin and other forestry products;

- Fresh foodstuffs means all types of foodstuffs which have not yet been processed or which have only been semi -processed but still remain fresh foodstuffs, such as cattle and poultry meat, shrimp, crab and fish, including types which have been frozen or dried;

- Foods shall include rice, unhusked rice, corn, potato, cassava, wheat and wheat flour.

2.28. Products made from jute, sedge, bamboo, rattan and thatch, being assorted products produced or processed from main materials of jute, sedge, bamboo and thatch, such as jute carpets, jute bags, jute strings, coconut fibre mats, jute or sedge mats, ropes made from bamboo or coconut fibre, conical hats, bamboo blinds, and so forth.

2.29. Artificial hardboards produced from raw materials, such as bamboo, thatch, wood flour, wood shavings, sawdust, sugar-cane dregs, rice husks, and so forth, which are pressed to form board, but not including plywood.

2.30. Semi -processed cotton made from domestically grown cotton, being cotton which is peeled, seeded and classified (imported cotton which has been semi -processed and classified shall not fall within this category).

2.31. Semi -processed latex in the form of crepe, sheets, rubber, nuggets or in frozen form.

2.32. Food for cattle and poultry and other domestic animals, including unprocessed or semi -processed types of food, such as bran, crushed and dried p eanuts, fish powder, bone powder, and so forth.

2.33. Construction and installation; maintenance, repair and restoration of historical and cultural heritage sites and museums, except for the activities stipulated in clause 15 of Section II of Part A of this Circular.

- Construction shall include contracts irrespective of whether or not they include raw materials and supplies;

- Construction and installation activities within this tax rate group means construction and installation activities attached to construction works, such as the construction and installation of machinery and equipment, power, water, lifts and interior decorations attached to the construction works.

Where the seller of supplies and goods at the same time undertakes constructing and installing them into the works by way of a package deal for the sale price of the goods, the tax rate applicable to the goods sold shall apply.

2.34. Houses and infrastructure for sale or transfer, which houses and infrastructure were invested in and constructed by entities to which the State allocated land (except business activities of the purchase and sale of houses and land).

2.35. Leasing of technical infrastructure facilities by entities to which the State allocates land, or leasing of land for the purpose of investment in infrastructure facilities for lease in an industrial zone, high-tech zone, other economic zone in accordance with regulations of the Government.

2.36. Dredging for channelling rivulets, river ports or seaports; rescue and salvage activities.

2.37. Transportation, loading and unloading activities, including transportation of goods, luggage or passengers and loading and unloading of goods or luggage, irrespective of whether the establishment directly conducts the transportation or sub-lets it, except for broking and agency activities where only commission is earned.

2.38. Scientific and technical services including research activities, application, and guidance on science and technology, specifically as follows:

- Services requiring high technology, such as restoration, repair and correction of various types of machinery and equipment, namely laboratory equipment, facilities for measurement and examination,     science and       technology            equipment         with automatic controls, apparatus for experiments, apparatus for quality control measurement and for testing standards of materials and products;

- Data processing, calculation and analysis used directly for research and development;

- Preparation of feasibility studies and pre -feasibility studies, and environmental impact assessment reports;

- Training and application of new techniques in production.

2.39. Services directly serving agricultural production, including ploughing, harrowing for agricultural land; digging, embanking, dredging of canals, ponds and lakes serving agricultural production; pest control, rearing, planting, cultivation and harvest of agricultural products.

2.40. Distribution and screening of video films.

2.41. Tapes and disks, irrespective of whether they have programs recorded on them or are blank.

3. The rate of ten (10) per cent shall apply to the following goods and services:

3.1 Petroleum, gas; ore and other minerals.

3.2 Commercial electricity sold by electricity generation and business establishments.

3.3 Mechanic al engineering consumer products.

3.4 Electronic products.

3.5 Chemical products (excluding basic chemicals) and cosmetics.

3.6 Fibres, cloth, garments and embroidery products.

3.7 Leather and imitation leather products.

3.8 Paper (excluding newsprint) and paper products.

3.9 Sugar, milk, cakes, candy, beverages and other processed foodstuffs.

3.10 Porcelain and terracotta; glass, rubber, plastic, wood and wooden products; cement, bricks, tiles and other construction materials (except for products in the five per cent tax rate group).

3.11 Postal and telecommunication services.

3.12 Leasing houses, offices, warehouses, yards, factory buildings, machinery, equipment and means of transportation.

3.13 Consultancy services; survey and design services; auditing and accountancy services; insurance, including insurance broking, except for the types of insurance not subject to VAT stipulated in clause 8 of Section II of Part A of this Circular.

3.14 Taking, printing and enlarging photos; recording, duplicating and hiring out tapes; duplicating and recording videos.

3.15 Hairdressing, tailoring, dyeing, washing, ironing and bleaching.

3.16 Hotels, tourism and restaurants.

- Hotel and tourism services shall be determined on the basis of the standards set by the relevant line management body or in accordance with business licences.

- There shall be no differentiation between ordinary and high- standard restaurants.

3.17 The tax rate of ten (10) per cent shall apply to other goods and services which are not provided for in the zero (0), five and twenty (20) per cent tax rate categories of Section II of Part B of this Circular.

4. The rate of twenty (20) per cent shall apply to the following goods and services:

4.1 Gold, silver and precious stones traded by business establishments. In respect of establishments dealing in gold, silver and precious stones which also process and refine these products, if they do not maintain a separate account for revenue and tax in respect of such activities, the general rate of twenty (20) per cent shall apply to processing and refining activities and tax shall be calculated directly on their added value.

4.2 Construction lottery and other types of lottery.

4.3 Maritime shipping agency.

Maritime shipping agency means services of conducting procedures for ships to enter and leave port.

4.4 Brokerage services.

Brokerage services means activities of business establishments acting as intermediaries for purchasers and sellers of goods, and supplying commercial services in negotiating and entering into contracts for the purchase and sale of goods and for the supply of commercial services, for which they are entitled to payment pursuant to a contract.

The above VAT rates shall apply uniformly to each type of goods and services;

and shall apply to the particular type of goods irrespective of whether the goods are imported, produced, processed or commercially traded.

In respect of repairs to machinery, equipment and means of transportation being mechanical engineering products in the five per cent rate category, the rate of five per cent shall apply as for such products.

When scraps and sub-standard products are recovered for re-cycling and re-use and are sold, the VAT rate applicable to the particular line of goods shall apply.

Example 1: The VAT rate applicable to garments is 10%, such rate shall apply at all stages of import, production, processing or trading.

Example 2: The VAT rate applicable to the repair of ships shall be the VAT rate applicable to products being ships, namely 5%.

Example 3: The VAT rate applicable to steel and iron scrap recovered by establishments and sold is 5%; the VAT rate applicable to recycled plastic when sold shall be the VAT rate applicable to plastic products, namely 10%.

Goods in the category of the five per cent and ten (10) per cent rates shall be determined on the basis of the provisions in clauses 2 and 3 of Section II, and specific lines of goods are stipulated in Appendix 4 "List of VAT Rates on the List of Import Goods".

III. METHODS OF VAT CALCULATION

VAT payable by business establishments shall be calculated by the tax credit method or calculated directly on the basis of added value. Where a business establishment subject to VAT payment by the tax credit method deals in gold, silver, precious stones and foreign currencies, such establishment must maintain a separate account with respect to this activity for the purpose of calculation of VAT directly on the basis of added value.

The applicability and calculation of tax payable by each method shall be as follows:

1. Tax credit method:

1.1 This method shall apply to business entities and organizations, enterprises established under the Law on State Owned Enterprises, the Law on Enterprises or the Law on Co-operatives, and enterprises with foreign owned capital and other business entities or organizations, with the exception of those applying the method of calculation directly on the basis of added value as provided for in clause 2 below.

1.2 Determination of VAT payable:

The amount of VAT payable shall be equal to (=) output VAT less (-) creditable input VAT.

In which:

(a) Output VAT shall be equal to (=) taxable price of goods or service sold multiplied by (x) the VAT rate applicable to such goods or service.

Business establishments applying the tax credit method shall, upon selling or providing goods or services, calculate and collect VAT on the sold goods or services. When preparing sales invoices, business establishments shall specify the pre - tax sale price, VAT and total amount payable by the purchaser. Where an invoice only states the total payable amount and not the pre -tax price and VAT, VAT shall be calculated on the amount stated in the invoice. Pre-tax turnover shall be determined as equal to the sale price less (-) tax calculated on the sale price.

For example: An enterprise selling iron and steel sells 6mm steel rods at the pre-VAT price of VND 4,600,000/tonne. VAT at 5% is VND 230,000/tonne. However, some of the invoices issued by the enterprise only state the sale price of VND 4,800,000/tonne. The VAT calculated on the sales revenue shall be VND 4,800,000/tonne x 5% = VND 240,000/tonne instead of being calculated on the pre -tax price of VND 4,600,000/tonne, and revenue shall be re -calculated as VND 4,560,000 (= VND 4,800,000 - 240,000). The enterprise purchasing steel rods shall not be allowed to credit any input VAT in respect of the invoices which do not indicate VAT.

 (b) Input VAT shall be equal to (=) the aggregate amount of VAT as recorded in the added value invoices for the purchase of goods or services (including fixed assets used for production and trading of goods and services subject to VAT), the VAT amounts stated on receipts for payment of tax on imported goods (or paid on behalf of foreign parties as provided for in clause 9 of Section II of Part C below), and the amount of input VAT which is deductible in accordance with the ratios stated below:

- Three per cent of the purchase price on the invoice for:

+ Goods and services subject to VAT, businesses paying VAT calculated directly on the basis of added value with a sales invoice in the form of Form 02- GTTT -3LL or Form 02-GTGT-2LL issued with Decision 885-1998-QD-BTC of the Minister of Finance dated 16 July 1998 (hereinafter referred to as sales invoices);

+ Goods being unprocessed agricultural, forestry or aquaculture products purchased by a production establishment which are not VAT taxable at the production stage, using the added value invoice stipulated in clause 1 of Section IV of Part B below;

+ Goods subject to special sales tax purchased by business or commercial establishments for sale with a sales invoice (including purchases by sales agents subject to special sales tax for sale at the price fixed by the establishment or on commission);

+ Insurance business indemnity payments under insurance products subject to VAT (calculated on the value of the insurance indemnity) which the insurance business establishment is liable to pay.

- Two per cent of the value of goods purchased on the list of goods being unprocessed agricultural, forestry or aquaculture products; and soil, stone, sand, gravel, and scraps purchased from a seller without an invoice. In respect of establishments producing products being unprocessed agricultural, forestry or aquaculture products and not subject to VAT, if the establishment uses such products for the purpose of continuing production or processing other goods subject to VAT, the price for calculating the deduction in accordance with the stipulated ratio shall be the price of the resulting product of agricultural, forestry or aquaculture goods.

The above deductible rate (%) shall be uniformly applicable to cases of domestic trading and of export.

- In respect of purchased goods and services for which special vouchers stating the tax-inclusive price are used (including purchase invoices for national reserves goods

by the National Reserves Office), establishments shall be permitted to rely on the tax-inclusive price and the calculation method set out in clause 14 of Section I of Part B of this Circular in order to determine the pre -tax price and the deductible input VAT.

For example: During a tax period, Company A paid input VAT for a special service. The total payment was VND 110 million (VAT-inclusive). The service is subject to 10% VAT rate. The deductible input VAT shall be calculated as follows:

VND 110 million

x 10%

= VND 10 million

1 + 10%

The pre-tax price is VND 100 million and VAT is 10 million.

 (c) Calculating deductible input VAT:

- Deductible input VAT means the VAT on goods and services used for the production or trading of goods and services which are subject to VAT.

- In respect of purchased goods which are damaged due to a natural calamity or fire or which are lost, and an organization or individual is found liable and must pay compensation, the input VAT of such goods shall be calculated on the value of the lost goods for which compensation is paid, not on the amount of deductible input VAT declared when VAT was paid.

- In respect of goods or services which are purchased for use both for VAT taxable and non -taxable production, trading or services, only the input VAT of goods and services used for the production or trading of taxable goods and services shall be deductible. The amount of non-deductible input VAT shall be included in expenses as costs of non -taxable goods and services. If goods or services are purchased and not used for production or trading, input VAT shall be included in the expenses of such activities.

In respect of fixed assets which are purchased specifically for use in production or trading of non- taxable goods and services, the VAT on such fixed assets shall be included in the original cost of the fixed assets.

- Business establishments must maintain separate accounts for input tax on goods and services used for the production or trading of taxable goods and services, and of non-VAT taxable goods and services.

For example: Enterprise A consumes 5,000 Kwh of electricity in one month, of which 4,000 Kwh is used for the production of cement and 1,000 Kwh is used by its staff living in the residential quarter of the enterprise (the enterprise records separately the electricity consumed by the staff), deductible input VAT shall only apply to the electricity consume d for the production of cement as follows:

Deductible input VAT of electricity for the month shall be: 4000 Kwh x VND 700/Kwh x 10% = VND 280,000

In respect of goods and services used generally in production or trading of both taxable and non-taxable goods and services, but the enterprise does not maintain separate accounts for deductible VAT, the input VAT shall only be deductible at a percentage (%) turnover of the taxable goods and services over the aggregate turnover of goods and services sold.

- Deductible input VAT at a percentage (%) turnover of taxable goods and services shall be provisionally declared every month. When tax is finalized for the year, the establishment must re -calculate the amount of deductible input VAT as a percentage of the turnover for the year of finalization. In respect of a business establishment which has a comparatively stable structure of turnover for both taxable and non -taxable goods and services, it may register with the tax office a provisional monthly percentage on the basis of the previous year's percentage turnovers, and then on tax finalization for the year it shall make finalization on the basis of the actual percentages.

For example: During a tax period, an enterprise which produces both beer (subject to specia l sales tax) and soft drinks (subject to VAT) incurs expenses relating to the purchase of raw materials and fuel which are used to produce both kinds of products, but fails to maintain separate accounts to ascertain the quantity of these materials used for each of the two types of product. The deductible input VAT of these materials shall be calculated as follows:

Total purchases of materials: VND 2,500 million (exclusive of VAT); total input VAT based on input added value invoices is VND 250 million, of which materials used in common and not accounted for separately is VND 500 million (exclusive of VAT), VAT being VND 50 million.

Sales revenue (before VAT) from products subject to VAT is VND 2,000 million; sales revenue from products not subject to VAT is VND 2,000 million.

Input VAT on the materials used for both types of product shall be calculated as deductible as follows:

Fix the percentage of revenue from products subject to VAT over total revenue of products sold: VND

2,000 million/ VND4,000 million = 50%

Deductible input VAT equivalent to this percentage shall be:

VND 50 million x 50% = VND 25 million.

- Input VAT on goods and services which is deductible arising in whatever month shall be declared as deductible when the amount of tax payable for that month is determined, irrespective of whether goods have been put to use or kept in store. Where an added value invoice or a receipt for payment of input VAT for goods and services purchased arises in a month but is not declared within that month, the deductibility shall be declared in the following month, however, if there is an objective reason, it may be deductible within a maximum period of the following three months.

In the case of a corporation having offices which do not directly conduct business activities and administrative units under its control, such as hospitals, clinics, convalescent homes, training schools, and so forth, which are not required to pay VAT, claims for deductions or refunds of input VAT on goods and services purchased to service the activities of those subsidiaries shall not be permitted.

If such subsidiaries engage in trading of goods and services subject to VAT, there must be registration, declaration and payment of VAT for such activities.

For example: An office of Corporation A does not directly engage in production or business but exists on the fees contributed to it by its subsidiaries. If the office of Corporation A leases out the unused part of its office as a residence, it must keep separate accounts and separately declare and pay tax for such leasing activity.

Input VAT on goods and services servicing the activities of the office of Corporation A shall not be deductible or refundable, and it must use the fees contributed as stated above in order to make payment.

- In the case of an establishment producing goods subject to special sales tax which directly exports, or does so via an authorized agent, input VAT on goods and services used for the production of export goods subject to special sales tax shall be calculated as deductible or shall be refundable in accordance with regulations.

 (d) In respect of business households which pay VAT directly on the basis of added value but change to paying VAT by the tax credit method, they shall deduct VAT paid on purchases of goods and services arising as from the month to which the method of paying VAT by the tax credit method applies; and input VAT on goods and services purchased before such month shall not be deductible.

1.3 The basis for determining the amount of deductible input VAT provided for above shall be the amount stated on the added value invoice of the goods and services purchased, the receipt for VAT payment at the import stage, or the receipt for VAT payment on behalf of a foreign party in accordance with the provisions in clause 11 of Section II of Part C below.

A business establishment shall not be permitted to include deductible input VAT when the added value invoice does not state the VAT (except for special cases where the VAT invoice states the payment price as VAT-inclusive and except for the cases stated in clause 2 of Section IV of this Part), or where it does not provide the name, address and tax code of the seller or does not state them correctly such that the seller cannot be identified.

- With respect to goods and services subject to VAT which are purchased with a sales invoice and the deductible input VAT is three per cent of the purchase price in accordance with the provisions in clause 1.2 of this Section: this shall only apply where lawful sales invoices for goods sold.

- With respect to goods being unprocessed agricultural, forestry or aquatic products, and soil, stone, sand, gravel or scraps purchased from a seller without an invoice and the deductible input VAT is two per cent of the purchase price in accordance with the provisions in clause 1.2 of this Section: the list of goods purchased (in the form provided in Form 04-GTGT issued with this Circular).

With respect to input goods and services which are deductible at a percentage of the purchase price, when business establishments are calculating the revenue of the enterprise they may only account in their expenses of business production for the purchase price less (-) the amount of input VAT deducted at the percentage (%) as stipulated on the purchase price.

For example: In a tax period enterprise B purchases input materials and goods at VND 100 million, and calculates their deductibility at 3% or VND 3 million. It may