Decree No. 121/2011/ND-CP amends and supplements certain articles of Decree No. 123/2008/ND-CP dated December 8, 2008, of the Government detailing and guiding the implementation of certain provisions of the Law on Value Added Tax.

DECREE

Amending and supplementing some articles of Decree No. 123/2008/NĐ-CP dated December 8, 2008 of the Government detailing and guiding the implementation of certain provisions of the Law on Value Added Tax provides detailed regulations and guidelines for the implementation of certain Articles of the Value Added Tax Law

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THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Based on the Value Added Tax Law dated June 3, 2008;

Considering the proposal of the Minister of Finance,

DECREE

Article 1. Amending and supplementing some articles of Decree No. 123/2008/NĐ-CP dated December 8, 2008 of the Government detailing and guiding the implementation of certain provisions of the Law on Value Added Tax as follows:

1. Amend and supplement Clause 2 of Article 2 as follows:

"2. Organizations and individuals engaged in production and business activities in Vietnam purchasing services (including cases where services are purchased together with goods) from foreign organizations without a permanent establishment in Vietnam, or individuals outside Vietnam who are non-residents shall be taxpayers for value added tax.

The provisions regarding permanent establishments and individuals outside Vietnam being non-residents under this clause shall be implemented in accordance with the laws on corporate income tax and personal income tax. The Ministry of Finance shall provide detailed guidance on the provisions of this clause."

2. Supplementing Clause 3 to Article 2 as follows:

"3. Cases not required to declare and pay value added tax:

a) Goods and services provided by taxpayers in Vietnam outside Vietnam, except for international transportation activities where both departure and arrival points are outside Vietnam.

In cases where service provision involves activities taking place both inside and outside Vietnam but the service contract is signed between two enterprises that are taxpayers in Vietnam or have a permanent establishment in Vietnam, such services must be subject to value added tax for the portion of the contract performed in Vietnam, except for insurance services for imported goods.

b) Payments received for compensation, bonuses, support payments, transfer of emission rights, and other financial receipts.

c) Organizations and individuals engaged in production and business activities in Vietnam purchasing services from foreign organizations without a permanent establishment in Vietnam, or individuals outside Vietnam who are non-residents, including: repair of transport means, machinery, equipment (including spare parts and replacement components); advertising, marketing; investment promotion and trade; brokerage for selling goods and providing services; training; international postal and telecommunications service charges shared between Vietnam and other countries, provided that these services are performed outside Vietnam.

d) Organizations and individuals not engaged in business activities and not subject to value added tax are not required to declare and pay value added tax when selling assets, including cases where selling assets currently used as collateral for loans at banks or credit institutions."

5. Supplement Article 3a as follows:

"1. For products specified in Clause 1, Article 5 of the Law on Value Added Tax, after simple processing, they become new products cleaned, dried, peeled, shelled, cut, salted, cold-stored, or preserved in other common ways."

4. Amend and supplement Clause 3 Article 3 as follows:

"3. Insurance as stipulated in Clause 7, Article 5 of the Law on Value Added Tax includes: life insurance; health insurance, accident insurance, student insurance, and related human insurance services; pet insurance, crop insurance, and other agricultural insurance services; reinsurance."

5. Amending and supplementing Clause 4 of Article 3 as follows:

"4. Certain services specified in Clause 8, Article 5 of the Law on Value Added Tax are defined as follows:

a) Credit services include forms of:

- Lending;

- Discounting, rediscounting transferable instruments and other securities;

- Guarantee;

- Financial leasing;

- Issuing credit cards;

- Domestic factoring; international factoring;

- Other credit forms as prescribed by law.

Assets used to secure loans of value added tax taxpayers or transferred ownership to lenders upon sale are subject to value added tax, except for goods exempt from value added tax as stipulated in Article 5 of the Law on Value Added Tax.

b) Securities trading includes: securities brokerage, proprietary trading, underwriting, investment advisory services, securities custody, fund management, company management, portfolio management, market organization services of stock exchanges or trading centers, services related to listed securities custody at the Vietnam Securities Depository, lending money to clients for margin trading, advance payment for selling securities, and other services as prescribed by the Ministry of Finance.

c) Capital transfer includes transferring part or all of the invested capital, including selling a business to another business for production and business operations, transferring securities, and other forms of capital transfer as prescribed by law.

d) Debt sale.

đ) Foreign exchange trading."

6. Amending and supplementing Clause 12 of Article 3 as follows:

"12. Unprocessed natural resources and minerals as specified in Clause 23, Article 5 of the Law on Value Added Tax refer to natural resources and minerals that have not been processed into other products.

The Ministry of Finance shall take the lead and coordinate with relevant agencies to provide specific guidance on determining unprocessed natural resources and minerals extracted as stipulated in this clause."

7. Supplementing Clause 13 to Article 3 as follows:

"13. Public services related to sanitation, drainage of streets and residential areas; maintenance of zoos, flower gardens, parks, street trees, public lighting; funeral services. The Ministry of Finance shall provide specific guidance on public services not subject to taxation as stipulated in this clause."

8. Amending and supplementing Clause 1 of Article 4 as follows:

"1. For goods and services sold by production and business establishments, the selling price does not include value added tax; for goods subject to special consumption tax, the selling price includes special consumption tax but does not include value added tax; for goods subject to environmental protection tax, the selling price includes environmental protection tax but does not include value added tax; for goods subject to both special consumption tax and environmental protection tax, the selling price includes both special consumption tax and environmental protection tax but does not include value added tax."

The import price for imported goods is the price at the port of entry plus (+) import tax (if applicable), plus (+) special consumption tax (if applicable), and plus (+) environmental protection tax (if applicable). The price at the port of entry is determined according to the regulations on the taxable value of imported goods.

For the case of purchasing services as stipulated in Clause 1, Article 1 of this Decree, the tax base is the payment amount recorded in the service purchase contract before adding value-added tax.

9. Amend and supplement Clause 2 of Article 4 as follows:

"2. For goods and services used for exchange, internal consumption, gifts, and donations, the value-added tax taxable value is the value of similar goods and services at the time of exchange, gift, or donation. In the case of free invitations (without payment) to artistic performances, fashion shows, beauty pageants, and sports competitions permitted by competent state authorities according to the law, the taxable value is zero (0).

Goods and services for internal consumption as provided in this clause are those used by businesses for consumption purposes and do not include goods and services used to continue production and business activities.

10. Amending and supplementing Clause 3 of Article 4 as follows:

"3. For real estate business activities, the value-added tax taxable value is the transfer price of real estate minus (-) the land value deductible for value-added tax calculation.

a) The specific provisions regarding the land value deductible for value-added tax calculation are as follows:

- In cases where land is granted by the State for infrastructure investment to build houses for sale, the land value deductible for value-added tax includes the land use fee payable to the state budget (excluding exempted or reduced fees) and compensation costs for land clearance and resettlement according to the law;

- In cases of auctioning land use rights, the land price deducted for calculating value-added tax is the winning bid price of the land;

- In cases where land is leased for infrastructure construction and house building for sale, the land value deductible for value-added tax is the lease fee payable to the state budget (excluding exempted or reduced fees) and compensation costs for land clearance and resettlement according to the law;

- In cases where a business acquires land use rights from organizations or individuals, the land value deductible for value-added tax is the land value at the time of acquisition including the value of infrastructure (if any); the business may not declare and deduct input VAT on infrastructure included in the deductible land value that is not subject to value-added tax. If the land value at the time of acquisition cannot be determined, the land value deductible for value-added tax is the land value prescribed by the provincial People's Committee at the time of signing the acquisition contract.

- In cases where a real estate business implements a build-transfer (BT) model to obtain land through construction projects, the land value deductible for value-added tax is the value at the time of signing the BT contract according to the law.

b) In cases of constructing and selling infrastructure, building houses for sale, transferring, or leasing, the value-added tax taxable value is the amount received according to the project progress recorded in the contract.

11. Add Clause 7 to Article 4 as follows:

"7. The taxable value for the supply of services partly performed in Vietnam and partly performed abroad is the portion of the service value performed in Vietnam specified in the service supply contract. If the contract does not separately specify the value of services performed in Vietnam, the taxable value is determined based on the percentage of costs incurred in Vietnam over total costs.

12. Amend and supplement Points a, b, c, and Point d of Clause 1 of Article 6 as follows:

"a) Exported goods include goods exported to foreign countries, sold to duty-free zones, and other cases considered as exports under the law.

b) Exported services include services directly supplied to organizations and individuals outside Vietnam or within duty-free zones.

An organization outside Vietnam is an entity without a permanent establishment in Vietnam and not a taxpayer of value-added tax in Vietnam.

Foreign individuals are foreigners who do not reside in Vietnam, Vietnamese citizens residing abroad, and those outside Vietnam during the period of service provision.

Organizations and individuals in duty-free zones are entities registered for business and other cases as prescribed by The Prime Minister.

The Ministry of Finance shall specify the services supplied to foreign organizations and individuals that are not eligible for a 0% tax rate.

c) Exported goods and services as stipulated in Points a and b of this clause must meet the conditions set out in Point c of Clause 2, Article 12 of the Value-Added Tax Law, except for certain services provided for international transportation operations considered as exports and eligible for a 0% tax rate under conditions prescribed by the Ministry of Finance.

International transportation as provided in this clause includes passenger, baggage, and cargo transportation along international routes from Vietnam to foreign countries or from foreign countries to Vietnam, or both departure and arrival points being abroad. If an international transportation contract includes domestic transportation segments, international transportation includes the domestic segments.

13. Amend and supplement Point a of Clause 1 of Article 8 as follows:

"a) The value-added tax on goods and services is calculated by subtracting (-) the payment price of purchased goods and services from the payment price of sold goods and services.

The payment price of sold goods and services is the actual selling price recorded on the sales invoice, including value-added tax and additional charges and fees collected by the seller.

The payment price of purchased goods and services is determined by the value of purchased goods and services or imported goods, including value-added tax used for producing and trading goods and services subject to value-added tax.

In the tax period where there is a negative value added tax (-) on gold, silver, and precious stones, it shall be offset against the positive value added tax (+) on gold, silver, and precious stones. If there is no positive value added tax (+) or if the positive value added tax (+) is insufficient to offset the negative value added tax (-), it may be carried forward to offset the value added tax in the subsequent periods within the same year. At the end of the calendar year, any remaining negative value added tax (-) cannot be carried forward to the next year.

14. Amend and supplement Point b and Point c Clause 2 Article 8 as follows:

"b) Foreign organizations and individuals conducting business in Vietnam not in accordance with the Investment Law and other organizations that do not implement or implement incompletely the accounting system, invoices, and vouchers as prescribed by law, except for foreign organizations and individuals providing goods and services for oil and gas exploration, development, and exploitation activities.

For foreign organizations and individuals providing goods and services for oil and gas field exploration, development, and exploitation activities, the Vietnamese party shall be responsible for withholding and paying on behalf according to the rate specified by the Ministry of Finance. In cases where foreign organizations and individuals declare, report, and pay taxes using the deduction method, the tax already paid according to the rate specified by the Ministry of Finance shall be deducted from the amount of tax payable.
c) Business activities involving the purchase and sale of gold, silver, and precious stones. Where a business entity engages in both the purchase and sale of gold, silver, and precious stones and the production of gold, silver, and precious stone products, the tax calculation method for these activities shall be based on the direct tax on the value added.

15. Amend and supplement Article 9 as follows:

"Article 9. Deduction of Input Value Added Tax

The deduction of input value added tax shall be implemented in accordance with Article 12 of the Law on Value Added Tax.

1. Businesses subject to value-added tax under the tax deduction method shall deduct input value-added tax as follows:

a) Input value added tax on goods and services used for producing and trading taxable goods and services shall be fully deductible, including input value added tax on goods subject to value added tax that have been damaged and for which compensation has not been received.

b) Input value added tax on goods and services used simultaneously for producing and trading taxable and non-taxable goods and services shall only be deductible for the portion of input value added tax on goods and services used for producing and trading taxable goods and services. The business entity must separately account for deductible input value added tax and non-deductible input value added tax; in cases where separate accounting is not possible, the deductible input value added tax shall be calculated as a percentage of the sales subject to value added tax compared to the total sales of goods and services.

Input value added tax on fixed assets used simultaneously for producing and trading taxable and non-taxable goods and services shall be fully deductible.

Input value added tax on fixed assets in the following cases shall not be deductible but included in the original cost of the fixed asset: specialized fixed assets for the production of weapons and military equipment for national defense and security; fixed assets, machinery, and equipment of credit institutions, reinsurance enterprises, life insurance enterprises, securities trading enterprises, hospitals, schools; civil aircraft, yachts not used for commercial cargo and passenger transport, tourism, and hotel operations.

Fixed assets that are passenger cars with up to nine seats (excluding those used for commercial cargo and passenger transport, tourism, and hotel operations) with a value exceeding 1.6 billion VND, the corresponding input value added tax on the excess value over 1.6 billion VND shall not be deductible.

c) Input value added tax on goods and services used for producing and trading non-taxable goods and services shall not be deductible, except as provided in Points d and đ of this Clause.

d) Input value added tax on goods and services purchased by a business entity for producing and trading goods and services provided to foreign organizations and individuals, international organizations for humanitarian aid and non-repayable aid as stipulated in Clause 19, Article 5 of the Law on Value Added Tax shall be fully deductible;

đ) Input value added tax on goods and services used for oil and gas exploration, development activities shall be fully deductible;

e) Input value added tax arising in any month shall be declared and deducted when determining the tax payable for that month. In cases where a business entity discovers errors in the declaration and deduction of input value added tax, supplementary declarations and deductions are allowed; the maximum time limit for supplementary declarations and deductions is six months from the date of the error discovery, except for errors regarding the value added tax already paid at the import stage, input value added tax during the investment phase that has not yet commenced operations and is subject to supplementary declarations and deductions in accordance with the law on tax administration;

g) Input value added tax on goods and services used for producing and trading goods and services exempt from value added tax as stipulated in Clause 2, Article 1 of this Decree shall be fully deductible;

h) Any input value added tax that is not deductible, the business entity may include it in the costs for calculating corporate income tax or include it in the original cost of fixed assets;

i) The Ministry of Finance shall specify certain cases where a business entity can declare and deduct value added tax on goods and services purchased through authorization to another organization or individual, where the invoice is in the name of the authorized organization or individual.

2. Conditions for deducting input value-added tax:

a) Having a value added tax invoice for purchased goods and services or a payment receipt for value added tax on imported goods, or a payment receipt for value added tax in the case of purchasing services as stipulated in Clause 2, Article 2 of Decree No. 123/2008/NĐ-CP dated December 8, 2008 of the Government.

b) Having a bank payment voucher for purchased goods and services, except in cases where the total value of purchased goods and services in a single transaction is less than 20 million VND.

For goods and services purchased on credit or installment with a value of 20 million VND or more, businesses shall base their tax input VAT declaration and deduction on the purchase contract for goods and services, the VAT invoice, and the bank payment documents for the goods and services purchased on credit or installment. In cases where there are no bank payment documents due to the fact that the payment time has not yet arrived according to the contract, the business still can declare and deduct input VAT. At the time of payment according to the contract, if there are no bank payment documents, the business will not be able to deduct input VAT and must declare and adjust the previously deducted input VAT amount.

Goods and services purchased through offsetting between the value of purchased goods and services and the value of sold goods and services are considered as bank payments; in cases where the remaining value after offsetting is paid in cash with a value of 20 million VND or more, only the case with bank payment documents can claim the deduction of VAT.

In cases where goods and services purchased from a single supplier have a value below 20 million VND but multiple purchases on the same day total 20 million VND or more, only the case with bank payment documents can claim the deduction of VAT.
c) For exported goods and services, in addition to the conditions stipulated in points a and b of this clause, they must also meet the following conditions:

- Having a sales contract for export goods or processing contract for export goods, or a service supply contract with organizations or individuals abroad or within a free trade zone;

- Having bank payment documents for the export goods and services and other documents as prescribed by law; for exported goods, there must be a customs declaration form.

Exported goods and services paid through offsetting between exported goods and services and imported goods and services, or paying off debts on behalf of the State, are also considered as bank payments.

In cases where the foreign buyer loses the ability to pay due to bankruptcy; exported goods do not meet quality standards and must be destroyed immediately at the importing country's border; and exported goods suffer losses due to objective reasons during transportation outside Vietnam's borders, substitute documents issued by a third party can replace bank payment documents and are also considered as bank payments. The Ministry of Finance shall coordinate with relevant agencies to guide the substitute documents for bank payment documents in these cases."

16. Amend and supplement Clause 3 of Article 10 as follows:

"3. Businesses operating under the VAT deduction method and subject to VAT payment that have new production facilities established in provinces or centrally administered cities different from the location of their main office, which are in the investment phase and have not commenced operations, registered for business, or registered for tax, if the input VAT of goods and services purchased for investment is 200 million VND or more, then they are eligible for VAT refund. The business must declare and prepare a separate refund application for this situation."

Article 2. Implementation clause

1. This Decree takes effect from March 1, 2012.

2. The Ministry of Finance shall provide guidance on the implementation of this Decree.

3. Ministers, Heads of ministerial-level agencies, Heads of agencies under the Government, Chairpersons of provincial People's Committees directly under the Central Government are responsible for implementing this Decree./.