Decree No. 123/2008/ND-CP provides detailed regulations and guidance on implementing certain provisions of the Value Added Tax Law.

DECREE

Article 1. Detailed regulations and guidance on implementing certain provisions of the Value Added Tax Law.

_______________________________

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:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decree provides detailed regulations and guidance on implementing certain provisions of the Value Added Tax Law;

Article 2. Taxpayer

1. The value added tax payer is an organization or individual engaged in production and business activities subject to value added tax (hereinafter referred to as the business entity) and an organization or individual importing goods subject to value added tax (hereinafter referred to as the importer).

2. An organization or individual conducting 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 foreign individuals who are non-residents shall be the service purchaser as the taxpayer.

In cases where services such as repair of transportation means, machinery, equipment; advertising, marketing; investment promotion and trade; brokerage for selling goods; training; international postal and telecommunications service charges are performed outside Vietnam, the organization or individual purchasing the service or splitting the charges for the foreign side shall not be liable for value added tax.

Provisions regarding permanent establishments and 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 specific guidance on the provisions of this clause.

1. For imported goods exempt from special consumption tax as specified in Point a, Clause 2, Article 3 of the Special Consumption Tax Law, including:

Non-taxable objects under the Value Added Tax Law shall be implemented in accordance with Article 5 of the Value Added Tax Law.

1. For products specified in Clause 1 of Article 5 of the Value Added Tax Law that have undergone simple processing, they are new products that have been cleaned, dried, peeled, shelled, sliced, salted, frozen, and other common preservation methods.

2. For salt products specified in Clause 4 of Article 5 of the Value Added Tax Law, they are products whose main component has a chemical formula of NaCl.

3. Life insurance specified in Clause 7 of Article 5 of the Value Added Tax Law includes health insurance and personal accident insurance within life insurance packages.

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

a. Credit services include forms such as lending; discounting negotiable instruments and other securities; guarantee; financial leasing and other credit forms provided by financial and credit organizations in Vietnam.

b. Securities trading includes: securities brokerage, proprietary trading, underwriting securities, securities investment advisory, securities custody, management of securities investment funds, management of securities portfolios, organizing market services of stock exchanges or securities trading centers, and other securities trading activities as prescribed by law.

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

5. Medical examination and treatment services specified in Clause 9 of Article 5 of the Value Added Tax Law also include transportation, testing, imaging, blood and blood products used for patients.

6. For maintenance, repair, and construction of works specified in Clause 12 of Article 5 of the Value Added Tax Law, if using sources of capital other than people's contributions (including contributions and sponsorships from organizations and individuals), humanitarian aid funds, and if the other sources of capital do not exceed 50% of the total capital used for the project, the non-taxable object is the entire value of the project.

Social policy beneficiaries include persons with meritorious service as prescribed by the law on persons with meritorious service; social welfare recipients receiving subsidies from the state budget; poor households, near-poor households, and other cases as prescribed by law.

7. Public passenger transport specified in Clause 16 of Article 5 of the Value Added Tax Law includes public passenger transport by bus and electric vehicles along routes within provinces, cities, and nearby provincial areas as prescribed by competent state authorities.

8. Aircraft specified in Clause 17 of Article 5 of the Value Added Tax Law includes aircraft engines.

The Ministry of Planning and Investment shall take the lead and coordinate with relevant agencies to issue a list of machinery, equipment, and materials produced domestically to distinguish them from those not yet produced domestically and needed for direct use in scientific research and technology development; a list of machinery, equipment, spare parts, specialized transportation means, and materials produced domestically to distinguish them from those not yet produced domestically and needed for exploration, development of oil and gas fields; a list of aircraft, drilling platforms, and ships produced domestically to distinguish them from those not yet produced domestically and needed for fixed assets of enterprises, leased from abroad for production and business purposes, and for leasing.

9. Specialized weapons and equipment for national defense and security specified in Clause 18 of Article 5 of the Value Added Tax Law shall be specifically regulated by the Ministry of National Defense and the Ministry of Public Security, in coordination with the Ministry of Finance.

10. Imported goods specified in Clause 19 of Article 5 of the Value Added Tax Law are specifically defined as follows:

a. For humanitarian aid and non-reimbursable aid imports, approval by the competent state authority is required.

b. For gifts to state agencies, political organizations, political-social organizations, social-professional organizations, social organizations, and armed forces units, they shall be carried out in accordance with the laws on gifts and presents.

c. The quota for imported goods as gifts or presents for individuals in Vietnam shall be carried out in accordance with the laws on gifts and presents.

11. In cases of technology transfer or intellectual property rights assignment as stipulated in Clause 21, Article 5 of the Value Added Tax Law, where such transfers are accompanied by the transfer of machinery and equipment, the taxable object for value added tax shall be calculated only on the portion of the value of the transferred technology and intellectual property rights; if it is not possible to separate them, the value added tax shall be calculated on both the value of the transferred technology and intellectual property rights and the machinery and equipment.

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

Chapter II

BASIS AND METHOD OF CALCULATING TAX

Article 4. Taxable Price

The tax calculation price shall be implemented according to the provisions of Article 7 of the Value Added Tax Law.

1. For services purchased as stipulated in Clause 2, Article 2 of this Decree, the tax calculation price is the service purchase price recorded in the contract before adding value added tax.

2. For goods and services used for exchange, internal consumption, gifts, or donations, the tax calculation price is the value added tax price of similar goods and services at the time of exchange, gift, or donation.

Goods and services for internal consumption as specified in this clause are those provided by businesses for their own use, excluding those used to continue production or business operations.

3. For real estate business activities, the tax calculation price is the real estate transfer price minus the actual land price at the time of transfer. If the actual land price at the time of transfer is lower than the land price set by the People's Committee of the province or centrally administered city, then the land price deducted shall be based on the regulations of the provincial or centrally administered city People's Committees at the time of real estate transfer.

In cases of infrastructure construction and sale, house construction for sale or transfer, or lease, the amount received according to the project progress or payment schedule recorded in the contract is considered.

4. For electricity from hydropower plants affiliated with the Vietnam Electricity Corporation, the value added tax calculation price to determine the local value added tax payable is 60% of the average annual retail electricity price excluding value added tax.

5. For casino services, electronic games with prizes, and entertainment activities with wagers, it is the total revenue from these activities including special consumption tax minus the amounts paid out as prizes to customers;

6. The value added tax calculation price for goods and services as specified in Clause 1, Article 7 of the Value Added Tax Law includes additional surcharges and fees collected by the business.

The Ministry of Finance shall provide detailed guidance on the taxable value specified in this Article.

Article 5. Time for Determining Value Added Tax

1. The time for determining value added tax on goods is the time when ownership or usage rights of the goods are transferred to the buyer, regardless of whether payment has been received or not.

2. The time of determining value added tax for services is the completion time of service provision or the invoice issuance time for service provision, regardless of whether payment has been received or not.

3. The Ministry of Finance will provide specific guidance on the time of determining value added tax for other cases.

Article 6. Tax Rate

The rate of value added tax shall be implemented according to the provisions of Article 8 of the Value Added Tax Law.

1. The zero percent tax rate applies to exported goods and services, international transportation, and goods and services exempt from value added tax as stipulated in Article 5 of the Value Added Tax Law when exported, except for the cases specified in point d of this clause.

a. Exported goods include goods exported abroad, sold into non-tariff zones, and other cases treated as exports under trade laws.

b. Exported services include services directly supplied to organizations or individuals outside the country or within non-tariff zones.

An organization outside the country is an entity without a permanent establishment in Vietnam and is not a value added tax payer 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 non-tariff zones are organizations and individuals registered for business and other cases as prescribed by the Prime Minister.

c. Exported goods and services as specified in points a and b of this clause must meet the following conditions to apply the zero percent tax rate:

- 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 payment documents for exported goods and services through banks and other required documents as stipulated 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 state debts, are also considered bank payments.

d. International transportation as specified in this clause includes passenger, luggage, and cargo transportation along international routes from Vietnam to foreign countries or vice versa. If an international transportation contract includes domestic transportation segments, international transportation includes the domestic segments.

đ. Cases not subject to the zero percent value added tax rate include: reinsurance abroad; technology transfer and intellectual property rights transfer abroad; capital transfer, credit provision, and securities investment abroad; financial services arising; postal and telecommunications services; unprocessed natural resources and minerals as specified in Clause 12, Article 3 of this Decree; goods and services provided to individuals not registered for business in non-tariff zones.

2. The five percent tax rate applies to goods and services as specified in Clause 2, Article 8 of the Value Added Tax Law. Specific cases applying the five percent tax rate are as follows:

a. Clean water for production and daily use as specified in point a, Clause 2, Article 8 of the Value Added Tax Law does not include bottled or canned drinking water and other beverages subject to a ten percent tax rate.

b. Products as specified in point b, Clause 2, Article 8 of the Value Added Tax Law include:

- Fertilizers are organic, inorganic, microbial fertilizers, and other types of fertilizers;

- Ores for fertilizer production are raw materials for producing fertilizers;

- Pesticides and growth stimulants for livestock and crops.

c. Livestock and poultry feed and other animal feeds as specified in point c, Clause 2, Article 8 of the Value Added Tax Law include processed or unprocessed products such as bran, oil cakes, fish meal, bone meal.

d. Processing and preservation services as specified in point d, Clause 2, Article 8 of the Value Added Tax Law include drying, peeling, shelling, slicing, grinding, cold storage, salting, and other common preservation methods.

đ. Fresh food as specified in point g, Clause 2, Article 8 of the Value Added Tax Law includes food items that have not been cooked or processed into other products.

Unprocessed forest products as defined in point g, Clause 2, Article 8 of the Value Added Tax Law include natural forest products harvested under the following groups: wood, rattan, bamboo, reed, mushrooms, wood ear fungus; roots, leaves, flowers, medicinal plants, tree sap, and other forest products.

e. Pharmaceutical raw materials and medicinal herbs as production materials for disease treatment and prevention drugs as defined in point l, Clause 2, Article 8 of the Value Added Tax Law according to the List unified by the Ministry of Finance in coordination with the Ministry of Health.

Article 7. Method of tax deduction

The method of tax deduction shall be implemented in accordance with the provisions of Article 10 of the Value Added Tax Law.

1. The amount of value added tax payable under the tax deduction method equals the output value added tax minus (-) the deductible input value added tax.

2. The output value added tax equals the total value added tax of goods and services sold recorded on the value added tax invoice.

The value added tax recorded on the value added tax invoice is calculated by multiplying (x) the taxable value of the goods and services subject to tax by the applicable rate of value added tax.

In cases where payment invoices indicate a payment price that already includes value added tax, the output value added tax shall be determined by subtracting the taxable price as specified in point k, Clause 1, Article 7 of the Value Added Tax Law from the payment price.

3. The deductible input value added tax is determined based on:

a. The amount of value added tax recorded on purchase invoices for goods and services; tax payment certificates for imported goods or tax payments for services purchased as stipulated in Clause 2, Article 2 of this Decree.

In cases where goods and services purchased are recorded using invoices indicating a payment price that already includes value added tax, the deductible input value added tax shall be determined by subtracting the taxable price as specified in point k, Clause 1, Article 7 of the Value Added Tax Law from the payment price.

b. Conditions for deducting input value added tax shall be carried out in accordance with the provisions of Clause 2, Article 9 of this Decree.

Article 8. Direct Calculation Method on Value Added

The direct calculation method based on value added shall be implemented in accordance with the provisions of Article 11 of the Value Added Tax Law.

1. The amount of value added tax payable under the direct calculation method based on value added equals the value added of taxable goods and services sold multiplied (x) by the applicable tax rate for such goods and services.

a. The value added of goods and services is determined by subtracting the payment price of purchased goods and services from the payment price of sold goods and services.

The payment price of goods and services sold is the actual selling price recorded on sales invoices, including value added tax and additional charges and fees that the seller benefits from.

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

b. Businesses selling goods and services with complete invoices and documents as prescribed, accurately determining their sales revenue but lacking purchase invoices for input goods and services, the value added shall be calculated by multiplying (x) the sales revenue by the percentage rate of value added over sales revenue.

The percentage rate of value added over sales revenue for determining the value added is as follows:

- Commerce (distribution, supply of goods): 10%;

- Services, construction (excluding construction with material procurement): 50%;

- Production, transportation, services attached to goods, construction with material procurement: 30%.

c. Business activities conducted by businesses, households not implementing or not fully implementing accounting systems, invoices, and documents as prescribed by law shall pay value added tax according to the turnover tax method prescribed in Article 38 of the Law on Tax Administration.

The Ministry of Finance shall provide detailed guidance on the turnover tax method prescribed herein.

2. Subjects applying the direct calculation method based on value added:

a. Businesses, individuals, household businesses not implementing or not fully implementing accounting systems, invoices, and documents as prescribed by law.

b. Foreign organizations and individuals conducting business in Vietnam not in accordance with the Investment Law and other organizations not implementing or not fully implementing accounting systems, invoices, and documents as prescribed by law.

c. Trading activities involving gold, silver, precious stones.

In cases where businesses subject to the tax deduction method also engage in trading gold, silver, precious stones and manufacturing gold, silver, precious stone products, they must separately account for these trading activities to apply the direct calculation method based on value added.

Chapter III

DEDUCTION AND REFUND OF TAX

Article 9. Input VAT Deduction

Deduction of input value added tax shall be implemented in accordance with the provisions of Article 12 of the Value Added Tax Law.

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 of goods and services used for producing and trading taxable goods and services can be deducted entirely.

b. Input value added tax of goods and services used simultaneously for producing and trading taxable and non-taxable goods and services can only be deducted for the portion used for producing and trading taxable goods and services. Businesses must separately account for deductible and non-deductible input value added tax; if separate accounting is not possible, the deductible input value added tax shall be calculated based on the ratio of taxable sales to total sales.

Input value added tax of fixed assets used simultaneously for producing and trading taxable and non-taxable goods and services can be deducted entirely.

Input value added tax of fixed assets in the following cases shall not be deducted but included in the original cost of the fixed asset: specialized fixed assets for producing weapons and equipment for national defense and security; fixed assets such as office buildings and specialized equipment for credit operations of credit institutions, life insurance companies, securities trading companies, hospitals, schools; civilian aircraft, yachts not used for cargo and passenger transport, tourism, and hotel operations.

Fixed assets are automobiles for passenger transport with up to nine seats (excluding automobiles used for commercial transportation of goods, passengers, tourism, and hotels) with a value exceeding 1.6 billion VND, then the corresponding input VAT on the portion of the value exceeding 1.6 billion VND shall not be deductible.

c. Input VAT on goods and services used for producing and trading goods and services that are exempt from VAT shall not be deductible, except in the cases provided for in points d and đ of this clause.

d. VAT on goods and services purchased by a business entity for producing and trading goods and services supplied 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 VAT on goods and services used for activities related to oil and gas exploration, development, and production shall be fully deductible.

e. Input VAT arising in any month shall be declared and deducted when determining the tax payable for that month. In case a business entity discovers errors in the declaration and deduction of input VAT, it may declare and deduct the supplementary amount; the maximum time limit for declaring and deducting the supplementary amount is six months from the date of occurrence of the error.

g. The input VAT that is not deductible shall be recorded as expenses for calculating corporate income tax or included in the original cost of fixed assets.

2. Conditions for deducting input value-added tax:

a. There is a VAT invoice for purchased goods and services or a payment receipt for imported goods' VAT, and a payment receipt for service VAT in the case of purchasing services as specified in Clause 2, Article 2 of this Decree.

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

For goods and services purchased on deferred or installment payments with a value over 20 million VND, a business entity bases its declaration and deduction of input VAT on the purchase contract, VAT invoice, and bank payment vouchers for the purchased goods and services. If there is no bank payment voucher due to the payment period not having arrived according to the contract, the business entity can still declare and deduct input VAT. Upon reaching the payment period stipulated in the contract, if there is no bank payment voucher, the business entity will not be able to deduct input VAT and must declare and adjust the previously deducted input VAT.

Goods and services purchased through offsetting the value of purchased goods and services against the value of sold goods and services are considered as bank payments; if the remaining value after offsetting is paid in cash and exceeds 20 million VND, only the case with a bank payment voucher shall be eligible for VAT deduction.

In the case of purchasing goods and services from a single supplier with a value under 20 million VND but multiple purchases within the same day totaling more than 20 million VND, only the case with a bank payment voucher shall be eligible for VAT deduction.

c. For exported goods and services, in addition to the conditions stated in points a and b of this clause, they must also meet the conditions specified in point c of Clause 1, Article 6 of this Decree.

Article 10. Refund of Value Added Tax (VAT)

Refund of VAT shall be carried out in accordance with the provisions of Article 13 of the Law on Value Added Tax.

1. A business entity applying the VAT deduction method that has not fully deducted input VAT for three consecutive months or longer is entitled to a VAT refund.

2. A newly established business entity from an investment project registered for business and VAT deduction method, or an oil and gas exploration and development project in the investment phase without operation, if the investment period is one year or longer, is entitled to a VAT refund for goods and services used for investment annually. If the cumulative input VAT of goods and services purchased for investment reaches 200 million VND or more, the business entity is entitled to a VAT refund.

3. An operating business entity (excluding enterprises under full industry accounting) subject to VAT deduction method with a new production facility investment project established in a different province or centrally administered city from the main office location, in the investment phase without operation and registration, if the input VAT of goods and services purchased for investment reaches 200 million VND or more, is entitled to a VAT refund. The business entity must declare and prepare a separate refund application for this situation.

4. A business entity in a month with exported goods and services with input VAT not yet deducted reaching 200 million VND or more is entitled to a monthly VAT refund.

5. A business entity settling taxes upon division, separation, dissolution, bankruptcy, or transfer of state-owned enterprise ownership; transferring, selling, contracting, leasing state-owned enterprises with undeducted input VAT or excess VAT paid.

6. Refund of VAT for programs and projects using official development assistance (ODA) non-repayable funds or non-repayable aid, humanitarian aid:

a. For projects using non-repayable ODA funds: the program or project sponsor, the main contractor, or the organization designated by the foreign donor country to manage the program or project is entitled to a refund of VAT already paid for goods and services purchased in Vietnam for use in the program or project.

b. Organizations in Vietnam using foreign individual or organizational humanitarian aid funds to purchase goods and services for non-repayable aid and humanitarian aid programs in Vietnam are entitled to a refund of VAT already paid for those goods and services.

7. The subjects entitled to diplomatic privileges and immunities as prescribed by the Ordinance on Diplomatic Privileges and Immunities purchasing goods and services in Vietnam for their own use shall be refunded the value-added tax already paid as shown on the value-added tax invoice or on the payment voucher indicating the payment price including value-added tax.

8. Businesses with a decision on tax refund issued by the competent authority in accordance with the law.

Article 11. Place of Tax Payment

1. The taxpayer shall declare and pay value-added tax at the local place where production and business operations take place.

2. Taxpayers who declare and pay value-added tax under the deduction method and have dependent production bases located in different provinces or centrally governed cities from the province or city where their main office is situated must pay value-added tax at both the localities where the production bases are located and where the main office is situated.

The Ministry of Finance shall provide detailed guidance on the provisions of this Article.

Chapter IV

IMPLEMENTING PROVISIONS

Article 12. Effectiveness and Implementation Guidance

1. This Decree takes effect from January 1, 2009, and replaces Decrees No. 158/2003/NĐ-CP dated December 10, 2003, No. 148/2004/NĐ-CP dated July 23, 2004, and the provisions on value-added tax in Decree No. 156/2005/NĐ-CP dated December 15, 2005, of the Government.

2. Businesses that enter into shipbuilding contracts with customers before this Decree takes effect at prices including value-added tax calculated at a rate of 5%, but which have not been completed, accepted, and handed over by December 31, 2008, shall continue to apply the 5% tax rate.

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

The Ministers, Heads of ministerial-level agencies, Heads of government-attached agencies, Chairpersons of provincial People's Committees under the central city shall be responsible for implementing this Decree./.