Circular No. 157/1998/TT-BTC guides the implementation of value-added tax (VAT) for banking credit activities.

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
Number: 157/1998/TT-BTC	Hanoi, December 12, 1998

 

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 157/1998/TT-BTC DATED DECEMBER 12, 1998 GUIDING THE IMPLEMENTATION OF VALUE ADDED TAX (VAT) FOR CREDIT AND BANKING ACTIVITIES.

Pursuant to the Law on Value Added Tax No. 02/1997/QH9 dated May 10, 1997;
Pursuant to the Government Decree No. 28/1998/NĐ-CP dated May 11, 1998 detailing the implementation of the Law on Value Added Tax;
The Ministry of Finance has issued Circular No. 89/1998/TT-BTC dated June 27, 1998 guiding the implementation of Government Decree No. 28/1998/NĐ-CP dated May 11, 1998 detailing the implementation of the Law on Value Added Tax;
Considering the specific nature of credit and banking business operations, the Ministry of Finance guides the implementation of value added tax for these activities as follows:

I. OBJECTS SUBJECT TO VAT, OBJECTS NOT SUBJECT TO VAT, AND OBJECTS LIABLE FOR VAT

1) Objects subject to VAT include the following business activities:

- Banking credit services and cash management including:

+ Opening accounts

+ Discounting commercial bills and other negotiable instruments (including rediscounting, pledging commercial bills and other negotiable instruments).

+ Fee-based guarantee services (including loan guarantees, payment guarantees, performance guarantees, tender guarantees, and other types of guarantees).

+ Payment services including:

*) Providing payment means

*) Performing payment services for customers

*) Performing international payment services

*) Performing collection and disbursement services, money transfers, remittances

*) Performing other payment services

+ Entrusted and agency services under the form of entrusting and acting as agents in areas related to banking activities, including managing assets and investment capital of organizations and individuals according to contracts.

+ Other banking-related services such as safekeeping valuable items, securities; renting safes; pawnbroking.

+ Other service activities

- Foreign currency trading;

- Gold, silver, precious stones trading;

2) Objects not subject to VAT in the tax area are defined as lending activities, financial leasing activities of banks, credit institutions, finance companies, investment funds, and capital transfer activities in accordance with the law.

3) Objects liable for VAT: are organizations and individuals permitted to engage in banking and credit activities in compliance with the Law on Credit Institutions and other entities engaged in similar activities, hereinafter referred to collectively as credit institutions.

II. METHODS OF CALCULATING VALUE ADDED TAX:

1. Deduction method: The deduction method applies to banking service activities (excluding foreign currency trading, gold, silver, and precious stones trading...).

TOTAL FILM PRODUCTION COSTS payable

=

VAT output tax (1)

-

VAT input tax deductible (2)

Where:

(1) VAT output tax is determined by multiplying (x) the taxable price by the VAT rate of 10%. The taxable price of VAT is the price excluding tax recorded on the VAT invoice.

Credit institutions must issue VAT invoices clearly stating the service price excluding tax, VAT, and the total amount payable by the buyer. In cases where multiple service transactions occur with the same customer in a month, a detailed list should be maintained and a single VAT invoice should be issued at the end of the month.

(2) VAT input tax deductible is the VAT input tax determined from VAT invoices of goods and services purchased for use in VAT-liable business activities. VAT input tax of goods and services subject to VAT arising in a given month shall be summarized and declared for deduction in that month.

For units with revenue from VAT-liable goods and services (banking service revenue) and revenue from non-VAT-liable goods and services (interest income), the unit must separately account for VAT input tax of goods and services used for VAT-liable activities to determine the VAT input tax deductible. If the unit cannot separately account for it, the input tax allocation method based on the ratio of total revenue shall be applied. Total revenue includes banking service revenue, interest income from loans and deposits, and the difference from foreign currency trading, gold, and silver trading.

Example 1: Commercial Bank A has the following figures during the tax period:

- Interest income from loans and deposits (non-taxable service revenue)	17,000 billion VND
- Difference from foreign currency trading, gold, and silver (this revenue is not subject to tax under the deduction method)	1,000 billion VND
- Banking service revenue (taxable service revenue)	2,000 billion VND
- VAT output tax of banking services (10%)	200 billion VND
- VAT input tax used for both taxable and non-taxable activities:	1,800 billion VND

Assuming the bank cannot separately account for VAT input tax of taxable and non-taxable activities, according to the above regulations, the calculation of VAT input tax deductible for taxable activities is as follows:

VAT input tax deductible for taxable activities is calculated as follows:

+) Determine the ratio of taxable service revenue to the total taxable and non-taxable service revenue:

2,000 billion VND

x 100 = 10%

(17,000 billion VND + 1,000 billion VND + 2,000 billion VND)

+) VAT input tax deductible:

1,800 billion VND x 10% = 180 billion VND

+) VAT payable for banking services is:

200 billion VND - 180 billion VND = 20 billion VND

In cases where VAT input tax of goods, services, fixed assets purchased in the accounting period can be separately accounted for part used for taxable services and part used for non-taxable services, the remaining VAT input tax used jointly for taxable and non-taxable services shall be determined by adding the VAT input tax of goods and services directly used for taxable services to the allocated joint-use VAT input tax as specified above.

Example 2: Continuing from Example 1, assuming the total VAT input tax of goods and services purchased is 1,800 billion VND, the bank separately accounts for as follows:

- Used for taxable services: 20 billion VND.

- Used for non-taxable services: 100 billion VND.

- Jointly used for both services: 1,680 billion VND.

According to the above regulations, the VAT input tax deductible and VAT payable for banking services are determined as follows:

+) VAT input tax separately accounted for for taxable services: 20 billion VND

+) VAT input tax portion jointly used allocated to taxable services:

1,680 billion VND x 10% = 168 billion VND

+) Input VAT deductible for taxable services:

168 tr.đ + 20 tr.đ = 188 tr.đ

+) Output VAT payable for banking services:

200 tr.đ - 188 tr.đ = 12 tr.đ

2- Direct tax calculation method on VAT: This method applies to foreign currency trading activities; gold, silver, precious stones.

For credit organizations that engage in both lending and banking services, as well as trading in gold, silver, precious stones, foreign currencies, and other goods and services, they must separately calculate the VAT payable for trading in gold, silver, precious stones, and foreign currencies using the direct tax calculation method on VAT.

The VAT payable for trading in gold, silver, precious stones, and foreign currencies is determined by multiplying the value added by the tax rate.

Where:

Value Added

=

Sales revenue from selling gold, silver, precious stones, and foreign currencies (A)

-

Purchase cost corresponding to the sales revenue of gold, silver, precious stones, and foreign currencies (B)

- The VAT rate for trading in gold, silver, and precious stones is 20%, while for trading in foreign currencies it is 10%.

a) For foreign currency trading: Foreign currency trading involves buying and selling foreign currencies. The entity must declare and calculate taxes separately for this activity using the direct tax calculation method. The value added of foreign currency trading equals (A) - (B), where:

(A): Sales revenue is the total amount in Vietnamese Dong received from selling foreign currencies.

(B) Purchase cost = Quantity of foreign currency sold x Average actual purchase exchange rate corresponding (1)

Opening period foreign currency purchase balance + Foreign currency purchases during the period

(1) =

Opening period foreign currency balance + Foreign currency purchases during the period

Each month, units must maintain detailed books recording actual purchase and sale prices, quantities of each type of foreign currency. In cases where foreign currency is sold before purchase, when determining the corresponding purchase cost, the average actual purchase exchange rate of the month should be used; if not available, the average actual exchange rate of the previous month should be applied.

If the difference between sales revenue from foreign currency and the corresponding purchase cost is negative, the negative difference can be carried forward to the next month to offset the value added of the following month. Carryforward is only applicable within the same calendar year or fiscal year permitted.

Example: During the tax period at a bank engaged in foreign currency trading (assuming separate accounting for this activity)

- Opening balance of foreign currency reserve 100,000 USD equivalent to 130 tr.đ

- Purchased during the period 50,000 USD paid in Vietnamese Dong equivalent to 70 tr.đ

- Sold during the period 80,000 USD received in Vietnamese Dong equivalent to 115 tr.đ

Determining the VAT payable as follows:

+ Corresponding foreign currency purchase cost for 80,000 USD sold is calculated based on the weighted average price of opening foreign currency reserves and purchases during the period:

130 tr.đ + 70 tr.đ

- x 80,000 USD = 106 tr.đ

100,000 USD + 50,000 USD

+ VAT payable:

(115 tr.đ - 106 tr.đ) x 10% = 0.9 tr.đ

b) For gold, silver, and precious stones trading:

The VAT calculation method for gold, silver, and precious stones trading is similar to that for foreign currency trading.

In cases where credit institutions engage in gold, silver, and precious stones manufacturing, if such activities can be accounted for separately, the tax deduction method shall apply with a VAT rate of 10%; otherwise, the activities shall be included in the general trading activities and taxed directly on VAT at a rate of 20%.

III - REGISTRATION AND TAX DECLARATION:

Credit institutions permitted to operate in accordance with the law and engaging in taxable goods and service transactions are required to declare and pay VAT, specifically as follows:

1. Independent credit institutions must declare and pay VAT at their headquarters location (as defined in this Circular, the location refers to province or city).

2. In cases where the aforementioned credit institutions have branches or subordinate units in different provinces or cities, these branches and subordinate units must declare and pay VAT at the provincial or municipal tax office where they are located. Branches and subordinate units of credit institutions in provinces or cities are responsible for declaring and paying VAT collectively for subordinate units below them (such as transaction counters, transaction rooms...).

Example: Credit institution X has three branches A, B, C in province Y, then these three branches must declare and pay VAT at the provincial tax office Y. If branch A opens additional subordinate units a, b, c, then a, b, c only need to prepare tax declaration forms 1a, 1b, 1c and send them to branch A, and branch A is responsible for collectively declaring and paying VAT for all units including a, b, c.

Entities required to declare and pay VAT as stipulated in this Circular are responsible for declaring and paying VAT for taxable goods and services according to the forms 1/TD, 1a, 1b, 1c attached to this Circular.

At branches and subordinate units of credit institutions, if there are subordinate units below them, these units only need to prepare forms 1a, 1b, 1c in two copies: one copy retained at the unit and one copy sent to the superior branch or unit within five days at the beginning of the following month.

Tax declarations in forms 1/TD, 1a, 1b, 1c mentioned above must be prepared monthly at credit institutions, branches, and subordinate units and submitted to the tax authority no later than ten days at the beginning of the following month. For branches and subordinate units with subordinate units below them, they must prepare tax declarations according to forms 1a, 1b, 1c for goods and services at the branch and consolidate the subordinate units below to prepare a tax declaration according to form 1/TD.

IV- INVOICES AND DOCUMENTS:

Invoices and documents for trading in gold, silver, precious stones, and foreign currencies shall be implemented in accordance with Article IV of Circular No. 89/1998/TT-BTC dated June 27, 1998 issued by the Ministry of Finance.

1. For foreign currency sales: When selling foreign currency, the unit must issue a sales invoice. In cases of selling foreign currency through transfer, the unit must record a detailed list of sales volume of each type of foreign currency, and at the end of the month, issue an invoice as the basis for confirming the foreign currency sold.

2. For banking service business activities: When charging service fees, the entity must issue a value-added tax invoice. In cases where payment vouchers currently in use are utilized, if they include additional information such as taxpayer identification number, service fee amount, VAT, and total payment amount, they shall also be considered as VAT invoices.

3. For businesses purchasing gold, silver, precious stones, and foreign currencies from individuals who are not engaged in business operations, if there is no invoice as prescribed, they may prepare a purchase list according to Form 04/GTGT issued together with Circular No. 89/1998/TT-BTC of the Ministry of Finance mentioned above. Purchased goods in this case will be included in the purchase turnover for calculating VAT and VAT payable under the direct method.

4. Transactions involving the purchase and sale of foreign currency occurring within the country must necessarily issue a foreign currency sales invoice as prescribed. In cases where foreign currency purchases occur abroad, banks must maintain separate accounting records for purchase prices and retain original transaction documents with foreign entities in accordance with the Accounting and Statistics Law and current accounting regulations.

V/ IMPLEMENTATION

1. This Circular takes effect from January 1, 1999. Other issues not addressed in this Circular shall be implemented in accordance with Circular No. 89/1998/TT-BTC dated June 27, 1998, of the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998, of the Government detailing the implementation of the Value Added Tax Law.

2. Banks and credit organizations with subordinate units are responsible for guiding their subordinate units to declare and pay VAT according to the guidance provided in this Circular.

During the implementation process, if there are any difficulties, please report them to the Ministry of Finance for consideration and decision.

Pham Van Trong (Signed)

 

SOCIALIST REPUBLIC OF VIETNAM
Independence-Freedom-Happiness

MODEL 01/TD

VALUE ADDED TAX RETURN FORM

Month...Year...

Construction Standard of Vietnam

Name of entity:...

Address:…

Serial number	Index	Amount (Vietnamese Dong)
1	VAT carried forward from previous period
	+ Underpaid
	+ Overpaid
2	VAT generated during the period
	- Total
	Where:
	+ Gold and Silver Jewelry Business
	+ Foreign Currency Trading
	+ Other Banking Services
3	VAT paid in the month
4	VAT refunded in the month
5	VAT payable this month (5 = 2 + 1 + 4)

- Amount payable (in words): ...

I hereby certify that the figures declared above are correct, and I am willing to bear responsibility for any legal consequences if they are incorrect.

Please attach a detailed declaration form with this return.

Place of submission: ...

Tax authority:...

Address: …

(Major Technical Specifications and Other Information)
Head of Entity
(Signature and Seal)

GUIDANCE FOR COMPLETING THE RETURN:

Model 01/TD - This model is used for credit institutions engaged in comprehensive trading of goods and services subject to VAT under both the deduction method and the direct calculation method based on VAT. Credit institutions must declare VAT for each type of business activity. The total VAT payable for each type of goods and service should be summarized in Item 2. If the taxpayer has subordinate units, these units' declarations should be consolidated. To complete the return according to Model 01/TD, the entity must prepare detailed lists 1a, 1b, and 1c for each type of goods and service as follows:

+ Form 1a calculates VAT for banking services and goods subject to VAT under the deduction method, prepared according to Model 01/GTGT (issued together with Circular No. 89/1998/TT-BTC), only recording relevant indicators for taxable services and goods (excluding Items 7, 8, and 9).

+ Form 1b calculates VAT for gold and silver jewelry trading.

+ Form 1c calculates VAT for foreign currency trading.

Forms 1b and 1c are prepared according to Model 06/GTGT (issued together with Circular No. 89/1998/TT-BTC), recording relevant indicators for goods and foreign currencies.

+ Along with the monthly tax return, the business entity must submit a detailed list of invoices and documents for purchased goods and services as the basis for tax calculation. For banks and credit institutions with subordinate units, the basis for the declaration is the detailed list submitted by each unit. For example, Branch A of Bank X has two dependent transaction offices, and the declaration for each office's documents only needs to be recorded in one line in the list (according to Model 03/GTGT attached to Circular No. 89/1998/TT-BTC).

For credit institutions that separately account for purchased goods and services sold, and goods and services subject to different tax calculation methods, a separate detailed list of purchased and sold goods and services should be prepared as the basis for calculating taxes for each item.