Circular No. 163/1998/TT-BTC guides the implementation of the Value Added Tax (VAT) Law for air transportation activities and service flights.

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 163/1998/TT-BTC ON DECEMBER 17, 1998 GUIDING THE IMPLEMENTATION OF THE VALUE ADDED TAX LAW FOR AIR CARGO TRANSPORT AND SERVICE FLIGHTS

Pursuant to the Value Added Tax Law No. 02/1997/QH dated May 10, 1997;
Pursuant to Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Value Added Tax Law;
The Ministry of Finance has issued Circular No. 89/1998/TT-BTC dated June 27, 1998 to guide the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax;
To ensure the implementation of the Value Added Tax Law is appropriate for organizations engaged in air cargo transport business operations, the Ministry of Finance provides specific guidance on calculating, declaring, and paying VAT for this activity as follows:

I. SUBJECTS LIABLE FOR VAT, NON-LIABLE SUBJECTS, AND PAYERS OF VAT

1. Subjects liable for VAT

The subjects liable for VAT include the following activities of air cargo transport and service flights:

- Air cargo transport activities include:

+ Passenger and baggage transport

+ Cargo transport

+ Other air cargo transport activities

- Service flight activities include:

+ Oil and gas service flights

+ Geological survey flights

+ Map photography flights

+ Other service flights

2. Non-liable subjects for VAT:

2.1 International transportation activities: International transportation includes transportation outside Vietnam and transportation involving routes from Vietnam to foreign countries and vice versa, including international segmented domestic transportation. Segmented domestic transportation refers to a journey that goes out of the country and returns with a domestic flight segment and a single ticket issued for the entire journey.

Example 1: Mr. A's itinerary is Hanoi - Singapore. If the airline issues one ticket from Hanoi - Ho Chi Minh City - Singapore, then the Hanoi - Ho Chi Minh City segment is considered international segmented domestic transportation. If two tickets are issued: one from Hanoi - Ho Chi Minh City and another from Ho Chi Minh City - Singapore, then the Hanoi - Ho Chi Minh City segment is domestic transportation.

Mr. B has a ticket from Paris to Hanoi. If one ticket is issued from Paris - Ho Chi Minh City - Hanoi, then the Ho Chi Minh City - Hanoi segment is international segmented domestic transportation. If two tickets are issued: one from Paris - Ho Chi Minh City and another from Ho Chi Minh City - Hanoi, then the Ho Chi Minh City - Hanoi segment is domestic transportation.

2.2 Importation of aircraft engines, spare parts, and special equipment for air cargo transport that cannot be produced domestically.

2.3 Leasing of aircraft, aircraft engines, and spare parts from abroad.

2.4 Fuel and beverages imported for international flights under temporary importation and re-exportation regulations.

3. Payers of VAT

The payers of VAT are companies engaged in air cargo transport and service flight activities, including:

- Independent economic accounting companies

- Vietnam National Airline Corporation

II. METHODS OF CALCULATING VAT

The entities subject to tax as specified in Point 3, Section I of this Circular shall calculate VAT payable according to the tax deduction method:

(1) VAT output tax is determined based on the taxable value multiplied by the VAT rate. The taxable value for domestic passenger transport is the price excluding VAT.

Example 2: Domestic passenger transport ticket from Hanoi to Ho Chi Minh City:

- Price excluding VAT 910,000 VND

- VAT (10%) 91,000 VND

- Payment price 1,001,000 VND

In cases where travel agencies sell tickets at designated prices, when issuing tickets to customers, travel agencies must clearly specify the factors as shown in the example above. Travel agency commissions are not subject to VAT and are recorded as expenses of the air cargo transport business entity.

The taxable value for baggage transport, cargo transport, and service flights is the price excluding VAT. Business entities engaged in air cargo transport and service flights must issue VAT invoices when collecting transport fees or service charges to serve as the basis for determining VAT output tax.

(2) Deductible VAT input tax is the amount of VAT input tax recorded on VAT invoices for goods, services, and assets directly used for domestic transport activities subject to VAT, which is identified and accounted for separately. In cases where VAT input tax cannot be separately accounted for between goods, services used for taxable activities and those not subject to VAT, the deductible VAT input tax is allocated according to the ratio of taxable revenue to total revenue, both taxable and non-taxable.

Example 3: Pacific Airlines Joint Stock Company had the following figures during the tax period:

- Revenue from international air cargo transport

(non-taxable revenue) 400 billion VND

- Revenue from domestic air cargo transport and other taxable services 600 billion VND

other taxable services are 600 billion VND

- VAT output tax for taxable activities (10%) 60 billion VND

- VAT input tax used for both taxable and non-taxable activities 20 billion VND

Assuming the company does not separately account for VAT input tax for taxable and non-taxable activities, according to the regulation, the deductible VAT input tax for taxable activities is calculated as follows:

- Determine the ratio of taxable revenue to total revenue

600 billion VND

x 100 = 60%

600 billion VND + 400 billion VND

- Deductible VAT input tax:

20 billion VND x 60% = 12 billion VND

- VAT payable for taxable activities

60 billion VND - 12 billion VND = 48 billion VND

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

Example 4: Following Example 3, assuming the total VAT input tax for goods and services purchased is 20 billion VND, the company accounts for it as follows:

- Used for taxable activities 4 billion VND

- Used for non-taxable activities 1 billion VND

- Used jointly for both activities 15 billion VND

According to the regulation, the deductible VAT input tax and VAT payable for taxable activities are determined as follows:

+ VAT separately accounted for for taxable activities 4 billion VND

+ Allocated portion of joint-use VAT input tax for taxable activities

15 billion VND x 60% = 9 billion VND

+ Deductible VAT input tax for taxable activities

4 billion VND + 9 billion VND = 13 billion VND

+ VAT payable for taxable activities is

60 billion VND - 13 billion VND = 47 billion VND

+ Value Added Tax payable from the taxable activity is

60 billion VND - 13 billion VND = 47 billion VND

III/ DECLARATION AND PAYMENT OF VAT

Companies shall register and pay VAT at the location where their headquarters is situated. In cases where companies have dependent branches or regional offices in other provinces, each month, these regional offices and dependent units shall base on purchase invoices and vouchers to prepare a detailed list of invoices and vouchers for goods and services purchased for air cargo transportation activities according to the attached model. The list shall be made in two copies: one copy sent to the company's headquarters, and one copy retained by the unit.

Companies are responsible for consolidating the VAT input tax declaration forms of regional offices and dependent units, and VAT input tax arising within the company to prepare a consolidated VAT input tax declaration form for the entire company's air cargo transportation activities. Based on taxable revenue and non-VAT taxable revenue, calculate and allocate deductible VAT input tax for taxable activities.

Companies that declare VAT monthly must detail invoices, vouchers for goods and services purchased and sold, output VAT, input VAT, and deductible VAT according to other prescribed declaration forms as stipulated in Circular No. 89/1998/TT-BTC dated June 27, 1998, issued by the Ministry of Finance. They must declare and submit tax returns to the Tax Department at the location of their headquarters and pay VAT according to the prescribed regulations.

IV/ IMPLEMENTATION

1) Vietnam National Air Transport Corporation, air cargo transport companies, and service flight companies are responsible for guiding subordinate units to declare, calculate, and pay VAT according to the guidelines set out in this Circular.

2) Regarding invoices and vouchers: units must strictly adhere to the invoice and voucher system. In cases where self-printed invoices need to be implemented, they must register with the tax authority as prescribed.

3) This Circular takes effect from January 1, 1999. Other contents not addressed in this Circular shall continue to be implemented according to the provisions of Circular No. 89/1998/TT-BTC dated June 27, 1998, issued by the Ministry of Finance.

During implementation, if there are any difficulties, units are requested to report to the Ministry of Finance for consideration and resolution.

LIST OF INVOICES AND VOUCHERS FOR GOODS AND SERVICES PURCHASED

Month ... Year ...

- Name of Unit:...

- Address:...

Unit of measurement:

Date...month...year...

Preparer of the Table Accountant-in-Charge
(Signature, Full Name) (Signature, Full Name)