Circular No. 35/2011/TT-BTC guiding certain contents regarding value-added tax on telecommunications services

CIRCULAR

Guidelines on certain contents regarding value-added tax for telecommunications services

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Pursuant to the Law on Value Added Tax No. 13/2008/QH12 dated June 3, 2008;

Pursuant to the Law on Tax Administration No. 78/2006/QH11 dated November 29, 2006;

Pursuant to Decree No. 25/2011/NĐ-CP dated April 6, 2011 of the Government detailing and guiding the implementation of certain provisions of the Law on Telecommunications amended and supplemented by Decrees No. 81/2016/NĐ-CP dated July 1, 2016 and No. 49/2017/NĐ-CP dated April 24, 2017 of the Government;

Pursuant to 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;

Pursuant to Decree No. 85/2007/NĐ-CP dated May 25, 2007 of the Government detailing the implementation of certain provisions of the Law on Tax Administration;

Pursuant to Decree No. 106/2010/NĐ-CP dated October 28, 2010 of the Government amending and supplementing certain provisions of Decree No. 85/2007/NĐ-CP dated May 25, 2007 of the Government detailing the implementation of certain provisions of the Law on Tax Administration and Decree No. 100/2008/NĐ-CP dated September 8, 2008 of the Government detailing certain provisions of the Law on Personal Income Tax;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008, of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

The Ministry of Finance issues guidelines on certain contents regarding value-added tax for telecommunications services as follows:

Article 1. Scope and Applicability

This Circular guides certain contents regarding value-added tax (VAT) for telecommunications services provided by telecommunications service businesses.

Article 2. Telecommunications services subject to exemption from VAT

The following telecommunications services are subject to exemption from VAT:

1. Public telecommunications services as prescribed by the Law on Telecommunications. The list of public telecommunications services, quality, rates, target groups, and scope of provision of public telecommunications services shall be implemented according to the regulations of the Ministry of Information and Communications.

2. Telecommunications services from abroad into Vietnam (incoming direction).

Article 3. Explanation of Terms

Clause 2. Definitions used in this Circular are understood as follows:

Telecommunication services Telecommunications services refer to the sending, transmitting, receiving, and processing of information between two or a group of telecommunications service users, including basic services and value-added services.

Telecommunications connection Interconnection refers to the physical and logical linking of telecommunications networks through which a user of one network can access another user or service of another network and vice versa.

Clause 3. Definitions are understood as follows:

Telecommunications service business includes enterprises established under Vietnamese law, licensed to operate telecommunications services according to the Law on Telecommunications, and units subordinate to telecommunications service businesses.

Telecommunications service business includes infrastructure-based service providers and non-infrastructure-based service providers.

Telecommunications interconnection charges refer to the revenue obtained by telecommunications service businesses when providing interconnection services with other telecommunications service businesses' networks.

Reconciliation refers to the process where telecommunications service businesses compare data to confirm interconnection traffic, revenue, and costs related to telecommunications interconnection services with other telecommunications service businesses.

Postpaid telecommunications services refer to telecommunications services provided by telecommunications service businesses where customers pay after using the services.

Article 4. VAT on telecommunications interconnection charges

Clause 1. Monthly, after completing the reconciliation of telecommunications interconnection charges data, telecommunications service businesses issue VAT invoices and declare and pay VAT according to current regulations. The deadline for completing reconciliation shall be carried out according to economic contracts between telecommunications service businesses but not later than two months from the month the telecommunications interconnection charges arise.

Clause 2. In cases where telecommunications service businesses complete reconciliation late, leading to issuing VAT invoices for interconnection services after the deadline, the enterprise will be penalized for violating tax laws according to current regulations. The date for calculating late payment penalties for VAT starts from the day the tax declaration for telecommunications interconnection charges must be completed.

Example:

The maximum deadline for completing reconciliation and issuing invoices for mobile telecommunications interconnection charges for April 2011 of telecommunications service business A is June 30, 2011.

- If telecommunications service business A completes reconciliation and issues VAT invoices on June 5, 2011, it shall declare and pay VAT for the tax period of June 2011, with the latest deadline for submitting the VAT tax declaration being July 20, 2011.

- If telecommunications service business A only completes reconciliation, issues VAT invoices for mobile telecommunications interconnection services for April 2011, and declares and pays VAT on July 25, 2011, telecommunications service business A will be penalized for violating tax laws according to current regulations.

Article 5. Input VAT on goods and services purchased for investment in the entire telecommunications infrastructure system by telecommunications service business establishments.

Clause 1. For goods (including: machinery, equipment, materials) and services purchased by telecommunications service business establishments for investment in the entire telecommunications infrastructure system (excluding goods and services related to reception, transactions, electricity, water, fuel, and office equipment serving the operation of the headquarters and dependent accounting units within the same area as the headquarters), the telecommunications service business establishment shall declare input VAT as follows:

Allocate the amount of input VAT on purchased goods and services to dependent accounting units engaged in telecommunications services that pay VAT under the deduction method to declare, deduct, and refund input VAT at the local tax authority directly managing the dependent accounting units.

Monthly, the telecommunications service business establishment prepares a Table allocating the value of purchased goods and services (excluding VAT), and the allocated input VAT for dependent accounting units and the headquarters. Based on the value of purchased goods and services (excluding VAT) and the allocated input VAT, the dependent accounting units and the headquarters declare in the Invoice and Receipt Register for purchased goods and services to declare input VAT according to current regulations.

Input VAT on goods and services purchased for investment in the entire telecommunications infrastructure system and allocated to dependent accounting units and the headquarters is determined according to the following formula:

Where:

- Revenue generated at dependent accounting units and the headquarters is the revenue excluding VAT at the dependent accounting units and the headquarters of the month immediately preceding the month of input VAT allocation.

- Total revenue at dependent accounting units and the headquarters is the total revenue excluding VAT at the dependent accounting units and at the headquarters of the telecommunications service business establishment (excluding internal revenue) of the month immediately preceding the month of input VAT allocation.

- The total amount of allocated input VAT is the VAT amount on goods and services purchased by the telecommunications service business establishment for investment in the entire telecommunications infrastructure system based on the VAT invoice, import tax payment documents, and foreign tax payment substitute documents issued according to the Ministry of Finance's guidelines applicable to organizations and individuals operating in Vietnam or earning income in Vietnam.

Input VAT allocated to dependent accounting units within the same area as the headquarters is declared at the headquarters. If a dependent accounting unit within the same area as the headquarters registers independently to declare and pay VAT, then the input VAT allocated to that dependent accounting unit is declared at the dependent accounting unit.

Dependent accounting units and the headquarters of the telecommunications service business establishment deduct and refund VAT according to current regulations on the allocated input VAT.

The telecommunications service business establishment prepares a Table allocating input VAT for dependent accounting units and the headquarters (Form No. 01 attached hereto) and sends it to the General Department of Taxation, the local tax office (where the dependent accounting unit is registered for tax), and the dependent accounting units, while simultaneously sending the Invoice and Receipt Register for purchased goods and services (indicating clearly the value of purchased goods and services (excluding VAT) and the input VAT) for investment in the entire telecommunications infrastructure system of the business establishment to the direct management tax authority of the headquarters before the twentieth day of the month following the month of input VAT allocation.

The telecommunications service business establishment is responsible for the legality of the VAT invoices for purchased goods and services, import tax payment documents, and foreign tax payment substitute documents issued according to the Ministry of Finance's guidelines applicable to organizations and individuals operating in Vietnam or earning income in Vietnam as the basis for allocating input VAT to dependent accounting units and the headquarters.

In case of discovery through inspection that the allocated input VAT for dependent accounting units and the headquarters for deduction differs from the allocated amount, the adjusted input VAT shall be declared by the telecommunications service business establishment with the direct management tax authority of the headquarters.

Clause 2. Input VAT on goods and services purchased for investment in the headquarters and input VAT on goods and services purchased for use in ongoing investment projects are declared, deducted, and refunded according to current regulations.

Input VAT on goods and services purchased by dependent accounting units of the telecommunications service business establishment for investment in the dependent accounting units is declared, deducted, and refunded according to current regulations.

Article 6. Declaration and Payment of VAT on Postpaid Telecommunication Services

In cases where a telecommunication service business operates postpaid telecommunication services in a province or centrally governed city different from the province or city where its main office is located and establishes a dependent branch that pays VAT under the deduction method and participates in operating postpaid telecommunication services in that locality, the telecommunication service business shall declare and pay VAT on postpaid telecommunication services as follows:

- Declare VAT on the total revenue from postpaid telecommunication services of the entire business to the direct tax management agency overseeing the main office.

- Pay VAT at the location of the main office and at the location of the dependent branch.

The amount of VAT payable at the location of the dependent branch is determined according to a ratio of 2% (for postpaid telecommunication services subject to VAT with a rate of 10%) on the revenue (excluding VAT) from postpaid telecommunication services at the location of the dependent branch.

In cases where the total amount of VAT payable (at a ratio of 2%) at the locations of the dependent branches exceeds the amount of VAT payable by the telecommunication service business at the main office, the telecommunication service business shall allocate the amount of VAT payable at the locations of the dependent branches as follows: the amount of VAT payable at the location of the dependent branch is determined by multiplying the amount of VAT payable by the telecommunication service business at the main office by (x) the ratio (%) between the revenue (excluding VAT) from postpaid telecommunication services at the location of the dependent branch and the total revenue (excluding VAT) from postpaid telecommunication services of the entire telecommunication service business.The amount of VAT payable at the location of the main office is determined by subtracting (-) the total amount of VAT paid at the locations of the dependent branches from the amount of VAT payable by the telecommunication service business at the main office.

The telecommunication service business shall prepare and submit the "VAT Allocation Table for Postpaid Telecommunication Services at the Location of the Main Office and at the Locations of Dependent Branches" according to Form No. 02 (announced together with this Circular) along with the tax declaration documents to the direct tax management agency, and simultaneously send one (01) copy of the Allocation Table according to Form No. 02 to the tax management agencies directly overseeing the dependent branches.

Based on the VAT allocation between the location of the main office of the telecommunication service business and the locations of the dependent branches on the Allocation Table according to Form No. 02, the taxpayer shall issue payment vouchers for VAT to be paid to the location of the main office and each location of the dependent branches.On the payment voucher, it must clearly state the deposit into the State Treasury account at the National Treasury corresponding to the tax authority where the main office of the telecommunication service business registers for tax declaration and the location of the dependent branches.c.

In cases where the telecommunication service business does not generate any VAT payable at the main office, the telecommunication service business is not required to pay VAT on postpaid telecommunication services at the locations of the dependent branches.Example 1: Telecommunication Service Business A, headquartered in Da Nang City, operates postpaid telecommunication services with two dependent branches paying VAT under the deduction method in Quang Tri Province and Thua Thien Hue Province, participating in operating postpaid telecommunication services.c.

During the tax period in June 2011, Telecommunication Service Business A determined that the revenue (excluding VAT) from postpaid telecommunication services in Quang Tri Province was 10 billion VND (VAT rate is 10%) and in Thua Thien Hue Province was 30 billion VND (VAT rate is 10%). The amount of VAT payable at the main office (according to Form 01/GTGT) during the period was 1 billion VND.c.

The amount of VAT that Telecommunication Service Business A must pay in Quang Tri Province is: 10 billion x 2% = 0.2 billion VND.

The amount of VAT that Telecommunication Service Business A must pay in Thua Thien Hue Province is: 30 billion x 2% = 0.6 billion VND.

The amount of VAT that Telecommunication Service Business A must pay in Da Nang City is: 1 billion - 0.2 - 0.6 billion = 0.2 billion VND.

Example 2: Telecommunication Service Business A, headquartered in Da Nang City, operates postpaid telecommunication services with three dependent branches paying VAT under the deduction method in Da Nang City, Quang Tri Province, and Thua Thien Hue Province, participating in operating postpaid telecommunication services.

During the tax period in July 2011, Telecommunication Service Business A determined that the revenue (excluding VAT) from postpaid telecommunication services in Da Nang City was 60 billion VND (VAT rate is 10%), in Quang Tri Province was 10 billion VND (VAT rate is 10%), and in Thua Thien Hue Province was 30 billion VND (VAT rate is 10%). The amount of VAT payable at the main office (according to Form 01/GTGT) during the period was 0.5 billion VND.

According to the principle of paying VAT at localities based on a 2% revenue ratio as guided in this Circular for postpaid telecommunication services subject to VAT with a rate of 10%, Telecommunication Service Business A determines the amount of VAT payable for Quang Tri Province and Thua Thien Hue Province as follows:

(10 billion + 30 billion) x 2% = 0.8 billion > 0.5 billion (Amount of VAT payable at the main office).

Therefore, Telecommunication Service Business A allocates the amount of VAT payable at the localities as follows:

The amount of VAT that Telecommunication Service Business A must pay in Quang Tri Province is: 0.5 billion x 10 billion/(60 billion + 10 billion + 30 billion) = 0.05 billion VND.

The amount of VAT that Telecommunication Service Business A must pay in Thua Thien Hue Province is

0.5 billion x 30 billion/(60 billion + 10 billion + 30 billion) = 0.15 billion VND.

The value-added tax (VAT) that telecommunications service business A must pay in Thua Thien Hue province is: 

0.5 billion x 30 billion/(60 billion + 10 billion + 30 billion) = 0.15 billion VND.

The value-added tax (VAT) that Telecommunications Service Business A must pay in Da Nang City is: 0.5 billion - 0.05 billion - 0.15 billion = 0.3 billion VND.

Example 3: Telecommunications Service Business A with headquarters in Da Nang City operates postpaid telecommunications services with two dependent branches subject to VAT under the deduction method in Quang Tri Province and Thua Thien Hue Province, both participating in postpaid telecommunications service operations.

In the tax period of August 2011, Telecommunications Service Business A determined that: the revenue (excluding VAT) from postpaid telecommunications services in Quang Tri Province was 10 billion VND (VAT rate is 10%) and in Thua Thien Hue Province was 30 billion VND (VAT rate is 10%). At the main office, no VAT is payable during the period (as declared on Form 01/GTGT).

Telecommunications Service Business A does not need to pay VAT in Quang Tri Province and Thua Thien Hue Province.

Article 7. Value-added Tax (VAT) on Revenue from Internal Allocation of Telecommunications Services Provided by Telecommunications Service Businesses

In cases where the provision of telecommunications services is carried out in the form of participation by the telecommunications service business and its dependent accounting units in providing services, production and business results, and corporate income tax being centrally accounted for at the telecommunications service business; the telecommunications service business or its dependent accounting units issue VAT invoices, collect money from customers, declare and pay VAT on revenue according to the VAT invoices; the internal allocation of telecommunications service revenue between the telecommunications service business and its dependent accounting units and among the dependent accounting units is solely for internal management and to serve business administration purposes, then when allocating internal telecommunications service revenue, the telecommunications service business does not issue VAT invoices and does not declare or pay VAT.

Article 8. Implementation organization

1. This Circular takes effect from May 1, 2011.

2. Matters not covered by this Circular and matters not contrary to the guidance provided in this Circular shall be implemented in accordance with current regulations on VAT and tax administration. During implementation, if there are difficulties or obstacles, it is recommended that units promptly report them to the Ministry of Finance for resolution.

During implementation, if there are difficulties or obstacles, it is recommended that units promptly report them to the Ministry of Finance for resolution./.