Circular No. 4575/TC/TCT guiding detailed application of value-added tax (VAT) for specific subjects such as insurance services, construction activities abroad, agents selling goods not subject to VAT, and regulations on refunding VAT. This document aims to resolve difficulties in implementing Circular No. 120/2003/TT-BTC.

LETTER

OF THE MINISTRY OF FINANCE NUMBER 4575 TC/TCT ON APRIL 29, 2004
REGARDING GUIDELINES FOR VALUE ADDED TAX

Dear: Provincial Tax Departments

Pursuant to Decree No. 158/2003/NĐ-CP dated December 10, 2003 of the Government detailing the implementation of the Law on Value Added Tax and the Law Amending and Supplementing Certain Provisions of the Law on Value Added Tax, the Ministry of Finance issued Circular No. 120/2003/TT-BTC dated December 12, 2003 guiding the implementation of the above decree. In the course of implementation, some difficulties have arisen, the Ministry of Finance now provides specific guidance on the following matters:

1. Regarding objects not subject to VAT:

Based on the provisions at point 23, section II, part A of the above Circular No. 120/2003/TT-BTC, insurance services provided for international transportation means such as ship hull insurance or aircraft hull insurance, or civil liability insurance for ship owners or general civil liability for aircraft fall within the category of objects not subject to VAT.

International transportation means are those with international transportation revenue exceeding 50% of the total transportation revenue of the means.

Suppliers of goods and services to international transportation means must issue invoices clearly stating the name and number of the international transportation means. In cases where international transportation means are operated and used by domestic transportation businesses, the transportation business must register with the direct tax authority regarding the list of international transportation means to serve as the basis for determining that VAT will not be collected on goods and services directly supplied to international transportation means; when selling goods and services to international transportation means, the business must request users of international transportation means to present the registration with the tax authority. The supplier of goods and services must retain a copy of the registration mentioned above together with the invoice and other documents providing goods and services to international transportation means.

In cases where transportation means do not meet the conditions regarding international transportation revenue mentioned above but domestic transportation businesses still register the transportation means as international ones to purchase goods and services without VAT, the transportation business shall be liable for back payment of VAT on goods and services directly supplied to these transportation means. The back-paid VAT amount cannot be deducted from input VAT and must be recorded as expenses.

2. Regarding VAT rates:

- For construction and installation activities for overseas projects and export processing zones:

Based on the Prime Minister's opinion on VAT for construction and installation activities for overseas projects and export processing zones as stated in Government's Official Letter No. 977/CP-KTTH dated October 30, 1997; point 1, section II, part B of the above Circular No. 120/2003/TT-BTC, domestic businesses engaged in construction and installation of projects overseas and for export processing zones shall apply a 0% VAT rate. Procedures, documents, and conditions for applying the 0% VAT rate for this case are stipulated in points 1.2d1, 1.2d3, and 1.2d4 of section III, part B of the above Circular No. 120/2003/TT-BTC.

- For sales of goods and services not subject to VAT by agents selling at fixed prices and earning commissions:

Businesses operating as agents selling goods and services that are not subject to VAT do not need to declare and pay VAT on the goods and services sold and the commission earned.

3. VAT for agency sales of services at fixed prices and earning commissions:

For businesses acting as agents for postal services, insurance, lottery tickets, airline tickets, mobile phone cards, etc., which sell according to the price listed on the invoice, such as insurance invoices, lottery tickets, airline tickets, mobile phone cards, and earn commissions, they do not need to calculate and pay VAT on the income from the sale price listed on the invoice, ticket, card, and the commission income from agency sales.

The business must declare and pay corporate income tax on the commission income. If individual agents do not fully comply with accounting records and vouchers, they must pay corporate income tax at a rate of 5% based on the commission income. If an individual agent has an average monthly income below the minimum wage set by the State for civil servants, they may be exempted from income tax according to the guidelines in Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax. Businesses have the responsibility to withhold and remit to the State Treasury the corporate income tax payable by agents who are subject to the fixed-rate tax of 5%, and they can enjoy a fee of 0.8% of the actual tax collected from agents to be paid to the State Treasury. This fee amount can be deducted from the corporate income tax due from agents before it is paid to the State Treasury.

4. Declaration and payment of VAT for construction and installation activities for construction projects in different localities (provinces, centrally-administered cities) from the location of the main office of the business.

Based on the provisions at point 2, section II, part C of the above Circular No. 120/2003/TT-BTC, starting from January 1, 2004, businesses that have ongoing construction and installation projects signed before January 1, 2004, with a settlement price including VAT at a rate of 5% as stipulated in part H of Circular No. 120/2003/TT-BTC, shall declare and pay VAT at the locality where the construction and installation project is located, at a rate of 2% on the settlement price excluding VAT for the volume of work completed from January 1, 2004.

Business establishments that engage in construction and installation activities at locations other than where their main office is located, and have branches in different localities subject to Value Added Tax (VAT) based on a percentage of revenue, when declaring and paying VAT at their main office must also declare supplementary VAT tax returns, the amount of VAT payable, the number of documents and the amount of VAT paid in the locality where the construction and installation projects are carried out or where sales take place for the tax authority to manage the business establishment's basis for calculating the amount of VAT already paid, still due, or overpaid. When settling the annual VAT, the business establishment must simultaneously obtain confirmation from the local tax authority where the construction and installation projects are carried out or where sales take place regarding the amount of VAT payable and the amount of VAT already paid.

5. Regarding the VAT refund recipients as stipulated in Section I, Part D of Circular No. 120/2003/TT-BTC mentioned above:

According to Section I, Part D of Circular No. 120/2003/TT-BTC, business establishments and organizations eligible for VAT refunds must be entities that have been issued a business registration certificate (investment license), possess a seal, maintain accounting books and records in accordance with prescribed regulations, and have a bank account. For VAT refund recipients who are project owners using non-repayable Official Development Assistance (ODA) funds, ODA loan projects, or mixed ODA projects that are partially or wholly funded by the State budget without the State budget allocating counterpart funds to pay for goods and services provided by contractors at prices inclusive of VAT, if the project owner is not a business establishment and does not have a business registration certificate, they must have a decision establishing a Project Management Board and authorize the Project Management Board to handle the VAT refund procedures. The procedures and documents for VAT refunds shall be applied according to the provisions in Section I, Part D of Circular No. 120/2003/TT-BTC mentioned above.

6. Regarding the procedures for declaring and paying VAT:

The declaration of purchased goods and services as stipulated in Point 1, Section II, Part B of Circular No. 120/2003/TT-BTC mentioned above specifically applies to certain goods and services as follows:

Form No. 04/GTGT is used for both purchased goods and services from sellers who do not issue invoices, such as: products made directly by farmers from bamboo, rattan, straw, coconut, palm leaves...; handicrafts produced by artisans who do not engage in business; soil, stone, sand, gravel extracted by individuals; scrap collected directly by individuals; and some services provided by individuals who do not engage in business. Business establishments that declare monthly purchases of goods and services using this Statement will replace Form No. 01/TNDN issued together with Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax.

In the course of implementation, if there are any difficulties, please report them to the Ministry of Finance (General Department of Taxation) for study and resolution.