Circular No. 49/1999/TT-BTC guides the implementation of the Law on Value Added Tax for financial leasing activities.

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
NUMBER: 49/1999/TT-BTC	HA NOI, MAY 6, 1999

 

CIRCULAR

CIRCULAR NO. 49/1999/TT-BTC OF THE MINISTRY OF FINANCE DATED MAY 6, 1999 GUIDING THE IMPLEMENTATION OF THE VALUE ADDED TAX LAW ON FINANCIAL LEASING ACTIVITIES

Pursuant to the Law on Value Added Tax (VAT) No. 02/1997/QH9 dated May 10, 1997;
Pursuant to Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on VAT;
Based on current laws and regulations regarding financial leasing and the specific characteristics of leased assets, the Ministry of Finance guides the implementation of the Law on Value Added Tax for the activities of leasing these assets as follows:

I. GENERAL PROVISIONS

1. The Circular applies to financial leasing companies and other enterprises engaged in financial leasing established in accordance with the law (hereinafter referred to collectively as the lessor) and lessees who lease assets in compliance with the current laws on financial leasing and pay VAT under the tax deduction method.

2. Financial leasing assets are assets used by the lessor in financial leasing services. These assets are formed from imports or purchases within the country. For imported assets, the lessor is the taxpayer for VAT on imported goods. For domestically purchased assets, the lessor indirectly pays VAT through payment for the purchased asset. According to the law, financial leasing services are medium and long-term credit services based on leasing contracts between the lessor and the lessee. Revenue from financial leasing that is not subject to VAT includes rental income, commitment fees, and residual value (in cases where the lessee repurchases the leased asset at the end of the lease term at a nominal price).

3. The VAT paid by the lessor on financial leasing assets will be gradually reimbursed by the lessee based on the leasing contract.

4. This Circular does not apply to ordinary asset leasing services.

II- SPECIFIC PROVISIONS

For the lessor:

a. The lessor is exempt from VAT on financial leasing services, but if the leased asset was purchased or imported and VAT has been paid, it will be gradually reimbursed by the lessee. The lessor must comply with the following provisions:

- Assets purchased by the lessor for leasing purposes must have a VAT invoice or proof of VAT payment for imported goods as stipulated by law.

- The leasing contract must clearly specify the rental amount, VAT, total payment, lease period, and payment cycle.

For assets imported by the lessor for financial leasing purposes, if such assets fall under the list of goods exempt from VAT on imports, the lessor is not required to pay VAT on imported goods.

b. When providing financial leasing services, the lessor may use the following documents:

- The lessor issues a VAT invoice for financial leasing services. The invoice must comply with the model attached to this Circular and must be registered for use after receiving approval from the General Department of Taxation. Issuing invoices should follow the payment schedule specified in the contract (which can be monthly or quarterly), but to simplify the invoice issuance process, lessors are permitted to issue invoices twice a year (in June and December each year or at the time of ownership transfer).

- When issuing a VAT invoice for financial leasing services, the lessor must record all elements required on the invoice. Specifically, the VAT column (for this period) is determined according to the principle of evenly distributing the VAT already paid on the leased asset over the lease period.

Example: Company A leases assets to Enterprise X. In the VAT invoice, the VAT amount is recorded as 360 million VND. Assuming:

+ Lease period according to the contract: 3 years, from February 1, 1999 to February 1, 2002.

+ Payment cycle: the first day of each month.

According to this example, the monthly VAT is calculated as: 360,000,000 VND ÷ 36 months = 10,000,000 VND. Company A issues an invoice to X. X records the VAT as follows:

Period 1: In June of the first year, deducting VAT for 5 months (from February to June) is: 10,000,000 VND × 5 = 50,000,000 VND.

Period 2: December of the first year (1999): 10,000,000 VND × 6 = 60,000,000 VND.

Period 3: June of the second year: 10,000,000 VND × 6 = 60,000,000 VND.

Period 4: December of the second year (2000): 10,000,000 VND × 6 = 60,000,000 VND.

Period 5: June of the third year: 10,000,000 VND × 6 = 60,000,000 VND.

Period 6: December of the third year (2001): 10,000,000 VND × 6 = 60,000,000 VND.

Period 7: January 2002: 10,000,000 VND × 1 = 10,000,000 VND.

Cumulative total (36 months) 360,000,000 VND.

- When issuing a VAT invoice for financial leasing services, the following principles must be adhered to:

+ Leased assets purchased must have a VAT invoice or proof of VAT payment and must be evenly distributed as stipulated above.

+ The total VAT recorded on the VAT invoice for financial leasing services issued by the lessor must match the amount recorded on the VAT invoice or proof of VAT payment when the company purchased the asset.

+ If there is no VAT or VAT invoice or proof of VAT payment as stipulated by law when purchasing the asset, it cannot be reflected in the VAT invoice for financial leasing services.

For the lessee:

In addition to paying rent, the lessee also pays the VAT that the lessor has paid to the supplier of the asset. Based on the invoice issued by the lessor, the lessee records the VAT paid to the lessor in the tax deduction account.

3. Provisions on invoice management

a. The lessor is responsible for managing the VAT invoices for assets purchased for leasing purposes. In cases where the lessor directly imports goods, the lessor must manage the import VAT receipt (if applicable). These documents will be transferred to the leasing enterprise after the VAT has been fully deducted and ownership has been transferred to the lessee upon completion of the financial leasing contract.

b- In case the lessee does not perform the lease contract leading to the lessor having to reclaim the asset: the lessor must notify the lessee specifying clearly the amount of VAT already paid and the remaining unpaid VAT. This notification shall be made in three copies: one copy sent to the lessee and two copies retained by the lessor. If the asset is leased again, the lessor retains one copy and transfers one copy to the lessee. In the new lease contract, the remaining VAT that the previous lessee has not yet paid will be continued to be paid by the subsequent lessee and recorded in the VAT deduction account. The issuance of invoices follows the provisions set out in point b, Section II.1 of this Circular.

- In case the financial lessor does not sublease the asset to a third party but sells it, they must pay VAT and issue a VAT invoice according to the provisions of the Law.

c- In case the lease contract stipulates that the lessee only leases part of the value of the asset and then purchases the asset, the lessor manages the purchase invoice of the leased asset until the sale procedures are completed. The remaining VAT (the VAT on the invoice minus the VAT already paid) will be further deducted similarly to the case of directly purchasing fixed assets with input VAT.

The documents for deducting VAT for the lessee when purchasing the asset include: the VAT invoice for purchasing the asset (domestic purchase) or the tax payment certificate (import) transferred by the financial lessor, and the service lease invoice at the time the buyer repurchases the asset. The additional VAT deduction when the lessee repurchases the asset through financial leasing equals the VAT on the invoice transferred by the lessor minus the VAT paid on the service lease invoice (item 3, cumulative column).

d- In case the lease contract involves both the lessor and lessee jointly investing in machinery and equipment, and subsequently the lessor only collects rent (capital and interest) corresponding to their investment, the purchase invoice of the leased asset shall be managed by the lessor until the ownership rights are transferred to the lessee. The VAT corresponding to the lessee's investment will be included in the first payment invoice issued by the lessor.

e- In case the financial lease contract has been fully executed and all VAT has been paid by the lessee, and both parties agree to continue leasing, the issuance of service lease invoices will not reflect VAT.

4) Handling violations:

It is strictly prohibited to exploit the form of financial leasing to cause revenue loss to the State budget. All violations of the provisions of this Circular shall be handled according to the provisions of the Law on Value Added Tax, current legal regulations.

III- IMPLEMENTATION

This Circular takes effect fifteen days from the date of signature, but applies to contracts signed from January 1, 1999. Matters not covered in this Circular shall be implemented according to Circular No. 89/1998/TT-BTC dated June 27, 1998, guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998, detailing the implementation of the Law on Value Added Tax and other supplementary and amended legal documents currently in force.

During the implementation process, if there are any difficulties, organizations and individuals are requested to promptly report them to the Ministry of Finance for research and resolution.

Pham Van Trong (Signed)

 

Model number:

Code: BH/1999

Number:

INVOICE FOR LEASE SERVICE

(Copy 1: Retain)

Date... Month... Year...

Financial Lessor:

 

 

 

 

 

 

 

 

 

 

 

Address: Account Number:

Telephone: Tax Code:

Lease Contract Number: Date... Month... Year...

Lease Period: From... Month... Year... To... Month... Year...

Value of Leased Asset (excluding VAT):...

VAT Paid by the Financial Lessor on the Leased Asset:...

(VAT Invoice or Tax Payment Receipt Number... Date... Month... Year...)

Lessee:

 

 

 

 

 

 

 

 

 

 

 

 

 

Address: Account Number:

Telephone Tax Code:

Payment Method:...

Index	Current Period	Cumulative
1- Name of Lease Service:...
2- Rent Amount:...
3- VAT:...
4- Amount of Asset Sale According to Lease Contract:...
5- Total Payment Amount (2+3+4):...

Total Payment Amount for Current Period (in words):...

Lessee (Signature, full name)

Chief Accountant of the Financial Lessor (Signature, full name)

Head of Collection Unitê (Signature, full name)