Circular No. 72/1999/TT-BTC guides the implementation of the Law on Value Added Tax for activities in the maritime industry.

CIRCULAR

Guidelines for Implementing the Value Added Tax Law

concerning activities in the Maritime Industry

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 Law on Value Added Tax and Decree No. 102/1998/NĐ-CP dated December 21, 1998 of the Government amending and supplementing certain articles of Decree No. 28/1998/NĐ-CP;

To implement the Value Added Tax Law in accordance with business service activities in the maritime industry, the Ministry of Finance issues guidelines for implementing the Law on Value Added Tax for activities in the maritime industry as follows:

I. SCOPE OF APPLICATION OF VALUE ADDED TAX

1- Taxable objects:

a. Sea and inland waterway transportation: This refers to transportation between domestic sea ports and river ports.

b. Port services including: loading and unloading, warehousing, assisting in mooring and towing vessels, securing and releasing ropes, opening and closing cargo holds, cleaning cargo holds, providing fresh water, food, and fuel for domestic shipping vessels or indirectly supplying through another entity for international shipping vessels, counting and delivering goods, bridge fees, leasing equipment and means of transport...

c. Maritime services include:

- Ship agency services: These are services to handle procedures for ships entering and leaving ports. The agency fee is charged according to the tariff set by the Government Price Board and is calculated per voyage;

- Transportation agency, cargo agency, delivery and receipt, purchase and sale of delivery, purchase and sale of equipment and spare parts, container leasing agency;

- Services for domestic units or foreign-invested units in Vietnam to lease vessels.

- Marine brokerage: This is intermediary services (third party) to facilitate the purchase and sale of ships or other transactions within the maritime industry. It is considered marine brokerage when it clearly involves three parties: seller, buyer, and broker.

- Mechanical repair services for domestic transportation means.

d. Seafarer export services.

2- Non-taxable objects:

a. International sea transportation: International sea transportation refers to foreign ships or domestic units participating in transporting goods from a Vietnamese port to a foreign port or vice versa, or transporting goods between foreign ports.

b. Direct loading and unloading services for imported and exported goods at ports onto or off international sea transport vessels where the loading and unloading fees are included in the international sea freight rates set by the Government Price Board and collected in foreign currency (USD) based on the following operations:

- Loading and unloading goods in ship holds - railcars, trucks, barges or vice versa; loading and unloading goods in ship holds - barges, port warehouses or vice versa.

- Loading and unloading containers in ship holds - railcars, trucks, barges or vice versa; loading and unloading containers in ship holds, barges, port warehouses or vice versa.

(Loading and unloading services do not include loading and unloading empty containers and loading goods to inland ports.)

c. Services for foreign entities leasing time-chartered or bareboat vessels.

d. Leasing vessels from foreign entities then subleasing them to other foreign entities.

e. Direct provision of fresh water, food, and fuel to international sea transport vessels. In this case, specific invoices must be issued directly to each vessel, specifying the ship owner, departure date, and destination. If the vessel's itinerary is specifically determined to depart from a Vietnamese port, pass through another Vietnamese port, and go to a specific port outside Vietnam, these supply activities also fall outside the scope of VAT. Direct supply is understood as issuing invoices directly to the ship owner of the vessel engaged in international sea transport.

Example 1: Port A directly supplies fuel and fresh water to vessel B, whose itinerary before departing from Port A is known to involve transporting goods from Port A to Tokyo or from Port A to Haiphong and then to Tokyo. These supply activities of Port A do not fall under the taxable scope and Port A issues regular invoices to the ship owner.

Example 2: Port A supplies fuel and fresh water to agent C, who then supplies them to vessel B engaged in international transport. If the vessel's itinerary is also determined as in Example 1 above, the supply activity of Port A to agent C still falls under the taxable scope, and Port A issues VAT invoices to agent C. Agent C's supply of fresh water and fuel to vessel B does not fall under the taxable scope, and when agent C issues invoices to the ship owner, they use regular sales invoices.

Example 3: Port A directly supplies fresh water and fuel to ship owner B but the vessel B does not have a specific itinerary to prove its involvement in international sea transport. The supply activity of Port A still falls under the taxable scope, and when issuing invoices, VAT invoices must be used.

f. Repair services for transportation means involved in international sea transport (including spare parts provided by the repair unit). If a domestic transportation unit participates in international sea transport but cannot separately identify revenue for each vessel and each voyage, the ratio of international sea transport revenue to domestic sea transport revenue from the previous year will be used to determine the taxable status. If the previous year's ratio of international sea transport revenue exceeds 50% of total transport revenue (confirmed in writing by the tax authority directly managing the unit), then in the following year, if the unit has transportation means repaired, the repair unit will not be subject to VAT for such repair activities, and vice versa.

Example: Company A in Hai Phong had international sea transport revenue accounting for 51% of total transport revenue in 1998, confirmed in writing by the Hai Phong Tax Department. In 1999, the company sent vessel X for repair by Company B. Company B's repair activity for vessel X will not fall under the taxable scope.

3- Taxpayers:

Taxpayers are units that carry out services subject to VAT and those specified in Point 1, Section 1 of this Circular, including:

- Independent economic accounting companies;

- Branches of Companies located in different localities from where the main office of the Company is situated;

- The Office of the Vietnam National Shipping Company.

II METHODS OF CALCULATING TAX

VAT payable by independent economic accounting companies and dependent branches, and the Office of the Vietnam National Shipping Company shall be calculated based on the tax deduction method:

1- VAT output tax:

VAT output tax is determined based on the taxable value of VAT multiplied by the tax rate. For port charges and marine freight collected according to the tariff approved by the Government Price Board, the taxable value of VAT is the price excluding VAT, calculated as follows:

Price according to the prescribed level

of the Government Price Board

Price excluding VAT =

1 + Rate

VAT output tax = Price excluding VAT x Tax rate

Business entities issuing invoices for service revenue shall issue VAT invoices. The determination of the price excluding VAT and VAT according to the formula stated above. In the case of issuing VAT invoices directly to foreign ship owners for port charges and marine freight according to the tariff set by the Government Price Board, when issuing VAT invoices, only the total payment amount should be recorded without separately listing the price excluding VAT and VAT on the invoice. The entity issuing the invoice in this case shall recalculate according to the aforementioned formula to determine the VAT output tax.

The taxable value and VAT rate for each activity are specified as follows:

- For transportation services, the taxable value is the transportation fee excluding VAT. The VAT rate for this service is 10%.

- For port operation services, the taxable value is calculated according to the formula stated above, with a separate tax rate applied to each specific service. The price of port operation services excluding VAT is based on the tariff for various types of fees and charges as stipulated by the Government Price Board.

- For maritime brokerage services, the taxable value is the brokerage fee excluding VAT. If the income already includes VAT, it must be converted according to the formula stated above to determine the price excluding VAT. The VAT rate for this activity is 20%.

- For ship agency services, the taxable value is based on the tariff prescribed by the Government Price Board and calculated according to the formula stated above. The VAT rate for this activity is 20%. Units engaged in ship agency services that also provide other services, if they have sufficient legal basis to separate each service, shall apply a separate VAT rate for each specific service. In cases where separation is not possible, the general VAT rate applicable to ship agency activities, which is 20%, shall be applied.

Business entities engaged in transport agency and cargo handling agency services that collect payments on behalf of customers, the VAT output tax is determined based on the principle of including all customer receipts. The taxable revenue is the total receipts minus international shipping fees (if any) and expenses incurred outside Vietnam with supporting documents from foreign countries. This revenue serves as the basis for issuing VAT invoices and calculating VAT output tax. Revenue collected on behalf of customers is only considered as taxable revenue for VAT purposes and not as revenue for other purposes such as income tax, salaries, etc. International shipping fees (based on actual international shipping fees payable or agreements between the agency unit and the customer) and expenses incurred outside Vietnam with supporting documents from foreign countries serve as the basis for the agency unit to issue sales invoices to customers. In cases where the consignor agrees, the agency may issue a regular sales invoice collecting the full amount of international shipping fees due from the consignor, followed by issuing a VAT invoice to the shipowner based on the actual amount received, and determining the VAT output tax of the agency unit based on this invoice.

Example 1: Company A acts as a marine transport agent for Company B, transporting one ton of goods from Hanoi to Singapore at a package rate of 1000 USD.

Case 1: Company A hires Company C to transport one ton of goods from Hai Phong Port to Singapore, with an international marine transport fee of 600 USD paid to Company C. International marine transport is exempt from VAT, so Company A issues an invoice to Company B as follows:

+ A regular sales invoice recording the payment of 600 USD as the international marine transport fee paid on behalf of Company B.

+ A VAT invoice recording the remaining amount of 400 USD (including VAT). The VAT payable recorded on the invoice is:

- Case 2: Since Company A has not yet determined the international marine transport fee to be paid to Company C, in this case, the international marine transport fee is determined according to the agreement between Company A and Company B. For example, in this case, the agreed fee is 800 USD, so Company A issues an invoice to Company B as follows:

+ A sales invoice recording the international marine transport fee of 800 USD excluding VAT.

+ A VAT invoice recording the remaining amount of 200 USD (including VAT), the VAT payable by Company A is:

Example 2: Company A provides transport agency services for a shipment from Japan to Vietnam for Company B, with a total amount of 100 million VND (including the buyer's international shipping fee and other costs in Japan). The international sea freight charge based on the bill of lading issued by foreign shipping company X, converted to Vietnamese Dong, is 80 million VND. Other costs in Japan with supporting documents are 5 million VND. Company A issues two invoices to Company B as follows: one sales invoice without VAT of 85 million VND (including international sea freight and other costs in Japan with complete documentation), and one VAT invoice for the remaining amount of 15 million VND, the VAT output tax of Company A is determined as:

Example 3: Company A acts as an agent for Shipper B to transport one ton of goods from Hanoi to Taiwan. The total amount that Shipper B must pay is 50 million VND (including VAT). Shipowner C, who is the carrier, authorizes Company A to collect the full amount of the freight charge of 50 million VND. Company A issues a regular sales invoice to Shipper B on behalf of Shipowner C for 50 million VND. According to the contract or agreement between Company A and Shipowner C, the actual shipping fee that Shipowner C receives is 40 million VND, while Company A receives 10 million VND. Company A issues a VAT invoice to Shipowner C for 10 million VND, and the VAT output tax recorded on the invoice is:

- Other activities such as repairing domestic transportation means, leasing foreign ships then renting them to domestic units (including units with foreign investment capital in Vietnam), purchasing and selling spare parts, acting as an agent for leasing container shells, maritime consultancy... and other service activities (excluding ship agency and maritime brokerage services: VAT rate is 20%) in the maritime industry, taxable turnover for VAT is the revenue obtained from these services without VAT included, with a VAT rate of 10%.

In order to unify the regulations regarding the currency stated on invoices, in cases where services and goods are charged in foreign currency according to tariff schedules, the invoice should be stated in the original currency, but it must clearly indicate the exchange rate converted to Vietnamese Dong to determine the VAT output tax. The exchange rate for converting to Vietnamese Dong is based on the average trading rate in the inter-bank foreign exchange market at the time of issuing the invoice.

2- Input VAT:

Taxpayers as prescribed in Point 3 Section 1 of this Circular are responsible for declaring and determining input VAT according to the principle: input VAT of goods and services purchased for VAT-liable business operations occurring in a given month shall be aggregated and declared for deduction in the same month; if the input VAT deductible in the month of declaration and payment of tax exceeds the output VAT, it may be carried forward to the next month's declaration and deduction.

For businesses with revenues from VAT-liable and non-VAT-liable goods and services, separate accounting for input VAT (including VAT of agency-paid expenses) of VAT-liable and non-VAT-liable goods and services is required to determine deductible input VAT and non-deductible input VAT, and VAT payable. If a business cannot separately account for these amounts, the allocation method based on the percentage ratio of VAT-liable turnover to total turnover shall be applied to determine deductible input VAT.

III. DECLARATION AND PAYMENT OF VAT

1. For independent companies declaring and paying VAT locally at the place where the company is headquartered. If the company and its units have branches, stores... dependent on the main unit operating in the same locality as the headquarters, the VAT declared and paid centrally by the company and its units shall replace the monthly declarations and payments made by the branches and stores under their jurisdiction, which must submit VAT declaration forms to the company or unit for consolidation and submission to the State Budget.

Branches and stores operating in different localities from the company's headquarters must declare and pay VAT locally at the place of business (as defined in this Circular, locality refers to provinces and centrally-administered cities).

2. Refund of VAT: Companies and units engaged in VAT-liable services that are required to declare and pay VAT, if they have excess input VAT deductible over output VAT eligible for refund, must prepare a refund application form and submit it to the tax authority for review and processing of the refund.

IV. IMPLEMENTATION

1. Vietnam Maritime Corporation, Department of Transport, Provincial Tax Departments under the Central Government shall guide units in implementing VAT declaration, calculation, and payment according to the guidelines set out in this Circular.

2. Regarding invoices and documents: follow the current legal provisions on invoices and documents; for receipts not subject to VAT, issue regular sales invoices; for receipts subject to VAT, issue VAT invoices.

3. This Circular takes effect 15 days after the date of issuance. Other contents not covered in this Circular continue to be implemented according to the provisions of Circular No. 89/1998/TT-BTC dated June 27, 1998, and Circular No. 175/1998/TT-BTC dated December 24, 1998, issued by the Ministry of Finance. All guiding documents for VAT implementation issued by units that are inconsistent with the guidance in this Circular are abolished.

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