Circular No. 82/1999/TT-BTC guides the implementation of value-added tax (VAT) for projects using official development assistance (ODA) funds.

CIRCULAR

Guidelines for Value Added Tax Implementation on Projects Using Official Development Assistance (ODA) Funds

Pursuant to Law on Value Added Tax No. 02/1997/QH9 dated May 10, 1997; Government Decree No. 28/1998/NĐ-CP dated May 11, 1998 detailing the implementation of the Law on Value Added Tax; Government Decree No. 102/1998/NĐ-CP dated December 21, 1998 amending and supplementing certain articles of Government Decree No. 28/1998/NĐ-CP dated May 11, 1998 detailing the implementation of the Law on Value Added Tax;

Pursuant to Government Decree No. 87/CP dated August 5, 1997 promulgating the management and utilization regulations for official development assistance (ODA) funds;

The Ministry of Finance provides guidelines for the implementation of value added tax (VAT) on programs and projects using ODA funds as follows:

1. For programs and projects using ODA funds fully invested by the State Budget or partially supported by counterpart funds:

The program/project owner must calculate the full VAT arising during the investment process and formation of the program/project when preparing the budget, including VAT on imported goods and services subject to VAT (excluding imported goods not subject to VAT as specified below) and VAT on goods and services purchased in the domestic market that are subject to VAT. When making payments, the program/project owner uses counterpart funds from the State Budget to pay the VAT.

Goods, materials, machinery, equipment, and transportation means imported with non-repayable ODA funds used for investment and project formation are exempt from VAT according to Clause 20, Article 4 of the Law on Value Added Tax. For programs and projects that use both non-repayable ODA funds and concessional ODA loans under full State Budget investment or partial counterpart fund support, if the proportion of non-repayable ODA funds exceeds 50% of the total project investment, then imported goods for investment and project formation are exempt from VAT.

Imported goods using concessional ODA loans for specialized machinery, equipment, and transportation means that cannot be produced domestically and directly imported by the investor for investment and project formation are exempt from VAT according to Clause 4, Article 4 of the Law on Value Added Tax.

Customs authorities base on the import documentation of the program/project owner and the list of specialized machinery, equipment, and transportation means that can be domestically produced issued together with Decision No. 214/1999/QĐ-BKH dated April 26, 1999 of the Ministry of Planning and Investment to implement the exemption of VAT on the aforementioned imported specialized machinery, equipment, and transportation means.

The State Budget ensures the provision of counterpart funds for the program/project owner to pay VAT or record income and expenditure through the State Budget according to the guidelines set out in Circular No. 06/1998/TTLT-BKH-BTC dated August 14, 1998 of the Ministry of Planning and Investment and the Ministry of Finance.

2. For programs and projects using ODA funds through a loan repayment mechanism from the State Budget:

The program/project owner must self-fund the VAT arising during the investment process and formation of the program/project, including VAT on imported goods and services subject to VAT (excluding imported goods not subject to VAT as specified below) and VAT on goods and services purchased in the domestic market that are subject to VAT.

Imported goods using non-repayable ODA funds and specialized machinery, equipment, and transportation means that cannot be domestically produced and used for investment and project formation are exempt from VAT. The program/project owner submits documentation as directed for programs/projects mentioned in Point 1 of this Circular for the customs authority at the location where the program/project owner imports goods to implement the exemption of VAT on the aforementioned imported goods.

3. Value Added Tax for organizations and individuals (contractors) providing goods and services to programs and projects using ODA funds:

3.1. Foreign organizations and individuals (foreign contractors) signing contracts with the program/project owner to provide goods and services for programs and projects using ODA funds must pay VAT according to Circular No. 169/1998/TT-BTC dated December 22, 1998 of the Ministry of Finance guiding the tax regime applicable to foreign organizations and individuals conducting business in Vietnam not falling under the forms of foreign investment as stipulated in the Law on Foreign Investment in Vietnam.

Machinery, equipment, and transportation means imported by foreign contractors under temporary importation and re-exportation for construction purposes of programs and projects using ODA funds are exempt from VAT. Customs authorities implement the exemption of VAT on machinery, equipment, and transportation means temporarily imported by contractors for construction purposes. These items must be re-exported upon completion of the project, and if sold in the domestic market, they must be approved by the Ministry of Trade and subject to VAT according to the provisions of the Law on Value Added Tax.

3.2. Vietnamese organizations and individuals (Vietnamese contractors) signing contracts with the program/project owner to provide goods and services for programs and projects using ODA funds must pay VAT according to the Law on Value Added Tax and current guiding documents.

4. Value Added Tax for contracts providing goods, services, and construction works for programs and projects using ODA funds that have been awarded and signed before January 1, 1999.

To ensure the implementation of programs and projects using ODA funds with contracts awarded and signed before January 1, 1999, in accordance with plans and schedules without changing the approved bid prices, in principle, the tax policy for these contracts will be applied similarly to the tax rates formed up to December 31, 1998. Specifically, as follows:

4.1. For contracts exempted from turnover tax pursuant to the decision of the competent authority, foreign contractor contracts exempted from turnover tax for the provision of goods and services to programs and projects funded by ODA according to the loan agreement commitments, starting from January 1, 1999, the program/project owner shall pay the contractor based on the bid price of the awarded contract.

The contractor providing goods and services exempted from turnover tax mentioned above shall issue a sales invoice to request payment from the program/project owner, without paying VAT and not being entitled to deduct the corresponding input VAT on the turnover from providing goods and services to the aforementioned programs and projects.

4.2. For contracts not exempted from turnover tax: starting from January 1, 1999, the rate of VAT on output for goods and services subject to VAT provided to the program/project owner shall be determined by the turnover tax rate already structured into the bid price according to the Turnover Tax Law's Tax Rate Table up to December 31, 1998.

Contractors providing goods and services that pay VAT under the deduction method must separately account for the input VAT and output VAT on the turnover from providing goods and services for ODA-funded programs/projects for deduction purposes. In cases where separate accounting for input VAT is not possible, the deductible input VAT shall be calculated as a proportion of the turnover of goods and services provided to ODA-funded programs/projects relative to the total turnover of goods and services sold. If the input VAT exceeds the output VAT, the organization providing goods and services to the program/project owners shall not offset the excess against the VAT payable on goods and services provided to other entities and shall not be refunded the excess amount.

Example 1: In 1997, Consultant B signed a contract with Project Owner A to provide consulting services with a contract value of 1,000,000 USD. By December 31, 1998, Project Owner A had paid 500,000 USD, and the remaining contract value to be paid according to the signed contract in 1999 was 500,000 USD. When requesting payment from Project Owner A, Consultant B, who pays VAT under the deduction method, will use a VAT invoice and record the following on the invoice:

- Value of service: 480,000 USD

- VAT: 20,000 USD (500,000 x 4% - the turnover tax rate for consulting activities)

- Total payment value: 500,000 USD

Example 2: Similar to Example 1, but Consultant C pays VAT under the direct payment method. When requesting payment from the program/project owner, the consultant uses a sales invoice and records the payment value of 500,000 USD on the invoice.

4.3. For imported goods for investment and forming programs and projects:

- Program/project owners importing goods for investment and project formation according to contracts won and signed before January 1, 1999, shall not have to pay VAT at the import stage. The program/project owner shall submit import documentation to the customs authority to determine the non-VAT taxable items, including:

+ A letter requesting from the program/project owner;

+ Investment decision of the competent authority (the program/project owner presents the original, the customs authority retains a certified copy);

+ An import contract clearly specifying the origin of the goods and the place of delivery (the program/project owner presents the original, the customs authority retains a certified copy);

+ Other relevant import documents (as stipulated for imported goods).

The customs authority at the point of importation shall base its actions on the import documentation submitted by the program/project owner to implement non-payment of VAT and manage the tracking of imported goods not subject to VAT for ODA-funded programs and projects.

This Circular takes effect fifteen days after the date of signature. Any contents not covered by this Circular shall be implemented in accordance with 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, and current guiding documents.

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