Vietnam VAT rates explained for small business owners

Vietnam VAT rates come in three bands: 0 percent, 5 percent and 10 percent. Most goods and services carry the 10 percent standard rate. A short list gets 5 percent, exports get 0 percent, and some items are outside VAT altogether. The rules come from Law No. 13/2008/QH12, which took effect on 1 January 2009 and has been amended since. This guide explains the bands in plain words for small business owners.

Source: Law No. 13/2008/QH12 on value added tax, the articles on tax rates.

The three bands

VAT is a tax on the value you add at each step of a sale. You charge it to your customer. You pay it on to the state, after taking off the VAT you paid to your own suppliers.

The 10 percent rate is the default. If a good or service is not named in a lower band or an exempt list, 10 percent applies. The 5 percent band covers items the state wants to keep affordable, such as clean water, teaching aids, unprocessed farm products, medical equipment and books. The 0 percent band is mainly for exports and for international transport.

A 0 percent sale is still a taxable sale. That is different from an exempt sale. This difference matters for your credit, as the next section shows.

Source: Law No. 13/2008/QH12, Articles 8 and 5; Law No. 31/2013/QH13 amending the Law on VAT.

What changed in recent years

Law No. 31/2013/QH13 took effect on 1 January 2014. It reworked the lists of exempt items and the rules for input credit and refunds. Ministry of Finance Circular No. 219/2013/TT-BTC explains how to apply it.

Law No. 71/2014/QH13 was passed on 26 November 2014 and changes some VAT items from 1 January 2015. It moves certain goods between bands and updates the rules for some sales.

Law No. 106/2016/QH13 was passed on 6 April 2016 and took effect on 1 July 2016, just days before this article. It changes the refund rules, so check it before you plan a refund claim.

Lists like these change, and more amendments may follow, so do not rely on memory. Before you price a product, look up the item in the current law and circular, or ask your tax adviser.

Source: Law No. 31/2013/QH13; Law No. 71/2014/QH13 amending a number of tax laws; Law No. 106/2016/QH13 amending the Law on VAT, the Law on Special Consumption Tax and the Law on Tax Administration; Circular No. 219/2013/TT-BTC.

How input VAT credit works

Most registered businesses use the credit method. Here is a simple case. You buy goods for VND 100 million and pay VND 10 million of VAT. You sell them for VND 150 million and charge VND 15 million of VAT. You owe the state VND 5 million, which is 15 million less 10 million.

To claim input VAT, you need a valid VAT invoice in your company name. For a purchase invoice of VND 20 million or more, you also need proof of non-cash payment, such as a bank transfer. Without it, the VAT on that purchase cannot be deducted.

Sales that are exempt from VAT do not let you claim the VAT on the costs that went into them. Sales taxed at 0 percent do. That is why many exporters prefer 0 percent to an exemption.

Source: Law No. 13/2008/QH12, Articles 12 and 13 as amended by Law No. 31/2013/QH13; Circular No. 219/2013/TT-BTC.

Refunds and small firms

If your input VAT is bigger than your output VAT, you normally carry the extra forward and use it against later bills. A refund in cash is possible only in set cases.

Exporters can ask for a refund when their unclaimed input VAT builds up past a limit set in the circular. Refund rules for new investment projects were tightened by Law No. 106/2016/QH13 from 1 July 2016, so confirm the current rule before you claim. Refund files are checked with care, so keep your invoices, contracts and payment records in order.

Some very small businesses and individuals use a direct method. They pay VAT as a percentage of their sales and do not claim input credit. Check with your local tax office whether your business qualifies.

Source: Law No. 31/2013/QH13, the article on VAT refunds; Law No. 106/2016/QH13; Circular No. 219/2013/TT-BTC.

A quick checklist

First, find the band for each product or service you sell. Second, show VAT clearly on every invoice you issue. Third, collect valid invoices for your purchases and pay large ones by bank transfer. Fourth, file your VAT return on time, because late filing brings penalties and interest. Fifth, keep records for any refund claim.

This article is general information, not tax or legal advice. Talk to a licensed Vietnamese tax adviser about your own case.

Source: editorial summary of the laws and circular listed below.

Sources

Law No. 13/2008/QH12 on value added tax. Law No. 31/2013/QH13 amending a number of articles of the Law on VAT. Law No. 71/2014/QH13 amending a number of tax laws, passed 26 November 2014. Law No. 106/2016/QH13, passed 6 April 2016. Ministry of Finance Circular No. 219/2013/TT-BTC. All published in the official gazette (congbao.chinhphu.vn).