Vietnam: VAT rate reduction and CIT deduction
A reduced VAT rate has been in effect in Vietnam since 1 February 2022. In addition, companies can make certain deductions to corporate income tax. With these measures, the government aims to promote socio-economic recovery and economic development.
The Vietnamese government has adopted Decree No. 15/2022 (Decree 15), which came into effect on 1 February 2022. The decree specifies the implementation of value added tax (VAT) reduction and corporate income tax (CIT) deduction, notable parts of the fiscal and monetary policies under Resolution No. 43/2022 (Resolution 43) of 11 January 2022.
Reduction in the VAT rate
a. Regulated subjects
From February to December 2022, a 2% VAT reduction applies to certain groups of goods and services (G&S) which were previously subject to 10% VAT. However, the tax reduction does not include G&S listed in appendices I, II, III of Decree 15. It also does not apply to G&S previously not subject to VAT or subject to VAT with a rate of 5%.
b. Implementation procedures
The VAT reduction according to Decree 15 applies consistently at all stages, including import, production, processing and trading. The new tax rate of 8% is applicable for businesses that use the VAT credit method, while businesses including households and individuals that apply the VAT direct method are eligible for a 20% reduction in the percentage used as the basis for VAT calculation. The VAT reduction must be clearly written on the corresponding invoice.
G&S eligible for VAT reduction must be invoiced separately from those not entitled to VAT reduction and declared on Form No. 01 in appendix IV of Decree 15, together with the VAT return.
The tax breaks in Vietnam are also interesting for investorsNghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam
To ensure proper implementation, the Ecovis professionals highly recommend that businesses should be careful in the two following areas:
- Classifying and categorising G&S to accurately determine the eligibility for VAT reduction
- Determining the time of VAT calculation and invoicing to apply the VAT reduction period appropriately
Corporate income tax deduction
Decree 15 adds two new points compared to Decree No. 44/2021 of 31 March 2021 to allow donations and sponsorships, whether in cash or in-kind, provided for COVID-19 epidemic control measures in Vietnam through specific recipients as deductible CIT expenses in 2022:
- The COVID-19 vaccine fund is added as one of the stipulated proper recipients of donations and sponsorship
Where a parent company provides donations and/or sponsorship on behalf of its subsidiaries, the parent company and its subsidiaries may include their corresponding donations and/or sponsorship in their deductible expenses when calculating taxable corporate income
- The parent company must provide a record or certification of the donations and/or sponsorship. The subsidiary must have statutory invoices, supporting documents and certification of its donations and/or sponsorship given by the parent company.
Businesses should pay attention when making donations or sponsoring recipients with a fundraising function and prepare the appropriate invoices and supporting documents as required.
For further information please contact:
Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam
Nghia Duong Tran
ECOVIS AFA VietnamNo. 142 Xo Viet Nghe Tinh Street
Hoa Cuong Nam Ward, Hai Chau District
Phone: +84 236 3633 333