Circular No. 122/2000/TT-BTC dated December 29, 2000 of the Ministry of Finance on Value Added Tax providing guidelines for implementation of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of Law on Value Added Tax (VAT)

CIRCULAR

ON VALUE ADDED TAX PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREE 79/2000/ND-CP OF THE GOVERNMENT DATED 29 DECEMBER 2000 MAKING DETAILED PROVISIONS FOR IMPLEMENTATION OF LAW ON VALUE ADDED TAX (VAT)

Pursuant to the Law on Value Added Tax 02/1997/QH9 dated 10 May 1997; Pursuant to Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of the Law on VAT; and Decree 73-CP of the Government dated 30 July 1994 making detailed provisions for implementation of the Ordinance on Privileges and Immunities of Diplomatic Representative Offices, Foreign Consulates and Representative Offices of International Organizations in Vietnam;

The Ministry of Finance provides the following implementing guidelines:

A. SCOPE OF APPLICATION OF VAT

I. TAXABLE OBJECTS AND VAT PAYERS

1. Taxable objects:

Pursuant to article 2 of the Law on VAT and article 2 of Decree 79/2000/ND-CP of the Government dated 29 December 2000, goods and services used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except as provided for in Section II of Part A of this Circular.

2. VAT payers:

Pursuant to article 3 of the Law on VAT and article 3 of Decree 79/2000/ND-CP of the Government dated 29 December 2000 making detailed provisions for implementation of the Law on VAT, all organizations and individuals producing and trading VAT taxable goods and services in Vietnam, irrespective of the business line, form or organization (hereinafter collectively referred to as business establishments), and other organizations and individuals importing VAT taxable goods (hereinafter collectively referred to as importers) shall be liable to pay VAT.

Organizations and individuals producing and trading goods and services shall comprise:

- Business organizations established under and with business registration in accordance with the Law on Enterprises, the Law on State Owned Enterprises and the Law on Co-operatives;

- Economic organizations of political organizations, socio -political organizations, social organizations, socio -professional organizations, units of the people's armed forces and other professional organizations and units;

- Enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam; and foreign companies and organizations conducting business in Vietnam beyond the scope of the Law on Foreign Investment in Vietnam;

- Individuals and family households carrying on production or trading, independent groups of people conducting business, and other business objects.

II. OBJECTS NOT SUBJECT TO VAT

Pursuant to article 4 of the Law on VAT and article 4 of Decree 79/2000/ND-CP of the Government, the following goods and services shall not be subject to VAT:

1. Products of cultivation (including products of forestation), husbandry or aquaculture which have not yet been processed into other products or which have only been semi -processed by organizations or individuals producing or selling such products.

Semi -processing means processing attached to the process of production of products of cultivation, husbandry or aquaculture during which such products are subject to preliminary treatment but are not thereby converted into other products or goods.

For example: air-drying, machine-drying, shelling, seeding of agricultural products; freezing, salt -preserving, air-drying of prawns, fish and other aquaculture products.

2. Salt products, including sea salt, salt exploited from natural salt mines, table salt and iodine salt.

3. Goods and services which are subject to special sales tax shall not be subject to VAT at the stage of production, importation or provision of services for which special sales tax has been paid, except for goods subject to special sales tax on export for which the applicable VAT rate shall be zero (0) per cent as stipulated in clause 1 of Section II of Part B of this Circular.

Example 1: Company A manufactures cigarettes which are subject to special sales tax. Company A does not have to pay VAT on cigarettes at the production stage for which special sales tax has been paid, but business establishments purchasing and selling cigarettes shall pay VAT on tobacco goods. If manufacturing Company A or a cigarette trading establishment exports, then the VAT rate of zero (0) per cent shall apply to export cigarettes and there shall be a deduction or refund of input VAT on the raw materials used in the production or trading of export cigarettes.

Example 2: Business establishment B imports alcoholic drinks which are subject to special sales tax upon importation, and therefore it is not required to pay VAT at the importation stage; but when this establishment sells alcoholic drinks to other entities, it shall calculate and pay VAT on the alcoholic drinks sold.

4. The following imported goods shall not be subject to VAT:

- Machinery, equipment or specialized means of transportation which form part of a technological line, and construction supplies which are not yet able to be produced domestically, and are required to be imported to form the fixed assets of enterprises;

- Aircraft, drilling platforms and watercraft leased from foreign parties irrespective of the form of lease and used for production or business (in the category not yet able to be produced domestically);

- Machinery, equipment, accessories, specialized means of transportation and materials required to carry out petroleum exploration and field development; aircraft parts and accessories, and specialized equipment for aircraft (in the category not yet able to be produced domestically).

In cases where a production or business establishment imports a complete production line of machinery and equipment which is not subject to VAT but in the complete production line there is machinery or equipment which is able to be produced domestically, the complete production line of machinery and equipment shall not be subject to VAT.

For example: Textile Company A imports a number of textile machines in the category not yet able to be produced domestically, which contain a number of complete electrical motors in the category able to be produced domestically, then these imported complete motors shall not be subject to VAT.

Importers must present the following file to the customs office in order to determine whether VAT is payable upon import of machinery, equipment, specia lized means of transportation and construction supplies imported to form the fixed assets of enterprises; accessories and materials required to carry out petroleum exploration and field development; aircraft parts and accessories and specialized equipment for aircraft in the category not yet able to be produced domestically:

- Contract for importation, and if import is through an authorized agent there must also be the contract authorizing the importation;

- Notice of successful tenderer and contract of sale to enterprise in accordance with the tender results (if the establishment is importing to supply to a project upon successful tender);

- Financial leasing contract (if a financial leasing company imports in order to lease to an enterprise);

- Certification that the machinery, equipment, specialized means of transportation or construction supplies are imported to form the fixed assets of an enterprise, from the director of the enterprise which will use the imported assets or construction supplies; or certification from the director of the enterprise (including cases of importation of accessories, components, specialized means of transportation and materials in order to carry out petroleum exploration and field development; and aircraft parts and accessories and specialized equipment for aircraft).

In particular, aircraft, drilling platforms and watercraft leased from foreign parties in the category not yet able to be produced domestically and used for production and business shall not be subject to VAT, and leasing establishments shall only be required to present to the customs office the lease signed with the foreign party.

Enterprises in these cases shall include legal entities being enterprises established under the Law on State Owned Enterprises, the Law on Enterprises and the Law on Co-operatives; enterprises with foreign owned capital and foreign parties to business co-operation contracts under the

Law on Foreign Investment in Vietnam; and foreign organizations and enterprises conducting business beyond the scope of the Law on Foreign Investment in Vietnam.

Whether the above types of import goods which are required to be imported are in the category not yet able to be produced domestically shall be determined on the basis of the list of machinery, equipment, specialized means of transportation, construction supplies, components and accessories which have been produced domestically as issued by the Ministry of Planning and Investment.

5. Transfer of land use rights subject to land use right transfer tax.

6. Sales of State owned residential houses by the State to existing tenants in accordance with the provisions of Decree 61-CP of the Government dated 05 July 1994 on Purchase, Sale and Trading of Residential Houses.

7. Credit services and investment fund services, including lending activities and financial leasing by banks, credit institutions, financial institutions and investment funds; assignment of capital in accordance with law; and securities trading activities.

Credit services not subject to VAT means lending activities on the principle that the whole of the loan is repayable in accordance with law.

In respect of bank guarantee services, if the guarantor discharges the obligation of loan repayment on behalf of its customer who failed to fulfil the committed obligation, and the customer is required to accept the debt and refund the credit institution the amount the latter paid out on behalf of the customer, then the revenue from guarantee services remains in the category subject to VAT but the revenue from the repayment by the customer to the credit institution shall not be subject to VAT.

Securities trading activities shall include activities such as broking, self- trading, managing investments, underwriting issues and securities investment consultancy.

8. Life insurance; student insurance; insurance services such as marine crew accident insurance; personal accident insurance (including accident insurance and combined cover of life insurance and hospitalization expenses), accident insurance covering customers, travellers, automobile drivers, driver assistants and passengers; insurance cover for emergency hospitalization and surgical expenses; vasectomy insurance; personal life insurance; electrical accident insurance and so forth; livestock insurance, industrial crop insurance and other types of agricultural insurance; and non-profit -making insurance services such as social insurance, health insurance and workers' compensation insurance.

9. Medical examination and treatment services, disease prevention, family planning services, convalescence and rehabilitation services, and veterinary services.

10. Products and services in the sectors of culture and the arts, physical training and sports, as follows:

- Public cultural, exhibition, physical training and sporting activities, and training sessions and competitions which are free of charge, or for which tickets are sold to audience or participants but on a non- profit -making basis. Other items of revenue shall be subject to VAT, such as from the sale of goods, from the lease of parking areas, and from stalls at fairs, exhibitions, and so forth.

- Artistic performances, such as tuong opera, cheo opera, cai luong performances, singing, dancing, musical performances, dramas, and circuses; other types of artistic performance and services of organizing artistic performances.

- Production of all types of films (other than film with images pre-recorded), irrespective of their theme and type.

- The publication and screening of imported films (other than blank film):

- For cinematographic films, irrespective of their theme and type;

- For video films and disks, only documentaries, news features and science videos.

Determinations on the theme and type of a film shall be made in accordance with the regulations of the Ministry of Culture and Information.

11. Education and vocational training, including general education, foreign languages, informatics, training in dancing, singing, painting, music, drama, circus, sports and physical education, child care and other vocational training aimed at improving people's academic, professional and occupational knowledge.

12. Radio and television broadcasting according to programs funded by the State budget.

13. Printing, publication, importation and dissemination of newspapers, magazines, specialized newsletters, political books, textbooks (including in the form of visual video or aural disk), teaching materials and books of legislation (books of legal instruments and legal documents, resolutions and other legal instruments); books printed in languages of ethnic minorities; propaganda pictures, photos and posters; printing of money and papers with monetary value (cheques, bonds, money orders, securities and so forth); cash from overseas transmitted to Vietnam.

- Printing newspapers includes activities of transmitting pages of newspapers, magazines and specialized newsletters;

- Political books means propaganda books about the political orientation of the Party and the State, which by virtue of their special subject-matter and themes serve political tasks, or which service anniversaries and traditional days of organizations and of all levels, branches and localities; all types of statistical books which disseminate information about good people and good deeds; and books which print the speeches and theoretical studies of the leaders of the Party and of the State;

- Textbooks means books used by teachers and used for study in all schools from pre -primary to secondary;

- Teaching materials means books used by teachers and used for study in all universities, colleges, vocational and specialist schools;

- Books of legislation means books printing the legal instruments of the State;

- Books printed in languages of ethnic minorities shall include bi- lingual books printed in commonly used languages as well as in languages of ethnic minorities;

- Pictures, photos, posters, leaflets and brochures for propaganda purposes; slogans and pictures of the leaders, the Party flag, the National flag, the flag of the Youth League and the flag of the Young Pioneers League;

- Visual and audio videos, disks and tapes with the contents of the above-mentioned books.

14. Public hygiene services and water drainage in urban areas and residential areas; maintenance of zoos, gardens, parks, urban trees and public lighting services; funeral services; and other public welfare goods and services.

- Public hygiene services and water drainage in urban areas shall include collecting, cleaning, transporting and dealing with garbage and waste; dredging sewerage, and dealing with waste water and flooding in urban areas and residential areas;

- Maintenance of zoos shall include the management, care and protection of birds and animals in parks, zoos and national parks; and planting of trees and flowers in parks and streets;

Where an admission fee is collected for any park, zoo, and so forth, in order to cover part of its administrative and operational expenses in accordance with State regulations, the amounts so collected shall not be subject to VAT.

- Funeral services shall include services relating to the renting of funeral homes and hearses offered by funeral service companies; cremation and burial.

Any items collected for activities for which fees are charged in accordance with State regulations shall not be subject to VAT.

15. Maintenance, repair, restoration and construction of cultural and artistic works, public works, infrastructure and welfare housing funded by public contribution and humanitarian aid, including cases in which the State funds thirty (30) per cent or less of the total capital actually expended.

16. Public passenger transportation by bus of bus companies established and operating under the regulations of the Ministry of Transport satisfying the transportation requirements of the people within cities, urban areas and industrial zones or between cities and neighbouring industrial zones, with the routes, stops, schedules and fares stipulated by the competent authority.

17. Geological surveys, exploration, measuring and formulation of maps, which can be characterized as basic surveys of the State funded by the State Budget.

18. Water supply and drainage serving agricultural production; clean water produced by organizations and individuals for consumption in rural, mountainous and island areas and remote and distant regions.

19. Specialized arms and weaponry required for national defence and security.

- The list of specialized arms and weaponry required for national defence and security is specified in Appendix 3 to this Circular.

Such arms and weaponry s hall include complete products, synchronous items or sections, component parts, and specialized packaging for assembly and preservation of complete products.

Repairs of specialized arms and weaponry required for national defence and security shall be carried out by enterprises under the Ministry of Defence and the Ministry of Police.

- Specialized arms and weaponry (including materials, machinery, equipment and replacement accessories) required for national defence and security, whether imported as import duty exempt under the Law on Export and Import Duties or whether imported under the annual quota approved by the Prime Minister of the Government, shall also be VAT exempt at the stage of importation.

Importers of specialized arms and weaponry required fo r national defence and security which are import duty exempt as mentioned above must forward to the customs office the following file:

- Certification from the Ministry of Defence or the Ministry of Police that the imported goods are required for national defence and security;

- List of imported goods on the import quota list approved by the Prime Minister of the Government (issued by the Ministry of Trade or by the General Department of Customs);

- Contract authorizing the importation (if import is via an authorized agent).

20. Imported goods in the following cases: humanitarian aid and non - refundable aid (including imported goods funded by non -refundable ODA aid); gifts to State bodies, socio -political organizations, socio -professional organizations and units of the people's armed forces; gifts to individuals in Vietnam; personal effects of foreign organizations and individuals under diplomatic immunity regulations; hand -luggage within duty-free limits; personal effects of Vietnamese residing overseas accompanying them upon returning to Vietnam.

The limits for imported goods not subject to VAT at the stage of importation shall follow the limits for import duty exemption stipulated in the Law on Export and Import Duties and the guidelines on its implementation.

The procedures for dealing with imported goods which are humanitarian aid or non-refundable aid and not subject to VAT at the stage of importation in these circumstances shall be carried out in accordance with the provisions in clause 3 of Section I and Section II of Part D of Circular 172/1998/TT-BTC of the Ministry of Finance dated 22 December 1998 on import duty exemption.

- Goods to be sold to international organizations and foreigners for humanitarian aid or non-refundable aid for Vietnam;

Procedures for international organizations and foreigners to purchase goods in Vietnam for humanitarian or non-refundable aid for Vietnam to be exempt from VAT: International organizations and foreigners must forward a letter to the seller stating clearly their name as purchaser of goods for humanitarian aid or non-refundable aid for Vietnam and the quantity or value and type of goods purchased; and include a certificate from the Department for Administration and Receipt of Humanitarian Aid (Ministry of Finance) regarding such item for humanitarian aid.

Upon sale, a selling establishment must prepare an invoice in the form stipulated in Section IV of Part B of this Circular, specifying that the goods are being sold to an organization or individual for humanitarian aid or non-refundable aid, must not include VAT, and must retain the letter from the international organization or Vietnamese representative office in order to provide the basis for tax declaration and finalization.

- Goods and services sold to those entitled to diplomatic immunity under the Ordinance on Diplomatic Immunity.

Those entitled to diplomatic immunity and exemption from VAT on goods and services shall comprise:

- Diplomatic representative offices, foreign consular offices and representative offices of international organizations of the United Nations opened in Vietnam (hereinafter referred to as representative offices) and the head of such representative offices shall be entitled to preferential exemption from VAT on goods and services imported or purchased in the Vietnamese market:

- Services for leasing the head office of the representative office and the residence of the head of the representative office;

- Power and water used for living conditions at the head office of the representative office and the residence of the head of the representative office;

- Telephone and facsimile, and services for their installation (including mobile phones);

- Petrol and diesel oil for the automobile of the representative office bearing the diplomatic number plate NG, up to 400 litres per month per one car;

- Goods and services used in the construction, upkeep, maintenance and repair of premises being the properties used as the head office of the representative office and the residence of the head of the representative office;

- Facilities and equipment for the head office of the representative office or the residence of the head of the representative office;

- Goods imported or purchased domestically in accordance with the provisions in Inter-ministerial Circular 04-TTLB dated 12 February 1996;

- A number of other essential goods purchased at shops permitted to sell duty-free goods.

- Diplomatic officials, consular officials, officials of international organizations and administrative and technical staff of representative offices shall be entitled to preferential exemption from VAT on goods and services imported or purchased in the Vietnamese market:

- Goods imported or purchased domestically in the quantities stipulated in Inter-ministerial Circular 04-TTLB of the Ministry of Trade, the Ministry of Foreign Affairs, the Ministry of Finance and the General Department of Customs dated 12 February 1996;

- Petrol and diesel oil for the automobile of the representative office bearing the diplo matic number plate NG, up to 300 litres per month per one car;

- A number of other essential goods purchased at shops permitted to sell duty-free goods.

- Representative offices of Governmental international organizations outside the United Nations system and members of such offices and their accompanying families shall be entitled to preferential exemption from VAT in accordance with international treaties which Vietnam has signed with such international organizations.

Representative offices of non-Governmental organizations and members of such offices and their accompanying families shall be entitled to preferential exemption from VAT in accordance with agreements which the Government of Vietnam has signed with such organizations.

- Where it is permissible for a diplomatic representative office or consular office to assign residential housing, automobiles or motorbikes to members of a diplomatic representative office or consular office entitled to diplomatic immunity, such assignment shall not be subject to VAT.

When goods are imported, the customs office shall guide the procedures for determining which objects are not subject to VAT at the stage of importation as well as which objects are exempt from import duty.

When organizations and individuals entitled to diplomatic immunity purchase goods or services, they must provide the seller with their certificate of entitlement to preferential exemption from VAT on such goods or services issued by the Department of Protocol of the Ministry of Foreign Affairs (original, or a copy sealed and signed by the authorized person of the office entitled to diplomatic immunity). Where goods or services are VAT exempt up to a stipulated quantity, then the organizations and individuals entitled to diplomatic immunity must present their register of goods purchased issued by the Ministry of Foreign Affairs. A certificate of entitlement to preferential exemption from VAT shall contain the following:

- The holder's name and address in Vietnam;

- Name of the goods and services exempt from VAT;

- Name of the business organization or individual supplying the goods or services. If goods are imported this should be stated.

- Number and date of the contract for supply between the supplier and the organization or individual entitled to diplomatic immunity.

Upon sale of goods or services, a selling establishment must prepare an invoice strictly in accordance with the form stipulated in Section IV of Part B of this Circular, specifying the name of the purchasing organization or individual and stating that the goods or services are VAT exempt. The seller shall retain the certificate of preferential exemption from VAT from the international organization or Vietnamese representative office in order to provid e the basis for tax declaration and finalization.

21. Goods in transit or trans-shipment or crossing Vietnamese borders; goods temporarily imported and re -exported and goods temporarily exported and re-imported; raw materials and supplies imported for production or processing of goods for export in accordance with production or processing contracts for export signed with foreign parties.

The customs office shall resolve which goods are not subject to VAT in these circumstances. The procedures for the non -collection of VAT shall be carried out in the same manner as the procedures for import duty exemption or for dealing with duty on goods imported for the production of goods for export under contracts signed with foreign parties.

22. Goods and services provided to the following subjects and circumstances:

- Goods and services provided directly to international transportation carriers, such as fuel, raw materials, accessories, water and foodstuffs including pre -packed meals for passengers on international ships, aircraft and trains; goods loaded for export.

- International transportation carriers of goods and passengers.

International transportation shall include transportation by foreign carriers or by domestic transportation business establishments participating in the transportation of goods and passengers departing from Vietnam to foreign countries or vice versa, and the transportation of goods between foreign ports.

- Services supplying consumers outside Vietnam and export processing enterprises, except for the repair of machinery, equipment and means of transportation for foreign parties or services of labour export.

- Operations of the construction and installation of works or items of works overseas for export processing enterprises.

- Duty-free goods sold at duty-free shops at international airports, seaports, international stations and bordergates.

- National reserves goods sold by the National Reserves Office.

- Goods and services of export processing enterprises which are exported overseas; goods and services purchased and sold as between export processing enterprises; goods and services supplied by foreign organizations and individuals to export processing enterprises.

23. Technology transfers and computer software, except for exported computer software.

- Technology transfers shall be determined in accordance with the provisions of Chapter III - "Transfer of Technology" of the Civil Code of the Socialist Republic of Vietnam and implementing legislation. In the case of technology transfer contracts accompanied by machinery and equipment, only the value of the transferred technology shall not be subject to VAT.

- Computer software shall include software products and software services in accordance with the provisions of Decision 128/2000/QD-TTg of the Prime Minister of the Government dated 20 November 2000 on Policies and Measures for the Encouragement of Investment in and Development of the Software Industry.

24. Gold imported in bars and foils and gold which is not yet processed into fine art articles, jewellery or other products.

Gold in bars and foils and unprocessed gold shall be determined in accordance with international provisions.

25. Exported minerals which are not yet processed into other products shall be specified as follows:

- Crude oil;

- Stone slabs, sand and rare earth;

- Precious stones;

- Manganese ores, tin ores, iron ores, chromic ores, emanate ores and apatite ores.

26. Goods and services of business individuals being people with average monthly income levels lower than the minimum wage applicable to State employees as provided for by the State from time to time. Such income shall be determined by the revenue earned from business activities less (-) the reasonable expenditure of such business activities.

Business households with a low income which are not required to pay VAT shall be determined after inspection by the tax division in co- ordination with the Tax Consultancy Board, and a list shall be compiled thereof and written notice shall be provided to such business households.

Business households shall not be required to pay VAT during the duration of the above notice, but if their situation changes so that their income exceeds the stipulated limit, the tax division must notify them and place them within the category of VAT payers as from the month their in come exceeded the stipulated limit.

Any organization or individual producing, trading, importing or selling goods or supplying services which are not subject to VAT or which are VAT exempt as stated above shall not be entitled to a deduction or refund of input VAT on such goods and services at any stage not subject to VAT.

B. BASES FOR AND METHODS OF TAX CALCULATION

The bases for calculation of VAT are taxable prices and tax rates.

I. VAT TAXABLE PRICE

Prices used for calculation of VAT on goods and services shall be specifically determined in accordance with article 7 of the Law on VAT and article 6 of Decree 79/2000/ND-CP as follows:

1. In respect of goods and services sold or provided by production or business establishments to other subjects, the sale price excluding VAT.

Prices used for calculation of VAT on all types of goods and services shall also include additional levies and supplementary fees on top of the price of the goods and services which the business establishment is entitled to, e xcept for additional levies and supplementary fees the latter must pay to the State Budget.

2. In respect of imported goods, the imported price at the bordergate plus (+) import duties. The imported price at the bordergate used to calculate VAT shall be determined in accordance with the provisions on import dutiable prices.

For example: An establishment imports complete television sets, with the dutiable price of VND 2,000,000 per set.

- The rates of import duty and VAT are 30% and 10% respectively;

- Import duty payable: VND 2,000,000 x 30% = VND 600,000;

- VAT taxable price: VND 2,000,000 + 600,000 = VND 2,600,000;

- VAT payable: VND 2,600,000 x 10% = VND 260,000

Where imported goods are entitled to exemption from or reduction of import duties, the VAT taxable price shall be the price of the imported goods plus (+) the import duty determined at the level payable after the exemption or reduction.

3. In respect of products, goods and services used for the purposes of exchange, gift or donation, or paid instead of wages (except for products and goods used in promotions and advertisements in accordance with the provisions of Decree 32/1999/ND-CP dated 5 May 1999 on Commercial Promotions and Advertisements, Trade Fairs and Exhibitions not subject to VAT), the VAT taxable price shall be the taxable price of products, goods and services of the same or equivalent category at the time of such use.

For example: Establishment A manufactures electrical fans and exchanges 50 fans for steel from Establishment B, and the sale price before VAT is VND 400,000 per fan. The VAT payable in respect of the exchanged fans shall be:

VND 400,000/fan x 50 fans x 10% = VND 2,000,000

4. In respect of products, goods and services which a business establishment produces for its own use but not to service production or trading, or uses for production and trading of goods and services not subject to VAT, then VAT output must be calculated. The taxable price shall be the selling price of the equivalent products, goods or services.

In respect of goods circulated internally, such as goods produced for transfer into an internal warehouse or materials and semi-finished products produced in order to continue the process of production within the same production or business establishment, VAT shall not be calculated or payable.

5. In respect of services provided by foreign parties to consumers in Vietnam, the VAT taxable price shall be the service price payable to the foreign party.

For example: Company A in Vietnam engages a foreign company for construction design. If the price payable to the foreign company is VND 100 million, then the VAT taxable price calculated and paid by Company

A shall be 10% of VND 100 million.

6. In respect of property leasing services, including houses, factories , warehouses, bus or landing stations, grounds, means of transportation, machinery and equipment, and so forth, the VAT taxable price shall be the rent excluding taxes. In the case of leases for which rent is received in instalments or received in advance for a period of the lease, VAT shall be calculated on the basis of the amount of rent received in each instalment or received in advance, including receipts in other forms such as receipts for renovation, repair or upgrading at the request of the lessee.

Rent for assets shall be agreed between the parties in a contract. Where the schedule of rents is stipulated by law, the rent shall be determined in accordance with such schedule.

In the case of a lease from an overseas party of drilling platforms, machinery, equipment or means of transportation in the category of not yet able to be produced domestically, for the purpose of sub-leasing, the VAT taxable price shall exclude rent payable to the overseas party.

7. In respect of goods sold by instalment payments, the VAT taxable price shall be the lump sum price of the goods excluding taxes on one occasion (excluding interest on instalments), without taking into account the instalments paid each time.

For example: If a Honda dealer supplies 100cc Honda motorcycles at the one-off price of VND 25 million per bike, which can be paid in instalments over 6 months plus total interest of VND 0.3 million, the VAT taxable price shall be VND 25 million per bike.

8. In respect of goods processing, the VAT taxable price shall be the processing price excluding taxes, but including charges for labour, fuel, power, auxiliary materials and other expenses of processing.

9. In respect of construction and installation:

- In respect of construction and installation in which the supply of raw materials is included in the tender, the VAT taxable price shall include the value of such raw materials.

For example: Construction Company A is awarded a construction contract which includes the value of the construction materials, the total payment price without VAT being VND 1,500 million of which the value of construction materials is VND 1,100 million, then the VAT taxable price shall be VND 1,500 million.

- In respect of construction and installation in which the supply of raw materials is not included in the tender, the VAT taxable price shall be the value of the construction and installation not including the value of the raw materials.

For example: Construction Company X is awarded a construction contract for which the owner of the works supplies the materials, the value of the construction without materials being VND 600 million, then the VAT taxable price shall be VND 600 million.

- In the case of construction and installation projects for which payment is made on the basis of delivery of completed items or the value of a quantity of completed works, the VAT taxable price shall be based on the value of items completed and delivered or the value of the quantity of works completed and delivered.

For example: Textile Company X (Party A) engages Construction Company Y (Party B) to carry out expansion of a production workshop. The total cost of the project before VAT is VND 200 billion, comprising:

- Value of construction: 80 billion

- Value of equipment (category tax rate 5%) provided and installed by Party B 120 billion

- In addition Party B charges 5% VAT 10 billion

- Total payable by Party A: 210 billion Party A:

- When the workshop is completed and delivered to Party A, Party A shall credit the value of fixed as sets for depreciation purposes at 200 billion (value without VAT).

- The amount of VAT actually paid at 10 billion may be deducted from output VAT on goods sold, or else a request for a refund may be made in accordance with the regulations.

If Party A agrees to pay Party B for each item of work completed (assuming that construction is completed first and paid for first), when Party A pays the construction costs of 80 billion, it must add 5% VAT to the payment to Party B; the payment to be made, inclusive of VAT, shall be 80 billion + 4 billion = 84 billion.

10. In respect of business establishments to which the State allocates land for the construction of housing or infrastructure for sale or for transfer together with land use rights, the VAT taxable price of the housing or infrastructure sold or transferred shall be the sale price or the price of transfer without VAT, minus the land use rent at the land prices stipulated as at the time of allocation of the land.

For example: The State allocates to Housing Investment and Development Company X 10,000 m² of land for the construction of housing for sale, of which 3,000 m² of land is to be used for internal roads under the zone planning and so land use rent is not paid for that 3,000 m² of land. The rate of land use rent payable to the State budget is based on VND 200,000 per m². When Company X sells one house with a land area of 50 m², the selling price of the house plus the price of land use right transfer without VAT shall be VND 300 million (in which the price of the house is 200 million and the price of land use right transfer is 100 million). The VAT taxable price of the above house shall be:

VND 300 million - (50 m² x 200,000 per m²) = VND 290 million.

Output VAT shall be: VND 290 million x 5% = VND 14.5 million.

In respect of business establishments to which the State leases land for investment in leasing infrastructure facilities in an industrial zone, high- tech zone or other economic zone in accordance with Government regulations on sub-leasing, the VAT taxable price shall be the lease rent without VAT, less the land lease rent payable to the State Budget.

For example: The State leases to Industrial Zone Infrastructure Business Investment Company Y 500,000 m² of land for 50 years to construct infrastructure facilities for lease. Land lease rent is VND 30,000 per m² per year. After investing in the infrastructure, Company Y leases to Company Z 5,000 m² of land for 20 years to construct a production workshop, the land lease rent without VAT (without including the cost of public utilities) being VND 100,000 per m² per year. Company Z pays rent for the infrastructure facilities once per year. The VAT taxable price on the income from leasing the infrastructure facilities per year shall be:

(5,000 m² x VND 100,000) - (5,000 m² x VND 30,000) x 1 year = VND 350,000,000.

VAT shall be: VND 350,000,000 x 5% = VND 17,500,000.

11. In respect of real estate business activities, the VAT taxable price shall exclude the value of the land subject to land use right transfer tax.