CIRCULAR

ON VALUE ADDED TAX PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREES OF THE GOVERNMENT 148-2004-ND-CP DATED 23 JULY 2004 AND 156-2005-ND-CP DATED 15 DECEMBER 2005 IMPLEMENTING THE LAW ON VALUE ADDED TAX AND THE LAW ON AMENDMENTS TO THE LAW ON VALUE ADDED TAX

Pursuant to the Law on Value Added Tax (VAT) 02-1997-QH9 dated 10 May 1997;

Pursuant to the Law on Amendments to the Law on VAT dated 17 June 2003;

Pursuant to Decree 158-2003-ND-CP of the Government dated 10 December 2003 making detailed provisions for implementation of the Law on VAT and the Law on Amendments to the Law on VAT;

Pursuant to Decree 148-2004-ND-CP of the Government dated 23 July 2004 amending article 7.1 of Decree 158-2003-ND-CP above;

Pursuant to Decree 156-2005-ND-CP of the Government dated 15 December 2005 amending Decree 158-2003-ND-CP above;

Pursuant to Decree 77-2003-ND-CP of the Government dated 1 July 2003 on functions, duties, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance provides the following implementing guidelines on value added tax (VAT):

A. SCOPE OF APPLICATION OF VAT

I. TAXABLE OBJECTS AND VAT PAYERS

1. Taxable objects:

Goods and services (including goods and services purchased from organizations and individuals

overseas) used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except as provided in Section II of Part A of this Circular.

2. VAT payers:

Organizations and individuals producing and trading VAT taxable goods and services in Vietnam, irrespective of the line, form or organization of business (hereinafter collectively referred to as business establishments) and other organizations and individuals importing VAT taxable goods or purchasing VAT taxable services from overseas (hereinafter collectively referred to as importers) shall be liable to pay VAT.

Organizations and individuals producing and trading goods and services comprise:

2.1 Business organizations established pursuant to and with business registration in accordance with the Law on Enterprises, the Law on State Owned Enterprises (now the Law on Enterprises) and the Law on Co-operatives.

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

2.3 Enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam (now the Law on Investment); and foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.

2.4 Individuals, family households, independent groups of persons conducting business, and other business objects conducting production, trading or import activities.

II. OBJECTS NOT SUBJECT TO VAT

1. The following goods and services shall not be subject to VAT:

1.1 Products of cultivation (including forestry cultivation), husbandry, aquaculture or fishing which have not yet been processed into other products or which have only been semi-processed by organizations or individuals producing, catching and selling products at the import stage.

Products which have not been processed at a level higher than semi-processing as stipulated in this clause or products which have not yet been processed into other products shall be determined as follows:

(a) In the case of cultivated products, it means products which have only been sun-dried, dried, cleaned, preserved fresh by using chemicals, unshelled, classified and packed.

(b) In the case of products of husbandry, aquaculture or fishing, it means products which have only been sun-dried, dried, cleaned or frozen, classified and packed.

1.2 Products being domestic animal breeding stock and plant varieties such as breeding eggs, young animals, seedlings, seeds, sperm, embryos and genetic materials at the stages of rearing, importation and commercial trading. Products being domestic animal breeding stock and plant varieties which are not subject to VAT means products imported or commercially traded by establishments which possess a business registration certificate for domestic animal breeding stock and plant varieties issued by the State administrative body. With respect to products being domestic animal breeding stock and plant varieties which are subject to State regulations on standards, their quality must satisfy the conditions stipulated by the State.

1.3 Salt products, comprising salt produced from seawater or natural salt mines, table salt and iodine salt.

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

(a) Machinery, equipment or specialized means of transportation which form part of a technological line, and building materials which are not yet able to be produced domestically, and are required to be imported to form the fixed assets of enterprises.

(b) Machinery, equipment, supplies or means of transportation which are not yet able to be produced domestically and are imported for direct use in scientific research and technological development activities.

(c) Aircraft, drilling platforms and watercraft leased from foreign parties which are not yet able to be produced domestically, used for production or business.

(d) Machinery, equipment, accessories, specialized means of transportation and materials required to carry out prospecting, exploration and development of petroleum fields; aircraft parts and accessories, and specialized equipment for aircraft (in the category not yet able to be produced domestically). Services of repair of aircraft overseas including machinery, equipment and accessories replaced during the repair process.

In cases where a production or business establishment imports a complete production line of machinery and equipment which is not subject to VAT as stipulated in this clause 1.4, but in the complete production line there is machinery or equipment which is able to be produced domestically, the entire production line of machinery and equipment shall not be subject to VAT.

Enterprises in the cases stipulated in this clause 1.4 shall include enterprises established under the Law on State Owned Enterprises (now the Law on 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 (now the Law on Investment); and foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.

Example 1: Where Textile Company A imports a number of textile machines in the category not yet able to be produced domestically and comprising a number of complete electrical motors in the category able to be produced domestically, the 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 in respect of goods referred to in this clause at the stage of importation:

- Contract for importation. Where import is through an authorized agent, there must also be the contract authorizing the importation.

Where the establishment is the successful tenderer in a tender for supply of goods to entities to be used for the purposes referred to in this clause, there must also be the notice of successful tenderer and contract of sale to the enterprise in accordance with the tender results.

Where a financial leasing company imports for financial leasing, there must also be the financial leasing contract.

Where import is for scientific research and technological development, there must also be the document of the body authorized to assign organizations to perform programs, projects or subjects of scientific research and technological development or the scientific and technological contract between the party giving an order for performance of the scientific and technological contract and the party accepting such order.

- Certification of the director of the enterprise or the head of the scientific research body that the

goods are imported to form fixed assets; [or] for direct use in scientific research and technological development activities; [or] for use in petroleum exploration and development activities of petroleum fields; [or] to be specialized types 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.

Whether the above types of 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, building materials, components and accessories which have been produced domestically as issued by the Ministry of Planning and Investment.

1.5 State owned residential houses sold by the State to existing tenants in accordance with the provisions of Decree 61-CP of the Government dated 5 July 1994 on purchase, sale and trading of residential houses.

1.6 Transfer of land use rights.

1.7 Credit services and investment fund services including lending activities; guarantees for loans; discounts of negotiable instruments and valuable papers such as money; sale of security property for loans for the purpose of debt recovery; finance leasing by financial and credit institutions in Vietnam; activities of assignment of capital in accordance with the Law on Enterprises, the Law on Cooperatives, and the Law on State Owned Enterprises (now the Law on Enterprises); and securities trading activities including broking, self-trading, managing investments, underwriting issues and securities investment consultancy.

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

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

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

(a) 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 audiences or participants but on a non-profit 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.

(b) 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 by opera companies, performing groups and circuses and so forth which possess an operational licence issued by the State administrative body.

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

(d) Importation of films with images pre-recorded, publication and screening of cinematographic

and video documentary films: for cinematographic films, irrespective of their theme and type; and for video films and disks, only documentaries, news features and science videos. The theme and type of a film shall be determined in accordance with regulations of the Ministry of Culture and Information.

1.11 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.

1.12 Radio and television broadcasting according to programs funded by the State Budget.

1.13 Publication, importation and distribution:

(a) Dissemination of newspapers, magazines and specialized newsletters.

(b) Political books being 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.

(c) Textbooks (also in the form of disks, tapes and electronic databases) being books used by teachers and used for study in all schools from pre-primary to secondary (including reference books used for teachers and students in conformity with the contents of educational programs).

(d) Teaching materials being books used by teachers and used for study in all universities, colleges, vocational and specialist schools.

(dd) Books of legislation (laws, resolutions and other legal instruments) being books printing the laws of the State.

(e) Technical or scientific books being books to be used for introduction and guidance on scientific and technical knowledge relating directly to production and scientific or technical branches.

(g) Books printed in languages of ethnic minorities being bilingual books printed in commonly used languages as well as in languages of ethnic minorities.

(h) 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.

(i) Printing of money and papers with monetary value (cheques, bonds, money orders, securities, and so forth); cash from overseas transmitted to Vietnam.

(k) Visual and audio videos, disks and tapes with the contents of any of the books stipulated in this clause 1.13.

1.14 Public hygiene services and water drainage; maintenance of zoos, public gardens, parks, trees in streets and public lighting services; funeral services, irrespective of the funding for payment of costs.

(a) Public hygiene services and water drainage in urban areas shall include collecting, cleaning and dealing with garbage and waste; drainage and waste water treatment for organizations and individuals. Where a business establishment uses such waste to make other products for sale, such products shall either not be subject to VAT in accordance with the guidelines in Section II of Part A of this Circular or subject to VAT in accordance with the guidelines in Section II of Part B of this Circular. Where a business establishment provides services such as cleaning offices of organizations or individuals, such services shall be subject to VAT at the rate of ten (10) per cent in accordance with the guidelines in clause 3.27 of Section II of Part B of this Circular.

(b) Maintenance of zoos, parks and trees in streets shall include the management, care and protection of birds and animals and the planting of trees in parks, zoos, public areas and national parks.

(c) Public lighting services shall include lighting in streets, side-streets and alleys in residential areas and in small parks in squares and in other parks.

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

1.15 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.

1.16 Public passenger transportation by bus or electrical vehicle by bus or electrical vehicle companies established and operating under the regulations of the Ministry of Transport and Communications satisfying the transportation requirements of the people within cities, urban areas and industrial zones or between cities and neighbouring industrial zones and tourism zones on condition that the first and last stops do not run through more than two provinces or cities, or not more than three provinces or cities in the case of special urban zones as stipulated in article 3.2(b) and (c) of Decision 34-2006-QD-BGTVT dated 16 October 2006 of the Ministry of Transport and Communications, with the routes, stops, schedules and fares stipulated by the competent authority.

1.17 Basic surveys funded by the State (comprising geological surveys and exploration of minerals, water resources, hydrometeorology and the environment; surveys and formulation of maps).

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

1.19 Specialized arms and weaponry required for national defence and security:

(a) The list of specialized arms and weaponry required for national defence and security shall be as specified in Appendix 3 to this Circular. Such arms and weaponry not subject to VAT shall 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 must be carried out by enterprises under the Ministry of Defence and the Ministry of Police in order to qualify as not subject to VAT.

(b) 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 not be subject to VAT.

Imports of specialized arms and weaponry required for national defence and security which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.

1.20 Imported goods in the following cases: humanitarian aid and non-refundable aid (including imported goods funded by non-refundable ODA); gifts to State bodies, political organizations, 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; and 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.

Imported goods of organizations and individuals entitled to diplomatic immunity in accordance with the Ordinance on Diplomatic Immunity shall be exempt from VAT in accordance with the applicable regulations. In the case of purchase of VAT taxable goods or services in Vietnam, VAT shall be refunded in accordance with the guidelines in clause 8 of Section I of Part D of this Circular.

Taxpayers, goods, documents and procedures for VAT exemption referred to in this paragraph shall be subject to the guidelines provided in Circular 08-2003-TT-BTC of the Ministry of Finance dated 15 January 2003 providing guidelines for VAT refund with respect to diplomatic representative offices, consulates and representative offices of international organizations in Vietnam.

With respect to imported goods being humanitarian aid and non-refundable aid, there must be certification from the Ministry of Finance.

Imports which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.

1.21 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 of goods purchased; and include certification from the Ministry of Finance regarding such aid.

Upon sale, a selling establishment must prepare an invoice in accordance with clause 5.1 of Section IV of Part B of this Circular, specifying that the goods are being sold to a foreign 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.

1.22 Goods in transit or trans-shipment or crossing Vietnamese borders; goods temporarily imported and re-exported and goods temporarily exported and re-imported; and 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. Goods which are VAT exempt as referred to above must comply with the files and procedures currently stipulated for exemption, reduction or refund of import duty.

1.23 Goods and services provided to the following:

(a) Services for registration of international transportation facilities owned by entities overseas (unless such facilities are chartered or leased by Vietnamese entities to operate as transport carriers in accordance with law).

(b) Reinsurance services with insurers overseas; insurance of goods transported by road, sea, river, rail or air being exports or crude oil for sale to overseas parties; insurance of goods transported by road, sea, river, rail or air being goods imported to Vietnamese airports, seaports or bordergates; insurance services for works and equipment of foreign contractors (including ships carrying oil and flying a foreign flag) which foreign petroleum contractors or sub-contractors use to carry out prospecting, exploration and development of petroleum in exclusive economic zones of Vietnam (including neighbouring countries with which Vietnam has an agreement to apply a common regime) and also including when such equipment is repaired or maintained for a limited period in Vietnam; and insurance services provided for transportation facilities owned by entities overseas.

(c) International transportation namely transportation of Vietnamese goods and passengers to foreign countries or from foreign countries into Vietnam, and the transportation of goods and passengers between foreign ports.

Where a transportation service establishment signs a contract for transportation of passengers or goods to foreign countries, the turnover from transport services which is not subject to VAT shall be the revenue actually collected from passengers. Where a domestic transport stage is included in the transport contract but it is not possible to calculate separately turnover from domestic transportation and international transportation, the turnover not subject to VAT shall include the turnover from domestic transportation.

(d) Goods and services provided directly to international transportation carriers means a business

establishment in Vietnam directly sells goods and services to the owner of an international transportation carrier for use during such transportation or for use on the facility, including:

(d1) Goods and services for use during transportation such as food and water, napkins and tissues, hygiene services, buoys and life-jackets, pilot services including for shipping and for planes at airports, wharfing services and parking services and a number of other goods and services provided directly to international transporters.

(d2) Goods and services provided to ensure the operation of international transportation carriers such as petrol and oil, repairs, paint, maintenance and so forth except for services for registration or services as mentioned above which are provided to facilities owned by Vietnamese entities, or chartered or leased by Vietnamese entities from foreign parties, which shall be subject to VAT as provided for in Part B of this Circular.

International transportation carriers referred to in clause 1.23 (d2) above include:

- Transportation carriers owned by organizations and individuals overseas conducting an international transportation operation;

- Transportation carriers owned by Vietnamese organizations and individuals or carriers chartered or leased by Vietnamese entities from foreign entities to conduct an international transportation operation.

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

(g) National reserves goods sold by the National Reserves Office.

(h) Goods and services exported overseas from non-tariff zones; goods and services exchanged or purchased and sold as between entities in non-tariff zones (including goods and services supplied to non-tariff zones by foreign organizations and individuals).

Non-tariff zones comprise export processing zones, export processing enterprises, import duty bonded stores, import duty bonded zones, bonded warehouses, special commercial economic zones, commercial-industrial zones and other economic zones established by Decisions of the Prime Minister of the Government. The relationship of exchanging or purchasing and selling goods as between these zones and outside parties is an import/export relationship.

(i) Goods and services sold overseas, except for export goods and services in the category subject to the VAT rate of 0%.

(k) Operations subject to collection of fees and charges in accordance with State regulations shall not be subject to VAT, unless they have been transferred to the regime on prices for services.

1.24 Technology transfers and computer software, except for exported computer software:

(a) Technology transfers shall be determined in accordance with the provisions of Part 6 of Chapter 36 "Transfer of Technology" of the Civil Code of the Socialist Republic of Vietnam and its 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.

(b) Computer software (except for exported computer software) shall include software products and software services as stipulated by law.

1.25 Postal and telecommunications services and Internet services universalized pursuant to the program of the Government.

1.26 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.

1.27 Exported minerals which are not yet processed into other products, specifically as follows:

(a) Crude oil;

(b) Stone slabs, sand and rare earth;

(c) Precious stones;

(d) Manganese ores, tin ores, iron ores, chromic ores, emanate ores and apatite ores.

1.28 Products being prosthetics; and crutches, wheelchairs and other specialized apparatus used for disabled people.

1.29 Goods and services of business individuals being persons with average monthly income levels lower than the minimum wage applicable to State employees as stipulated by the State. Such income shall be determined as the revenue earned from business activities less (-) reasonable expenses 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 such 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 when their income exceeded the stipulated limit.

2. Business establishments shall not be entitled to a credit and refund of input VAT on goods and services used for production or business of non-VAT taxable goods or services stipulated in this section but must include such input VAT in the value of goods or services, the original cost of fixed assets or business expenses.

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 as follows:

1. In respect of goods and services sold or supplied by production or business establishments, the sale price excluding VAT. In respect of goods and services subject to special sales tax (SST), the sale price including SST but 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, except for additional levies and supplementary fees the latter must pay to the State Budget. Where a business establishment applies a form of discount to the sale price, the VAT taxable price shall be the discounted sale price recorded in the invoice.

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

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 (+) import duties calculated at the rate of duty 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, 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 or activity as abovementioned.

Example 2: 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% = VND2,000,000.

4. In respect of products, goods and services which a business establishment produces for its own use but not to serve production or trading, or uses for production and trading of goods and services which are not subject to VAT, VAT output must be calculated. The taxable price shall be the sale price of products, goods or services of the same or equivalent category at the time of such use.

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.

Example 3: Company A in Vietnam engages a foreign company for repair of a sea-going vessel. If the contractual price payable to the foreign company is VND 100 million, the VAT calculated and paid by Company A shall be 10% of VND 100 million.

6. In respect of property leasing services such as 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 as agreed between the parties in a contract. Where the framework of rents

is stipulated by law, the rent shall be determined within such framework.

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

Example 4: If a motor dealer supplies 100cc Honda motorcycles at the one-off price excluding VAT of VND 25.5 million per bike (including interest on instalments being VND 0.5 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 VAT but including charges for labour, fuel, power, auxiliary materials and other expenses of processing incurred by the processor.

9. In respect of construction and installation:

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

Example 5: Where 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, the VAT taxable price shall be VND 1,500 million.

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

Example 6: Where Construction Company X is awarded a construction contract for which the owner of the works supplies the materials, the value of the construction without construction materials being VND 600 million, the VAT taxable price shall be VND 600 million.

9.3 In respect of construction and installation for which payment is made on the basis of delivery of completed items or the value of a quantity of completed works of construction or installation, 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 without VAT.

Example 7: 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 provided and installed by Party B, 120 billion;

- In addition, Party B charges 10% VAT, 20 billion;

- Total payable by Party A is 220 billion.

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

- The amount of VAT actually paid of 20 billion may be deducted from output VAT on goods sold, or else a request for a refund may be made in accordance with 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 10% VAT to the payment to Party B; the payment to be made, inclusive of VAT, shall be 80 billion + 8 billion = 88 billion.

10. In respect of business establishments to which the State allocates land for the construction of technical infrastructure for transfer together with land use rights, the VAT taxable price [of the infrastructure transferred] shall be the actual sale price or the price of transfer without VAT, minus the land use fees at the land prices stipulated by the people's committee of the province or city under central authority as at the time of allocation of the land.

If the State auctions a land use right with infrastructure in accordance with the Law on Land, and thereafter the business establishment which purchased at auction constructs housing [and] infrastructure for sale and thereafter transfers them together with the land use right/s, the VAT taxable price shall be the actual price of transferring the housing [and] infrastructure with the land use right, minus the price paid at the auction of the land use right.

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.

Example 8: The State allocates to Housing Investment and Development Company X 10,000m2 of land for the construction of housing for sale, of which 3,000m2 of land is to be used for internal roads under the zone planning and so land use fee is not paid for that 3,000m2 of land. The rate of land use fee payable to the State Budget is based on VND 200,000 per m2. When Company X sells one house with a land area of 50m2, the sale price of the house plus the price of land use right transfer without VAT shall be VND 800 million (in which the price of the house is 600 million and the price of land use right transfer is 200 million). The VAT taxable price of the above house shall be: VND 800 million - (50m2 x 200,000 per m2) = VND 700 million. Output VAT shall be: VND 700 million x 10% = VND 70 million.

Example 9: The State leases to Industrial Zone Infrastructure Business Investment Company Y 500,000m2 of land for 50 years to construct infrastructure facilities for lease. Land lease rent is VND 300,000 per m2 per year. After investing in the infrastructure, Company Y leases to Company Z 5,000m2 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 800,000 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 800,000) - (5,000 m2 x VND 300,000) x 1 year = VND 2,500,000,000. VAT shall be: VND 2,500,000,000 x 10% = VND 250,000,000.

11. In respect of real estate business activities, the VAT taxable price in respect of real estate or infrastructure attached to the land shall exclude the value of the land at the price provided by the people's committee of a province or city under central authority as at the time of receipt of ownership of or the right to use such real estate.

12. In respect of shipping agency services, broking services, import-export agency and other services for which wages or commission are received, the VAT taxable price shall be the wages or commission received without VAT.

13. In respect of transportation, loading and unloading activities, the VAT taxable price shall be the transportation, loading and unloading charges before VAT, irrespective of whether the establishment directly carries out or sub-contracts out the transportation, loading and unloading.

14. In respect of goods or services of a special nature which use source documents, such as transportation tickets, lottery tickets and so forth, where the price is stated as VAT inclusive, the pre- VAT price shall be determined as follows:

                                      Sale price (price of ticket or whatever)

Pre-VAT price =     ---------------------------------------------------------------

                             1 + % of applicable VAT rate for such goods or services.

15. In respect of tourism services in the form of travel or tour package contracts (including accommodation, travel and meals) the tax-inclusive price shall be determined as the package contract price and turnover of the business establishment for the purpose of calculation of VAT.

Where the package contract price includes items such as airfares for tourists from other countries to Vietnam and from Vietnam to other countries, meals and accommodation costs and excursion costs in foreign countries (if there are legal source documents), such costs shall not be subject to VAT in Vietnam.

Example 10: Ho Chi Minh Tourism Company performs a package tour contract with Thailand for 50 tourists for 5 days in Vietnam with the total payment of USD 32,000. The Vietnamese company pays for all airfares, meals, accommodation and excursion tickets in accordance with the agreed program, and the cost of the return airfares between Thailand and Vietnam is USD 10,000. The output VAT under this contract shall be determined as follows:

- VAT taxable turnover shall be USD 32,000 - 10,000 = USD 22,000

- Output VAT shall be: USD 22,000   x 10% = USD 2,000

                                                1 + 10%

- Turnover of the establishment determined for the purpose of calculating its business results shall be USD 32,000 - 2,000 = USD 30,000.

- Deductible input VAT shall be determined as stipulated to calculate the amount of VAT payable.

Example 11: Hanoi Tourism Company has a contract to take Vietnamese tourists to China at the package price of USD 400/per person for 5 days. If Hanoi Tourism Company pays the Chinese Tourism Company USD 300/per person, the taxable turnover of Hanoi Tourism Company shall be USD 100/per person (USD 400 - USD 300).

16. In respect of pawnbroking services, the taxable price shall be the amount receivable from this service, comprising the interest receivable from providing loans when pawning and the difference earned from selling pawned goods (if any). Turnover shall be determined as VAT-inclusive turnover.

Example 12: A pawnbroking Company has turnover from pawnbroking of VND 110 million in the tax period.

- Output VAT shall be: VND 110 million

                                      --------------------- x 10% = VND 10 million

                                              1 + 10%

- Turnover from pawnbroking by the company determined for the purpose of calculating its business results shall be: VND 110 million - VND 10 million = VND 100 million.

17. In respect of books, newspapers and magazines sold at the published price (cover price) in accordance with the Law on Publishing, the sale price shall be the VAT-inclusive price for the purpose of calculation of VAT and turnover of the establishment (in the case of types subject to VAT). Where not sold at the cover price, VAT shall be calculated on the basis of the sale price.

Publishing means the process of publishing publications which is carried out from the stage of manuscript to the distribution of the publications to readers.

Example 13: Literature Publishing House sells a literary work to a company which distributes the book. The cover price (VAT-inclusive price) is VND 6,300/book. The distribution fee (25%) is VND 1,575/book.

The VAT taxable price shall be determined as follows:

- In a case where the Publishing House issues the book through a distribution establishment, the VAT taxable price of the publication shall be determined as follows:

VAT taxable price at the publishing stage = (Cover price - Distribution costs) divided by (1 + tax rate).

VAT taxable price at the publishing stage (Literature Publishing House) shall be equivalent to:

VND 6,300 - VND 1,575

------------------------------- = VND 4,500/book.

             1 + 5%

Output VAT at the publishing stage shall be: VND 4,500 per book x 5% = VND 225/book.

Total amount paid shall be: VND 4,500/book + VND 225/book = VND 4,725/book.

VAT taxable price at the distribution stage (at the company distributing the book) shall be:

VND 6,300

--------------- = VND 6,000/book.

   1 + 5%

Output VAT shall be: VND 6,000/book x 5% = VND 300/book.

VAT payable at the stage of distributing the book shall be: VND 300/book - VND 225/ book = VND 75/book (assuming that there is no other input VAT).

- In a case where the Publishing House provides the book direct to readers, the VAT taxable price on the publishing activity shall be determined as follows: VAT taxable price at the publishing stage = (Price printed on cover) divided by (1 + tax rate).

In a case where a publishing house consigns the sale of the publication at the correct price (agency), the use of invoices and receipts and the declaration and payment of tax by the publishing house and consignee shall be implemented the same as for the case of the sale of goods via an agency selling at the correct price and receiving commission.

The cover price less (-) the costs of distribution may not be less than the cost price of standard pages. If it is, and the publishing establishment generates input VAT in excess of output VAT, it shall not be entitled to a refund.

18. In respect of printing services, the VAT taxable price shall be the printing wages. Where the printing establishment performs printing contracts and the payment price includes the printing wages and the costs of the paper used for printing, the VAT taxable price shall include the costs of the paper.

19. In respect of services of assessment agency, agency of assessment for compensation and agency for third party claims with respect to insurance business services, the VAT taxable price shall be the wages or commission entitlement, including items of costs which the insurance business establishment receives.

The time for the determination of the VAT taxable price pursuant to Section I of Part B of this Circular shall be the time at which the business establishment becomes owner of or receives the right to use such goods or services (in the case of construction and installation on the basis of delivery of completed items or the value of a quantity of completed works of construction or installation, it shall be the time of testing and handing over the works, completed items or quantity of completed works of construction or installation), irrespective of whether money was received.

II. VAT RATES

VAT rates applicable to goods and services shall be applied as follows:

The rate of zero (0) per cent shall apply as follows:

1. The rate of zero (0) per cent shall apply to exported goods or services, including goods processed for export; construction and installation operations overseas and construction works of export processing enterprises; goods sold to duty-free shops; and goods and services which are not subject to VAT but which are exported (except for international transportation; goods and services provided directly to international transportation carriers; tour package services to foreign countries; postal and telecommunication services from foreign countries into Vietnam; credit, financial investments and securities services to foreign countries and the goods and services provided for in clause 1.7 of Section II of Part A of this Circular).

1.1 Export shall include export to foreign countries including via authorized agents, sale to export processing enterprises (except for goods used for individual consumption) and cases deemed to be export as stipulated by Government regulations, such as:

(a) Transitional processed goods in accordance with the commercial law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties.

(b) Processed goods for on-the-spot export in accordance with the commercial law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties.

(c) Export goods for sale at fairs and exhibitions overseas.

1.2 Goods exported to and services provided to export processing enterprises for use in production or business of such enterprises, except for services used for individual consumption.

Export services means services provided directly to organizations and individuals overseas and consumed outside Vietnam where all of the following conditions are satisfied: the establishment providing the services must sign a contract with the purchaser overseas in accordance with the Commercial Law; and the purchaser overseas makes payment for the services to the establishment providing services in Vietnam.

Goods and services used for individual consumption in an export processing enterprise means goods and services for which an individual pays with his or her own money and which service his or her own consumption requirements.

2. The rate of five per cent shall apply to the following goods and services:

2.1 Clean water used for production and living consumption, exploited by production-business establishments from natural water sources and sold to other users (except for clean water exploited by establishments in rural areas, mountainous areas, offshore islands and other remote and distant areas for local production or daily activities which is not subject to VAT, and except for other types of beverages in the ten (10) per cent VAT rate group).

2.2 Fertilizer, ore used for production of fertilizer; pesticides and growth stimulants for domestic animals and cultivated plants:

(a) Fertilizer, including organic and non-organic fertilizers such as potash fertilizer, nitrogenous fertilizer (urea), NPK fertilizer, phosphatized fertilizer and so forth.

(b) Ore used for production of fertilizer such as apatite ore used to produce phosphatized fertilizer, and muddy soil used for the production of bacterial fertilizer and so forth.

(c) All pesticides, vermicides, disinfectants, insecticides, anti-fungus chemicals, weed removers, growth stimulants for domestic animals and cultivated plants, and so forth.

2.3 Specialized medical equipment, apparatus and instruments, such as x-ray machines used for disease diagnosis and treatment, equipment and specialized apparatus for surgery and treatment of injuries; ambulances; equipment for measuring blood pressure, heart and pulse, and blood transfusion; injection syringes; contraceptive devices, and other specialized medical equipment and instruments; medical sanitary cotton and bandages, and medical sanitary tissue.

2.4 Preventive and curative medicine for humans and domestic animals (including vaccines, biological products, distilled water for the preparation of anaesthetic); pharmaceutical products and medical drugs which are the raw materials for producing preventive and curative medicine on the lists in Appendices 1 and 2 of this Circular.

2.5 Teaching and study aids such as models, drawings, blackboards, chalk, rulers, compasses used for teaching and study, and specialized equipment and tools for teaching, research and experiments.

2.6 Printing of products which are not subject to VAT as provided for in clause 1.13 of Section II of Part A of this Circular (except for printing of money and papers with monetary value).

2.7 Children's toys.

2.8 All types of books (except for books which are not subject to VAT as provided for in clause 1.13 of Section II of Part A of this Circular).

2.9 Tapes and disks, irrespective of whether they have programs recorded on them or are blank.

2.10 Products of cultivation and husbandry; products of aquaculture or fishing which have not yet been processed or which have only been semi-processed for cleaning, shelling, drying, freezing or salt preserving at the commercial trading stage (except for products provided for in clause 1.1 of Section II of Part A of this Circular).

2.11 Fresh foodstuffs and foods; forestry products (except wood and bamboo shoots) which have not yet been processed.

Foods shall include rice, unhusked rice, corn, potato and cassava; wheat, rice flour, corn meal, sweet-potato flour, cassava and wheat flour.

Fresh foodstuffs means all types of foodstuffs which have not yet been processed or which have only been semi-processed in the form of cleaning, shelling, cutting, slicing, freezing or drying but still remain fresh foodstuffs such as cattle and poultry meat, shrimp, crab and fish, and other aquaculture and marine products.

Unprocessed forestry products means products exploited from natural forests in the categories of bamboo, rattan, mushrooms, Job's ear mushrooms, roots, leaves, flowers and plants used for production of medicine and other forestry products.

2.12 Sugar; by-products obtained in manufacture of sugar, including sugar-cane dregs, bagasse and mud waste.

2.13 Products made from jute, sedge, bamboo, rattan and thatch, being assorted products produced or processed from main materials being jute, sedge, bamboo and thatch such as jute carpets, jute fibre, jute bags, jute strings, coconut fibre mats, jute or sedge mats, ropes made from bamboo or coconut fibre, conical hats, bamboo blinds and so forth.

2.14 Semi-processed cotton being cotton which has been peeled, seeded and classified.

2.15 Feed for cattle and poultry and other domestic animals, including unprocessed or semi-processed types of feed, such as bran, crushed and dried peanuts, fish powder, bone powder and so forth.

2.16 Scientific and technological services including application activities and guidance on science and technology, specifically as follows: data processing, calculation and analysis used directly for scientific research and technological development; preparation of feasibility studies and pre-feasibility studies and testing methods for new products and technology; intellectual property activities as guided in Circular 08-2006-TT-BKHCN dated 4 April 2006 of the Ministry of Science and Technology; and services regarding information and application of scientific and technological intellectual property rights and their testing.

2.17 Services directly serving agricultural production including ploughing and harrowing of agricultural land; digging, embanking, dredging of canals, ponds and lakes serving agricultural production; rearing, planting, cultivation, pest control, harvest, semi-processing and preservation of agricultural products.

2.18 Black coal and coal dust, coke, peat, coal lumps and coal bricks.

2.19 Soil, stone, sand and gravel (but excluding products made from soil, stone, sand and gravel such as sawn stone, facing stone, granite tiles).

2.20 Basic chemicals, comprising all types of chemicals listed in Appendix 1 attached to this Circular.

2.21 Mechanical engineering products (except for mechanical engineering consumer goods), comprising:

(a) Machinery and equipment such as: diesel engines, mills, lathes, planers, rollers, piercing mills, stamping mills; all types of complete and separate equipment; electricity meters, voltage stabilizers with a capacity of over 50 KVA, water meters; bridge girder structures; warehouse frame structures and products of metal structures; all types of automobiles (except for automobiles subject to special sales tax), all types of ships and boats and other means of transportation; all types of metal spare parts and semi-finished products for the above products (including spare parts and semi-finished products of automobiles subject to special sales tax).

(b) Production tools such as drills, small mechanical engineering machines for agriculture, all types of sawing machines, planers, harrows, water pumps with a capacity of over 10 m3/hour; machinery and tools for ploughing and harvesting.

(c) Products being small production tools such as pliers, hammers, saws, chisels, shovels, hoes and sickles, tool sets which are mechanical engineering products, and nails.

(d) Steel wire fencing from type B27 to B41, barbed wire, metal roofing, metal messenger cabling and metal conveyor belts.

(e) High voltage electrical equipment and transforming equipment, safety boxes, electricity measuring equipment, safety fuses (12KV, 24KV and 36KV from 6A or more) and so forth.

2.22 Cast moulds of all types including all types of moulds used as a tool for production of products or goods shaped by moulds, such as moulding casts for machine parts or for production of pipes.

2.23 Explosives including blasting agents, fuses, detonators and other types which have been manufactured into specialized explosive products without changing their character and effect as explosives.

2.24 Grindstone.

2.25 Newsprint.

2.26 Insecticide spraying packs.

2.27 Semi-processed latex in the form of crepe, sheets, rubber or nuggets.

2.28 Semi-processed turpentine.

2.29 Artificial hard boards made from raw materials such as bamboo, wood flour, wood chips, wood fibre, sawdust, sugar-cane refuse, rice husk and so forth, excluding plywood products.

2.30 Industrial concrete products including concrete bridge grinders, concrete beams and frame structures of houses, concrete piles, concrete power poles, concrete pipes used for sewers, concrete boxes of all types, panels and non-standard pre-cast reinforced concrete components (except for concrete bricks) and commercial concrete (concrete mortar).

2.31 Automobile tyres and rubber tubing of size 900-20 and above.

2.32 Neutral glass tubing (such as ampoules for the purpose of injecting medicines and test tubes).

2.33 Netting, cord and fibre used for weaving into all types of fishing nets; specialized fibre or cord used for weaving into fishing nets, irrespective of raw materials.

2.34 Products from metallurgy, rolling and drawing of ferrous, non-ferrous or precious metals, except for imported gold as provided for in clause 1.26 of Section II of Part A of this Circular.

Products from metallurgy, rolling and drawing of ferrous, non-ferrous or precious metals shall include metallurgical flat-rolled or drawn products used as raw materials or products, such as metal products in the form of bars, bullion, plates or wire.

Products which have been manufactured or processed from metallurgical flat-rolled or drawn products shall be subject to VAT rates applicable to their particular line of goods.

2.35 Automatic data processors and their parts and accessories (including computers of all types and parts of computers, specialized printers used for such computers), except for uninterruptible power supply (UPS).

2.36 Repair of machinery, equipment and means of transportation being mechanical engineering products.

2.37 Maintenance, repair and restoration of historical and cultural heritage sites and museums, except for the activities provided for in clause 1.15 of Section II of Part A of this Circular.

2.38 Transportation including transportation of goods, luggage or passengers irrespective of whether the establishment directly carries out the transportation or sub-contracts it out, except for broking and agency activities where only commission is earned. Loading and unloading of passengers and luggage.

2.39 Services for registration of facilities and equipment in the traffic and transportation sector.

2.40 Dredging for channelling rivulets, river ports or seaports; rescue and salvage activities.

2.41 Distribution and screening of video films.

3. The rate of ten (10) per cent shall apply to the following goods and services:

3.1 Petroleum, gas; ore and other minerals.

3.2 Commercial electricity sold by electricity generation and business establishments.

3.3 Electronic products.

3.4 Mechanical engineering consumer products.

3.5 Appliances.

3.6 Chemical products (excluding basic chemicals as provided for in clause 2.20 of Section II of Part B of this Circular) and cosmetics.

3.7 Electrical conductors, telephone lines and other types of conductors (except for wire being a new product of the rolling or drawing phase as provided for in clause 2.34 of Section II of Part B of this Circular).

3.8 Welding rods.

3.9 Fibre, cloth, garments and embroidery products; disposable nappies and sanitary napkins.

3.10 Paper and paper products (excluding newsprint as provided for in clause 2.25 of Section II of Part B of this Circular).

3.11 Leather and imitation leather products.

3.12 Milk, cakes, candy, beverages and other processed foodstuffs, except for types of foodstuffs subject to the five per cent VAT rate.

3.13 Porcelain and terracotta; glass, rubber, plastic, wood and wooden products; cement, bricks, tiles and other building materials (except for products in the five per cent VAT rate group).

3.14 Construction and installation.

3.15 Houses and infrastructure facilities of establishments to which the State allocates or leases land or which receive the land use right from other entities for investment in construction of houses and infrastructures for sale or transfer.

3.16 Leasing technical infrastructure facilities by establishments to which the State allocates or leases land or which receive the land use right from other entities for investment in technical infrastructure facilities in industrial zones, high-tech zones and other economic zones for lease in accordance with regulations of the Government.

3.17 Postal and telecommunication services and Internet services (except for postal and telecommunication services and Internet services universalized pursuant to the program of the Government as provided for in clause 1.25 of Section II of Part A of this Circular).

3.18 Leasing houses, offices, warehouses, yards, factory buildings, machinery, equipment and means of transportation.

3.19 Legal consultancy services and other consultancy services.

3.20 Auditing and accountancy services; survey and design services; insurance, including insurance broking (except for the types of insurance not subject to VAT as provided for in clause 1.8 of Section II of Part A of this Circular).

3.21 Taking, printing and enlarging photos; recording, duplicating and hiring out tapes; duplicating and recording videos.

3.22 Hotels, tourism and restaurant services.

3.23 Goods and services subject to special sales tax.

3.24 Gold, silver and precious stones (except for imported gold as provided for in clause 1.26 of Section II of Part A of this Circular).

3.25 Maritime shipping agency.

3.26 Brokerage services.

3.27 Repair and maintenance services (except for services regulated in clause 2.36 of Section II of Part B of this Circular).

3.28 Goods not regulated in Section II of Part A, [or in] clauses 1 and 2 of Section II of Part B of this Circular.

The above VAT rates shall apply uniformly to each type of goods and services in the stage of importation, manufacture, processing or commercial trading. If in the process of implementation there is an inconsistent VAT rate in the List of Preferential Import Rates, or if the VAT rate is not applied uniformly to the same type of imported goods and domestically produced goods, then the local tax office and customs office should continue to apply the rate stipulated in the tax [i.e. VAT] notice to the enterprise and at the same time notify the Ministry of Finance which shall resolve the matter in accordance with Decrees of the Government 158-2003-ND-CP dated 10 December 2003, 148-2004-ND-CP dated 23 July 2004 and 156-2005-ND-CP dated 15 December 2005 and their implementing guidelines.

Example 14: The VAT rate applicable to garments is 10%, such rate shall apply at all stages of import, production, processing or commercial trading.

4. Application of VAT rate in the following specific cases:

4.1 If a construction and installation business establishment signed a contract for construction and installation work before 1 January 2004 with a price including VAT at 5%, and by 31 December 2003 such work remained unfinished, then the VAT rate of 5% shall continue to apply to the remainder of such work performed under the contract.

4.2 If a business establishment with a project for construction of housing [and] infrastructure signed contracts for sale of such housing [and] infrastructure with a price including VAT at 5%, and collected at least 30% of the contract price from the purchasers before 1 January 2004, then the VAT rate of 5% shall continue to apply to such contracts.

4.3 When scraps and sub-standard products are recovered for re-cycling and re-use and are sold, the VAT rate applicable to the particular line of goods shall apply.

Example 15: The VAT rate applicable to steel and iron scrap recovered by establishments and sold is 5%; the VAT rate applicable to recycled plastic when sold shall be the VAT rate applicable to plastic products, namely 10%.

III. METHODS OF VAT CALCULATION

VAT payable by business establishments shall be calculated by the tax credit method or calculated directly on the basis of added value. Where a business establishment subject to VAT payment by the tax credit method deals in gold, silver, precious stones and foreign currencies, such establishment must maintain a separate account with respect to this activity for the purpose of calculation of VAT directly on the basis of added value.

The applicability and calculation of tax payable by each method shall be as follows:

1. Tax credit method:

1.1 This method shall apply to business entities and organizations, enterprises established under the Law on State Owned Enterprises (now the Law on Enterprises), the Law on Enterprises or the Law on Co-operatives, and enterprises with foreign owned capital and other business entities or organizations permitted by guidelines of the Ministry of Finance to apply this method, with the exception of those applying the method of calculation directly on the basis of added value as provided for in clause 2 below of this Section.

1.2 Determination of VAT payable:

The amount of VAT payable shall be equal to (=) output VAT less (-) creditable input VAT.

In which:

(a) Output VAT shall be equal to (=) taxable price of goods or service sold multiplied by (x) the VAT rate applicable to such goods or service.

Business establishments applying the tax credit method shall, upon selling or providing goods or services, calculate and collect VAT on the sold goods or services. When preparing sales invoices for goods or services, business establishments shall specify the pre-tax sale price, VAT and total amount payable by the purchaser. Where an invoice only states the total payable amount and not the pre-tax price and VAT, VAT on the sold goods or services shall be calculated on the amount stated in the invoice or source document.

Example 16: An enterprise selling iron and steel sells 6mm steel rods at the pre-VAT price of VND 4,600,000/tonne. VAT at 5% is VND 230,000/tonne. However, some of the invoices issued by the enterprise only state the sale price of VND 4,800,000/tonne. The VAT calculated on the sales revenue shall be VND 4,800,000/tonne x 5% = VND 240,000/tonne instead of being calculated on the pre-tax price of VND 4,600,000/tonne, and revenue shall be re-calculated as VND 4,560,000 (= VND 4,800,000 - 240,000). The enterprise purchasing steel rods shall not be permitted to credit any input VAT in respect of the invoices which do not indicate VAT.

Business enterprises must implement the regime on accounting, invoices and source documents as stipulated by law and guided in Section IV of Part B of this Circular. If a business establishment writes an incorrect VAT rate on an invoice but fails to correct it, the tax office shall deal with it as follows:

If the VAT rate on the invoice is higher than the rate stipulated by law, the business establishment must pay VAT at such higher rate. If the VAT rate on the invoice is lower than the rate stipulated by law, the business establishment must pay VAT at the rate stipulated by law.

(b) Input VAT shall be equal to (=) the aggregate amount of VAT as recorded in the added value invoices for the purchase of goods or services (including fixed assets) used for production and trading of goods and services subject to VAT, [and/or] the VAT amounts stated on receipts for payment of tax on imported goods or receipts for payment of VAT on behalf of foreign parties in accordance with the guidelines of the Ministry of Finance applicable to foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.

In respect of purchased goods and services for which special vouchers stating the taxinclusive price are used, establishments shall be permitted to rely on the tax-inclusive price and the calculation method stipulated in clause 14 of Section I of Part B of this Circular in order to determine the pre-tax price and the deductible input VAT.

Example 17: During a tax period, Company A paid deductible input VAT for a special service.

The total payment was VND 110 million (VAT-inclusive). The service is subject to 10% VAT rate. The deductible input VAT shall be calculated as follows:

VND 110 million

------------------- x 10% = VND 10 million

       1 + 10%

The pre-tax price is VND 100 million and VAT is 10 million.

(c) Calculating deductible input VAT:

(c1) Deductible input VAT means the VAT on goods and services used for the production or trading of goods and services which are subject to VAT.

(c2) In respect of goods or services which are purchased for use for production or trading of VAT taxable and non-taxable goods and services, only the input VAT of goods and services used

for the production or trading of VAT taxable goods and services shall be deductible; the amount of non-deductible input VAT shall be included in expenses as costs of non-taxable goods and services.

In respect of fixed assets which are purchased specifically for use in production or trading of non-taxable goods and services, all input VAT shall be deductible, but in the following cases input VAT shall only be included in the original cost of the fixed assets: specialized fixed assets which are used in production of arms and weaponry required for national defence and security; housing used as offices and other specialized equipment used for the operation of credit institutions, life insurers, securities business establishments, hospitals and schools; and fixed assets which are used for welfare purposes of business establishments (irrespective of the investment capital funding source).

(c3) Deductible input VAT in respect of production establishments in agriculture or forestry and establishments rearing, cultivating, catching or exploiting aquatic products which organize complete production, carry out consolidated accounting of results of production and business, and use agricultural or forest products or reared, cultivated, caught or exploited aquatic or sea products as raw materials in order to continue the production or processing of products subject to VAT (including agricultural, forest or aquatic products which have not yet been processed for export or processed products which are subject to VAT) shall be calculated as follows:

The business establishment shall be entitled to declare and credit VAT of goods and services purchased for use for production or trading at all stages, such as investment in capital construction, production or processing; where the establishment sells goods being agricultural, forest or aquatic products which have not yet been processed or which have only been semiprocessed, not subject to VAT, the amount of VAT of the purchased goods and services shall be deductible at a percentage (%) turnover of the taxable goods and services over the aggregate turnover of goods and services sold. The declaration and payment of VAT shall be made at the head office.

(c4) In respect of input VAT on fixed assets which are lost or damaged due to a natural calamity or fire or which are lost, and an organization or individual is found liable and must pay compensation, the input VAT of such goods shall be calculated on the value of the lost goods for which compensation is paid, not on the amount of deductible input VAT upon declaration of VAT payable.

(c5) Input VAT on goods and services which is deductible arising in whatever month shall be declared as deductible when the amount of tax payable for that month is determined, irrespective of whether goods have been put to use or kept in store; except for input VAT on goods and services used to invest in construction or formation of fixed assets of an establishment yet to go into operation and when 200 million VND of input or output VAT has not yet arisen in which case it may be deducted gradually over a three month period. Where an added value invoice or a receipt for payment of input VAT on the purchased goods and services arises in a month but is not declared within that month, the deductibility shall be declared in the following month; the maximum period for declaration shall be three months from the month in which [deductible input VAT] arises.

In the case of a corporation having offices which do not directly conduct business activities and administrative units under its control such as hospitals, clinics, convalescent homes, institutes, training schools and so forth, which are not required to pay VAT, claims for deduction or refund

of input VAT on goods and services purchased to service the activities of those subsidiaries shall not be permitted. If such subsidiaries engage in trading of goods and services subject to VAT, there must be registration, declaration and payment of VAT for such activities.

Example 18: An office of Corporation A does not directly engage in production or business but exists on the budget contributed by its subsidiaries. If the office of Corporation A leases out the unused part of its office, it must keep separate accounts and separately declare and pay VAT for such leasing activity. Input VAT on goods and services servicing the activities of the office of Corporation A shall not be deductible or refundable, and it must use the budget contributed as stated above in order to make payment.

(c6) Deductible input VAT shall apply to expenses for advertising and promoting the production and trading of goods and services subject to VAT, and this shall include VAT on goods purchased externally or produced by the enterprise itself.

(d) Exported goods or services (except as stipulated in clauses 1(dd) and 1(e) of Section III of this Part B) which are entitled to a credit or refund of input VAT must satisfy all of the following

conditions and procedures:

(d.1) A contract for sale of goods or processing of goods (in the case of processing of goods) or for provision of services to foreign organizations or individuals. In the case of authorized export, a contract authorizing export and minutes of liquidation of the contract authorizing export (if the contract has expired) or periodical debt reconciliation statement between the principal and the authorized dealer, specifying the quantity and types of products, and the value of goods which were exported under the authorization; the number and date of the export contract which the authorized dealer has signed with the foreign party; the serial number, date and amount stated in the source document for payment by the principal to the authorized dealer; and the serial number and date of the customs declaration of goods exported by the authorized dealer.

(d2) A customs declaration with certification by the customs office of actual export of the goods. In the case of export of computer software which is wrapped and sealed in hard packaging, establishments must comply with custom declaration procedures the same as for normal exports.

In the case of export of software services, establishments need not complete a customs declaration but if the goods are transferred electronically they must complete procedures acknowledging receipt in accordance with the law on e-commerce.

Business establishments supplying electricity, water, stationery [or] goods servicing daily living conditions of an export processing enterprise shall not be required to complete customs procedures. In the particular case of stationery [or] goods servicing daily living conditions of an export processing enterprise, the supplier need only register with the management committee of the export processing zone, industrial zone, high-tech zone, economic zone or commercial zone.

(d3) Payment for exported goods or services shall be made in accordance with the following provisions:

- Payment for goods or services must be made via a bank.

Payment made via a bank means the transfer of money from the bank of the importer to the bank of the exporter to pay for goods or services in accordance with the method of payment agreed in the contract and the regulations of the bank. The source document for payment shall be the credit advice issued by the bank of the exporter, notifying the amount of money received from the bank account at the bank of the importer. Where deferred payment is agreed in the export contract, the business establishment must produce a source document for payment via a bank upon the due date. In the case of authorized export, the authorized dealer must conduct payment with the foreign party via a bank.

- Payment shall be deemed to be made via a bank in the following cases:

Where the payment for exported goods or services is set off against a foreign loan, the business establishment must satisfy all of the following conditions, procedures and documents: Loan agreement (with respect to loans with a term of under one year); or certificate of registration of a loan issued by the State Bank of Vietnam (with respect to loans with a term of over one year); and source document for transfer of money by the foreign party into Vietnam via a bank.

- The method of payment for exported goods or services by way of set-off against a foreign loan must be set out in the export contract; and there must be confirmation from the foreign party regarding the set-off against a loan.

Where there is any difference after set-off of the value of exported goods or services against the foreign loan, the payment of the difference shall be made via a bank. The source document for payment via a bank shall be in accordance with the guidelines in this clause.

Where an establishment exporting goods or services conducts payment via a bank, but the foreign party authorizes a third party being an organization or individual overseas to make the payment, the payment made in accordance with the authorization must be stipulated in the export contract (or in an addendum to the contract, if any).

- Where the foreign party makes payment via its representative office in Vietnam to the account of the exporter, the payment made in accordance with the authorization must be stipulated in the export contract (or in an addendum to the contract, if any).

- Where the foreign party makes payment via a request to a third party organization in Vietnam to pay off a debt via a bank payment and this is stipulated in the export contract (or in an addendum to the contract, if any) there must be proof from the exporter's bank of the payment received from the third party and also proof of payment of the debt certified by both the foreign party and the third party.

- Where the foreign party makes payment from a current account at an authorized bank in Vietnam to the account of the exporter, this payment must be stipulated in the export contract (or in an addendum to the contract, if any) and the source document for payment shall be the credit advice issued by the bank of the exporter, notifying the amount of money received from the current account of the foreign purchaser.

- Other cases of payments in accordance with regulations of the Government:

- In the case of labour export with collection of fees directly from employees working overseas, there must be source documents for collection of fees in cash from employees.

- Where a business establishment exports goods to sell at a fair or exhibition overseas, if foreign currency in cash is earned in the country where the commercial fair and exhibition is held and is remitted into Vietnam, there must be a declaration of the remitted amount of foreign currency earned from the sale of goods with the customs office and a source document for deposit of money with a bank in Vietnam.

- In the case of export of goods or services for repayment of a foreign debt for the Government, there must be confirmation from the foreign trade bank that the foreign party has accepted the consignment of exported goods to set off against the debt or confirmation that the set of documents has been sent to the foreign party to set off against the debt; the source documents for payment shall be produced in accordance with separate regulations of the Ministry of Finance.

- The export of goods or services for which payment is made in the form of goods means the export of goods (including processing of goods for export) or services to a foreign organization or individual (referred to as the foreign party) where the payment between the Vietnamese enterprise and the foreign party is made in the form of exchange of the value of exported goods or services or of the payment for processing of goods for export for the value of goods or services purchased from the foreign party.

- With respect to exported goods or services for which payment is made in the form of goods, the following additional procedures and documents shall be required:

- Method of payment for exported goods in the form of goods must be set out in the export contract;

- Contract for purchase of goods or services from the foreign party;

- Customs declaration of imported goods for which the payment is exchanged for the exported goods or services;

- Confirmation from the foreign party regarding the amount of money of the exchange of the exported goods or services for imported goods or services purchased from the foreign party;

- Where there is any difference after exchange of the value of exported goods or services for the value of the imported goods or services, the payment of the difference shall be made via a bank. The source document for payment via a bank shall be in accordance with the guidelines in this clause.

- Export to neighbouring countries pursuant to Decision 254-2006-QD-TTg of the Prime Minister of the Government dated 7 November 2006 must comply with guidelines of the Ministry of Finance and of the State Bank.

- Other forms of payment applicable to some special cases of export as provided in regulations of the Prime Minister of the Government.

(d.4) Added value invoices for the sale of goods or services or delivery of processed goods to the foreign party or export processing enterprise.

(dd) Conditions, procedures and documents for a credit of input VAT in a number of cases where goods are deemed to be exported:

(dd.1) Transitional processed goods stipulated in the Commercial Law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties:

- Contract for processing for export together with attached appendices (if any) signed with the foreign party, specifying the receiver in Vietnam;

- Added value invoice specifying the processing fees and the quantity of processed goods returned overseas (in accordance with the fees recorded in the contract signed with the foreign party) and the name of the receiver in accordance with instructions of the foreign party;

- Order form for delivery of transitional processed products (referred to as the delivery form) fully certified by the deliverer and the receiver in respect of transitional processed products, and certified by customs managing the processing contracts of the deliverer and of the receiver;

- Payment for processed goods for the foreign party must be made via a bank in accordance with the guidelines provided in clause 1.2(d.3) of this Section.

Procedures for the delivery and receipt of transitional processed products and delivery forms shall be implemented in accordance with guidelines provided by the General Department of Customs.

Example 19: Company A signs a processing contract with a foreign party for 200,000 pairs of shoe soles for export, with processing fees at VND 800 million. The contract specifies the shoe soles are to be transferred to Company B to produce the finished shoe product. In this case, Company A falls within the category of a transitional processor of goods for export.

When preparing the vouchers for transferring the shoe soles to Company B, Company A shall specify the quantity, type and specifications of the products for delivery, and the total revenue for processing the shoe soles at VND 800 million including VAT at 0%.

(dd.2) Goods processed being on-the-spot export pursuant to the law regulating international purchases and sales of goods and agency for sale and purchase, processing and transit of goods involving foreign parties:

- Contract for sale of goods signed with the foreign party specifying goods, quantity and value of goods, the name and address of the receiver in Vietnam;

- Customs declaration form of on-the-spot import-export goods with the certification of the customs office that such goods have been delivered to an enterprise in Vietnam on instructions of the foreign party;

- Payment for goods sold to a foreign entity but delivered in Vietnam must be made via a bank in freely convertible foreign currency. The source document for payment made via a bank shall be in accordance with the guidelines in clause (d.3) above;

- Added value invoice specifying the names of the foreign purchaser and the enterprise receiving the goods, and the address for delivery of the goods in Vietnam;

- On-the-spot export of goods by an enterprise with foreign owned capital must comply with the provisions in its investment licence.

(dd3) Goods exported for offshore investment by a Vietnamese organization must have:

- Customs declaration for export goods;

- The list of the goods exported for the offshore investment (on the stipulated form which the Ministry of Trade issues);

- Investment certificate;

- Investment approval from the investment recipient country;

- Export contract.

With respect to exported goods or goods which are deemed to be exported pursuant to clause (dd) above, if there is certification of the customs office (in the case of export goods) but other procedures and documents are not satisfied, the business establishment shall not be required to calculate output VAT but its input VAT shall not be deductible. With respect to transitional processed goods and on-the-spot exports, if one of the above procedures is not satisfied, the business establishment must calculate and pay VAT the same as for goods sold domestically.

With respect to export services establishments, if they fail to satisfy the requirement for payment via a bank, they shall not be required to calculate output VAT and their input VAT shall not be deductible.

(e) In respect of business households which pay VAT directly on the basis of added value but change to paying VAT by the tax credit method, they shall deduct VAT paid on purchases of goods and services arising as from the month to which the method of paying VAT by the tax credit method applies; and input VAT on goods and services purchased before such month shall not be deductible.

1.3 The basis for determining the amount of deductible input VAT provided for in clause 1 above shall be the amount of VAT stated on the added value invoice for the goods and services purchased; the receipt for VAT payment at the import stage; or the receipt for VAT payment on behalf of a foreign party in accordance with the guidelines provided by the Ministry of Finance applicable to foreign organizations and enterprises conducting business in Vietnam but which have not established a legal entity in Vietnam.

A business establishment shall not be permitted to include deductible input VAT in cases where an added value invoice is not used in accordance with law, such as the added value invoice does not state the VAT (except for special cases where the VAT invoice states the payment price as VAT inclusive) or does not provide the name, address and tax code of the seller or does not state them correctly such that the seller cannot be identified; or if false invoices or receipts for payment of VAT are used or unauthorized amendments are made in the invoices or blank invoices are issued (without purchase or sale of goods or services) or the value stated on the invoice is greater than the actual value of goods or services.

2. Method of calculation of VAT directly on the basis of added value:

2.1 The method of tax calculation directly on the basis of added value shall apply to the following:

(a) Production and business individuals being Vietnamese.

(b) Foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam and not maintaining adequate books of account, invoices and source documents to enable tax calculation by the tax credit method.

(c) Gold, silver, precious stones and foreign currency trading establishments.

2.2 Determination of VAT payable:

With respect to certain lines of business, the added value shall be determined as follows:

(a) With respect to production and sales trading activities, the difference between the turnover of sales and the turnover of materials, goods and services purchased for production or trading.

Where a business establishment does not separately account for the value of purchased materials, goods and services corresponding to the turnover of sales of goods, it shall be determined as follows:

Prime cost price of goods shall be equal to (=) revenue at start of period plus (+) turnover of purchases during the period less (-) revenue at end of period.

Example 20: Establishment A manufactures timber products. In a particular month it sells 150 products, its total sales turnover being VND 25 million.

(b) Total cost of raw materials and supplies purchased externally to produce these 150 products is VND 19 million, comprising:

- Main materials (timber): VND 14 million;

- Other materials and services purchased externally: VND 5 million.

At the applicable VAT rate of 10%, the VAT payable by establishment A shall be calculated as follows:

- Sale output VAT: VND 25 million - 19 million = VND 6 million;

- VAT payable: VND 6 million x 10% = VND 0.6 million.

(c) With respect to construction or installation: The difference between the revenue received from construction and installation of works or items of works less (-) cost of materials, power, transportation and services and other expenses of externally purchased goods or services attributable to the activities of construction and installation of works or items of works.

(d) With respect to transportation activities: The difference between the revenue received from transportation, loading and unloading charges less (-) fuel costs, spare parts costs and other costs of externally purchased goods and services attributable to the transportation activities.

(dd) With respect to catering activities: The difference between the revenue received from selling food and drink, service charges and other revenue less (-) costs of input goods and services attributable to the provision of catering.

(e) With respect to activities of trading in gold, silver, precious stones and foreign currency: Added value shall be the difference between the turnover on sales of gold, silver, precious stones and foreign currency, less (-) the net cost price of these goods.

(g) Where business establishments in the category of those calculating tax by the tax credit method also trade in the purchase and sale of gold, silver, precious stones and foreign currency to which the method of tax calculation directly on the basis of added value applies, they must account separately for input VAT in order to declare the amount of VAT payable on goods and services for each kind of business activity and under each method of calculating VAT.

Where separate accounts are not kept, an apportionment of deductible input VAT shall be determined equivalent to the turnover on goods and services subject to VAT calculated by the tax credit method over the total turnover from sales generated in the period.

(h) Repealed.

(i) With respect to other business activities: Added value shall be the difference between the revenue from the business activities less (-) the prime cost price of goods and services purchased externally to conduct those business activities.

Revenue from sale of goods and services stipulated above shall include all additional charges and fees to which business establishments are entitled in addition to the sale price, irrespective of whether or not they have been collected.

Input purchase price of goods and services stipulated above shall include all taxes and levies already paid and included in the payment price for purchased goods and services.

(k) Business establishments which belong to the category of those paying VAT by the method of tax calculation directly on the basis of added value shall not be entitled to include the value of assets purchased externally and investment and construction for forming fixed assets in their input purchase price of goods and services for the purpose of calculating added value.

2.3 The determination of added value as the basis for calculation of the VAT payable for each business establishment shall be as follows:

(a) In the case of business establishments which conduct purchases and sales with complete invoices, receipts and entries into books of account relating to the sale and purchase of goods and services, the added value shall be determined on the basis of the sale price and the purchase price stated in such source documents (taxpayers making declarations).

(b) Where a business establishment carries out the sale of goods and services with adequate invoices or receipts and is able to determine correctly the revenue earned from the sale of goods and services in accordance with the invoices for selling goods and services, but maintains insufficient purchase invoices relating to such goods or services, the added value shall be calculated by multiplying the revenue by (x) the proportion (%) of added value levied on such turnover.

(c) Where a business individual (household) fails to carry out the purchase or sale of goods and services with adequate invoices or receipts or carries out the purchase or sale of goods or services with inadequate invoices or receipts, the tax office shall fix the taxable turnover on the basis of the business situation. The added value shall be calculated by multiplying the fixed turnover by (x) the proportion (%) of added value levied on such turnover.

Invoices which are used as the basis for calculation of VAT in accordance with this method shall be invoices which are used in accordance with law. Any invoices which are not used in accordance with law as provided in clause 1.3 of Section III of Part B of this Circular shall not be used as the basis for calculation of the VAT.

The General Department of Taxation shall provide guidelines to Taxation Departments for the determination of the proportion (%) of added value over turnover for the purpose of forming a basis for calculating VAT which is reasonable and appropriate for each line of business and the conditions in each locality.

IV. SALE AND PURCHASE INVOICES AND RECEIPTS FOR GOODS AND SERVICES

Business enterprises must implement the regime of invoices and receipts as stipulated by law when they purchase or sell goods and services.

1. Business establishments paying VAT by the tax credit method, when selling or providing VAT taxable goods or services must use added value invoices, including cases of sales of goods and services subject to special sales tax (except when using special invoices and receipts which state the VAT inclusive payment price).

2. Business establishments paying VAT directly on the basis of added value, when selling goods and services must use sales invoices.

3. When billing, business establishments must record fully and correctly all the stipulated items on the invoice. Added value invoices must specify the sale price excluding tax, any additional charges and fees (if any), the VAT amount and the total payment price including tax. If the sale price excluding tax and the VAT are not specified separately, but only the payment price is specified, output VAT shall be calculated on the payment price.

4. Lawful invoices and receipts shall comprise:

4.1 Invoices issued by the Ministry of Finance (General Department of Taxation) and supplied by the tax office to business establishments.

4.2 Self-printed invoices for use in accordance with the stipulated forms which the General Department of Taxation has agreed an establishment may use.

4.3 All types of other special invoices and receipts which are permitted to be used.

4.4 Unlawful invoices and receipts shall comprise:

(a) Purchase and sale invoices without the stipulated contents (unless supplied by the tax office);

(b) Purchase and sale invoices recording transactions which did not actually take place;

(c) Fraudulent purchase and sale invoices;

(d) Purchase and sale invoices with different items on different counterfoils of the same invoice;

(dd) Purchase and sale invoices past their use expiry date;

(e) Purchase and sale invoices dated prior to a date on which a competent authority issued a decision on invalidity of such invoice;

(g) Purchase and sale invoices for a transaction dated prior to a date on which a competent authority reached a conclusion on invalidity of such invoice.

5. Guidelines for the use of, and recording on, invoices in a number of specific cases shall be provided for as follows:

5.1 Production and business establishments paying tax by the tax credit method selling non-VAT taxable goods or services; selling goods or services to entities which are VAT exempt; or selling gold, silver, precious stones and foreign currency must use added value invoices but may write only the VATexclusive price on the line for sale price and cross out the line for tax rate and VAT amount. In cases of sales of non-VAT taxable goods or services or sales of goods or services to entities which are VAT exempt, the invoice must specify that the goods are non-taxable or that they are being sold to an entity which is VAT exempt.

5.2 In the case of an import-export business establishment paying tax by the tax credit method which imports goods as the authorized dealer for other establishments, the authorized dealer must provide the following documents when it delivers the goods:

An authorized dealer which delivers imported goods on which VAT has been paid at the import stage shall provide an added value invoice as the basis for the principal to declare deductible input VAT on the goods imported by the authorized dealer. Where the authorized dealer has not paid VAT on the imported goods at the import stage, when delivering the imported goods it must prepare an exwarehouse order concurrently being an internal transportation order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order as the vouchers for circulation of the goods on the market. The establishment may only provide the above added value invoice after VAT has been paid at the import stage on the goods it has imported as authorized dealer.

An added value invoice for the delivery of goods imported by an authorized dealer shall state:

(a) Pre-VAT selling price, comprising: the value of the goods actually imported at the CIF price, import duty, special sales tax, and other items payable in accordance with State regulations at the import stage (if any).

(b) VAT rate and VAT amount stated on the tax notice from the customs department.

(c) Total amount of payment (= (a) + (b)).

An authorized dealer which imports goods shall provide a separate added value invoice for the purpose of payment of its commission.

5.3 In the case of a production and business establishment paying tax by the tax credit method which has goods for export (including an establishment processing goods for export) which are subject to VAT, an added value invoice shall be used upon export of the goods.

Upon removal of the goods for transportation to the bordergate or to the place where export procedures will be carried out, if there is not yet a basis for providing an added value invoice, the

establishment shall use an ex-warehouse order concurrently being an internal transportation order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order as the vouchers for circulation of the goods on the market. After it has completed the procedures to export the goods, the establishment shall provide an added value invoice for the exported goods.

With respect to export of goods by an authorized dealer (including export of processed goods for

other establishments), when moving the goods to the authorized dealer, the principal shall use an exwarehouse order concurrently being an internal transportation order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order. After the customs office has certified the goods actually exported and their quantity and value based on a comparison of the source documents of the authorized dealer, the principal in the export of the goods shall provide an added value invoice for the declaration and payment of tax and refund of VAT. In this case, the export business establishment shall retain the second copy of the invoice at the enterprise. Where the export business establishment registers with the tax office to print by itself and issue invoices for export goods to foreign customers, it shall use self-printed invoices for declaration and payment of tax and tax refund.

5.4 Use of invoices and receipts for goods and services being promotions, advertising, samples, gifts, donations, substitutes for wages of employees, or for internal consumption:

(a) With respect to goods and services used for promotion, advertising or samples to service production and trading of goods and services (namely products, goods and services used for promotion, advertising and samples as stipulated in Decree 37-2006-ND-CP of the Government dated 4 April 2006 implementing the Commercial Law on commercial promotional activities), establishments must prepare VAT invoices, specifying on the invoice the volume of the goods and that they are promotional, advertising or sample goods for which money is not receivable, and a diagonal line should be drawn across the invoice.

(b) With respect to goods and services used for gifts, donations, exchange, substitutes for wages of employees or for internal consumption, the establishment must prepare VAT invoices (or sales invoices) on which items are fully recorded and VAT is calculated the same as in the case of an invoice for selling goods and services to customers.

5.5 With respect to goods and services for which a price reduction is stated on the invoice, the invoice must specify the percentage or rate of price reduction, VAT exclusive price (the sale price as already reduced), VAT and total payment price including VAT.

Where a price reduction applies when a quantity or turnover from purchases reaches a certain fixed level, the amount of reduction for goods already sold and calculated earlier shall be adjusted on the sales invoice for the goods and services upon the final purchase occasion or in the following period.

Such invoice must specify the invoice number and the price reduction. If the client fails to make further purchases [to the fixed level] then there must be a repayment slip as required by law.

5.6 In the case of a production and business establishment which transfers goods to dependent cost accounting establishments such as branches, shops and so forth in other localities (provinces and cities under central authority) for the purpose of sale or for transfer by these dependent branches and units between each other; or returns goods from one dependent cost accounting unit to a trading establishment; or moves goods to an authorized dealer to sell at a fixed price on commission depending on the method of business organization and cost accounting, the establishment may choose only one of the following two methods of using invoices and receipts: use an added value invoice as the basis for payment and for declaration and payment of VAT by each unit and at each stage independently; [and] use an ex-warehouse order concurrently being an internal transportation order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order in the case of goods being moved internally; or use a consignment order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order for the transportation of goods to an establishment acting as agent.

Production and business establishments may only implement one of these two methods of using invoices and receipts, and prior to doing so they must register with the tax office directly managing them.

When a dependent cost accounting establishment or an establishment acting as agent sells goods in any form, it must provide an invoice as stipulated and also provide a list of goods sold (in Form 02-GTGT attached to this Circular) and forward it to the establishment which provided it with the goods or to the principal, in order that such establishments may prepare value added invoices for the goods actually sold. Where there is a large number and turnover of goods for sale, the list may be provided every five or ten (10) days. If different VAT rates apply to the goods sold, a separate list must be provided for each different VAT tax rate group.

5.7 An establishment acting as commission agent for the purchase of goods shall prepare an invoice for goods purchased by the agent and commission (if any) upon return of goods to the principal.

5.8 In the case of a business establishment which purchases and takes possession of goods for which the seller provides an invoice but, after that, the purchaser discovers that the goods fail to meet specifications or quality and a part or all of them are returned: Upon return of the goods to the seller the establishment must provide an invoice specifying that the goods are returned to the seller for failure to meet specifications or quality and the amount of VAT. This invoice shall be the basis for the seller and purchaser to amend the turnover on the sale or purchase and the amount of VAT they declared.

If the purchaser is in the category of purchasers without invoices, upon return of the goods the seller and purchaser must prepare minutes or reach written agreement specifying the type, quantity and value of goods returned at the VAT-exclusive price and the amount of VAT in accordance with the sales invoice (number, code and date of invoice) and the reason for their return, and forward same to the seller together with the sales invoice. Such minutes shall be retained with the sales invoice to provide the basis for amendment of the declaration of the turnover on the sale and VAT of the seller.

If the seller has already sent out the goods and prepared an invoice but, prior to receipt, the purchaser discovers that the goods fail to meet specifications or quality and that a part or all of the goods must be returned: Upon return of the goods the seller and purchaser must prepare minutes specifying the type, quantity, VAT-exclusive value of goods and the amount of VAT in accordance with the sales invoice (with its number, code and date), and the reason for their return, and forward same to the seller together with the invoice for the seller to prepare a replacement added value invoice for the amount of goods received and aimed at providing the basis for the seller to amend its turnover and output VAT.

5.9 In the case of a business establishment which has already delivered or supplied goods and services and provided an invoice but, because the goods or services fail to meet specifications or quality, the selling price must be amended (reduced or increased), the seller and purchaser must prepare minutes or reach written agreement specifying the quantity of goods, their specifications, the amount of the price increase (or reduction) in accordance with the sales invoice (code number, date of the invoice and duration), and the reason for the price increase (or reduction). At the same time, the seller shall prepare an invoice to reflect the amended price, specifying the amendment that has been made for the price of goods and services in accordance with the sales invoice with number and code, and so forth. The invoice amending the price shall provide the basis for the seller and purchaser to make amended declarations of the turnover on the sale or purchase and output VAT and input VAT.

Business establishments shall not be permitted to write negative (-) numbers on any amended invoice they use.

5.10 When a business establishment sends out goods for sale at a mobile place, it shall use an exwarehouse order concurrently being an internal transportation order as published by the Ministry of Finance (General Department of Taxation) accompanied by an internal transfer order, and upon sale of the goods, it shall prepare an invoice as stipulated.

5.11 When a business establishment directly retails goods or provides services at a low price below the stipulated level, it shall only be required to prepare an invoice at the request of a purchaser, but if it does not prepare an invoice, it must prepare a list of retail goods sold (in Form 06-GTGT attached to this Circular) as the basis for tax calculation.

5.12 When a construction business establishment performs construction or installation works over a long period for which payment is made in accordance with a schedule or depending on the quantity of works completed and handed over, it must prepare an invoice for payment for a quantity of works constructed or installed and handed over. The added value invoice must specify pre-tax revenue and VAT. In the case of construction works for which an invoice for payment for the value of the work has been completed, if there is a reduction of the value of the volume of construction upon finalization of the value of capital construction work, an invoice or source document shall be prepared for the adjustment of the value of the work to be paid as in the case of the amendments provided for in clause 5.9 of this Section.

5.13 Business establishments to which the State allocates or leases land for investment in construction of housing for sale or lease or for investment in infrastructure for sale or lease; which provide transportation services with revenue from international transportation; or which provide international package tour services shall prepare invoices as follows:

(a) In the line for sale price, they shall write the selling price of the house, the rent for the infrastructure facilities, the revenue from transportation, or the revenue from package tour services, pre-VAT.

(b) In the line for VAT taxable price, they shall write the selling price of the house (or the rent for the infrastructure facilities) less (-) the land use fee (or land rent) payable to the State Budget;

or the revenue from package tour services less (-) the expenses arising overseas, such as food and accommodation and transportation fees; or the revenue from transportation less (-) the revenue from international transportation.

(c) In the line for tax rate, they shall write the amount of VAT and the payment price as stipulated.

If a business establishment investing in construction of housing for sale collects payment from the purchasers in advance then later builds and delivers the housing pursuant to the contract, the

business establishment need not prepare a VAT invoice when collecting such advance payments,

but only when delivering the housing. The VAT invoice should then be prepared in accordance with the above guidelines.

5.14 Establishments engaged in finance leasing which lease property subject to VAT shall prepare invoices in accordance with the regulations.

When establishments engaged in finance leasing lease assets subject to VAT, they must provide an added value invoice (for assets purchased domestically) or a receipt for payment of VAT at the import stage (for imported assets); the total amount of VAT stated on the invoice for the finance leasing services must match the amount of VAT stated on the added value invoice (or on the receipt for payment of VAT at the import stage).

Where assets are purchased for leasing not subject to VAT, without an added value invoice or receipt for payment of VAT at the import stage, VAT shall not be recorded on the invoice.

When VAT on finance leased assets has been fully credited and the assets have been transferred to the ownership of the lessee, the lessor shall transfer to the lessee the added value invoice or the purchase invoice for imported assets together with the receipt for payment of VAT on the finance leased assets.

5.15 Establishment engaged in activities of the purchase and sale of foreign currencies arising overseas shall prepare lists detailing turnover on the purchase and sale of each type of foreign currency.

Establishments must retain all source documents of transactions with buyers and sellers overseas strictly in accordance with the law on accounting. Invoices in accordance with regulations must be prepared for all activities of the purchase and sale of foreign currencies arising domestically.

5.16 Where business establishments purchase or sell gold, silver and precious stones from non-trading individuals without an invoice, they shall prepare a list of input purchased goods in accordance with Form 04-GTGT issued with this Circular.

5.17 When export processing enterprises sell goods or services, they shall use sales invoices (or invoices they themselves issue) in accordance with regulations of the Ministry of Finance.

5.18 Invoices and receipts regarding assets being capital contribution and assets transferred [internally] shall comprise:

(a1) In the case of non-business organizations and individuals making a capital contribution by assets to a limited liability company or shareholding company, the receipt shall be the minutes certifying capital contribution and the minutes recording delivery of the assets.

 (a2) In the case of an individual using his or her own assets or value of a land use right to form a private enterprise or law office without transferring ownership, if there is no proof of the value of the assets then there must be a valuation for accounting purposes to fix the value of the fixed assets.

(b1) In the case of business establishment making a capital contribution by assets to an enterprise, there must be minutes certifying capital contribution and the joint venture agreement; minutes of valuation of the assets and a file on the origin of the assets.

(b2) In the case of assets transferred [internally] between dependent cost accounting member entities within the one business establishment; or when assets are transferred when a business establishment is demerged or divided, consolidates or converts the form of ownership, then the entity transferring the assets must have an order for the transfer and a file on the origin of the assets, but an invoice shall not be required to be presented.

5.19 Where an individual or administrative unit produces or trades in goods or services subject to VAT but this arises on an irregular basis and they require to use an invoice, the tax office shall provide a oneoff invoice for use in each case.

Where a non-business entity or family household or individual sells second hand personal goods,

VAT shall not be payable and an invoice shall not be required to be presented.

5.20 Business establishments sending goods for auction shall be required to present an invoice after the sale.

5.21 Business establishments selling goods in execution of a judgment shall be required to present an invoice after the sale.

5.22 In the case of a State company undergoing equitization which delivers goods not included in the value of the company to another enterprise purchasing and selling debts, the latter shall not be required to prepare an invoice after the sale or to declare or pay VAT on the sale.

5.23 In the case of a business establishment assigning capital, when delivering goods included in the value of the capital assignment it shall be required to prepare a VAT invoice.

5.24 In the case of a business establishment receiving aid from another business establishment, the former shall prepare a receipt certifying "other income" in order to declare and pay corporate income tax in accordance with regulations. The business establishment paying out the aid shall rely on the purpose of the aid as recorded in a contract to prepare a disbursement voucher.10

5.25 Any business establishment donating, lending or returning assets must prepare a VAT invoice the same as for a normal purchase or sale.

C. REGISTRATION, DECLARATION, PAYMENT AND FINALIZATION OF TAX

I. REGISTRATION FOR PAYMENT OF VAT

1. Business establishments including their companies, factories, enterprises, branches and affiliated shops, must register with the Department of Taxation, or with the tax division in the case of business individuals, their location of business, line of business, labour, capital, tax office where tax payments are to be made and other information in accordance with the form for registration for payment of tax and the guidelines provided by the tax office.

With respect to newly-established establishments, registration for payment of tax must be made

within ten (10) days from the date of issuance of their investment licence or business registration

certificate and seal. Where the establishment commences its business operations prior to issuance

of a business registration certificate, registration for payment of tax must be made prior to commencement of its business operations.

Business establishments which have registered for payment of tax must make a declaration of any changes due to merger, consolidation, division, demerger, dissolution, bankruptcy or establishment of new companies, factories, enterprises, branches or shops, or change of business activities or change of line or location of business, and so forth, and must make an additional registration thereof with the tax office at least five days prior to the occurrence of such change.

2. Where an establishment carrying out production and business activities has its head office in a

locality (province or city under central authority) but has a dependent cost accounting establishment such as a company, factory, enterprise, branch or shop directly selling goods in another locality, the business establishment must register for tax payment with the tax office where it has its head office, and the dependent cost accounting establishments must register for VAT payment with the local tax office where they have their head offices.

Organizations and individuals providing consultancy services, survey and design services, or contracts for consultancy and services must register, declare and pay tax at the local tax office where they have their head offices.

3. Construction and installation establishments must register and pay tax at the local tax office where they have their head offices. Where affiliated establishments without legal entity status such as groups, teams or management boards, construct or install works, and so forth, in another locality (province or city under central authority), the construction establishment must at the same time register, declare and pay tax at the local tax office where the works are constructed.

4. In the case of establishments which sub-contract to business collectives or individuals undertaking responsibility for their own business results, the sub-contracting collectives or individuals shall register, declare and pay VAT directly at the tax office where their business is carried out.

5. If business establishments which are subject to payment of tax calculated directly on the basis of added value satisfy all conditions in respect of the sale and purchase of goods and services and fulfil all requirements in respect of invoices, source documents, books of account, declaration and payment of tax in accordance with applicable provisions and voluntarily register for application of the tax credit method, such business establishments shall be permitted to apply the tax credit method.

Establishments shall prepare and submit the registration for tax payment (in accordance with Form 09-GTGT attached to this Circular) to the tax office where they register for tax payment. Upon receipt of the registration of an establishment, the tax office shall be responsible for examination thereof and for promptly notifying the establishment as to whether it is permitted to apply the tax credit method (specifying the reason in the case of refusal of the application) within thirty (30) days from the date of receipt of the application of the establishment. Establishments may only pay tax by the tax credit method upon being notified by the tax office of the approval of the application.

Where business individuals (households) subject to payment of tax calculated directly on the basis of added value apply the tax credit method but, in the course of such application, they fail to fulfil the regulations, the tax office may apply measures to fix the tax payable and shall issue a notice suspending the tax credit method.

6. Issuance of tax codes to taxpayers: The tax office shall be responsible for issuing tax codes and certificates of tax registration to establishments which have registered for tax payment with the tax office.

Foreign project owners (or their authorized representatives, such as works management boards) and main foreign contractors who are entitled to a refund of VAT but do not yet have a tax code must carry out the procedures with the Department of Taxation where they have their head office for the purpose of issuance of a tax code.

II. DECLARATION OF VAT PAYABLE TO STATE BUDGET

Business and production establishments and importers shall be responsible for declaring VAT payable in accordance with the following provisions:

1. Business establishments dealing in goods or services subject to VAT must prepare a VAT declaration form on a monthly basis and submit it together with the list of goods or services purchased and sold in accordance with the prescribed forms (Forms 01-GTGT, 02-GTGT, 03-GTGT, 04-GTGT, 05-GTGT, 06-GTGT, 07A-GTGT, 07B-GTGT and 07C-GTGT attached to this Circular) to the tax office. The monthly declaration form shall be submitted to the tax office no later than the twentieth day of the following month.

Establishments must make full declarations strictly in accordance with the forms for tax declaration and shall be responsible for the accuracy of their declarations. If, after submission of a declaration to the tax office, a business establishment discovers there was an error in the data on that declaration prior to the deadline for tax payment, the business establishment must notify the tax office and at the same time prepare a replacement declaration. Where the error is discovered after the deadline for tax payment, the establishment shall make an amendment on the declaration for the next month.

2. In the case of business establishments paying tax by the tax credit method, declaration of tax payable for a number of specific cases shall be implemented as follows:

2.1 Where a business establishment carries out production or trading of VAT-taxable goods and services and of non-taxable goods and services, but the establishment does not maintain separate accounts for deductible input VAT, the input VAT shall only be deductible at a percentage (%) turnover of the taxable goods and services sold over the aggregate turnover of goods and services in the period.

The business establishment shall provisionally calculate deductible input VAT as a percentage (%) arising in the month of the declaration on a monthly basis and then, upon tax finalization for the year, shall re-calculate the amount of deductible input VAT as an actual percentage (%) of the turnover for the year of finalization.

2.2 Where construction and installation establishments have affiliated establishments without legal entity status, such as building groups and teams or management boards, constructing works in other localities (provinces or cities under central authority), the construction and installation affiliate or the head establishment must declare revenue and VAT payable at the locality where the works or items of works are constructed, at two per cent of the pre-VAT payment price for the works or items of work. The construction and installation establishment shall be responsible to declare and make VAT tax finalization in accordance with regulations with the tax office where it has its head office. The amount of VAT paid at the locality where the works are constructed shall be included in the amount of VAT paid when the construction establishment declares and pays VAT at the tax office where it has its head office. Dependent cost accounting units constructing works or items of work in locality shall use the tax code and invoices of their superior unit and shall use the VAT declaration form (in accordance with Form 07C-GTGT attached to this Circular). Where construction and installation establishments sign a construction or installation contract (as a main contract) but they assign a part of the work or items of the work to another establishment (as a sub-contractor) for implementation, the construction and installation establishment must register and declare the construction or installation contract and the sub-contract with another establishment with the tax office where they have the construction work for such establishment to declare and pay VAT for its part of the work performed at the locality. Where the construction and installation establishment (sub-contractor) does not register, declare and pay tax, the construction and installation establishment (main contractor) must declare and pay VAT on the whole contractual value of the work.

A business establishment engaged in construction or installation of works in localities other than the locality in which its head office is located or having affiliated establishments in other localities which are liable to pay VAT at a percentage (%) turnover shall, upon making a declaration and payment of VAT at its head office, include an additional declaration of the serial number of VAT declaration form, the amount of VAT payable, the number of source documents and the amount of VAT already paid in the localities of the works of construction or installation or in the locality of sale of goods in the monthly VAT declaration form which shall be used as the basis for the tax office managing such business establishment to calculate an amount of VAT already paid, payable or paid in excess.

2.3 If a construction and installation establishment is engaged in construction of works or items of work which involve a number of localities, such as construction of highways, power lines, pipelines for water, petroleum or gas and so forth, and is unable to determine the revenue and expenses arising in each locality, the business establishment shall register, declare and pay VAT in the locality where it has its head office.

2.4 Business establishments acting as an agent selling goods or services not subject to VAT; business establishments acting as an agent providing postal services or selling insurance, lotteries or air tickets at the price fixed by the principal and receiving commission shall not be required to declare and pay VAT on both the turnover from sale of goods or services as agent and agency commissions received.

2.5 In the case of an establishment selling goods via an agent (a commission agent for the sale of goods at the price fixed by the principal), the establishment shall declare and pay tax on such goods monthly, based on the invoices prepared for the goods sold via the agent as provided for in clause 5.6 of Section IV of Part B of this Circular.

In the case of affiliated establishments, such as branches and sales outlets and so forth, directly selling goods and services in localities other than the head office of the establishment, they shall

declare and pay tax in the locality where the affiliated establishments have their head offices, based on input and output invoices for the goods that are delivered internally to them and for the goods they directly purchase or sell.

2.6 An agency establishment selling goods subject to VAT in any forms shall declare, calculate and pay VAT on goods sold as agent and on commission received from agency activities.

An agency establishment selling goods at the price fixed by the goods owner and receiving commission must declare and pay tax pursuant to the sale price fixed by the goods owner even if it carried out the sale at a lower price than the price fixed by the goods owner.

Establishments acting as purchase agents in any form shall declare and pay VAT on goods purchased as agent and on commission earned (if any).

2.7 With respect to purchased goods and services used for the production or trading of VAT taxable goods and services for which input VAT has been credited or refunded but which are transferred to be used in activities producing or trading non-VAT taxable goods and services or used for another purpose other than servicing production or trading, the establishment must declare VAT on the purchased goods and services at their residual value or price not yet allocated in the accounting books and as at the time of the transfer.

With respect to fixed assets which are purchased for use in production or trading of goods and services for which input VAT has been deducted or refunded, and then they are transferred to be

used in activities other than producing or trading, the establishment must declare VAT on the fixed assets at their residual value or price not yet allocated in the accounting books.

Input VAT on goods and services forming fixed assets of an enterprise such as rooms for eating midshift meals, rooms for resting between shifts, free accommodation, changing rooms, parking lots, toilets and cisterns used by employees in production and business areas and accommodation and medical stations for employees in industrial zones shall be fully deductible.

With respect to purchased goods and services (including fixed assets) for the purpose of use for production or trading of non-VAT taxable goods and services (for which input VAT has not been

credited) but which are transferred to be used in activities producing or trading VAT taxable goods and services, the establishment must declare input VAT and shall be entitled to a deduction or refund of input VAT on the residual value or price not yet allocated in the accounting books.

2.8 In the case of establishments using goods and services for internal consumption not to service

production and business, such as transportation, airlines, railways and post offices, which do not

calculate output VAT, they must have regulations on the subjects and the limits of internal consumption of goods and services, and a competent body must have provided written approval of the regulations.

2.9 In the case of agents selling construction lotteries for commission, they shall not declare and pay VAT; VAT shall be declared and paid by the lottery companies.

2.10 In respect of corporations and companies with subsidiary units, declaration of VAT payable shall be made as follows:

(a) In respect of independent cost accounting units and dependent cost accounting units, such as

companies, enterprises, factories, branches and shops which have incomplete legal entity status, have their own seal and bank account and directly sell goods and services and generate turnover, they shall declare and pay VAT by the tax credit method in the locality where the business establishments have their head office.

(b) In respect of dependent accounting units in localities other than the head office of the company or corporation which do not have legal entity status, do not have their own seal or deposit accounts at a bank, and directly sell goods and services and generate turnover, then the company or corporation shall be responsible to make registration for issuance of a tax code to the dependent accounting units. The dependent accounting units shall use invoices of their superior unit and the VAT declaration form (in Form 07C-GTGT attached to this Circular). The company shall declare and pay VAT in the locality where the turnover is generated as at the rate of one per cent and two per cent on the VAT-exclusive turnover with respect to goods and services in the category to which the VAT rates of five per cent or ten (10) per cent respectively apply. The corporation or company shall be responsible to declare and make VAT tax finalization in accordance with regulations with the tax office where it has its head office.

The amount of VAT paid by the dependent accounting units at their locality shall be included in

the amount of VAT paid when the company or corporation declares and pays VAT at the tax office where it has its head office.

(c) In respect of dependent cost accounting units with their office in the same locality (province or city under central authority) as that of their superior unit, such as the corporation or company,

such corporation or company shall declare and pay VAT on behalf of its dependent cost accounting unit. If a dependent accounting unit which has incomplete legal entity status, has its own seal and bank account, directly sells goods and services and makes full declaration of input and output VAT wishes to declare and pay its tax, it must make registration for payment of tax and issuance of a dependent tax code and use its own invoices.

(d) In respect of dependent accounting units in localities (provinces and cities under central authority) other than the head office of the company, if they do not directly sell goods and generate turnover and account fully for input VAT, their declaration and payment of tax shall be made by the head office of the Company.

Corporations and companies shall, on the basis of their organizational structure and business activities, determine and register establishments which are subject to tax declaration and payment at the tax office where such establishments are conducting business. Where it is necessary to declare and pay VAT other than in accordance with the above guidelines, corporations or companies must refer to the Ministry of Finance for specific guidelines.

2.11 Business establishments providing finance leasing services shall not declare and pay VAT on such finance leasing services. They shall declare and calculate VAT on assets which they provide to other units on hire-purchase being VAT-taxable in accordance with invoices prepared under the provisions in clause 5.14 of Section IV of Part B of this Circular.

Establishments shall only declare VAT on finance leasing services in accordance with the provisions in this Circular by using the list in Form 02-GTGT and the list in Form 03-GTGT for leased assets which are VAT taxable, only recording in "column 10: VAT" of Form 03-GTGT the amount of VAT on leased assets apportioned consistently with the added value invoices prepared for turnover from finance leasing services in the period of the declaration.

Where a lessee does not implement a contract resulting in the lessor recovering the leased assets,

the lessor must notify the lessee and calculate accurately the amount of VAT paid and the amount of VAT unpaid. If the lessor then leases to another party, it must calculate the amount of uncollected VAT in order to collect it under the new contract.

If assets are leased for a period and then sold by the lessor to the lessee or another party, the lessor must calculate VAT on the assets sold and issue an added value invoice, and shall only be entitled to a credit for input VAT on assets not collected in full.

If both the lessor and lessee together pool capital to purchase the asset, the lessor shall only collect rent (capital and interest) corresponding to the amount of capital paid and the invoice for the purchase of the leased asset shall be managed by the lessor establishment up until ownership is transferred to the lessee. The amount of VAT corresponding to the amount of capital the lessor paid shall be calculated on the initial invoice for the collection of money.

Where a finance leasing contract is fulfilled and the lessee has paid all VAT and the two parties agree to continue the lease, the invoice prepared for the next revenue term shall not include VAT.

2.12 In the case of a business establishment which pays VAT by the tax credit method and which has trading activities of purchase and sale of gold, silver, precious stones and foreign currency paying tax directly on added value, it shall declare and pay VAT as follows:

(a)12 In respect of goods and services on which VAT is calculated by the tax credit method, it shall prepare a detailed declaration (in Form 01-GTGT attached to this Circular) and not record item 24.

It shall prepare a separate detailed declaration for the business activities of the purchase and sale of gold, silver and precious stones and for the foreign currency business activities.

Form 07A-GTGT attached to this Circular) and record the corresponding details of the goods and of the foreign currencies.

On the basis of all of the above declarations, it shall prepare an overall VAT declaration (in Form 01-GTGT attached to this Circular) and only record items 24, 40, 41, 42 and 43.

Every month, it must submit to the tax office the overall VAT declaration and the detailed VAT declarations with a list of the source documents for the goods and services purchased and sold in Forms 02-GTGT, 03-GTGT and 04-GTGT (with respect to gold, silver and foreign currency purchased from sellers without an invoice).

In the case of business establishments, such as banks, with dependent accounting units in the same locality, such affiliated units must prepare lists of goods and services purchased and sold for filing at the head establishment. When preparing a list of goods and services purchased and sold, the head establishment shall only collate an overall report from these lists.

2.13 Aircraft transportation companies shall declare and pay VAT on their aircraft transportation activities in the locality where the company has its head office.

2.14 Where a business establishment sells VAT taxable goods to a purchaser and for a price stipulated by State regulations with State subsidy for the price and transportation charges, output VAT must be calculated for the purpose of declaration and payment of VAT on the goods at the sale price stipulated by the State. VAT shall not be calculated on the price and transportation charge subsidized by the State Budget, and the establishment shall account for it in income for the purpose of calculating corporate income tax.

2.15 An office of a corporation which does not directly trade shall not be within the category of VAT taxpayers if it sells its assets, including taxable assets, and shall not calculate, declare and pay VAT on the assets sold. Upon sale of assets, the unit must prepare an invoice in the form HD-TS-TL-3L in Decision 55-2000-QD-BTC of the Minister of Finance dated 19 April 2000 issuing Regulations on Management of and Dealing with Assets of Administrative Bodies (the invoice is issued by the Department of Finance of any province or city under central authority). Production and business establishments which purchase liquidated assets shall not be entitled to a credit on input VAT.

2.16 When a business establishment is demerged or divided, dissolves or is bankrupt or converts the form of ownership, and there is a sale of assets being VAT taxable goods, VAT must be calculated, declared and paid on the goods sold. Upon sale of assets, the establishment must prepare invoices in accordance with regulations and declare and pay VAT.

2.17 In the case of a business establishment with a subsidiary unit provisionally paying VAT as a

percentage (%) in another locality from that in which the former has its head office, the business

establishment must declare at its tax office all aggregates of input VAT, of deductible input VAT, of VAT payable, and of VAT provisionally paid (including the amounts provisionally paid as a percentage (%).

2.18 Business and production establishments shall not be required to declare and pay VAT in the

following cases: - Receipt of compensation or assistance regarding land or resettlement on recovery of land;

- Contribution of assets to form an enterprise;

- A business establishment transfers assets to a dependent cost accounting establishment;

- Transfer of assets on a business establishment demerging, dividing, consolidating or converting form of ownership;

- Third party recoveries in insurance business;

- Payments collected on behalf of payees unrelated to the sale of goods and services by of the business establishment.

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3. Business establishments and importers of goods subject to VAT must declare and submit VAT declaration forms on each occasion when goods are imported at the same time as making import

duty declarations to the customs office collecting import duties.

4. Declaration of VAT by import-export business establishments importing VAT-taxable goods as authorized agents:

An authorized agent shall not declare and pay VAT on goods it imports as authorized agent, but must declare the added value invoices for such imported goods that it has paid for the principal with the tax office on list 02-GTGT together with the invoices and receipts for any other goods and services sold. The invoices for the goods imported as authorized agent shall be listed separately on the list.

5. Business establishments trading in lots must declare and pay tax in respect of each lot of goods to the division of taxation where the goods are purchased prior to dispatch of such goods (except in cases of VAT exemption under Government regulations). The VAT payable in respect of goods traded in lots shall be calculated directly on the basis of added value.

6. Where a business establishment deals in different items of goods and services subject to different rates of VAT, it must declare VAT for each individual item of goods or services at the applicable tax rates. Where it is unable to determine individual applicable tax rates, payment of tax shall be at the highest tax rate applicable to the goods produced or services provided.

7. Where turnover of sales of goods or services is not generated or there is no input or output tax,

business establishments must still make and lodge declarations with the tax office.

8. In respect of business establishments which engage in the purchase and sale of gold, silver, precious stones and foreign currency, pay tax directly on added value, and fully implement a system of purchasing and selling goods and services with proper invoices, receipts and accounting entries: if, in one month, their declaration of VAT payable is a negative (-) amount, they shall not pay VAT but the negative amount of VAT shall be carried forward to deduct from the amount payable in the following month for the purpose of calculation of the amount of VAT payable and tax finalization for the whole year, but a negative amount of VAT may not be carried forward from one finalized year to the next year.

9. In respect of administrative units and other organizations which are engaged in production or business of goods and services subject to VAT, these units shall register, declare and pay VAT and corporate income tax as stipulated by law. Where a unit does not carry out cost accounting and is unable to separate costs and input VAT of taxable goods and services, amounts of VAT and corporate income tax payable shall be determined on the basis of turnover and percentage (%) of added value and percentage (%) of corporate income on turnover as determined by the tax office for the purpose of tax declaration and payment.

10. Foreign organizations and individuals which are engaged in production or business in Vietnam not in the forms of investment under the Law on Foreign Investment in Vietnam (now the Law on Investment) hereinafter referred to as foreign contractors shall declare and pay VAT under separate regulations of the Ministry of Finance.

Where an organization or individual in Vietnam acts as agent for sale of goods or services of a foreign organization or individual, the organization or individual in Vietnam must declare and pay VAT on the goods or services on behalf of the foreign party.

11. VAT shall not be payable on goods which establishments being successful tenderers directly import (including import through an authorized agent), the goods being goods covered by the provisions in clause 1.4 of Section II of Part A of this Circular, for the purpose of sale to an enterprise to form fixed assets for an approved investment project.

When transmitting or delivering goods imported by an authorized agent, an establishment must issue an invoice in accordance with the provisions in clause 5.1 of Section IV of part B of this Circular.

12. The list of goods or services purchased and sold which is attached to tax declaration forms submitted to the tax office on a monthly basis shall be prepared in a number of cases as follows:

12.1 In respect of goods and services directly retailed to consumers, such as electricity, water, petrol and oil, postal services, hotel or food and beverage services, passenger transportation, trading of gold, silver, precious stones and foreign currency and retail sales of other consumer goods and services, declaration may be made for the total turnover from such retail sales and it shall not be necessary to declare each invoice.

12.2 In respect of goods and services purchased from retailers of goods and services, a general list may be made for each group of goods and services subject to the same tax rate and it shall not be necessary to make a detailed list of each invoice.

III. PAYMENT OF VAT

VAT taxpayers shall be responsible for paying VAT in full and in a timely manner to the State Budget.

The order and procedures for the payment of VAT shall be as follows:

1. Business establishments which pay tax by the tax credit method shall pay VAT to the State Budget upon submission of the VAT declaration form to the tax office. The time-limit for tax payment for the month shall be no later than the twentieth day of the following month.

Any establishment which has a bank account may carry out procedures to pay tax using a payment slip by telegram transfer to the State Budget; the date of payment of tax to the State Budget shall be the date on which the bank accepts and performs the procedures for transfer from the account of the business establishment to the State Budget and which is recorded by the bank on the payment slip.

Where a business establishment pays tax in cash, the date of payment of tax to the State Budget shall be the date on which the State Treasury office or tax office receives tax payment.

A business establishment shall be responsible to pay the VAT shortfall to the State Budget after ten (10) days from the date of submission of the tax finalization. Any excess amount of VAT paid shall be credited against the VAT payable in the following tax period or shall be refunded if the establishment is a subject entitled to VAT refund.

2. Where a business organization or individual (household) pays tax directly on the basis of added value and makes declaration and tax payment in accordance with the tax payment notice issued by the tax office, the time-limit for tax payment shall be no later than the twentieth day of the following month. With respect to business individuals (households) paying tax on fixed turnover, the time-limit for tax payment shall be no later than the day stipulated on the tax payment notice.

In respect of households and individuals doing business (except for taxpayers which pay tax based on a declaration) in locations which are far from the State Treasury or doing itinerant or irregular business, the tax office shall collect tax and pay it to the State Budget. The time-limit for the tax office to pay the collected tax to the State Budget shall not exceed three days (from the date of collection of tax), and in the case of mountainous areas, islands or areas where transportation is difficult shall not exceed six days, from the date of collection of tax.

3. Business establishments and importers of goods shall be liable to pay VAT upon each occasion of importation of goods. The time-limit for notices and payments of VAT in respect of imported goods shall be as stipulated on the duty payment notice:

3.1 With respect to goods which are not subject to import duties, or where the import duty rate is zero (0) per cent, the time-limit for declaration and payment of VAT shall be within the time-limit applicable to goods subject to import duties.

3.2 With respect to imported goods which are non-commercial or small volume border imports, they shall not be subject to tax payment notices, but VAT must be declared and paid immediately upon import.

3.3 Where imported goods which are not subject to VAT upon importation, such as raw materials imported for production or processing of goods for export, gifts, donations, humanitarian aid or nonrefundable aid and so forth, are sold or used for other purposes, the establishments must declare and pay VAT to the tax office directly managing the establishment.

4. Business establishments which purchase, sell or transport imported goods must perform strictly the regulations on invoices and receipts. In the absence of the stipulated vouchers, such establishments shall be dealt with for a breach of the regulations on invoices and receipts or for an administrative breach of the tax regulations, or (in respect of goods imported without invoices and receipts) shall have the goods confiscated in accordance with law.

When tax is collected, the tax office or the State Treasury office shall issue to business establishments tax collection receipts or vouchers confirming the tax collected in the form of receipts or vouchers issued uniformly by the Ministry of Finance. The tax office shall be responsible for guiding and examining business establishments in maintaining recording and accounting regimes and in clearly stating the amounts of VAT in receipts and vouchers as the basis for calculation of the amount of VAT payable and amount of VAT to be credited.

5. Any excessive amount of VAT which a business establishment has paid in a previous tax period shall be credited against the VAT payable in the following tax period. Any shortfall in the previous tax period shall be paid in full in the following tax period.

Where a business establishment transfers to another locality (another district in the case of a taxpayer directly managed by a tax division; or another province or city under central authority in the case of a taxpayer directly managed by a Taxation Department), it must pay the full amount of any shortfall and have such payment verified by the tax office directly managing it, prior to transferring its head office.

In the case of establishments paying tax on the tax credit method which transfer their head office, if they have input VAT not fully credited or have paid an excess amount, when they declare and pay tax at the tax office directly managing them in the new locality, they shall be entitled to a credit or deduction. Such business establishments must prepare a report on the totals of tax generated and totals of amounts paid and excess payments, and forward it to the Taxation Department for verification as the basis for declaring, calculating and paying tax at the tax office directly managing them in their new locality.

If during any tax period a business establishment subject to VAT by the tax credit method has deductible input tax exceeding output tax payable, the excess amount of tax shall be carried forward to the following tax period. Where a business establishment invests in new fixed assets and is entitled to a large credit of input tax, a gradual credit or refund shall be carried out in accordance with the provisions stipulated in Part D of this Circular.

6. VAT shall be paid to the State Budget in Vietnamese dong. Where a business establishment has turnover on sales or purchases of goods or services in foreign currency, there must be a conversion of such foreign currency into Vietnamese dong at the average inter-bank rate as published by the State Bank of Vietnam at the time when the sale or purchase of goods and services in foreign currency arises, for the purpose of determining the amount of VAT payable.

D. REFUND OF VAT

I. SUBJECTS AND CASES OF ENTITLEMENT TO VAT REFUND

1. Business establishments paying tax by the tax credit method shall be considered for tax refund in the following cases:

(a) Business establishments which have not yet been fully credited for input tax of three or more consecutive months (irrespective of the accounting period). The refunded tax amount shall be the input tax which has not yet been fully credited for the tax refund period. This shall apply to business establishments with a new investment or intensive investment.

Example 21: Enterprise A declares VAT with input VAT and output VAT as follows:

(Unit: VND million)

In the above example, Enterprise A has accumulated three consecutive months of input tax which exceeds output tax. Enterprise A shall therefore be entitled to a refund of VAT in the amount of VND 150 million.

(b) A business establishment exporting goods or services in a month with input VAT on export goods not yet credited of VND 200 million or more shall be considered for refund of VAT for the month. Where the input VAT which has not yet been fully credited in a month includes input VAT on goods and services sold domestically, it shall also be included in the amount of tax refunded in the month.

A business establishment exporting goods or services in a month and also selling goods domestically with input VAT on export goods or services not yet credited of VND 200 million or

more but is later compensated for the input VAT on the goods sold domestically, it shall not be considered for a refund of VAT for the month if the input VAT on VAT declarations not yet credited is less than VND 200 million, but it shall be considered for a refund of VAT for the month if the input VAT on VAT declarations not yet credited is VND 200 million or more.

In respect of goods exported by an authorized agent or transitional processing of goods for export, the subject eligible for the VAT refund shall be the principal authorizing the export or carrying out transitional processing of goods for export, or in the case processing by an authorized processor, the establishment directly processing the export goods.

2. Where a business establishment carries out a new investment, has made business registration and registration for tax payment by the tax credit method and is in the period of investment and has not commenced operations and has not yet generated any output VAT: if the period of investment is one year or more, it shall be considered for refund of input tax on an annual basis. If the amount of input VAT on invested assets to be refunded is more than VND 200 million, it shall be considered for a quarterly refund.

Example 22: A new business establishment is established in 2003; it invests VND 6 billion in construction and installation and VND 2 billion in machinery and equipment during the year.

- Input VAT in respect of materials used for construction and installation is VND 400 million;

- VAT in respect of machinery and equipment is VND 200 million.

At the end of 2003, the project has not commenced operations and has no turnover and therefore no VAT liability. Following the VAT finalization report for 2003, input VAT is fixed at VND 600 million, and so the establishment shall prepare an application file to the tax office for refund of VND 600 million VAT. If input VAT of the enterprise overall for each quarter is greater than VND 200 million, the enterprise may request a tax refund each quarter (for three consecutive months).

3. Where a business establishment paying tax by the tax credit method carries out an investment project in a production facility which is in the period of investment and has not commenced operations and has not yet made business registration and registration for tax payment, it must prepare Form 01B-GTGT in respect of each investment project each year, and if it has the amount of input VAT on goods and services used for the investment project of VND 200 million or more, it shall be considered for a quarterly refund (for three consecutive months).

4. Business establishments must conduct tax finalization upon merger, consolidation, division, dissolution, bankruptcy, or conversion of ownership; and upon transfer, sale, contractual management or lease of a State owned enterprise.

5. Tax refunds shall be made to business establishments in accordance with a decision of a competent tax authority in accordance with law.

6. Refund of VAT paid by ODA funded projects shall be subject to separate regulations of the Ministry of Finance.

7. Organizations in Vietnam using humanitarian or non-refundable aid from foreign organizations or individuals to purchase goods in Vietnam shall be entitled to a refund of VAT already paid as recorded on the added value invoice for purchase of the goods.

Example 23: The Red Cross receives VND 200 million aid money from an international organization to purchase humanitarian aid goods for the citizens in a province affected by a natural disaster. The VAT-exclusive price of the goods is VND 200 million and VAT is VND 10 million. The Red Cross shall be entitled to a refund of VAT namely VND 10 million.

All business establishments and organizations which are entitled to a refund of VAT in accordance with the provisions in clauses 1, 2, 3, 4, 5 and 7 of this Section I must pay tax by the tax credit method, must have been issued with a certificate of business registration (investment licence), have a seal, maintain accounting books and accounting source documents in accordance with regulations and must have a deposit account at a bank with the tax code of the establishment.

Once an establishment has prepared its application for a VAT refund, it may not include any input VAT which is the subject of the application in the amount of tax to be credited in the next month after the time of preparation of the application for a tax refund.

If, in the month prior to the application for a VAT refund, the establishment has paid an excess amount of VAT, it shall add the excessive VAT into the refund request amount for the period. Where an establishment has any amount of shortfall, it must pay fully the amount of shortfall to the State Budget before the tax refund is made.

8. Entities which are entitled to diplomatic immunity in accordance with the Ordinance on Diplomatic Immunity and purchase goods and services shall be entitled to a refund of the amount of VAT paid and recorded on the value added invoice. Business establishments in Vietnam which sell goods and services to such entities shall calculate VAT upon preparation of an added value invoice. Entities, goods, services and procedures for tax refund in this case shall be as provided for in Circular 08-2003-TT-BTC dated 15 January 2003.

II. APPLICATION FILE FOR VAT REFUND

1. The file for VAT refund in the cases falling within clauses 1(a), 2 and 3 of Section I of Part D of this Circular shall comprise:

1.1 Application for refund of VAT already paid, specifying the grounds for the application, the amount requested to be refunded, and the refund period (in Form 10-GTGT attached to this Circular).

1.2 List of totals of output VAT, deductible input VAT, VAT already paid (if any), and the excessive amount of input VAT over output VAT requested to be refunded.

1.3 List of goods and services purchased and sold in the period relating to the calculation of input VAT and output VAT (in Forms 02-GTGT and 03-GTGT attached to this Circular). In respect of

purchased goods and services for which special vouchers stating the tax-inclusive price are used, list in Form 05-GTGT attached to this Circular shall be used.

If monthly tax declarations are sufficient and accurate and match lists of totals, establishments shall not be required to submit lists of goods and services purchased and sold in the months for which refunds are requested. Where there is an amendment to deductible input VAT or output VAT in the months for which a refund is requested, the establishment shall declare the amount of deductible input VAT and the amount of output VAT arising in each month of the period for which the refund is requested, and the amount of the amendment must be clearly explained.

2. The file for VAT refund in the cases stipulated in clause 1(b) of Section I of Part D of this Circular shall comprise:

2.1 For export goods and services paid for in cash:

(a) Documents stipulated in clause 1 of this Section;

(b) Minutes of liquidation of the contract authorizing export or authorizing processing goods for export (if the contract has expired) or periodical debt reconciliation statement between the principal and the authorized dealer (for export via authorized agents or processing by authorized processors for export);

(c) List of documents, signed and sealed by the establishment. The list shall specify:

(c1) Serial number and date of the export declaration for the export goods (in the case of authorized export, the serial number and date of the export declaration by the authorized entity);

(c2) Serial number and date of the export contract or serial number and date of the contract authorizing export or contract authorizing processing with respect to export via authorized agents or processing by authorized processors for export;

(c3) Method of payment, serial number, date and amount of money recorded on the source document for payment for exported goods or services.

2.2 The file for VAT refund in the case of exported goods or services for which payment is made in the form of goods shall comprise:

(a) Documents stipulated in clause 1 of this Section;

(b1) Serial number and date of the contract for export of goods or services signed with the foreign party;

(b2) Serial number and date of the contract for purchase of goods or services from the foreign party (referred to as import contract) for which payment is made by exchange for exported goods or services;

(b3) Serial number and date of declaration of exported goods;

(b4) Serial number and date of declaration of imported goods purchased from the foreign party for which payment is made by exchange for exported goods or services;

(b5) Serial number and date of the confirmation from the foreign party that payment is made by exchange of imported goods or services purchased from the foreign party for exported goods or services.

Where there is any difference after the payment is made by exchange of the value of exported goods or services for the value of imported goods or services, the amount of the difference must be paid via a bank and the business establishment shall include the serial number, date of the source document for payment via a bank and the amount of payment in the list.

Contracts for export of goods or services and contracts for import of goods purchased from foreign parties shall comply with the provisions of the Commercial Law and specify the quantity, types, value of goods or services, sale (purchase) price or processing price (with respect to processing of goods), method of payment by exchange of the value of export goods or services for the value of imported goods or services purchased from the foreign party.

Where an establishment producing, trading or processing goods for export makes payment in the form of imported goods under a long-term contract with the foreign party, the business establishment must register the export contract, import contract and the schedule of payment with the foreign party with the tax authority and forward periodical confirmation of the quantity and value of goods for which payment is made by exchange with the foreign party.

2.3. The file for VAT refund in the case of on-the-spot export of goods shall comprise:

(a) Documents stipulated in clause 1 of this Section;

(b) List of documents, signed and sealed by the establishment, specifying:

(b1) Serial number and date of the on-the-spot export contract signed with foreign party;

(b2) Serial number and date of the customs declaration of goods exported and imported on-thespot;

(b3) Serial number, date and amount of money recorded on the source document for payment for goods exported on-the-spot made via a bank.

2.4 The file for VAT refund in the case of transitional processed goods for export shall comprise:

(a) Documents stipulated in clause 1 of this Section;

(b) List of documents, signed and sealed by the establishment, specifying:

(b1) Serial numbers and dates of the processing contract and supplying contract;

(b2) Serial number and date of the customs declaration of transitional processed goods for export;

(b3) Serial number, date and amount of money recorded on the source document for payment for

goods exported on-the-spot made via a bank.

2.5 The file for VAT refund in the case of goods exported for offshore investment shall comprise:

(a) Documents stipulated in clause 1 of this Section;

(b) List of documents, signed and sealed by the establishment, specifying:

(b1) Serial number and date of the offshore investment certificate;

(b2) Serial number and date of the investment approval from the investment recipient country;

(b3) The list of the goods exported for the offshore investment (issued by the Ministry of Trade).

3. The file for VAT refund in the case of merger, consolidation, division, demerger, dissolution or bankruptcy of business establishments shall comprise:

(a) Official letter requesting refund of VAT paid in excess to the State Budget;

(b) Decision on merger, consolidation, division, demerger, dissolution, bankruptcy or conversion of ownership; transfer, sale, contractual management or lease of a State owned enterprise issued by the competent authority;

(c) Finalization of VAT up until time of merger, dissolution, bankruptcy or conversion of ownership; transfer, sale, contractual management or lease of a State owned enterprise.

4. The file for VAT refund in the case falling within clause 6 of Section I of this Part shall be in accordance with separate regulations of the Ministry of Finance.

5. The file for VAT refund in the cases falling within clause 7 of Section I of this Part shall comprise:

5.1 Documents stipulated in clause 1 of this Section with a list of all input VAT refundable, a list of invoices for goods and services purchased in Form 03-GTGT and Form 05-GTGT (in respect of purchased goods and services for which special vouchers are used, the tax-inclusive price shall be recorded).

5.2 Copy of the approval decision for the aid item by the competent authority (Prime Minister of the Government, minister, chairman of a people's committee, head of a ministerial equivalent body or Government body, head of other organization or group) in accordance with article 5 of Decision 28-1999-QD-TTg of the Prime Minister of the Government (copy verified by the establishment).

5.3 Confirmation from the committee administering aid received at the Ministry of Finance regarding any item of aid received from a non-government foreign organization, specifying the name of the donor organization, the amount, the body which received it, the body administering it (copy verified by the establishment).

III. RESPONSIBILITIES OF SUBJECTS ENTITLED TO VAT REFUND

1. To prepare an application file requesting a tax refund in accordance with the provisions of Section II of this Circular and to submit it to the tax office. To provide correct and truthful data in their declarations and to be responsible before the law for such data.

2. To make additions or supplementary explanations upon request by the tax office in the case where the file is unclear or incomplete.

3. To submit a tax refund file as stipulated in Section II of this Part to the tax office; to retain at their establishments other complete files relevant to VAT refunds and VAT credits; to provide complete invoices, source documents and relevant files as the basis for ascertaining the amounts of VAT refundable when the tax office requests inspections on VAT refunds at an establishment.

4. To submit an explanation to the tax office if the establishment discovers any discrepancy in the amount of VAT declared as paid and the amount claimed in a refund application, and to have a plan for dealing with same; and if the establishment fails to do so, its refund application shall be deemed invalid.

IV. AUTHORITY AND ORDER FOR RESOLUTION OF VAT REFUND

1. Authority for approval of VAT refund:

1.1 Directors of Taxation Departments shall consider and issue decisions on VAT refunds to subjects entitled to refunds in accordance with Section I of this Part.

1.2 The Minister of Finance, or the General Director of the General Department of Taxation as authorized by the Minister of Finance, shall issue decisions on VAT refunds to other subjects and in special cases.

2. Responsibilities of tax authorities for tax refunds:

2.1 To receive application files for tax refund from taxpayers.

2.2 To inspect the application files at the tax office, to classify subjects entitled to VAT refund in order to apply the procedures for tax refund and ensure the close management of the tax refund.

2.3 To notify in writing and return the application files to business establishments which are not subjects entitled to VAT refund; where a business establishment is a subject entitled to VAT refund but its file is not complete or does not comply with the regulations, within seven days (from the date of receipt of the application file), to notify in writing and request the business establishment to make additions to the file or prepare a replacement file.

2.4 To verify the data and determine the amount refundable to the subject entitled to VAT refund.

2.5 To make decisions on tax refund for subjects entitled to VAT refund in Form 12-GTGT attached to this Circular.

2.6 To organize a check or inspection at an establishment regarding the tax refund in cases where its file has shown any suspicious signs or the subject entitled to VAT refund is in breach of the laws on taxation.

3. Time-limits for resolution of tax refund:

3.1 The time-limit for resolution of a tax refund shall be fifteen (15) days in the case of taxpayers to which the system of VAT refund first and inspection after applies (three days in the cases referred to in clause 6 of Section I of Part D of this Circular) as from the date of receipt of a complete file as stipulated.

3.2 The time-limit for resolution of a tax refund shall be sixty (60) days as from the date of receipt of a complete file in the case of taxpayers inspected at their establishment prior to making any VAT refund.

4. Responsibilities of the State Treasury:

The State Treasury of a province or city under central authority shall pay the tax refund to the taxpayer within a maximum of three days from the date of receipt of the decision on tax refund of the tax authority. In the case of refunds under clause 1(b) of Section IV of this Part, the Central State Treasury shall pay the tax refund on the basis of the decision of the Minister of Finance, or of the General Director of the General Department of Taxation as authorized by the Minister.

5. Money to pay tax refunds shall come from the Fund for VAT Refunds. The administration and use of the Fund for VAT Refunds shall be provided for in separate regulations by the Ministry of Finance.

6. The number of days for the consideration and resolution of tax refund claims in the above cases shall be calculated according to the number of working days.

DD. DUTIES, POWER AND RESPONSIBILITIES OF TAXATION AUTHORITIES

1. To provide business establishments which have registered their businesses with guidelines for registration, declaration and payment of VAT in accordance with the Law on VAT.

To issue a reminder notice to business establishments which fail to comply with the provisions on registration, declaration and payment of tax; to impose administrative penalties for tax offences in cases where business establishments fail to comply with such notices upon receipt.

2. To issue notices to business establishments for explanations, adjustments or additions or replacement declarations to be made in the case where they fail to declare fully and correctly the amount of tax payable in the declaration form. Tax notices from the tax office must be sent to taxpayers no later than three days prior to the date on which tax must be paid.

To issue tax notices to business organizations and individuals (households) paying VAT directly on the basis of added value of the amounts of tax payable and the time-limits for tax payment in accordance with Tax Notice Form 08A-GTGT or 08B-GTGT attached to this Circular. Tax notices must be sent to taxpayers no later than three days prior to the date on which tax must be paid as stated in the tax notices.

3. To issue delayed payment notices of the amounts of tax and fines payable for delayed payment in accordance with article 19.2 of the Law on VAT where a business establishment fails to pay tax within the time-limit for tax payment.

The duration used to calculate the fines payable for delayed payment of tax with respect to taxpayers shall be as follows:

3.1 From the twenty first day of the following month, with respect to taxpayers paying VAT by the tax credit method and taxpayers paying VAT directly on the basis of added value and making a declaration.

3.2 From the first day of the following month, with respect to taxpayers paying tax on a fixed turnover.

3.3 From the day following the date on which duty must be paid as stipulated in the Law on Import and Export Duties, with respect to imported goods.

4. To take, or to request the competent body to take, measures for imposing administrative penalties as provided for in article 19.4 of the Law on VAT in the case where the establishment fails to pay the tax and fines stated in a notice issued by the tax office.

Where the business establishment continues to fail to pay in full the tax and fines after such administrative measures have been taken, the tax office shall forward the relevant documents to  the competent bodies for resolution in accordance with law.

5. To examine and inspect declarations, payments and finalizations of tax by business establishments in order to ensure strict compliance with law.

6. To deal with tax complaints in accordance with provisions of the law.

7. To request taxpayers to provide books of account, invoices, source documents and other documents relating to the calculation and payment of tax; to request credit organizations, banks and other relevant organizations and individuals to provide documents relating to the calculation and payment of tax.

8. To maintain and use data and documents provided by business establishments and others in accordance with applicable regulations.

9. The tax office shall have the right to fix the amount of VAT payable by taxpayers in the following cases:

9.1 Business establishments fail to maintain, or maintain adequately, books of account, invoices and source documents as required by regulations.

Where a business establishment paying VAT calculated directly on the basis of added value or a business establishment trading in lots fails to carry out, or carry out adequately, the purchase or sale of goods with invoices or source documents, the tax office shall, based on the business situation, determine the added value and amount of tax payable calculated directly on the basis of added value as referred to in clause 2.3 of Section III of Part B of this Circular.

With respect to small or medium business individuals and households (referred to as business households), the fixed amount of tax payable each month may be used as the basis for collection of tax within a period of six or twelve (12) months. The tax office shall be responsible for notifying publicly such taxpayers of the level of turnover and the fixed amounts of tax.

Where a small or medium business household paying a fixed amount of tax over a period changes its lines of business or business scale during such period, it must notify the tax office of such change for consideration and adjustment of the fixed amount of tax; where the household fails to notify, or notifies untruthfully, of such change, the tax office shall have the right to fix an amount of tax payable in conformity with its business situation. Where the household suspends business activities for fifteen (15) or more days in one month, it shall be considered for a reduction of fifty (50) per cent of the amount of tax payable for such month. If the household suspends business activities for a whole month, it shall be exempted from payment of the amount of tax payable for such month.

Where a small or medium business household paying a fixed amount of tax over a period suspends business activities for a number of days giving rise to entitlement to tax reduction or exemption, it shall prepare an application (in the form issued by and in accordance with guidelines of the tax office) which specifies the number of days for which business is suspended and the reasons therefor and submit same to the district tax office. The tax office shall verify and carry out the tax reduction or exemption as stipulated where the household actually suspends business.

Taxation Departments shall determine medium and small business households in accordance with the trade or industry and the specific conditions in each locality for the purpose of application of stipulated tax collection and management methods.

9.2 Failure to declare tax or failure to comply with the time-limit for submission of declaration forms despite delivery to a taxpayer of a reminder notice of such declaration; failure, upon submission of tax declaration form, to declare correctly the basis for calculation of VAT.

Where a business establishment fails to forward declarations of tax, or fails to declare adequately or declares incorrectly the basis for calculation of VAT payable such as output VAT (sale prices and tax rates) and deductible input VAT, the tax authority shall make a decision, based on the business situation of the establishment and data from an investigation, to fix sale prices, revenue and VAT payable, and shall issue a notice for the establishment for implementation. Where a business establishment is not satisfied with the amount of tax fixed by the tax authority, it may lodge a complaint with the immediately superior tax office or the authorized body, but pending resolution of the complaint it must pay the amount of tax fixed by the tax office.

9.3 Refusal to provide books of account, invoices, source documents and other necessary documents relating to the calculation of VAT.

9.4 Conducting business activities without business registration certificates; failure to register, declare and pay tax as identified after inspection.

The tax office shall determine the amount of tax payable by each business establishment in the above cases, taking into account the results of a survey of the business situation of the establishment, or according to the amount of tax payable by other business establishments of similar size operating in the same line of business.

E. DEALING WITH BREACHES

I. DEALING WITH TAX OFFENCES

A taxpayer in breach of the Law on VAT shall be dealt with as follows:

1. For failure to comply with stipulations on procedures for business registration; on tax registration, declaration, payment, or finalization; on declaration of the establishment and maintenance of books of account, invoices and source documents relating to tax calculation or tax payment: a warning or a fine shall be imposed, depending on the seriousness of the offence.

2. For late payment of tax or fine stated in a tax notice, tax collection order or penalty decision: in addition to payment of the tax or fine, a fine equal to one tenth of one (0.1) per cent of the late

payment shall be applied for each day of delay.

3. For fraudulent declaration and tax evasion or fraud in relation to tax refund: in addition to collection of tax or reimbursement in full in accordance with the Law on VAT, subject to the nature and seriousness of the offence, a fine of between one and five times the amount of tax evaded shall apply. Tax evasion or fraud in relation to tax refund involving a substantial amount, or where an administrative penalty was imposed for a tax offence but the breach continues, or any other serious breach shall be subject to prosecution for criminal liability in accordance with law.

Where any business establishment commits a fraud in relation to declarations for tax credit, nonrefundable tax refund or refund of an amount of VAT fraudulently declared, and a tax refund has been made, the tax authority must recover the fraudulent amount of VAT refunded; upon exclusion of the fraudulently declared amount of VAT, the business establishment shall forward the amount of VAT stated in the application for tax refund to the following period of the tax declaration in order to set off against the amount of VAT payable.

4. Failure to pay tax or fines shall be subject to the following measures:

4.1 Appropriation of funds deposited by taxpayers at banks, the State Treasury or credit institutions for payment of taxes and fines. Banks, the State Treasury and credit institutions shall be responsible for appropriating funds deposited by taxpayers to pay taxes and fines to the State Budget, in accordance with decisions of the tax office or competent authority prior to the recovery of any debts.

4.2 Seizure of goods or material evidence to ensure the collection of taxes and fines in full.

4.3 Confiscation of assets in accordance with law to secure the collection of outstanding taxes and fines.

The above VAT offences shall be dealt with in accordance with the procedures stipulated in legal

instruments relating to tax offences.

II. AUTHORITY TO DEAL WITH TAX OFFENCES

Tax offices at all levels shall, upon discovery of offences by business establishments under the Law on VAT, investigate and clearly identify the nature, seriousness and causes of offences as well as the responsibilities of the organizations or individuals concerned with respect to such offences and shall prepare relevant files as stipulated. Based on the relevant regulations and administrative tax penalties for offences in relation to taxation, tax offices shall, within the scope of their respective powers to deal with offences, issue penalty decisions or refer offences to a superior tax office or judicial body for resolution in accordance with provisions of the law.

1. The head of the tax office directly managing tax collection shall have the right to deal with offences of taxpayers stipulated in clauses 1 and 2 and impose tax administrative penalties as stipulated in clause 3 of Section I of Part E of this Circular.

2. Directors of Taxation Departments or heads of tax divisions shall be entitled to apply the measures stipulated in clause 4 of Section I of Part E of this Circular in accordance with provisions of the law, and to refer the offences stipulated in clause 3 of Section I of Part E to the relevant competent authority for resolution in accordance with law.

3. In the case of VAT refund application files which are in breach of law, the tax office shall prepare minutes and apply a penalty. The tax office shall prepare its conclusions without requesting the establishment to submit a further file.

G. COMPLAINTS AND TIME-LIMITS FOR RESOLUTION

1. Taxpayers shall have the following rights and responsibilities with respect to tax complaints:

Pursuant to article 23 of the Law on VAT, organizations and individuals shall have the right to complain about the failure of a tax officer or tax office to apply correctly the Law on VAT in their cases. A letter of complaint must be lodged with the tax office which issued the tax notice, tax payment order or penalty decision within thirty (30) days of receipt of such notice, order or decision.

Pending resolution of the complaint, the complainant shall pay in full and on time the tax or fine stated in the notice. Where a complainant disagrees with the decision on resolution of the complaint by the tax office, or in the absence of a response after thirty (30) days of lodging the letter of complaint, the complainant shall have the right to appeal to a superior tax office or to take legal action at a court in accordance with law. Where a complainant lodges a complaint with a superior tax office, any decision of the Minister of Finance resolving the matter shall be a final decision.

The procedures for complaints or legal action and the consideration and resolution thereof shall be carried out strictly in accordance with applicable provisions of the law.

2. Responsibilities and powers of tax offices with respect to resolution of tax complaints:

Pursuant to article 24 of the Law on VAT, tax offices at all levels shall consider and resolve any tax complaint from taxpayers within fifteen (15) days of receipt of the letter of complaint. In complicated cases which require long periods of investigation or verification, the parties concerned must be notified and the time-limit for resolution shall not exceed thirty (30) days from receipt of the letter of complaint; where a case is beyond the authority for resolution of a tax office, the tax office shall refer the file or report to the competent body for resolution and notify the parties concerned thereof within ten (10) days from receipt of the letter of complaint. Where an investigating tax office discovers a fraudulent declaration, tax evasion, or a tax mistake or a mistake about a penalty imposed and there is a finding to that effect, it shall be responsible for the collection or refund of the incorrectly calculated tax or fine within five preceding years from the date of discovery of such fraudulent declaration, tax evasion or tax mistake. Where a business establishment does not register for tax declaration and tax payment, the time-limit for collection of unpaid tax and fines shall be calculated as from the commencement of operation of the business establishment.

H. ORGANIZATION OF IMPLEMENTATION

I. ORGANIZATION OF COLLECTION OF VAT

1. Tax offices shall be responsible to organize the implementation of collection of VAT from, and VAT refunds to, business establishments.

2. Customs offices shall be responsible to organize the implementation of collection of VAT on imported goods.

II. EFFECTIVENESS

This Circular shall be of full force and effect fifteen (15) days after the date of its publication in the Official Gazette.

This Circular shall replace the following:

- Circular 120-2003-TT-BTC of the Ministry of Finance dated 12 December 2003;

- Circular 84-2004-TT-BTC of the Ministry of Finance dated 18 August 2004;

- Circular 127-2004-TT-BTC of the Ministry of Finance dated 27 December 2004;

- Circular 115-2005-TT-BTC of the Ministry of Finance dated 16 December 2005.

Any guidelines on VAT issued by the Ministry of Finance prior to the effective date of this Circular and which are inconsistent with the guidelines in this Circular are also hereby repealed.