Official Dispatch No. 2177/TCT-CS dated June 21, 2020 of the General Department of Taxation regarding the issuance of value-added tax invoices of foreign contractors

To: Siemens Aktiengesellschaf Company - Construction contractor supplying main equipment for Nhon Trach 2 Power Plant.

In response to the Official Dispatch No. 2010.04.05/ dated April 13, 2020, of Siemens Aktiengesellschaf Company - Construction contractor supplying main equipment for Nhon Trach 2 Power Plant (hereinafter referred to as Siemens AG Company) on issuing value-added tax (VAT) invoices of foreign contractors, the General Department of Taxation has the following comments:

Point 1.2, Section I, Part B of the Circular No. 134/2008/TT-BTC prescribes that:

“When goods are supplied under a contract by mode of goods delivery at a place in the Vietnamese territory (including Vietnam’s territorial seas, areas beyond and attached to Vietnam’s territorial seas on which, under the law of Vietnam and in accordance with international laws, Vietnam has sovereignty over the exploration and exploitation of natural resources in the seabed, soil under the seabed and water above); or these goods are supplied together with services provided in Vietnam, such as installation, trial operation, warranty, maintenance, and replacement and other services accompanying goods supply, even when the provision of those services is included or not included in the value of the goods supply contract, the goods value is only subject to VAT at the stage of importation under regulations while the service value is subject to VAT under the guidance of this Circular. When it is impossible to separate the value of goods from that of accompanying services, the contract’s total value will be subject to VAT.

For example:

Enterprise A in Vietnam signs with overseas enterprise B a contract to buy machinery and equipment for a cement plant project. The contract’s total value is USD 100 million, including USD 80 million worth of machinery and equipment (including VAT-liable equipment with a 10% tax rate) and USD 20 million worth of installation instruction and supervision, and warranty and maintenance service. When importing the machinery and equipment, enterprise A - the importer - has paid VAT for the VAT-liable equipment.

Company B’s VAT payment for the value of the contract signed with enterprise A shall be determined as follows:

- VAT shall be calculated based on the service value (USD 20 million), not on the value of imported machinery and equipment.

- When it is impossible to separate the value of machinery and equipment from that of services, VAT shall be calculated based on the contract’s total value (USD 100 million).”

Siemens AG Company (foreign contractor) and Vietnam Machinery Installation Corporation JSC have signed the subcontractor contract No. 100609/LILAMA-SIEMENS/LOT1 on June 10, 2009, to perform the bidding package 1 of the Nhon Trach Power Plant.

2. According to the contract, when the goods (imported equipment and spare parts) arrive at the Vietnam border gate, LILAMA shall be in the name of the goods owner and carry out the import procedures and pay import tax and VAT at the stage of importation.

Based on the above-mentioned regulations, if the import dossier states that Siemens AG Company (in the German Federation) has issued a commercial invoice together with the bill of lading and sent it to LILAMA as the basis for the customs declaration; at the same time, when carrying out import procedures, LILAMA has directly paid import tax and VAT at the stage of importation for imported machinery and equipment under the contract, then Siemens AG (foreign contractor in Vietnam) is not required to issue VAT invoices to LILAMA for the value of machinery and equipment directly imported by LILAMA under the contract.

The General Department of Taxation hereby informs Siemens Aktiengesellschaf Company - Construction contractor supplying main equipment for Nhon Trach 2 Power Plant for implementation./.