Official Dispatch No. 301/TCT-CS dated January 22, 2013 of the General Department of Taxation concerning VAT of ODA projects

To:Management Board of CSEDP Project

In response to the official dispatch No. 659/BQLDA-KT on November 22, 2012 of the Management Board of comprehensive socio-economic development project of Thanh Hoa city (CSEDP) on tax policy for ODA projects The General Department of Taxation have the following opinions:

- At Point 1, Section III of Circular No. 134/2008/TT-BTC dated December 31, 2008 guiding the subjects and conditions applicable to the case of payment of VAT by the direct method of calculation on VAT, payment of corporate income tax as a percentage of revenue as follows:

“Vietnamese party shall make payment on behalf of foreign contractor and  subcontractor shall make payment of tax under the guidance at Point 2, Point 3, Section III, Part B of this Circular if the foreign contractor or subcontractor does not meet one of the conditions stated at Point 1, Section II, Part B of this Circular.

Vietnamese party is responsible for tax registration with the tax agency to make payment of tax on behalf of foreign contractor and subcontractor within 20 working days after signing the contract."

- In Clause 2 of Section III of the Circular No. 134/2008/TT-BTC stated above guiding on taxable VAT revenue as follows:

" In case foreign contractor signs contracts with the Vietnamese subcontractor or foreign subcontractor, it shall make payment of tax in accordance with Section II, Part B of this Circular to share part of the value of the work specified in the Contract which the contractor has signed with the Vietnamese party, the VAT taxable revenue of the foreign contractor does not include the value of work, the value of machinery and equipment carried out by the Vietnamese subcontractor or foreign subcontractor​​... "

Pursuant to the above provisions, the Management Board of CSEDP project signs contract with foreign contractor to implement project using ODA and funded with reciprocal capital by the Vietnamese Government for paying VAT; foreign contractor shall make payment of VAT by the method of direct calculation on VAT, corporate income tax as a percentage of revenue, the Project Management Board shall make payment of VAT on behalf of foreign contractor under the guidance of Circular No. 134/2008/TT-BTC stated above, specifically:

In case foreign contractor signs contract with Vietnamese subcontractor Vietnam to share part of the value of the work set in the contract which the contractor has signed with the Project Management Board, the taxable VAT revenue of a foreign contractor excluding the value of work performed by Vietnamese subcontractor.

The foreign contractor’s Input VAT incurred in the signing of subcontract with the Vietnamese subcontractor to serve the project shall not be declared, deducted or refunded but included in the cost of foreign contractor. The Project Management Board is not responsible for payment of the VAT incurred for foreign contractor so that the foreign contractor makes payment to Vietnamese subcontractor.

Vietnamese subcontractor shall declare and pay VAT in accordance with the current legal documents on VAT.

Above is the content of the response from the General Department of Taxation to the Management Board of CSEDP Project