Taxation of Agency Services

Tax Exemptions

• Tax exemptions are not applicable to revenue from selling goods and services of a business entity.
• Certain cases are exempt from paying Value-Added Tax (VAT), such as:
  • Receipts from goods and services sold on behalf of a principal and commissions received from such sales.
  • Receipts from goods and services that are not subject to VAT.
  • Receipts from export activities.
  • Receipts from goods and services provided to international organizations and foreign diplomatic missions.

Value-Added Tax (VAT)

• VAT is a type of tax that is applicable to all goods and services used for production and business activities in a country.
• VAT has a broad tax base and is able to overcome the limitations of the turnover tax in a market economy.
• VAT has several benefits, including:
  • Ensuring a large, stable, and timely source of revenue for the state budget.
  • Encouraging investment, exports, and economic growth.
  • Promoting business accounting, invoicing, and tax compliance.
  • Completing the tax policy system, making it more compatible with international practices.

Progressive Tax Rates

• Progressive tax rates are a type of tax rate system where the tax rate increases as the tax base increases.
• The progressive tax rate system has both advantages and disadvantages, including:
  • Advantages: simpler tax calculation, faster tax payment, and a more equitable tax burden.
  • Disadvantages: sudden changes in tax rates, leading to unfairness in the remaining income after tax between individuals with similar tax bases.

Taxation in Vietnam

• Vietnam's taxation system was established and developed during the "đổi mới" (renovation) period, starting from 1986.
• Before 1986, Vietnam's economy was centralized, and the state budget was mainly sourced from state-owned enterprises (SOEs).
• In the early 1990s, Vietnam implemented tax reform, introducing a new tax system that applied to all economic sectors, including:
  • Turnover tax
  • Special consumption tax
  • Export tax
  • Import tax
  • Resource tax
  • Income tax
  • Agricultural tax (later changed to agricultural land use tax)
  • Property tax
  • Land use tax

Tax Incentives

• Tax incentives are exceptions to the tax laws, which provide exemptions or reductions in tax liability for certain individuals or organizations.
• Tax incentives are used to promote economic development, encourage investment, and achieve social goals.

Tax Reform in Vietnam

• In the late 1990s, Vietnam implemented tax reform, introducing a new tax system that replaced the old one.
• The new tax system included:
  • Value-Added Tax (VAT)
  • Enterprise income tax
  • Personal income tax
• The tax reform aimed to:
  • Simplify the tax system
  • Reduce tax rates
  • Broaden the tax base
  • Increase transparency and fairness
  • Encourage economic growth and development

Export Products

• Export products are natural resources, mineral products that have not been processed into other products.
• Export products are goods processed from natural resources, mineral products that meet certain conditions.

Exceptions

• Products exported after being processed from natural resources, mineral products through a closed or separated process are eligible for 0% GTGT tax rate.
• Products exported after being processed from non-natural resource, mineral products are eligible for 0% GTGT tax rate.
• Products exported from foreign invested enterprises that meet certain conditions are eligible for 0% GTGT tax rate.

Non-Taxable Services

• Credit services, investment funds, including loan activities, guarantee for loans, and discount commercial papers.
• Securities business, including brokerage, self-trading, issuance guarantee, investment consulting, securities registration, and management of investment funds.
• Services related to securities transactions, including market organization, and technical support for online securities transactions.

Non-Taxable Goods

• Goods transported through Vietnam's territory, goods temporarily imported, re-exported, and goods temporarily exported, re-imported.
• Raw materials imported for production, processing, and export according to contracts signed with foreign parties.
• Goods and services traded between foreign countries and non-tariff zones, and between non-tariff zones.

Non-Taxable Business

• Business with annual revenue of VND 100 million or less.

Non-Taxable Agricultural Products

• Agricultural products, including planted and harvested products, unplanted and unprocessed products, and products imported for agricultural production.
• Livestock and poultry breeds, seeds, fertilizers, and machinery specialized for agricultural production.
• Services directly serving agricultural production, including irrigation, land preparation, and harvesting.

Non-Taxable Goods under International Commitments

• Imported goods under humanitarian aid, non-refundable aid, and gifts for state agencies, political organizations, social organizations, and individuals.
• Goods imported by foreign organizations and individuals according to diplomatic standards, and luggage within tax-free limits.
• Goods brought by Vietnamese returnees within tax-free limits.

Cases Not Required to Declare and Pay VAT

• Cases not required to declare and pay VAT are regulated in Circular guiding VAT and inherited in Circular 219/2013/TT-BTC of the Minister of Finance.

Group 1: Transactions Not Considered as Goods or Services Sales

• Businesses receive payments for compensation (including land and property compensation when land is reclaimed by the State), bonuses, subsidies, and other financial revenues.
• When receiving these payments, the unit receiving money must issue a receipt; otherwise, the unit paying must base on the payment purpose to issue a payment voucher.
• If the compensation is in the form of goods or services, the compensating unit must issue an invoice and declare, pay VAT; the receiving unit declares and deducts VAT according to regulations.

Group 2: Services Performed Overseas

• Organizations and individuals in Vietnam purchase services from foreign organizations without a permanent residence in Vietnam.
• Examples include vehicle repair, machinery and equipment maintenance, advertising, market research, investment promotion, brokerage, training, etc.

Group 3: Non-Business Asset Sales

• Non-business individuals or organizations sell assets that are not used for business activities.
• Examples include an individual selling a personal car to a business or a person selling a car pledged to a bank.

Group 4: Transactions Required for Management Purposes

• Cases that require handling due to management needs, aiming to reduce social costs in tax management and prevent tax evasion, such as:
  • Transferring investment projects to produce goods or services subject to VAT.
  • Transferring assets between dependent accounting units within an enterprise; transferring assets when dividing, separating, merging, or transforming business forms.

Group 5: Fixed Asset Transfer

• Transferring fixed assets (TSCĐ) currently in use, which have been depreciated, between businesses and their subsidiaries or between subsidiaries of the same business, for the purpose of production and business activities subject to VAT.
• No VAT invoice is required, but a decision or transfer order with attached original asset documents is necessary.
• If the fixed assets are revalued or transferred to non-VAT-liable goods or services, a VAT invoice is required, and VAT must be declared and paid according to regulations.

Other Cases

• Businesses do not need to declare and pay VAT in cases such as:
  • Contributing capital with assets to establish an enterprise.
  • Transferring assets between dependent accounting units within an enterprise; transferring assets when dividing, separating, merging, or transforming business forms.
  • Collecting from a third party in insurance activities.

Tax Invoices and Declarations

• A company selling rice directly to consumers must issue a tax invoice and declare the sale, with a tax rate of 5%.

Asset Transfer

• When transferring fixed assets between units or companies within a 100% owned group, no tax invoice is required, but a decision or order for the transfer must be provided, along with the asset's original documentation.
• If the asset is revalued or transferred to a non-taxable business, a tax invoice must be issued and tax must be declared.

Other Cases

• A business is not required to declare and pay tax in the following cases:
  • Contributing assets to establish a new company (with relevant documentation).
  • Transferring assets between dependent units within a company.
  • Transferring assets when splitting, merging, or changing the type of business.
  • Receiving compensation from a third party for insurance claims.

Cases Exempt from Tax Declaration

• These cases are regulated by Circular 06/2012 and Circular 219/2013 of the Ministry of Finance.
• Examples include:
  • Receiving compensation or bonuses.
  • Transferring rights to emit pollutants.
  • Receiving financial support.
• These cases can be grouped into two main categories:
  • Non-commercial transactions (e.g., receiving compensation, bonuses, or financial support).
  • Services performed outside Vietnam (e.g., buying services from foreign companies).
• Other examples of exempt cases include:
  • Financial services (e.g., lending, guaranteeing, discounting commercial papers).
  • Securities trading (e.g., brokerage, proprietary trading, underwriting).
  • Goods temporarily imported for re-export or goods in transit through Vietnam.
  • Goods and services purchased or sold between foreign companies and non-taxable areas.
  • Businesses with annual revenue of VND 100 million or less.