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VAT, Fixed Assets & Double Taxation Agreements

Released at: 03:29, 02/07/2014 TAX CONSULT

How are VAT calculation methods applied for enterprises that have been established since January 1, 2014?

Q: How are VAT calculation methods applied for enterprises that have been established since January 1, 2014?

A: On March 17, 2014 the General Department of Taxation (GDT) issued Official Letter (OL) No 858/TCT-KK providing guidance on applying VAT calculation methods for enterprises that have been established since January 1, 2014, as follows:

  • Enterprises established and operating pursuant to the Law on Enterprises from January 1, 2014 are required to lodge a notification to apply VAT calculation methods in Form No 06/GTGT (Form 06) attached to Circular No 156/2013/ TT-BTC dated November 6, 2013 from the Ministry of Finance (MoF) to the tax department directly managing them after receiving an Enterprise Registration Certificate.

  • For enterprises established since January 1, 2014 that satisfy the conditions to voluntarily apply the credit method, if they have not lodged Form 06 to register for the credit method and have not yet announced the issuance of invoices, such enterprises should lodge Form 06 for voluntary application of the credit method;

  • If the enterprises have not lodged Form 06 to register for the credit method but have already purchased sales invoices from the tax authority, the enterprises will continue to apply the direct method for 2014 and re-determine the tax calculation method for 2015 and 2016 based on the 2014 revenue.

Q: What are the recent updates on VAT refunds?

A: OL No 569/TCT-CS dated February 26, 2014 from the GDT allows a VAT refund for an investment project of an enterprise implemented in a different city or province from its headquarters when the input VAT on purchases for the project reaches the refundable limit and the project is still under construction, not commenced operations nor registered for business, tax code or branch. The enterprise is required to prepare a separate VAT refund dossier for this project.

Q: What are the updates on Circular No 45/2013/TT-BTC on assets not qualified as fixed assets (FA)?

A: According to OL No 661/TCT-CS dated March 5, 2014 from the GDT, if the FA that is depreciated in accordance with Circular No 203/2009/TT-BTC dated October 20, 2009 from the MoF does not qualify for the conditions for an historical cost basis of the FA in accordance with Article 3 of Circular No 45/2013/TT-BTC dated May 24, 2013 from the MoF (Circular 45), then the residual value of this asset will be allocated to business expenses. The allocation period cannot exceed three years from the effective date of Circular No 45 (i.e. June 10, 2013).

Q: What about upgrading or improving costs for FAs that are leased/borrowed houses?

A: OL No 677/TCT-CS dated March 6, 2014 from the GDT specifies that the upgrading or improving of costs for FAs that are leased/borrowed houses may not be creditable for VAT purposes and the enterprise is not allowed to record such expenses for CIT purposes for that period.

Q: How are Double Taxation Avoidance Agreements (DTA) applied?

A: According to OL No. 518/TCT-HTQT dated February 21, 2014 from the GDT, if an individual submits a notification to apply for a tax exemption or reduction in accordance with the DTA after the statutory deadline but the proposed period does not exceed three years, then the individual may still be considered for application of the DTA. The late submission of such notification will be subject to a penalty for breach of procedures for the tax declaration and exemption but not for tax evasion.

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