VAT refund is a common practice in economic activities. It occurs when the amount of tax paid exceeds the actual tax that an individual or entity is required to pay.
1. What is a VAT refund?
A VAT refund is understood as a tax amount reimbursed by the government to taxpayers who have fully paid their taxes to the state budget. Specifically, it is the state budget returning the tax amount to businesses, corporate entities, or individuals who have purchased goods or services. The refunded tax amount is the input tax paid when acquiring goods or services for business purposes.
The VAT refund is a process in which the government reimburses a portion or the entirety of the tax amount that individuals or organizations have paid to the state budget. This refund is money returned to businesses, organizations, and individuals when they purchase goods or use services, having already paid the corresponding input tax for those purchases or services.
Specially, VAT refunds apply in the following cases:
When a taxpayer has made provisional tax payments, but after the tax authorities settle the accounts, there is an excess amount of tax paid.
In cases where there are mis applications concerning taxpayers, tax rates, exemptions, or reductions. When a VAT refund is due, the financial authorities will issue orders for tax reimbursement, and the State Treasury will carry out the necessary procedures and directly refund the tax to the individual or organization that made the tax payment.
In managing the state budget revenues, the tax amount that must be refunded to individuals or organizations is carried out either each time or deducted from the tax amount due for the subsequent tax period. In Vietnam, the VAT Law was enacted and approved by the National Assembly in its 11th session on May 10, 1997 and became effective on January 1,1999, replacing the Revenue Tax Law. During its enforcement, the VAT Law has been amended and supplemented several times to address arising issues and align with Vietnam's practices in different periods. New legal provisions regarding VAT applicable for the accounting period of 2015 include:
Circular No. 219/2013/TT-BTC dated December 31, 2013;
Circular No. 156/2013/TT-BTC dated November 6, 2013;
Circular No. 119/2014/TT-BTC dated August 25, 2014;
Circular No. 151/2014/TT-BTC dated October 10, 2014;
Circular No. 26/2015/TT-BTC dated February 27, 2015.
2. Entities eligible for VAT refund
To be eligible for VAT refund for enterprises engaged in manufacturing and trading goods or services subject to a 0% tax rate, they need to meet the following conditions:
Must possess an export contract or subcontract for export processing, or a service provision contract with organizations or individuals abroad or in non-customs-duty zones.
Require documentation proving payment for exported goods or services, excluding cash transactions, and adhere to other document requirements as per legal regulations.
Customs declarations for exported goods and related export documents must be available.
Business entities and organizations eligible for. VAT refund need to comply with the following conditions and procedures:
Must be a business entity paying taxes using the deduction method and possess a business registration certificate or investment license (business operation permit) or establishment decision from the competent authority. Must have a legal stamp in accordance with regulations and maintain accounting records and accounting documents as stipulated by accounting standards. The business entity needs to have a bank account under the tax code of the establishment.
If VAT refund claims have been declared in the VAT return, the input tax claimed for refund cannot be carried forward to the deductible tax amount for the subsequent month/quarter.
VAT refund procedures are conducted following the regulations outlined in the Tax Administration Law and related guiding documents.
When a business engages in both exporting goods/services and selling domestically, VAT refunds for export activities depend on the ratio of export revenue to the total revenue of the enterprise. If the VAT input amount from export activities hasn't been fully deducted and is over 300 million VND, the business will be eligible for VAT refunds on a monthly or quarterly basis. However, if the VAT input amount from export activities, after allocation, still hasn't reached 300 million VND, the business won't receive a refund on a monthly/quarterly basis. Instead, the amount will be carried forward to the subsequent tax period.
The VAT refund documentation for export cases includes the request for the reimbursement of state budget revenue, in the form numbered 01/ĐNHT, issued alongside Circular No. 156.
3. Which entities are exempt from VAT?
There are 26 groups of goods and services exempt from value-added tax according to Article 4 of Circular 219/2013/TT-BTC guiding value-added tax (amended by Circular 151/2014/TT-BTC and Circular 26/2015/TT-BTC). Specifically:
– Products not yet processed into other products or only preliminarily processed by organizations or individuals for self-production, catching, selling domestically, or at importation.
– Newly processed products through common preliminary processing are newly cleaned, dried, peeled, ground, peeled off, grated, husked, sorted, salted, refrigerated (pickled, frozen), preserved with sulfur gas, preserved with other chemical methods to prevent decay, soaked in sulfur solution, or preserved by other common preservation methods.
For example:
+ For fish and meat, if they have only undergone simple processes like drying, salting, refrigeration, etc., or if they are unprocessed, such as selling fresh pork, they fall under the category exempt from VAT.
+ Similarly, for various types of seeds (peanuts, beans, etc.), if they are only at the stage of drying, grinding, husking, shelling, or separating, they are exempt.
HOWEVER: If these fish and meat products are further processed into items such as sausages, smoked meats, or canned meats, they will be subject to VAT. Similarly, if the seeds are processed into products such as canned porridge or salted cashews, sold in supermarkets, they will also fall under the VAT-paying category.
– Products include breeding animals, plant varieties, including breeding eggs, breeding individuals, plant seeds, seedlings, genetic materials used in breeding, importing, and trading.
– Breeding animals, plant varieties exempt from VAT are those products of importers and traders with a registered business license for breeding animals, plant varieties issued by state management agencies. Example: Breeding eggs, breeding individuals, plant seeds, genetic materials.
– Agricultural services: irrigation, water supply, land cultivation, canal dredging for agricultural production, and agricultural product harvesting services.
– Salt products made from seawater, natural salt mines, refined salt, iodized salt with Sodium Chloride (NaCl) as the main component.
– State-owned houses sold to current tenants.
– Land use right transfer.
– Life insurance, health insurance, student insurance, and other human-related insurance services; livestock insurance, crop insurance, and other agricultural insurance services; insurance for boats, ships, equipment directly used for fishing; reinsurance.
– Financial services, banking, and securities business services:
+ Loan provision.
+ Discounting, re-discounting of transferable instruments and other valuable papers.
+ Bank guarantees.
+ Financial leasing.
+ Credit card issuance.
+ Domestic and international payment guarantees for banks authorized to perform international payments.
+ Sale of collateral assets for loans by credit institutions or by authorized agencies or by lenders to repay secured loans:
. Collateral assets for loans sold must be registered with the authorized agency as stipulated by collateral transaction laws.
. Handling of collateral assets for loans must comply with collateral transaction laws
+ Credit information provision by units, organizations under the State Bank to credit institutions for use in credit activities as per the Law on the State Bank.
+ Other forms of credit provision as stipulated by the law.
– Private lending activities unrelated to credit institutions.
– Securities trading includes:
+ Brokerage,
+ Proprietary trading,
+ Underwriting,
+ Securities investment advisory,
+ Securities depository,
+ Securities investment fund management,
+ Securities investment company management,
+ Securities portfolio management,
+ Stock exchange or securities trading center organization services,
+ Securities registration services,
+ Vietnam Securities Depository services,
+ Providing loans to customers for margin trading, advances against securities sales,
+ Other securities business activities according to securities laws.
– Capital transfer, including transferring part or all of the invested capital into another economic organization (regardless of establishing or not establishing a new legal entity), transferring securities.
– Debt sales;
– Foreign exchange trading;
– Financial derivative services, including interest rate swaps, futures contracts, options to buy or sell foreign currencies, and other financial derivative services as stipulated by financial laws.
– Selling collateral assets of debts of institutions fully owned by the State, established by the Government to handle bad debts of Vietnamese credit institutions.
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