1. Concept

Value Added Tax (VAT) is an indirect tax levied on the value added of goods and services arising from the production, circulation, and consumption processes. In other words, VAT is a tax levied on the additional value added to goods and services at each stage of the supply chain.

Characteristics of VAT:

• Indirect tax: The actual VAT taxpayer is the final consumer, but the VAT payer is the business, organization, or individual entrepreneur.
• Taxed on value added: VAT is only taxed on the additional value added to goods and services at each stage of the supply chain.
• Cumulative: VAT is accumulated at each stage of the supply chain, resulting in a higher final product price than the initial price.

Role of VAT:

• VAT is an important source of revenue for the state budget, contributing to economic regulation and social equity.
• VAT encourages savings and discourages luxury consumption.
• VAT contributes to promoting efficient production and business operations.

Benefits of VAT:

• Transparent and easy-to-manage tax system.
• Reduces the tax burden on low-income earners.
• Encourages fair competition among businesses.

2. Taxable Subjects

Goods and services used for production, business, and consumption in Vietnam: This includes all types of goods and services produced, imported, bought, and sold on the Vietnamese market, regardless of industry or business sector.

More specifically, taxable subjects for VAT include:

• Businesses and organizations:
  • Businesses: State-owned businesses, private businesses, foreign-invested businesses…
  • Organizations: Cooperatives, associations, unions, funds…
• Individuals:
  • Individual entrepreneurs: Business households, individual entrepreneurs without business households…
  • Individuals importing goods.

VAT exemptions: Certain goods and services (export goods, education, health, and cultural services…) are specifically stipulated in the Law on Value Added Tax and related guiding documents.

3. Tax Rates

General tax rate of 10%: Applicable to most goods and services (goods such as food, beverages, clothing, machinery, equipment; services such as transportation, tourism, post, telecommunications…) produced, imported, bought, and sold on the Vietnamese market, not in the 0%, 5%, and 8% tax rate categories.

Tax rate of 0%: Applicable to a number of special groups of goods and services (export goods; international transportation services; education, health, and cultural services…), specifically stipulated in Appendix I attached to the 2008 Law on Value Added Tax.

Tax rate of 5%: Applicable to a number of essential goods and services (household water; textbooks; fertilizers, pesticides…), specifically stipulated in Appendix II attached to the 2008 Law on Value Added Tax.

Tax rate of 8%: Applicable to a number of essential goods and services (food, foodstuffs; gasoline, oil; electricity, water…) from July 1, 2023, to December 31, 2024, according to Decree No. 44/2023/NĐ-CP dated June 30, 2023, of the Government.

4. Calculation methods

VAT = Taxable value x VAT rate

In which:

• Taxable value: The selling price of goods and services excluding VAT.
• VAT rate: The percentage applied to the taxable value to calculate the amount of VAT payable.

Example: The selling price of a phone is 1,000,000 VND. The VAT rate applicable to phones is 10%. So, the amount of VAT payable for this phone is: VAT = 1,000,000 VND x 10% = 100,000 VND.

In addition, you can also use online VAT calculators to calculate quickly and more accurately.

5. Governing Bodies

General Department of Taxation (GDT):

• A state agency under the Ministry of Finance, performing the function of state management of taxes in accordance with the law.
• Responsible for advising the Minister of Finance on the issuance of legal documents on taxes; guiding and directing the implementation of tax management nationwide.
• Specifically, the GDT has the following tasks related to VAT management:
  • Issuing guiding documents on VAT management.
  • Inspecting and supervising the fulfillment of VAT obligations of businesses, organizations, and individuals.
  • Handling VAT violations.
  • Supporting and answering questions of VAT payers.

Department of Taxation of provinces and cities directly under the Central Government:

• A tax management agency under the GDT, performing the function of tax management in the province and city.
• Responsible for performing the tasks related to VAT management under the guidance of the GDT.

Tax Sub-departments of districts, towns, and cities under the province:

• A tax management agency under the Department of Taxation of the province and city directly under the Central Government, performing the function of tax management in the district, town, and city.
• Responsible for performing the tasks related to VAT management under the guidance of the Department of Taxation of the province and city directly under the Central Government.

Other agencies:

• Customs: Responsible for VAT management on imported goods.
• Banks: Responsible for collecting and paying VAT on behalf of taxpayers in accordance with regulations.