Effective from 1 July 2016, Law No.106/2016/QH13 dated 6 April 2016 (Law No.106), the amendment of the Law on Value Added Tax (VAT), Law on Special Sales Tax (SST) and the Law on Tax administration provides the following key changes:
- Input VAT refunds are no longer allowed (except input VAT relevant to exports or input VAT incurred by new projects)
The key VAT change is that input VAT refunds are no longer allowed for those taxpayers with an outstanding balance of input VAT accumulated during a period of at least 12 months. Accumulated input VAT, under the new Law No.106, must be carried forward (for creditable purposes in subsequent tax periods). This will impact those VAT taxpayers who frequently have less output VAT than input VAT (i.e. those that have significant inventory).
A VAT refund however still remains available for:
— Taxpayers conducting export transactions and who have an accumulated input VAT surplus of at least VND 300 million attributable to such export transactions per month or per quarter (depending on whether VAT is filed on a monthly or quarterly basis). Claims for the refund of VAT, without any prior tax audit or review (“VAT refund first, tax audit later mechanism”) will be authorized for those taxpayers who have not committed any tax or customs offences for two consecutive years and are not deemed to be high tax risk entities.
— Taxpayers undertaking new investment projects and having accumulated input VAT of at least VND 300 million through expenditure incurred on the new project.
However, additional changes made under the new Law are that input VAT would not be refunded for the investment project, if:
— The registered charter capital of the new investment project has not been fully contributed; or
— Projects that engage in controlled sectors fail to meet regulatory conditions; and
— If it is a natural resources exploration project licensed from 1 July 2016, or if natural resources and energy costs account for at least 51% of the total cost of goods sold by the manufacturer.
VAT exemption is extended to include, amongst others
Exported goods manufactured or processed where 51% of their total cost is accounted for by natural resources and energy costs. The input VAT of these exported goods/products is therefore non-creditable.
Changes in SST rates applicable to automobiles and imported goods
SST rates applicable to automobiles
There are significant changes in terms of SST rates applicable to automobiles from 1 July. Accordingly, SST rates for low engine capacity automobiles (up to 1,500cm3) and electric passenger automobiles are the same or lower than the existing rates. While the tax rates for high engine capacity automobiles will be significantly increased. For instance, the SST rates for passenger automobiles with engine capacities of between 3,000cm3 to 5,000cm3 range from 90% to 150% which represents an increase of 60% in comparison with the previous tax rates.
SST is now imposed on imported goods at both the importation stage and the trading stage. The SST paid at the importation stage will be credited against SST paid at the trading stage.
Interest on overdue tax payments is reduced to 0.03% per day
A positive change under the new Law No.106 is the reduction of penalties on overdue tax payments to 0.03% per day (from 0.05%) on the outstanding tax amount paid beyond the timeframe allowed for (due to incorrect assessment and reassessment by the tax authorities or voluntarily adjusted by the taxpayer).
The reduced interest rate of 0.03% will apply on overdue tax before 1 July 2016 that has not been settled by such a date, and will also apply on the outstanding tax amount as reassessed by the tax authorities.
Please feel free to contact us if you need further details on these changes.
Partner, Regional Tax Practice Group
Phan Thi Lieu
Senior Tax Manager
*The information provided is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.