Understanding VAT Tax Refund In Vietnam For Foreign Companies

Vietnam has emerged as an attractive destination for foreign companies seeking new opportunities and markets. As you navigate the complexities of doing business in this vibrant country, one key aspect you need to be well-versed in is value-added tax (VAT) and the potential for VAT tax refunds.

In this comprehensive guide, we will walk you through the ins and outs of VAT in Vietnam, what a VAT tax refund entails, the requirements for eligibility, and how you can streamline the process.

What is value-added tax (VAT) in Vietnam?

In Vietnam, Value-Added Tax (VAT) is a fundamental consumption tax, applicable to a wide range of goods and services, irrespective of residency. However, exports and services to international customers are usually VAT-exempt.

VAT in Vietnam operates as an indirect tax on local consumption, with tax collection occurring at every stage of production and distribution, ultimately impacting the final consumer. For imported goods and services, VAT is calculated based on the duty-paid value, and importers must settle VAT and import duties during customs clearance. In specific cases, VAT may be computed on the selling price, inclusive of special consumption and environment taxes.

Vietnam’s VAT system is governed by the country’s Law on Value-Added Tax. Companies determine their VAT liability using either the direct method (primarily for specific industries like gold and gemstone processing) or the more commonly used indirect (credit) method.

What is a VAT tax refund in Vietnam?

A VAT tax refund in Vietnam signifies the reimbursement of value-added tax (VAT) to eligible taxpayers from the state budget under specific circumstances. These refunds aim to rectify overpayments or reduce tax burdens for various entities.

Requirements for a VAT tax refund in Vietnam

To secure a VAT tax refund in Vietnam, businesses must:

1. Submit an application dossier to the relevant tax authority.
2. Ensure compliance with tax laws and use commercial banks for transactions.
3. Obtain pre-approval for refunds within six working days (in certain cases).
4. Be prepared for potential tax audits during the refund process.

Required documentation comprises the Enterprise Registration Certificate (ERC), a company stamp, Investment Registration Certificate (IRC), accounting records, a designated bank account, and a correctly completed refund application. Be aware that the refund process typically spans two to six months and frequently entails a tax audit.

What is the regime for corporate VAT refunds in Vietnam?

Corporate VAT refunds in Vietnam are available to businesses that meet specific criteria, including but not limited to the following:

• Credit Method Usage – Businesses adopting the credit method for VAT declaration and engaged in the production or sale of goods or services subject to VAT are eligible for VAT refunds.
• Investment Phase – Enterprises currently in the investment phase and having initiated their operations can apply for VAT refunds.
• Accumulated VAT Credits – Businesses accumulating creditable input VAT exceeding 300 million Vietnamese dongs (approximately $12,860) on goods and services purchased for business activities qualify for VAT refunds.

While these conditions offer clear guidelines, the VAT refund process can be intricate, and enterprises may encounter potential risks and obstacles along the way.

VAT refund application

When applying for a VAT refund in Vietnam, enterprises should be mindful of common issues related to licenses, charter capital, and business operations:

• Investment Period – Ensure that the registered investment period aligns with the actual completion time. If input VAT falls outside the investment timeframe, it won’t be refunded but can be carried forward.
• Conditional Business Lines – Verify that your investment projects meet the requirements for conditional business lines as mandated by laws and regulations. Obtain any necessary sub-licenses according to the prevailing rules.
• Charter Capital – Contribute the required registered charter capital and provide valid evidence of capital contribution, whether in cash or assets.

Refunds under the investment phase

During the investment phase, revenue generated from selling samples might face scrutiny from local tax authorities. Tax officers may attempt to limit the VAT refund period related to testing revenue and potentially reduce the total refund amount after a tax audit.

Input VAT from purchases

Issues often arise concerning the disallowed refund or credit of input VAT. These issues may be due to non-compliance with legal regulations for supporting documents or failure to meet non-cash payment requirements. Incomplete payments for goods and services purchased for investment projects can lead to non-compliance, especially when enterprises engage in both business operations and investment projects without proper record-keeping.

What are the common VAT refund errors?

Mistakes on VAT refund applications can lead to delays or rejections. The common errors to avoid include:

• Unclear Business Status – Failing to block the requested VAT refund amount before commencing business operations can lead to complications.
• Bank Account Registration – Not registering the designated bank account for receiving the refund amount or complying with e-tax payment regulations as per the law
• Incorrect VAT Declarations – Non-compliance with VAT declaration forms can hinder the refund process.
• Unjustified Tax Return Adjustments – Making multiple tax return adjustments without valid reasons when dealing with the tax authority can lead to complications and potential rejections.

How Can We Help- Taxation Service 

At Premia TNC , we specialize in Vietnamese tax regulations, particularly VAT tax refunds. We offer expert guidance on navigating the intricate tax landscape and optimizing VAT refunds. With a deep understanding of Vietnamese tax laws, we ensure compliance and identify VAT refund opportunities specific to your business.
Ready to optimize your VAT tax refunds and ensure compliance in Vietnam? Contact us today for a free consultation. Our experts are here to help you make the most of your financial operations in the Vietnamese market.