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VALUE-ADDED TAX CALCULATION

Two methods of calculating value-added tax include: TAX Credit method and directly

based on added value method

1.

Tax Credit method ( Article 12

Circular 06_2012_BTC)Determination of payable VAT amount:

Payable VAT amount = Output VAT amount - Creditable input VAT

amount

In which:

a/ The output VAT amount equals the total VAT amount of goods or services indicated

on a value-added invoice.

The VAT amount indicated on a value-added invoice equals the taxed price of the

taxable goods or service sold multiplied by (x) the VAT rate applicable to such goods

or service.

In case of using vouchers indicating a VAT-inclusive price, the output VAT amount

shall be determined to be equal to this price minus (-) the taxed price specified in

Clause 11, Article 7 of this Circular.

Example: An enterprise sells iron and steel at a VAT-exclusive price of VND

11,000,000/ton of f6 iron rods; the 10% VAT amount is VND 1,100,000/ton, but on

some of its sale invoices, only the sale price of VND 12,100,000/ton is indicated, the

VAT amount calculated on the basis of sales shall be determined as follows: VND

12,100,000/ton x 10% = VND 1,210,000/ton, instead of calculation based on the VAT-

exclusive price of VND 11,000,000/ton.

b/ The input VAT amount equals (=) the total VAT amount indicated on the value-

added invoice for purchased goods or services (including also fixed assets) used for the

production of and trading in VAT-liable goods or services or the VAT amount

indicated on the duty payment vouchers for imported goods or the voucher of VAT

payment for foreign parties under the Finance Ministrys guidance applicable to

foreign organizations without the Vietnamese legal entity status and foreigners doing

business or earning incomes in Vietnam.

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If purchased goods or services are those for which special-type documents indicating

VAT-inclusive payment prices are used, businesses may base themselves on these

VAT-inclusive prices and the calculation method specified in Clause 11, Article 7 of

this Circular to determine the VAT-exclusive price and input VAT amount.

The creditable input VAT amount shall be determined based on the VAT credit

principles provided in Articles 14, 15, 16 and 17 of this Circular.

Example 40: In a tax period, Company A made payment for input services of a special

type eligible for tax credit:

The total payment price is VND 110 million (inclusive of VAT). This service is subject

to the tax rate of 10%. The creditable input VAT amount shall be calculated as follows:

VND 110 million x 10% = VND 10 million1 + 10%

The VAT-exclusive price is VND 100 million and the VAT amount is VND 10 million.

2. Method of VAT calculation directly based on added value ( Article 13 Circular06_2012_BTC)

Determination of payable VAT amounts:

The payable VAT amount calculated directly based on added value equals the added value

of the taxable goods or service multiplied by (x) the VAT rate applicable to that goods

or service.

a/ The added value of a goods or service equals the payment price of the sold goods or

service minus (-) the payment price of the corresponding purchased goods or service.

Example: Establishment A produces wood articles. In a month, it sells 150 products and

earns total sales of VND 25 million.

The value of supplies and materials purchased for the production of these 150 products is

VND 19 million, including:

+ Principal raw material (timber): VND 14 million.

+ Other materials and services purchased from outside: VND 5 million.

The applicable VAT rate is 10%. The VAT amount payable by establishment A shall be

calculated as follows:

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+ The added value of the sold products:

VND 25 million - VND 19 million = VND 6 million.

+ The payable VAT amount:

VND 6 million x 10% = VND 0.6 million.

3. ApplicationsFood company X has business figures and activities as follows:

1. Sell to domestic company 300,000 units, with 210,000 VND per unit.2. Entrusted to receive an export consignment shipment with FOB price of 9 billion

VND. Commission fee calculated on the value of the consignment is 4%.

3. Being the agent of consumption for a foreign company based in Ho Chi Minh City,total value of the imported goods with CIF price is 50 billion VND. Total cost of salesin accordance with regulations is 60 billion VND. Commission fee is 5%.

The creditable input VAT amount for the year is 8.963 billion VND.

Answer

1. Revenue = 300,000x210,000= 63,000 milOutput VAT amount = 63,000 x 10%= 6,300 mil

2. Revenue=9,000 x 4% = 360milOutput VAT amount = 360 x 10% = 36mil

3. Revenue = 60,000 x 5% = 3,000 milOutput VAT amount = 3,000 x 10% = 300 mil

Therefore payable VAT amount = Output VAT amount - Creditable input VAT

amount

When:

Total output VAT amount = 6,300 + 36 + 300 = 6,636 mil

Creditable input VAT amount = 8,963 mil

Payable VAT amount = 6,636-8,936 = -2,300 mil