Example: Company A signs a contract with a foreign party for processing 200,000 pairs of shoe soles for export. The processing remuneration is VND 800 million. It is clearly inscribed in the contract that processed shoe soles shall be delivered to Company B in Vietnam for production of finished shoes.

In this case, Company A is an export goods intermediate processor. When making vouchers for delivery of shoe soles to Company B, Company A shall clearly inscribe therein the quantity, category and specifications of delivered products, and the whole shoe-sole processing turnover of VND 800 million it receives shall enjoy the VAT rate of 0%.

b/ Processed goods for export through establishments which directly sign processing contracts with foreign parties:

The conditions for processed goods for export through establishments which directly sign processing contracts with foreign parties to enjoy the 0% tax rate include:

- Processing remuneration inscribed in processing contracts signed with foreign parties must be equal to processing remuneration set in contracts signed between establishments which directly undertake the processing and establishments which directly sign processing contracts with foreign parties.

- Establishments which directly sign processing contracts with foreign parties shall enjoy only a commission on processing remuneration.

- Payment for goods processed for foreign traders must be made via banks. Vouchers on payment with foreign traders shall comply with the regulations of Vietnam State Bank.

- Upon delivering processed goods to establishments which directly sign processing contracts with foreign parties, the establishments which directly undertake the processing of export goods shall make added value invoices for payment of processing remuneration and inscribe therein the tax rate of 0%.

For this case, the establishments which process goods for export must have all the following documents and vouchers serving as basis for the application of the 0% tax rate:

+ The goods processing contract signed directly by the unit with the foreign party (a copy), signed and stamped by the establishment;

+ The export processing contract signed with the establishment which directly signs the contract for processing goods for export with the foreign party.

+ The export goods declaration form of the establishment which directly signs the processing contract with the foreign party with the customs office�s certification of the goods quantity and items actually exported (a copy). Where the customs declaration form is inscribed with export goods of many processing establishments, the establishment which directly signs the processing contract with the foreign party must make a copy thereof and enclose it with a certified detailed list of quantities and categories of the processing establishment�s processed goods for entrusted export. The entrusted exporter must sign and stamp such list and the copy of the customs declaration form, and be held responsible for the data in the list;

+ The written record on liquidation of the entrusted export-processing contract (for cases where the contract has been concluded) or the written record of periodical debt comparison in which the delivered quantity of products processed for export, the quantity of those actually exported, the remunerations to be paid and already paid must be clearly stated; and the serial number and date of payment voucher with the foreign trader (payment voucher of the establishment which directly signs processing contract with the foreign trader) as well as form of via-bank payment must be clearly inscribed.

If the above-said documents are copies, they must be certified as true copies, affixed with the signature of the director and the stamp of the enterprise which keeps their originals.

Example: Company X signs a garment processing contract with a foreign party to tailor 100,000 suits for a remuneration of VND 200 million. But Company X signs this contract through Import-Export Company Y in order to export the processed goods back to the foreign party for a commission equal to 5% of the remuneration.

For this case, Company X is an export goods processor. When making invoices for goods delivered to Company Y, Company X shall inscribe therein the 0% tax rate, and the whole turnover of VND 200 million received for processing of export goods shall enjoy the VAT rate of 0%. The export commission earned by Company Y must be subject to VAT as prescribed.

1.4. In cases where goods and/or services are exported in repayment of foreign debts for the Government; or cases where exported goods and services are paid with commodities, the payment vouchers shall comply with specific guidance of the Finance Ministry.

2. To replace Point 2.14, Section II, Part B of Circular No.122/2000/TT-BTC with the following new one:

"2.14. Earth, rock, sand, gravel (excluding products made thereof like sawn rock, wall and floor stones, granite stone); industrial concrete products, such as: bridge beams, house beams and frames, piles, electric poles, sewers and box culverts of all kinds, non-standard prefabricated panels and structures of reinforced concrete, concrete of commercial value."

IV. VAT DEDUCTION

1. To replace Point 1.2 b, Section III, Part B of Circular No.122/2000/TT-BTC with the following new one:

"b/ The input VAT amount is equal to (=) the total VAT amount inscribed in added value invoices for purchased goods or services (including fixed assets) used for production of and trading in goods and services subject to VAT, the VAT amount inscribed in vouchers on tax payment for imported goods (or payment made on behalf of the foreign party as prescribed at Point 3, Section II, Part C of Circular No.122/2000/TT-BTC) and the input VAT amount to be deducted according to the percentage of 1% on the purchasing price, for:

- Goods and services subject to VAT purchased from business establishments which pay VAT by the method of direct calculation on added value with sale invoices made according to form No.02/GTTT-3LL or No.02/GTTT-2LN promulgated together with Decision No.885/1998/QD-BTC of July 16, 1998 of the Finance Minister (called sale invoices for short);

- Goods being unprocessed agricultural, forestry and aquatic products purchased from production establishments not liable to VAT at the production stage, for which added value invoices prescribed at Point 5.1, Section IV, Part B of Circular No.122/2000/TT-BTC are used;

- Goods subject to special consumption tax, purchased by trading establishments from production establishments for sale with sale invoices (including cases where the goods are purchased from commission agents selling goods subject to special consumption tax at prices set by the production establishments);

- Insurance indemnities of the insurance operation subject to VAT (calculated on the insurance indemnity value), which fall under the compensation responsibility of insurance establishments;

- Purchased goods (put on a list) being unprocessed agricultural, forestry and aquatic products; earth, rock, sand, gravel, discarded materials purchased from sellers without invoices. Particularly for establishments producing unprocessed agricultural, forestry and aquatic products not subject to VAT, if they use these products for further production or processing into other goods subject to VAT, the prices deductible at the prescribed percentage shall be production costs of such agricultural, forestry and aquatic products.

The above-said deduction percentage (%) shall apply to invoices and vouchers on purchase of goods and services as from October 1, 2002 and uniformly apply to cases of domestic business as well as export.

- Where purchased goods and services are those for which special-type invoices may be used (including the national reserve department�s invoices for purchase of national reserve goods) and the payment prices inscribed therein are VAT-included prices, the establishments may base themselves on the tax-included prices and calculation method mentioned at Point 14, Section I, Part B of Circular No.122/2000/TT-BTC to determine sans-tax prices and deductible input VAT amount.

Example: In the period, Company A made payment for input services of special type eligible for deduction:

The total payment price is VND 110 million (price with VAT). This service is subject to the 10% tax rate. The deductible input VAT amount is calculated as follows:

VND 110 million
�������� x 10% = VND 10 million
1 + 10%

As a result, the sans-tax price is VND 100 million and the VAT amount is VND 10 million."

2. To amend numerals denoting percentages of 3% and 2% into 1% at Point 1.3, Section III, Part B of Circular No. 122/2000/TT-BTC.

V. VAT REIMBURSEMENT

1. To add Point 7 to Section I, Part D of Circular No.122/2000/TT-BTC as follows:

"7. Subjects enjoying the diplomatic privileges and immunities under the Ordinance on Diplomatic Privileges and Immunities and purchasing goods and/or services in Vietnam shall be reimbursed VAT amounts they have paid inscribed in added value invoices. Business establishments in Vietnam which sell goods and/or services to such subjects, when making added value invoices, shall still have to calculate VAT. Eligible subjects, goods, services, procedures and dossiers for enjoying VAT privileges and immunities guided at this Point and Section I of this Circular shall comply with the Finance Ministry�s specific guidance."

2. To add Point 8 to Section I, Part D of Circular No.122/2000/TT-BTC as follows:

"8. Classification of subjects eligible for tax reimbursement:

a/ Subjects to which the pre-reimbursement examination and inspection shall apply:

- Business establishments which have recently been set up, conducted business operation for less than one year and request tax reimbursement for the first time;

- Business establishments which commit violation acts of VAT fraudulence as guided in Section VI of this Circular;

- Business establishments which export goods being unprocessed agricultural, forestry, aquatic and marine products across land borders;

- Business establishments which are split up, separated, dissolved or bankrupt.

b/ Subjects for which the tax reimbursement shall be made before inspection: are those not prescribed at Point 8.a above.

c/ For cases where tax reimbursement requesting dossiers have been fully submitted in compliance with regulations but acts of VAT fraudulence involved therein are currently investigated or prosecuted under decisions of the functional bodies, the consideration of tax reimbursement shall be temporarily ceased until handling decisions are issued.

In cases where business establishments, which have committed acts of VAT fraudulence and are subject to the inspection before tax reimbursement, but within 12 months, well observe the provisions of tax laws and the regime of invoice and voucher management and use, they shall be entitled to tax reimbursement before inspection. Tax offices shall consider it on a case-by-case basis."

3. To replace Point 1, Section II, Part D of Circular No.122/2000/TT-BTC with the following new one:

"1. VAT reimbursement dossiers for the cases prescribed at Points 1 and 2, Section I, Part D of Circular No.122/2000/TT-BTC shall include:

- Official dispatch requesting VAT reimbursement, which clearly states the reason(s) therefor, tax amount requested to be reimbursed and reimbursement time (made according to form No.10/GTGT promulgated together with Circular No.122/2000/TT-BTC).

- General manifest of the arising output tax amount, the deductible input tax amount, the already paid tax amount (if any) and the input tax amount larger than the output tax amount requested to be reimbursed.

- List of goods and services purchased and sold in the period, which relate the determination of input and output VAT amounts (made according to forms No.02/GTGT, 03/GTGT and 04/GTGT promulgated together with Circular No.122/2000/TT-BTC and this Circular).

- Where the tax reimbursement is made according to provisions at Point 1.b, Section I, Part D of Circular No.122/2000/TT-BTC (including exported goods and services, activities of constructing and installing projects abroad and for export processing enterprises), there must be a list of dossiers, affixed with signatures and stamps of concerned establishments. Such a list must be clearly inscribed with:

+ Serial number and date of the export goods declaration (in case of entrusted export, serial number and date of the export declaration of the entrusted establishment);

+ Serial number and date of the export contract or serial number and date of the entrusted export contract for case of entrusted export;

+ Serial number and date of vouchers on payment for exported goods and/or services, activities of constructing and installing projects abroad and for export processing enterprises via banks, clearly stating the payment mode and currency;

+ Serial number and date of the written record on liquidation of the entrusted export contract (or entrusted export processing contract) between the export entrusting and entrusted parties; quantity, value and category of goods entrusted for export; serial number and date of export declaration of the establishment undertaking the entrusted export (for case of entrusted export and case guided at Point 1.3b, Section II, Part B of Circular No.122/2000/TT-BTC);

+ Export of goods across land borders, by sea or by air; name of importing country.

Where the monthly tax declaration is made fully and accurately, which is compatible with the general manifest, the establishments shall not have to submit the list of purchased and sold goods and services of the months, for which tax reimbursement is requested. In case of readjustment of deductible input VAT and output VAT in the months during the tax reimbursement period, the establishments shall have to declare the deductible input VAT amount and the arising output VAT amount for each month in the tax reimbursement period, the readjusted tax amount must be clearly explained with reasons."

4. To replace Point 2, Section IV, Part D of Circular No.122/2000/TT-BTC with the following new one:

"2. Tax offices� responsibility in the tax reimbursement:

a/ To receive tax reimbursement dossiers of tax payers. The receiving section shall inscribe clearly the date of receipt and promptly forward them to the management and processing section.

b/ To inspect dossiers and classify subjects eligible for tax reimbursement:

To inspect dossiers requesting tax reimbursement according to the following contents: determination of cases eligible for tax reimbursement, procedures and dossiers under guidance in Sections I and II, Part D of Circular No.122/2000/TT-BTC and Points 1 and 3, Section V of this Circular.

In cases where business establishments are ineligible for tax reimbursement: Within 7 days (after receiving their dossiers), the tax offices shall have to notify such in writing and return dossiers to the business establishments.

In cases where business establishments are eligible for tax reimbursement but their dossiers are incomplete or improper: Within 7 days (after receiving dossiers), the tax offices shall have to notify such in writing and requesting the business establishments to supplement their dossiers according to regulations or remake dossiers, then submit them to the tax offices.

c/ To examine data and determine tax amounts to be reimbursed:

For subjects entitled to tax reimbursement before inspection, the tax offices shall:

- Examine the compatibility of data stated in the tax reimbursement request with those on the general manifest of output VAT amounts, bases for distribution of deductible input VAT and arising deductible input VAT amounts; and compare them with data in VAT declarations, lists of invoices of purchased and sold goods and services and relevant VAT settlements (if any).

In cases where data are incorrectly or unclearly declared by subjects eligible for tax reimbursement, the tax offices shall request them to make explanations accompanied by related documents.

- Determine tax amounts to be reimbursed.

In the course of examining data and determining tax amounts to be reimbursed at tax offices, if any suspicious signs are detected or tax reimbursement subjects violate the provisions of tax laws, the tax offices shall conduct the tax reimbursement examination or inspection at the concerned establishments before effecting the tax reimbursement.

d/ To issue tax reimbursement decisions: After examining and determining correctly tax amounts to be reimbursed (including cases where the examination and inspection are conducted at establishments before the tax reimbursement and conclude that such establishments are eligible therefor), the tax offices shall issue decisions on tax reimbursement to eligible subjects according to form No.14/GTGT promulgated together with Circular No.122/2000/TT-BTC.

e/ Time limit for effecting tax reimbursement:

- For subjects entitled to tax reimbursement before inspection: The time limit for effecting tax reimbursement shall be 15 days (3 days for cases of tax reimbursement according to provisions at Points 5 and 6, Section I, Part D of Circular No.122/2000/TT-BTC) after the dossiers are fully received as prescribed.

- For subjects which must go through examination and inspection at their establishments before tax reimbursement: The time limit for effecting tax reimbursement shall be 60 days after the dossiers are fully received as prescribed."

VI. REGARDING THE HANDLING OF VIOLATIONS

To add to the end of Point 3, Section I, Part F of Circular No. 122/2000/TT-BTC the following:

"3. ...

- In cases where it is detected through the examination and inspection that business establishments commit fraudulent acts in tax declaration, payment or reimbursement with a fraud VAT amount of VND 5 million or more, the violating business establishments shall be handled as follows:

+ They shall not have fraudulently declared VAT amounts deducted or reimbursed;

+ They shall be handled for acts of tax fraudulence according to the current regulations;

+ They shall not be reimbursed by tax offices the tax amounts inscribed in their tax reimbursement requesting dossiers. If they have already been given tax reimbursement by tax offices, the latter shall recover the already reimbursed VAT amounts;

+ They must carry forward VAT amounts inscribed in their tax reimbursement requesting dossiers, after the fraudulently declared VAT amount is excluded, to the subsequent period of tax declaration and payment for clearing against payable VAT amount;

+ They shall not be considered for tax reimbursement for 12 months as from the time the tax offices detect that they commit acts of tax fraudulence. After that duration, if they can remedy tax fraudulence consequences and show good sense of observing the provisions of tax laws, the tax offices shall consider the reimbursement of input VAT amounts not yet cleared.

In cases where tax offices conduct periodical examinations or inspections at business establishments and detect that such establishments commit the above-mentioned acts of tax fraudulence, the violating establishments shall also be handled according to the provisions at this Point.

- The following acts shall be regarded as acts of fraudulence in tax declaration, payment and reimbursement:

+ Using unlawful invoices and/or vouchers, including counterfeit invoices, blank invoices (without any goods or services sold); invoices given to purchasers (second copies) are inscribed differently from those kept at business establishments (first copies); value inscribed in invoices is higher than actual value of sold goods or services; invoices are erased or crossed out; forging list of purchased goods eligible for VAT deduction according to percentages; forging VAT payment vouchers in the import process for committing fraudulence in VAT declaration, payment and reimbursement;

+ Selling goods and services without making invoices; failing to make VAT declaration and payment;

+ Using invoices of other business establishments for sale of goods and/or services without making VAT declaration;

+ Declaring goods sold at home as export goods for enjoying the 0% tax rate;

+ Declaring input VAT of goods and services not used for their production and/or business activities or used for production of and business in goods and/or services not subject to VAT, for enjoying tax deduction;

+ Other fraudulent acts for purposes of appropriating tax revenues of the State budget."

VII. LIST OF INVOICES AND VOUCHERS OF PURCHASED OR SOLD GOODS AND SERVICES

To replace list forms No.02/GTGT and 03/GTGT promulgated together with Circular No.122/2000/TT-BTC with the new ones enclosed with this Circular. The list forms promulgated together with this Circular shall apply to the VAT declaration as from October 2002.

VIII. ORGANIZATION OF IMPLEMENTATION

This Circular takes effect as from October 1, 2002.

The application of the VAT rate of 5% to industrial concrete products under the guidance at Point 6, Section III of this Circular shall be effected as from September 15, 2002, and the VAT rate of 10% applied to cases where industrial concrete products are sold and the added value invoices thereon are made as from September 15, 2002 shall not be readjusted.

Cases where tax reimbursement is made before October 1, 2002 shall comply with the guidance in Circular No.122/2000/TT-BTC (said above).

The regulations contrary to the provisions of this Circular shall all be annulled. Any problems arising in the course of implementation should be reported by the concerned units to the Finance Ministry for further guidance.

For the Finance Minister
Vice Minister
TRUONG CHI TRUNG