Circular 219 guiding the implementation of the new VAT decree 209 has just been issued and is effective retrospectively from 1 January 2014. This circular replaces circular 06/2012. Some key clarifications to the new rules include:
1. Changes in conditions to apply 0% VAT on exported services
• Readers will be aware that under Circular 06/2012, applicable prior to 2014, one of the key conditions to zero rate exported services was that the overseas customer did not have a permanent establishment (“PE”) in Vietnam. This PE condition has been removed under Circular 219 and been replaced by the (re-introduced) condition that the services must be consumed outside of Vietnam or inside non-tariff zones (which was the key condition for zero rating under the VAT rules some years ago before Circular 06).
Circular 219 fails however to provide a definition of the term “consumed outside of Vietnam”. This leaves room for interpretation and based on past experience, it is expected that the tax authorities will take a narrow view that services provided to an overseas customer are consumed in Vietnam, if they are performed in and relate to Vietnam. This will likely make zero rating of exported services more difficult in practice. That said, when the overseas consumption test last applied, it was still possible to zero rate in certain specific circumstances (and rulings were obtained from the tax authorities confirming this), so taxpayers should carefully review the nature of their services provided to overseas customers to determine whether there are grounds to apply the 0% rate.
2. Cash support given to distributors is subject to 10% VAT
• Under the past VAT regulations, it was unclear whether cash support given to distributors was subject to output VAT. Circular 219 now provides that if the support is given for promotional, marketing or display activities, the distributors must issue a VAT invoice with 10% output VAT.
3. Requirement to notify bank account details to the tax authorities is re-emphasised
• Companies are requested to notify their bank accounts to the tax authorities . This requirement now becomes more critical because one of the conditions for input VAT creditable is that the seller and the buyer must use bank accounts notified to the tax authorities for making payments.
4. VAT declaration for trading activities of Export Processing Enterprise (“EPE”)
• If an EPE is granted a trading license, the EPE is required to set up a branch outside of the Export Processing Zone to carry out its trading activities. Circular 219 clarifies that the trading branch is required to file separate VAT returns.
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