Vietnam Issues Circular 219 on VAT

The Vietnamese government has recently released Circular 219 and contains guidance on the implementation of the new VAT Decree 209. The Circular is effective retroactively from January 1, 2014, and is a replacement for Circular 06/2012.
 
Key changes brought about by Circular 219
 
With regards to zero rate exported services, the Circular has removed the “permanent establishment” (PE) condition from the regulations.  The PE condition stated that in order to qualify for zero rate exported services, the overseas customer could not have a permanent establishment in Vietnam.
 
The PE condition has been replaced by the condition that the exported services must be consumed inside non-tariff zones or outside of Vietnam.  A potential area for trouble in this new condition is the fact that the term “consumed outside of Vietnam” is not clearly defined by the Vietnamese government.  As such, it may be difficult to realize a zero percent rate in practice.
 
RELATED: A Guide to Understanding Vietnam’s VAT
 
Additionally, if support is given for marketing, promotional, or display activities, then the distributers are required to issue a VAT invoice with a VAT rate of 10 percent.
 
Furthermore, in the case of making input VAT creditable, the Circular has stressed the importance of sellers and buyers using bank accounts which have been notified to the tax authorities for making payments.
 
Finally, if an Export Processing Enterprise has been granted a trading license, then it is required to set up a branch outside of the Export Processing Zone in order to carry out any of its trading activities.  The branch must also file separate VAT returns.
 
This article was first published on Vietnam Briefing.
 
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