CIRCULAR

GUIDING THE APPLICATION OF VALUE ADDED TAX TO PROJECTS USING ODA CAPITAL

Pursuant to the VAT Law No. 02/1997/QH9 of May 10, 1997; the Government’s Decree No. 28/1998/ND-CP of May 11, 1998 detailing the implementation of the VAT Law; the Government’s Decree No. 102/1998/ND-CP of December 21, 1998 amending and supplementing a number of Articles of the Government’s Decree No. 28/1998/ND-CP of May 11, 1998 detailing the implementation of the VAT Law;
Pursuant to the Government’s Decree No. 87/CP of August 5, 1997 issuing the regulation on management and use of the ODA source;
The Ministry of Finance hereby guides the application of the VAT to programs and projects funded by ODA capital source as follows:

1. For the programs and projects using ODA capital source with reciprocal capital fully or partially invested by the State budget:

- When making cost estimates, project and program owners shall have to fully account VAT arising in the investment process, formulation programs and projects in order to be provided with reciprocal capital for the projects by the State budget, including: VAT on imported goods, and/or services liable to VAT (except for imported goods items which are not subject to VAT mentioned hereunder) and VAT on goods, and/or services liable to VAT which are bought in Vietnamese market. When making the final settlement, the project and program owners shall use the reciprocal capital from the State budget to pay VAT.

Goods, materials, machinery, equipment, and transport means imported by non-refundable ODA capital source for investment, formulation of programs and/or projects shall not be subject to VAT as stipulated in Clause 20, Article 4 of the VAT Law. For programs and projects using both the non-refundable ODA capital and preferential ODA loans in form of full investment or partial support in reciprocal capital by the State budget; if the non-refundable ODA capital makes up more than 50% of the project’s total invested capital, the goods imported for investment in formulating this project shall not be subject to VAT.

Goods imported by the preferential ODA loans, which are machinery, equipment, special-purpose transport means, and which can not be manufactured at home, and imported directly by investors for investment and formulation of programs, projects shall not be subject to VAT as stipulated in Clause 4, Article 4 of the VAT Law.

Customs authorities shall base themselves on the program or project owner’s goods import dossiers and the list of machinery, equipment, special-purpose transport means, which can be manufactured at home, issued together with Decision No. 214/1999/QD-BKH of April 26, 1999 of the Ministry of Planning and Investment so as not to collect VAT on the machinery, equipment, special-purpose transport means mentioned above.

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2. For programs and projects using ODA capital according to the mechanism of reborrowing from the State budget:

Program and project owners shall acquire capital by themselves to pay VAT arising in the process of investment, formulation of programs or projects, including: VAT on imported goods, and/or services liable to VAT (except for import goods which are not subject to VAT undermentioned) and VAT on goods, and/or services which are subject to VAT bought in Vietnamese market.

Goods imported by non-refundable ODA capital source and machinery, equipment, special-purpose transport means which can not be manufactured at home and are used for investment, formulation of programs, and/or projects are not subject to VAT. The program and project owners send dossiers as guided for programs and projects mentioned at Point 1 of this Circular to the Customs office of the locality where the program and project owners import goods can effect the non-collection of VAT on the above-mentioned import goods.

3. VAT applicable to organizations, individuals (contractors), that provide goods, and/or services to programs and/or projects using ODA capital source:

3.1. Foreign organizations and individuals (foreign contractors) that sign contracts with program and/or project owners for the supply of goods, and/or services to programs and/or projects using ODA capital source shall pay VAT according to Circular No. 169/1998/TT-BTC of December 22, 1998 of the Ministry of Finance guiding the tax regime applicable to foreign organizations and individuals conducting business activities in Vietnam not in the investment forms under the Law on Foreign Investment in Vietnam.

Machinery, equipment, transport means imported by foreign contractors in the form of temporary import for re-export in service of the construction of works of programs and/or projects using ODA capital source are not subject to VAT. Customs offices shall effect the non-collection of VAT on machinery, equipment, transport means imported temporarily by contractors to serve the construction. The above-mentioned equipment must be re-exported upon the completion of the construction; if they are sold in Vietnam, the approval of the Ministry of Trade is required and they shall be subject to VAT as defined in the VAT Law.

3.2. Vietnamese organizations and individuals (Vietnamese contractors) that sign contracts with program and project owners on the supply of goods, and services to programs and/or projects using ODA capital source shall pay VAT as defined in the VAT Law and in documents guiding the implementation thereof.

4. VAT applicable to bid-winning contracts on goods and/or services supply for construction and installation of the programs/projects using ODA capital signed before January 1, 1999.

To implement the programs and/or projects using ODA capital source with bid-winning contracts signed before January 1, 1999 in accordance with plan and time schedule without altering the tender price approved in principle, the tax applicable to these contracts is similar to the tax levels issued prior to December 31, 1994. More concretely:

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Contractors supplying goods, services exempt from the above-mentioned turnover tax, who issue sale invoices to request the program and project owners to pay, shall not have to pay VAT and not be entitled to input VAT deduction corresponding to turnover from goods and/or services supply to the programs and projects mentioned above.

4.2. For contracts which are not exempt from turnover tax: from January 1, 1999 the output VAT level for goods and/or services subject to VAT, which are supplied for program and project owners shall be determined as equal to the amount of turnover tax included in the tender price in the Turnover Tax Index of the Law on Turnover Tax from December 31, 1998 backwards.

Contractors supplying goods and/or services who pay VAT by deduction method shall have to account separately the input VAT, the output VAT for the turnover from goods and/or services supplied to programs and/or projects using ODA capital source for deduction. In cases where the input VAT can not be accounted separately, it shall be deducted in accordance with the turnover rate of the goods and/or services supplied to the programs and/or projects using ODA capital source on the total turnover from goods and services sold. In cases where the input VAT is larger than the output VAT, the organizations supplying goods and/or services to the program and/or project owners shall not be entitled to offset the payable VAT on goods and/or services supplied to other objects and shall not be reimbursed the overpaid VAT amount.

Example 1: In 1997, the consultancy contractor B signed a contract with project owner A on the consultancy service provision with the contractual value of USD 1,000,000. By December 31, 1998 the project owner had paid USD 500,000, the contractual value to be paid under the bidding contract signed in 1999 is USD 500,000. When requesting the project owner to pay, the consultancy contractor who pays VAT by deduction method shall use the VAT invoice and write the following thereon:

- The value of the service: USD 480,000

- VAT: USD 20,000 (500,000 x 4%, which is the turnover tax rate for the consultancy operation)

- Total payment value: USD 500,000

Example 2: Similar to example 1, but the consultancy contractor C pay VAT by direct method, when requesting the program and/or project owner to pay, the contractor shall use the sale invoice and write down thereon a payment value of USD 500,000.

4.3. For goods imported for investment, formulation of programs and/or projects:

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+ The written request by the program or project owner.

+ The investment decision, issued by the competent body (the program or project owner submits the original, the Customs Office keeps the notarized copy thereof).

+ The goods import contract, clearly stating the origin of goods and place of goods delivery and reception (the program or project owner submits the original, the Customs Office keeps the notarized copy thereof).

+ Other papers related to the goods import (as prescribed for imported goods).

The Customs Office of the locality where the goods are imported shall base itself on the goods import dossier of the program or project owner to effect the non-collection of VAT, manage and supervise the import goods not liable to VAT of the programs and projects using ODA capital source.

- This Circular takes effect 15 days after its signing. Other contents which are not guided in this Circular shall comply with Circular No. 89/1998/TT-BTC of June 27, 1998 and Circular No. 175/1998/TT-BTC of December 24, 1998 of the Ministry of Finance and the current guiding documents.

If any problems arise in the course of implementation, organizations and individuals are requested to report thereon to the Ministry of Finance for consideration and decision.

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Thông tư 82/1999/TT-BTC hướng dẫn thực hiện thuế Giá trị gia tăng đối với các dự án sử dụng nguồn vốn hỗ trợ phát triển chính thức (ODA) do Bộ Tài chính ban hành