On 28 January 2022, the Government promulgated Decree No. 15/2022/ND-CP (Decree 15) guiding tax exemption and reduction under the National Assembly’s Resolution No. 43/2022/QH15 on fiscal and monetary policies to support the socio-economic development and recovery program. Decree 15, which entered into force on 1 February 2022, deals with the reduction of 2% for the value-added tax (VAT) rate to certain goods and services currently subject to 10% VAT. It also provides information on deductible expenses in relation to the support and sponsorship of COVID-19 prevention and control for the determination of enterprises’ taxable income.
Since its introduction, Decree 15 has contributed to the rapid recovery of economic activities in Vietnam. However, the implementation of Decree 15 has exposed limitations on the practical application of the regulation. Particularly the requirement of separate invoices for goods and services subject to the VAT reduction is burdensome. Given that, the Ministry of Finance has prepared a draft decree to amend Decree 15 (Draft Decree).
In this update, we set out some key points in relation to the above-mentioned Draft Decree.
Under Decree 15, enterprises are required to issue separate VAT invoices for goods and services which are eligible for the 2% VAT rate reduction. It means that to be entitled to the VAT reduction, an enterprise needs to issue two VAT invoices: one for goods and services subject to the 8% VAT and one for goods and services subject to other VAT rates. In case an enterprise fails to make separate invoices, the VAT reduction will not be applicable.
The above requirement has placed many enterprises in a difficult situation, especially retailers, companies in the Food & Beverage industry, or service providers who have multiple business lines and products and services and need to daily issue an immense number of invoices.
Currently, electronic invoice systems already allow the application of different VAT rates for various goods and services in an invoice (e.g., 5%, 8%, 10%). With the requirement under Decree 15, enterprises may need to adjust their existing systems and processes to provide customers with two different invoices. Further, the volume of invoices issued by enterprises will increase significantly. Accordingly, the expenses and workload will also increase. In addition, the increased number of invoices might also create difficulties to manage, check and control invoices.
Under the Draft Decree, enterprises who apply various VAT rates for their goods and services will be able to issue a combined invoice and still be entitled to the VAT reduction, provided that the corresponding tax rate of each kind of goods and services is clearly stated in such invoice.
The Draft Decree also stipulates that the above regulation will be applied retroactively from the effective date of Decree 15 until the Draft Decree takes effect. This means that in case an enterprise has issued combined invoices, they will not be deemed violating the regulation under Decree 15 and the VAT reduction will still be applied.
The Draft Decree is expected to facilitate enterprises and tax authorities in the implementation of the VAT reduction policy and provide the financial support in the way it was meant to be to overcome difficulties caused by the COVID-19 pandemic.
For more information, please contact:
Phuong Huynh / Senior Associate
Loan Pham / Associate
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This legal update is not an advice and should not be treated as such.
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