Ministry Of Finance issues clarification on VAT refunds

The issue of VAT refunds, especially in the case of the export of goods or services, is always a notable area of concern for an export enterprise. Subject to certain conditions, a refund request can be processed on a “refund first and review later” or a “review first and refund later” basis. Both ways lead to potential risks for a company if a refund application is not prepared properly. The previously unclear regulations regarding determining the amount of VAT refund to be requested on a monthly basis in the case of exports triggered both financial costs, from delays in receiving the refund, and costs in terms of the administrative burden to process and follow-up the refund application. Companies also risked being penalised if the refund request amount was more than the approved amount.

In general, companies in Vietnam are only allowed to apply for a VAT refund every three months. However, there is an exception: if input VAT associated with exports equals or exceeds VND200 million ($9,600) , a company can apply for a VAT refund in that month. In the past, there have been varying interpretations among local tax authorities and taxpayers regarding this regulation. To address this and to ensure consistency in implementing this rule, the Ministry of Finance (MOF) has issued OL 14320 (dated October 19 2012). Specifically, based on Article 18, item 2(4) of Circular 6 on VAT, the MOF confirms that the input VAT triggered in a particular month can be declared as a credit to calculate the VAT payable in that month. The VAT refund on a monthly basis applicable for exported goods/services will be allowed only if the input VAT of such goods/services is creditable and still equals or exceeds VND200 million.

For example, imagine with respect to a particular month, a company has goods/services for both export and domestic sales. It has an accumulated creditable input VAT (this includes input VAT carried forward from the previous month, and input VAT for the current month from exported goods/services and goods/services sold domestically) exceeding VND200 million. However, after offsetting against the output VAT from domestic sales for the month and then allocating the remaining creditable input VAT between goods/services exported and domestic sales, if the export- allocated portion is less than VND200 million, the company is not allowed to request a refund in that month and will have to accumulate the VAT credit and wait to request the refund on a quarterly basis. Otherwise, the company is allowed a refund in that month, but only on the export-allocated portion of the creditable VAT.

The formula for the calculation will be as follows:

Step 1: Creditable VAT = (output VAT on domestic sales) – (total accumulated input VAT (input VAT on export and domestic sales, + input VAT carried forward from the previous month))
Step 2: Export-allocated creditable VAT portion = (creditable VAT) x (ratio of export revenue over total revenue)

Illustrated example:

In March 2012, a company has the following VAT-related amounts (in billion VND):

• Input VAT carried forward from previous month: 0.15
• Input VAT triggered during the month (for export and domestic sales): 4.8
• Total revenue: 21.6, of which 13.2 is for export sales and 8.4 is for domestic sales
• Export revenue ratio: 61% (13.2/21.6 × 100%)
• Output VAT on domestic sales: 0.84

The VAT refund will be calculated as below:

1) Creditable VAT: 0.84 – (0.15 + 4.8) = (4.11)
2) Export-allocated creditable VAT portion: 4.11 × 61% = 2.466

Since the creditable VAT allocated for export sales (VND2.466 billion) is more than VND200 million, the company is allowed to request a refund in that month. The rest of the creditable VAT (attributed to domestic sales) of VND1.644 billion will be carried forward.