Newly established businesses need to pay attention to several issues regarding the application of the value-added tax (VAT) calculation method, the conditions for voluntary registration to apply the VAT deduction method, and the tax calculation.
1. What is the VAT deduction method?
The VAT deduction method has been detailed in the Law on Value-Added Tax (2008, amended and supplemented in 2013), and Circular 219/2013/TT-BTC. Accordingly, the VAT deduction method could be understood as determining the amount of VAT payable by subtracting the output VAT amount from the input VAT amount.
Particularly, output VAT is equal to the total VAT amount recorded on invoices when businesses sell goods and services. Input VAT is the total amount of VAT recorded on the invoice when businesses purchase goods and services.
The nature of VAT is to be levied on the additional value of goods and services that are subject to tax in the process from production, circulation to consumption. Depending on the change in the value of goods and services, the VAT amount will change accordingly. Therefore, when applying the VAT deduction method, businesses will be able to calculate the tax amount payable to the state budget.
2. Conditions for applying the VAT deduction method
Newly established businesses can register to voluntarily apply the VAT deduction method when
- New businesses established from investment projects of existing business establishments pay value-added tax according to the deduction method; or
- Newly established enterprises making investments according to investment projects approved by competent authorities; or
- Newly established businesses with investment projects that are not subject to approval by competent authorities according to the law on investment but have investment plans approved by competent person of the business; or
- Newly established businesses that invest and purchase fixed assets, machinery, equipment with a value of 1 billion VND or more recorded on the purchase invoice of fixed assets, machinery, equipment, including before and after establishment (excluding passenger cars with 9 seats or fewer of business establishments that do not operate transportation, tourism, or hotels).
It should be noted that if a newly established business
- Invoice for purchase of fixed assets, machinery, equipment, but the machinery and equipment do not meet the standards of being fixed assets; or
- Invoice for purchase of tools and equipment
It is still accepted to be included in the total value of fixed assets, machinery, investment equipment, and purchases. If this total value is at least 1 billion VND, the newly established business can register to voluntarily apply the VAT deduction method.
If a newly established enterprise receives a capital contribution in assets, based on the documents for capital contribution to the enterprise
- Minutes of capital contribution for production and business,
- Joint venture and association contracts;
- Minutes of asset valuation of the Council for capital contribution delivery and receipt of capital contributors (or valuation document of an organization with valuation function stated by the Law), accompanied by documents on the origin of assets to incorporate into the total value of fixed assets, machinery, investment, procurement equipment.
If the documents prove that the enterprise receives capital contributions in assets of at least 1 billion VND and ensures the recognition of the enterprise’s assets, the enterprise can register to voluntarily apply the VAT deduction method
Thus, newly established businesses need to pay attention to the conditions for voluntarily registering to apply the VAT deduction method, while ensuring full tax declaration according to the provisions of law. In case an enterprise does not voluntarily register to apply the VAT deduction method, the direct tax calculation method on added value shall be applied.