Methods of tax deduction are stipulated in detail in Circular No. 219/2013/TT-BTC (hereinafter referred to as “Circular 219”) guiding the implementation of the Law on VAT. However during the process of implementing Circular 219, plenty of newly established enterprises encountered many entanglements arising from the provisions of this Circular. The Ministry of Finance therefore has promulgated Official Dispatch No. 2616/TCT-CS providing enterprises with guidance on the implementation of the provisions on the application of tax deduction method.

Firstly, in regards of value of assets, machines, equipment purchased or invested by newly established enterprises: Newly established enterprises are permitted to register for voluntary application of tax deduction method when:

• Invoices from the procurement of immovable assets, machines and equipment are worth 1 billion dong or more. In addition, the following invoices are also accepted for incorporation in the total value of procured or invested immovable assets, machines and equipment: (1) purchase invoices of assets being machines and equipment unqualified to be immovable assets; and (2) purchase invoices of tools and instruments; 
• Capital contribution of assets of newly established enterprises is worth 1 billion and up, which are guaranteed to be recorded as the enterprise’s assets.

Secondly, in regards of application of tax deduction method for branches: According to the provisions of Circular 219 on tax deduction method, branches established by an enterprise submitting VAT under the deduction method will be eligible to apply the method of tax calculation as of the operating enterprise (in case the branches make VAT declaration at their direct tax administration). However, if the branches neither conduct direct sales nor generate revenue, they must declare tax altogether at the enterprise’s headquarters. In addition, this regulation also applies to branches established from the enterprise’s investment projects.

Thirdly, in regards of registration for voluntary application of tax deduction method: Enterprises should give careful attention to the following cases:

• Enterprises established from investment projects before January 1st, 2014, currently in the investment phase and having generated no revenue will continue applying tax deduction method in 2014;
• Enterprises founded since January 1st, 2014 and having implemented investment projects are subject to registration for voluntary application of tax deduction method;
• Enterprises established during the time period from January 1st, 2014 to before April 26th, 2014 having an investment project not subject to the granting of approval competence as regulated by laws but the investment plan is approved by one who has the competence to make investment decisions in the enterprise; invested with 1 billion and more; not having yet made any announcements about issuing invoices/not having yet purchased any sales invoices; are subject to registration for voluntary application of tax deduction method.